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Maxicare Predicts Loss in Quarter : Blames Red Ink on Acquisition of 2 Money-Losing HMOs

February 24, 1987|JUBE SHIVER Jr. | Times Staff Writer

Acquisition-minded Maxicare Health Plans Inc., which last year bought two money-losing health maintenance organizations, announced on Monday that for the first time it too faces red ink.

The Los Angeles-based health-care company said it expects to report a loss of between $18 million and $22 million for the quarter ended Dec. 31, 1986--the first quarterly loss since the company began operations in 1972, officials said.

In a statement issued by Maxicare late Monday, Fred W. Wasserman, chairman and chief executive, blamed the loss on the $400-million acquisition of HealthAmerica in November and the purchase of HealthCare USA in October for $69 million, as well as on costs related to the discontinuance of Maxicare's 103-bed Culver City hospital.

Officials of Maxicare, which has grown from fewer than 4,500 members to 2.3 million members in 26 states, were unavailable for comment Monday. The company, which had net income of $6.9 million on revenue of $150.2 million in the fourth quarter of 1985, said it expects to release definitive fourth-quarter and year-end 1986 earnings on Friday.

Maxicare reported net income of $26.4 million on revenue of $552.9 million in the first nine months of the year.

The company did not estimate what it expected its year-end results to show, but a fourth-quarter loss as high as $22 million would mean year-end net income of $4.4 million. Maxicare's 1985 net income was $20.4 million.

In trading in the over-the-counter market, Maxicare stock closed at $16.25 a share, down 25 cents before Monday's announcement was made.

The anticipated fourth-quarter loss by Maxicare, which is widely admired on Wall Street as a well-managed company, was unexpected by most analysts.

It raised questions about the ability of Maxicare to quickly repair the financial problems of its two troubled HMO acquisitions at a time when Maxicare is also encountering some resistance to its nationwide expansion efforts.

"I did not expect them to have a loss at all," said Randall Huyser, a health-care analyst for Montgomery Securities investment house in San Francisco. Maxicare, Huyser said, "seems to be still trying to get control over the operations of" HealthAmerica and HealthCare USA.

Last fall, for example, Maxicare fell short of its enrollment goals and attracted fewer than 1,000 of New York City's 425,000 employees during the annual open enrollment season for health-care benefits, despite spending more than $1 million in radio, television and print advertising, according to Donna Gynne, New York City director of employee benefits.

Meanwhile, Maxicare apparently has been unable to rein in losses at HealthAmerica and HealthCare USA despite the use of its vaunted $15-million computer system, which Maxicare officials had hoped would untangle the poor management control system of the two HMOs.

For the six months ended in June, 1986, HealthAmerica--which earned $11 million in 1975--reported a second-quarter loss of $962,000. HealthCare USA lost $7.9 million on revenue of $183 million in 1985.

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