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PacifiCare's Profit Triples as Costs Drop

August 01, 2003|Debora Vrana | Times Staff Writer

PacifiCare Health Systems Inc. said Thursday that its second-quarter earnings more than tripled as the health insurer cut its medical costs and raised premiums. The company also sharply raised its 2003 profit forecast.

The Cypress-based insurer, one of the nation's largest Medicare health maintenance organizations, said net income climbed to $73 million, or $1.92 a share, from $20.3 million, or 56 cents, during the same period last year. Wall Street analysts had predicted $1.33 a share.

Revenue for the quarter fell slightly to $2.73 billion from $2.77 billion.

"They had a good quarter. Their management has done a good job of turning this around and getting them on the right track," said Edmund Kroll, a health-care analyst at SG Cowen Securities in New York. "Having their medical costs under better control is what got them the results in this quarter."

Chief Executive Howard G. Phanstiel took major steps last year to improve the company's profitability, including exiting markets the company deemed too expensive to insure and dropping costly individuals on the government's Medicare health plan.

That was evident in PacifiCare's medical loss ratio, or the percentage of premium revenue spent on health-care services, which dropped to 83.8% in the latest quarter from 87.5% a year earlier.

The company this year also raised premiums it charges employers by 18%, helping offset its shrinking membership base, which fell to 2.8 million during the quarter from 3.2 million a year earlier.

PacifiCare's latest earnings were buoyed by reserves that the company set aside last year to pay for medical claims, Kroll said.

For the full year, PacifiCare said it now expects to earn $6.45 to $6.55 a share, up from a previous estimate in early February of as little as $4.35.

PacifiCare shares have more than doubled in the last 12 months but on Thursday fell $3.10 to $55.90 on the New York Stock Exchange, part of a broad decline in the managed-care sector.

The company's earnings were announced after the market closed. In after-hours trading, PacifiCare shares rose $1.60 to $57.50.

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