PacifiCare Closing Midwest HMO

Health maintenance organization PacifiCare Health Systems Inc. said Wednesday it was closing its managed-health-care unit in Ohio and Kentucky, where it has more than 60,000 customers, to concentrate on operations in the Western states.

The pullout is expected to result in a charge of $3 million to $4 million, or 5 to 6 cents a share, in the second quarter to cover severance and costs for surrendering its licenses, PacifiCare said.

The company, based in Santa Ana, said it expects second-quarter earnings, excluding charges and gains, to be comparable to the $1.94 a share reported for the first quarter, when it posted operating earnings of $117 million. Full-year earnings per share should rise 25% from 1999’s $6.23 a share, the company said.

PacifiCare previously announced plans to quit its Midwestern Medicare HMO business and decided that a simultaneous exit from its commercial lines made the most sense, company spokesman Ben Singer said.

The company entered an agreement with Anthem Blue Cross and Blue Shield, permitting Anthem to provide comparable health-care coverage for commercial members affected by the departure. The transition will proceed in the coming months, with PacifiCare’s exit finalized by year-end.

Medicare HMO members can switch back to traditional Medicare, find a new carrier or take on supplemental insurance.

The company’s shares fell $1.69 to $67.38 on Nasdaq, well off their 52-week high of $91.38 reached exactly a year ago today. Still, the stock as rallied from $41 in January. HMO shares in general have gained on optimism about rising premiums and higher earnings.

At the end of March, PacifiCare had about 4 million members in California, Arizona, Colorado, Nevada, Ohio, Kentucky, Oklahoma, Oregon, Texas, Washington and the Asia-Pacific islands of Guam and Saipan.

The withdrawal from Ohio and Kentucky will affect about 54,400 members in HMO and other health insurance programs, and 6,300 members of Secure Horizons, the big Medicare HMO, as well as 49 employees who will either join Anthem or receive severance packages.

In January PacifiCare announced plans to cut 450 jobs, or about 5% of its work force, as it moved to consolidate corporate and regional functions.

In February Alan Hoops, PacifiCare’s 52-year-old president and chief executive, said he would retire from both posts by March 31, 2001, but would stay on during the search for a successor.