PacifiCare stock tumbles on news of fines

Friday, March 2, 2001 | 11:22 a.m.

SUN STAFF AND WIRE SERVICES

The stock of PacifiCare Health Systems Inc., a big Nevada health insurer, plunged 21 percent Thursday on reports that the health insurer faces fines in California and Texas for late payments to doctors and hospitals.

News that California's Department of Managed Health Care was dispatching an onsite examiner to monitor Santa Ana, Calif.-based PacifiCare's payments was first reported in February by various publications.

The action largely escaped investors' notice, however, until Thursday, when columnist Joe Kernen mentioned the stock on CNBC-TV's "Winners and Losers" segment.

Merrill Lynch analyst Roberta Goodman issued a report saying "a very cautious stance is warranted on (PacifiCare Health) shares" because of the recent regulatory actions.

Both CNBC and Goodman cited a recent article in the Sacramento Business Journal about PacifiCare. According to Goodman, PacifiCare Health has agreed to a corrections plan, and will hire 72 additional employees to process claims as well as employ an outside claims-processing vendor.

Besides the problem in California, the Wall Street Journal today reported that the Texas Department of Insurance put PacifiCare under "administrative oversight" because of late payments and other problems.

While the company may face fines or other penalties, they are likely to be financially insignificant.

Analysts and investors appear to be more concerned about whether PacifiCare is on top of its financial situation.

With medical costs rising rapidly, health plans must carefully track cost trends in order to price future business high enough to avoid future losses, the Journal reported.

In Las Vegas, PacifiCare of Nevada said it isn't likely to face such regulatory actions because it hasn't violated a Nevada law that requires claims to be processed within 30 days.

"We take about 27.54 days to pay claims in Nevada, and there is no claims backlog here," said Kayla Arnesen, PacifiCare spokeswoman. "The regulatory issue in California is an isolated one and the claims backlog there is due to a rapid shift or change in the way PacifiCare pays many of its contracted doctors and hospitals."

PacifiCare has 90 employees in Las Vegas and about 67,000 Nevada customers.

"California has had to make a rapid and almost overnight shift away from capitation -- which refers to a payment method where a health plan pays a provider a fixed fee to provide healthcare services for its members -- to a claims-based payment, which means the provider has to submit a claim for every patient visit," Arnesen said.

"Under the claims-based payment method, the volume of claims increases significantly. Another factor adding to the claims volume in California is the fact that we have two to three million members," she said.

PacifiCare expects to clear the claims backlog in California by end-March and to bring the company into full compliance with California's regulations, Arnesen said.

"We don't expect to face the same backlog here in Nevada because the claims-based payment method has been in place for over several years now," she said. "PacifiCare has had a contract with IPA Management company, an administrator for PacfiCare, which processes claims for us and handles contracts with the doctors, for several years now. We didn't just make a sudden change in our payment method."

PacifiCare stock, which fell $8.22 to $30.91 Thursday, rebounded a little this morning to $32.44.