PacifiCare’s Net Income Rises 73%

PacifiCare Health Systems Inc., a leading U.S. managed-care company, said Wednesday that cost cutting helped lift its net income 73% in the third quarter.

The company earned $53.2 million, or $1.16 a share, in the three months, up from $30.8 million, or 67 cents a share, in the same period a year earlier.

Excluding pretax charges, PacifiCare earned $63 million, or $1.38 a share, which topped the $1.18 a share estimated by analysts in a survey by First Call, a research firm. Analysts usually leave out one-time charges when formulating such estimates.

Revenue was flat at $2.4 billion as the Santa Ana-based company concentrated on trimming membership and reducing costs.

The HMO operator has done better than its peers at keeping medical costs down, in part by requiring physicians to assume some risk for the cost of patient care in exchange for fixed monthly payments. PacifiCare shares have climbed 55% this year, while rivals Foundation Health Systems Inc. and United HealthCare Corp. tumbled as they were hurt by cuts in the government’s Medicare health insurance program for the elderly.

“The numbers were really strong,” said Greg Crawford, a Fox-Pitt Kelton analyst with an “attractive” rating on the shares. “The structure of PacifiCare’s contracting makes it less vulnerable than other HMOs to volatility in Medicare earnings.”

The quarter’s performance was “a direct result of our adherence to a strategy of pricing discipline and cost control,” said Alan Hoops, PacifiCare’s president and chief executive.

PacifiCare membership was down 5% to about 3.6 million from a year earlier as it has moved to streamline operations. It recently sold its struggling Utah health maintenance organization.

The company, which operates in nine states and Guam, plans to stop doing business in certain geographic areas by Jan. 1, after which it expects to return to membership growth.

The fifth-largest U.S. managed-care provider said it learned its lessons in 1997, when it disappointed Wall Street with earnings that were well below expectations. In late 1996, it acquired FHP International Inc. for $2.2 billion, which held back earnings as PacifiCare struggled with high medical costs and inadequate premiums.

The company’s shares fell from near $100 in early 1996 to half that by November 1997. On Wednesday, the Class B shares closed up $2.13 at $81.50 in trading on the Nasdaq market.