PACIFICARE: Posts Poor Fourth-Quarter Results, Net Loss For 1997
PacifiCare Health Systems Inc. yesterday announced that its 1997 fourth-quarter profits "tumbled about 53% as the managed care company struggled to boost premiums to keep pace with rising medical costs," the Bloomberg News/Los Angeles Times reports. Greg Crawford, an analyst with Fox-Pitt, Kelton Inc. said, "Just about every major [managed care] company has blown up. Any mistake or error in there is magnified by the fact that you're in a very competitive operating environment." Kaiser Permanente and Oxford Health Plans Inc. are two other leading "casualties of an industry-wide slump" that has been forcing "managed care providers to keep premiums down even as health costs were rising."
Don't Say We Didn't Warn You
PacifiCare's fourth-quarter results were in line with company predictions. The company's recent acquisition of FHP International Inc. left it with an unprofitable Utah operating unit, whose losses, officials predicted last November, "would hurt fourth-quarter profit and trim earnings until the unit is sold." The Bloomberg News/Los Angeles Times reports PacifiCare is negotiating with potential buyers of the Utah FHP unit, but the company will shut the unit down if it is unable to close on a deal (3/5). In a company press release, CEO Alan Hoops said, "Much of PacifiCare's difficulty in 1997 can be traced to inadequate commercial pricing and not having effectively implemented capitated contracts in certain of our markets. Over the last six months, we have made great progress in both of these areas."
Good, Bad And Ugly
Operating revenue for the year increased 87% to $9 billion, up from $4.8 billion in 1996. But the company's 1997 net losses were $22 million, compared with 1996 net income of $76 million. Total enrollment in PacifiCare grew 85% in 1997 to 3.8 million, primarily as a result of the FHP acquisition. Medicare and commercial enrollment grew 74% and 92%, respectively. Most of this growth took place in the first three quarters of the year; membership in the final quarter actually decreased 43,000, due primarily to a more disciplined commercial pricing strategy in the California health plans. Operating revenue in the fourth quarter increased 91% to $2.4 billion, compared with $1.2 billion for the same period in 1996. Net losses for the fourth quarter of 1997, however, were $114 million, as compared to a net gain of $32 million in the fourth quarter of 1996. The difference is attributable in part to higher medical costs and to $155 million in fourth-quarter pre-tax charges, according to the company's press release (3/5).