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Despite 4th-Quarter Plunge, PacifiCare Upbeat on 2001

February 07, 2001|From Bloomberg News

PacifiCare Health Systems Inc., the biggest U.S. operator of Medicare health plans, said Tuesday that fourth-quarter profit fell 82% as medical costs rose and it took a restructuring charge.

The shares rose as much as 21% in after-hours trading after the company said 2001 earnings will beat expectations.

Net income fell to $12 million, or 35 cents a share, from $66.4 million, or $1.59, a year earlier, PacifiCare said in a news release distributed by PR Newswire after U.S. markets closed. Revenue rose 15% to $2.9 billion from $2.6 billion.

Santa Ana-based PacifiCare has faced higher medical costs for customers covered by employer health policies and by its Medicare health plans. Doctors also are demanding that new contracts pay them for the actual cost of care rather than fixed fees for patients.

"Given those two issues, I think the company still has a tough year ahead," ABN Amro Inc. analyst Peter Costa said before earnings were released.

PacifiCare said it expects to earn $2.90 to $2.95 a share this year, and predicted 15% to 20% growth in earnings per share in 2002 and beyond. Estimates of analysts surveyed by First Call/Thomson Financial had ranged from a loss of $2.18 a share to a profit of $2.30. The average estimate was 87 cents.

The company had been expected to earn 20 cents a share in the fourth quarter.

In regular trading, the shares fell 75 cents to close at $24.75 on Nasdaq. The shares have lost nearly half their value in the last 12 months.

PacifiCare said first-quarter profit should be about 35 cents a share and increase in the following three quarters because of higher premiums and greater Medicare reimbursements that take effect March 1.

The company said it had about 4 million customers as of Dec. 31, a 9.6% increase from 1999. About 1 million of them are in Medicare health maintenance organizations.

During the quarter, PacifiCare said, it cut its full-time work force by 6%; reduced marketing costs after capping enrollment in 42 of the 101 counties where its Medicare HMOs operate; and exited employer health plan markets in Colorado and Texas. It also raised premiums 7% from a year earlier.

Chief Executive Howard Phanstiel said the cost cuts and premium increases are part of an effort to make PacifiCare less dependent on Medicare. He said the company could leave the government program for the elderly after this year if funding isn't increased.

The company this year will expand its preferred-provider organizations and offer a women's health network, low-cost insurance plans and Medicare supplemental insurance, Phanstiel said.

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