Sierra Health profit exceeds estimates

Michelle Swafford

Tuesday, Feb. 1, 2005 | 10:58 a.m.

Las Vegas-based Sierra Health Services Inc. reported Monday afternoon that its fourth-quarter profit rose more than 400 percent and beat analysts' estimates.

The provider of health maintenance organizations and other health plans reported its net income rose to $27.9 million, or 83 cents per share, in the fourth quarter, compared with $4.8 million, or 15 cents per share, in the year-ago quarter. In 2003, the company faced a loss of $19.2 million from its workers' compensation insurance business, which it sold in 2004.

The most recent results include a one-time gain of $9.2 million in settlement and bid price adjustments on its TRICARE military operations, which managed military personnel's health benefits and ended Aug. 31. But that gain was offset by a $9.5 million expense related to the sale of its workers' compensation business.

Analysts surveyed by Thomson Financial had expected Sierra to earn 77 cents per share.

Sierra's net income from continuing operations in the fourth quarter was $28 million, compared with $24 million in the year-ago quarter.

Sierra's shares rose $2.78 per share, or 5 percent, in mid-morning trading to $57.71 per share on the New York Stock Exchange.

Sierra's revenue declined 11 percent during the fourth quarter to $332.7 million from $373.4 million in the year-ago quarter because of the lost military business, company spokesman Peter O'Neill said.

Despite the overall revenue decline, Sierra increased its premium revenue year-over-year by 21 percent to $295.6 million in the fourth quarter.

"Earnings from our core business in Las Vegas is contributing virtually everything to our earnings now and our earnings are looking very good," O'Neill said.

Sierra increased its 2005 financial guidance to between $3.20 per share and $3.30 per share. The company had previously expected to earn between $3.15 per share and $3.25 per share.

Sierra's average HMO rate increased an average of between 6 percent and 8 percent in the fourth quarter compared with the year-ago quarter, which is in line with the company's costs, O'Neill said. The average preferred provider organization increased an average of between 8 percent and 9 percent in the fourth quarter, he said.

"Because we are such a dominant player, we tend to have favorable rates with almost all of the doctors in town and with all the hospitals in town," O'Neill said. "We have our own medical delivery system with Southwest Medical Associates; 75 percent of all our members choose a doctor at Southwest Medical. That gives us a better ability to keep a handle on those costs."

Sierra operates 13 Southwest Medical Associates clinics, which are a network of physicians that many of its health plan members use. The company also owns two parcels of land to build clinics in southwest and northwest Las Vegas.

As of Dec. 31, the company insured 226,200 people on its commercial plans, which is up nearly 12 percent from 202,400 people at the end of 2003.

In January, the company increased its membership 4 percent, which is halfway to the company's 2005 membership growth projection of eight percent, O'Neill said, adding that 94 percent of the company plans that expired last month opted to renew.

"While we're providing affordable solutions to large employers, we really are making a difference to the small and mid-size businesses moving to the city," he said.

The number of people Sierra insured with its Medicare Advantage, formerly called Medicare + Choice, plans increased slightly in the fourth quarter to 53,300 people from 51,200 people in the year-ago quarter. Medicare Advantage offers benefits than traditional fee-for-service Medicare.

"It went up but it didn't go up anywhere near what we thought it would go up," O'Neill said.

The number of people on Medicare Advantage plans increased 3.5 percent, but the company expected an increase of between 9 percent and 10 percent, he said.

"Last year there was a lot of political rhetoric around the Medicare program," he said. "Seniors were confused about the drug cards. Most seniors wanted to stay put and keep the plan they have until the dust settled."

Sierra expects to increase the number of people insured with Medicare Advantage by 5 percent to 8 percent this year.