In Focus

Riding PacifiCare's Wave?

NOTE: For the month of July, we decided to feature publicly traded companies from the states in which a few of the Chicks in our club roost. Following Georgia, Ohio and Minnesota, it's now time to spend a week out west! Welcome to California, featuring many a company on the Forbes 500 list. Grab your sunscreen and shades, lay back on your beach towel and get ready to learn a bit more about Intel, Hewlett-Packard, PacifiCare Health Systems, Charles Schwab, Walt Disney and Apple Computer.

I've been healthy my whole life. I never really paid much attention to my health care benefits, even when I worked for a health insurance company during my first "real" job after college (that front desk supervisor position at the health club wasn't cuttin' the mustard). But now that I'm pregnant, healthcare benefits mean more to me than I ever imagined. With monthly visits and blood work, how my employer's health insurance provider is going to cover those costs will impact our budget more than I ever thought possible. OK, so I'm a Chick - I should have been prepared, right? Well, that's why when Karin asked me to choose a California company for my next article, I opted for PacifiCare Health Systems, Inc. (Nasdaq: PHSY).

For Chicks who live in Arizona, California, Colorado, Nevada, Oklahoma, Texas, Washington and in the Asia Pacific, you may already know how PacifiCare Health Systems is meeting your Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), Point of Service (POS) and Medicare needs. Additionally, PacifiCare Health Systems offer services including behavioral health, dental, and vision coverage, as well as pharmacy benefits management. As of March 31, 2001, PacifiCare Health Systems boasted 3.7+ million members and annual revenue of 10 billion dollars - that's right, Chicks, that's a "B" for Big Bucks!

At the end of PHSY's fourth quarter 2000, Chief Executive Officer, Howard Phanstiel, announced a three-legged strategy that would continue to increase earnings to beat analysts' estimates and shift PHSY's reputation from an HMO-focused organization to a company that would center on diversifying its services offered to PHSY members. Phanstiel expected PacifiCare Health Systems to restore 2001 earnings; offer Medicare supplemental options and expand the reach of its pharmacy benefit management; and delve into the clinical drug trials arena.

It appears that PacifiCare Health Systems is meeting Phanstiel's prophecy with respect to the health consumer services transformation. This past June, PacifiCare Health Systems chose HealthAtoZ as its web-based solutions provider for PHSY members. Insureds will have secure access to online goodies such as wellness promotion, specific health concerns, check-up and immunization recommendations, and they can even create a family health calendar that sends e-mail reminders. In July, PHSY selected CareWise, Inc., a leading provider of health care demand and disease management services, to provide the CareWise® nurse phone line and Live Assist(TM) Internet chat feature. PacifiCare Health Systems hopes this venture will aid and empower its members with medical information over the telephone and on the Internet, around the clock.

But with respect to the earnings piece, as of this article's writing, PacifiCare Health Systems has not met analysts' nor PHSY's own estimates. Projections anticipated PHSY to earn a net income of $99 million for year ending Dec. 31, 2001; however, PacifiCare Health Systems may be lucky to reach $59 million. Phanstiel cites increased healthcare costs in California only as part of the problem.

"With the exception of California, all of the company's other businesses, including our specialty companies, are meeting our expectations for the year," he said. "We continue to make good progress in our turnaround. We are taking a number of actions to address the situation in California. Actions we are taking in California include strengthening operations, securing adequate premium increases for the commercial business yet to be renewed this year and continuing this activity into 2002, and focusing on enrollment in our disease management programs, which is proceeding ahead of plan so far this year. Other medical management initiatives as well as hospital recontracting initiatives are expected to yield results in the latter part of the year." (Read more.)

Despite Phanstiel's optimism, this Chick cruised some more websites in search of the gnarly numbers sure to excite any California surfer or possible Chick investor. But, much to my chagrin, PHSY's Income Statement for Quarter Ending March 31, 3001 is a wipeout.

* Numbers obtained from the following links: Income Statement, Balance Sheet.

Prior to working for PacifiCare Health Systems, CEO Phanstiel was responsible for expanding his former employer's, ARV Assisted Living, Inc., membership into 16 new communities. Let's hope that he is able to lead one of the nation's largest healthcare services companies, ranked #169 in the Fortune 500 over this tidal wave without crashin' and burnin' by the end of this year.