PacifiCare Second Quarter Profits Drop 78%, Answers Bankruptcy Queries
PacifiCare Health Systems Inc. yesterday announced second quarter net income of $15.3 million, a 78% decline from net income of $69.2 million during the same quarter last year, the Wall Street Journal reports. PacifiCare stock fell 10 cents to $12.37 yesterday, down from a 52-week high of $68.69 last August. The announcement comes after "alarms sounded" last week when a $1 billion financing package that was to be used to pay off PacifiCare's nearly $700 million debt fell through, and an analyst issued a report saying the company was "headed to bankruptcy court" (Rundle, Wall Street Journal, 8/1). PacifiCare CEO Howard Phanstiel "dismissed" report. He said, "Let's remember that PacifiCare is making money. We've improved cash flow and paid down debt. That doesn't sound to me like a company that's in serious financial distress" (Bloomberg News/Los Angeles Times, 8/1). Second-quarter revenue climbed 3% to $2.97 billion from $2.88 billion. The Journal reports that the company is "under a cloud" because it is the nation's largest Medicare+Choice contractor. PacifiCare expects Medicare payments to rise 2% to 3% next year, while costs for the program are expected to be up 8% to 10%. Phanstiel said that for every dollar spent on traditional Medicare benefits, the government is paying a "miserly" 88 cents for Medicare+Choice beneficiaries (Wall Street Journal, 8/1). He added that the company could raise premiums 15% to 17% next year.
Some analyst and industry experts believe that the federal government could offer some financial help this year. Prudential Securities analyst David Shove said, "I don't think they're going to go bankrupt because the government won't leave Medicare members high and dry. But I think they need help, and they need it pretty soon" (Bloomberg News/Los Angeles Times, 8/1). According to Karen Ignagni, president of the American Association of Health Plans, there is a "growing sense" that Congress will move to "better balance payments to traditional Medicare and to HMOs like PacifiCare." Still, Phanstiel says that the company will not rely on "relief" from the government. Instead, PacifiCare is attempting to "reinvent" itself "as a smaller company" even if their Medicare+Choice plan folds. The company has a "five-year plan" that includes doubling the size of the company's commercial health plan business, expanding its pharmacy benefits management operations and offering more services to the elderly, "including housekeeping assistance and financial planning." Meanwhile, the company is negotiating with Bank of America Corp. to get a credit extension until it can "secure permanent financing" to help pay off its debts (Wall Street Journal, 8/1).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.