PacifiCare’s First-Quarter Profit Falls 82%
PacifiCare Health Systems Inc., the largest U.S. operator of Medicare+Choice plans, said Wednesday that its first-quarter profit fell 82% -- still exceeding analysts' expectations -- with medical costs rising after the company renegotiated contracts with doctors and hospitals. Net income fell to $13.1 million, or 39 cents a share, from $74.6 million, or $2.04 a share, a year earlier. Revenue rose 7.2% to $3.03 billion, while health care costs "jumped" 13% to $2.7 billion. PacifiCare shares closed at $37.39, down 7 cents (Bloomberg News/Los Angeles Times, 5/3). According to company officials, PacifiCare's ratio of medical costs to premiums "shot up" to 90.2% from 85.1% a year earlier, which the insurer said was due to the federal government's "failure to increase premiums" for Medicare+Choice plans "at a rate consistent with rising medical inflation," as well as higher costs that the company "didn't anticipate." PacifiCare said that the shift in contracts with doctors and hospitals "means that the company, rather than its contracted providers, must absorb much of the risk for rising costs" (Wall Street Journal, 5/3). However, PacifiCare plans to leave unprofitable markets and increase HMO premiums to help "control costs" (Bloomberg News/Los Angeles Times, 5/3). Premiums on managed care contracts are expected to rise between 15% and 20% this year (Wolfson, Orange County Register, 5/3). "We continue to make progress on our two-year turnaround plan with another quarter slightly ahead of our guidance," PacifiCare President and CEO Howard Phanstiel said, adding that the company "continues to strengthen its medical management to improve medical outcomes and better control costs." At the end of Q1, PacifiCare's HMO membership tallied 3.7 million, down from four million a year earlier (Wall Street Journal, 5/3).