PacifiCare Stock Falls in Wake of State Regulatory Action
Shares of Santa Ana-based PacifiCare Health Systems Inc. fell $8.22 to $30.91 last Thursday after investors learned that the California Department of Managed Health Care had imposed regulatory penalties on the HMO for making late payments to thousands of doctors and hospitals, the Wall Street Journal reports. While PacifiCare faces a $250,000 fine and must pay $3 million in interest on the late claims, analysts cited a "bigger concern" -- whether the HMO "is really on top of [its] business" (Rundle, Wall Street Journal, 3/2). In addition, analysts questioned whether Pacificare could "meet profit targets," adding that the penalty "may hurt company earnings." Merrill Lynch & Co. analyst Roberta Goodman said, "[The DMHC action] raises questions about costs, and it also raises questions about how well they can underwrite and price their business if they haven't been paying their claims" (Bloomberg News/Oakland Tribune, 3/2). Last week, PacifiCare announced it had reached an agreement with the DMHC to pay penalties and interest on the delinquent payments. The HMO also admitted to violating state law by failing to pay 7,000 claims within 45 working days, blaming the late payments on the company's "rapid shift" from a capitation payment system to a fee-for-service system. PacifiCare said it has begun to correct problems with its claims processing system, including upgrading its information system and hiring 72 claims processors. The company said that it plans to pay the penalties plus interest by the end of the month (California Healthline, 3/2).