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Health Net posts plunge in profit, strikes deal with California

Investors cheer the deal, which ends the insurer's litigation over reimbursement, extends Medi-Cal contracts and promises extra payments if new programs lead to unexpectedly big losses.

November 06, 2012|By Chad Terhune, Los Angeles Times

Woodland Hills insurer Health Net Inc. said third-quarter net income plunged 71%, but its shares rose as the company resolved a dispute with California officials over reimbursement for government health programs.

Health Net disappointed investors in August when it slashed its full-year profit outlook and reported higher-than-expected medical costs. On Monday, Chief Executive Jay Gellert said the company was making progress on its turnaround plans. He cited a wide-ranging agreement with California healthcare officials as a major step forward.

Investors cheered the news, bidding up Health Net shares by $3.03, or 13%, to $25.71.

The deal with the California Department of Health Care Services ended company litigation over government reimbursement. As part of the agreement, Health Net said, the state will extend four existing Medi-Cal contracts by five years and provide additional payments if the company incurs larger-than-expected losses as new government programs get underway next year.

Medi-Cal is the state's Medicaid program for the needy, elderly and disabled.

In Los Angeles and San Diego counties, Health Net plans to participate in a closely watched program aimed at improving care and lowering costs for many chronically ill patients who are enrolled in both Medicare and Medicaid, known as dual-eligible patients. California is expected to launch that pilot program by the middle of next year.

"The early stages of these programs can produce volatile and unpredictable financial results," Gellert said on a conference call with analysts and investors. "We are poised for Medicaid growth with downside protection" under the new agreement with the state.

Jane Ogle, a deputy director of the state's healthcare services agency, said the agreement "establishes the framework for stability in our long-term relationship with Health Net."

The company reported third-quarter net income of $18 million, or 22 cents a share, down from $61.8 million, or 70 cents, for the same period last year. Revenue was $2.78 billion, up 3.3% from a year earlier.

Health Net's commercial business continued to shrink as it shed more unprofitable employer accounts. Employer and individual enrollment fell to 1.3 million, down 9.5% from a year earlier. Meanwhile, Health Net's Medicaid enrollment jumped 8.2%, to 1.1 million.

Health Net said one encouraging sign was employers' continued interest in the company's narrow network plans, which offer lower premiums and provide access to a more limited number of hospitals and doctors.

chad.terhune@latimes.com

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