News in brief - Nov. 13, 2000

PacifiCare enters rough seas - Tufts, Mass. hospital group clash - Survey says premiums up 13%

PacifiCare enters rough seas

PacifiCare Health Systems, a California-based HMO that relies heavily on Medicare managed care, is reeling.

With PacifiCare expecting to lose money in the third quarter, the company's stock price is at its lowest, and its president and CEO of three months, Robert O'Leary, just quit. Chief Financial Officer Howard Phanstiel is replacing O'Leary on an interim basis.

The company blamed higher medical costs for the bulk of its problems. Among the problems: conversion from capitation to shared-risk contracts ended up costing PacifiCare $70 million to $75 million more than planned, and medical-loss ratios on its Medicare managed care products are continuing to increase, up to 92%.

The news of the expected loss and O'Leary's departure sent PacifiCare's stock down to a 52-week low of about $10 per share from a 52-week high of $72.31 as recent as mid-June.

Meanwhile, PacifiCare's Colorado unit, which lost $15.8 million last year, is cutting back in 15 mostly rural counties and is cutting ties with Mountain View, a 41-physician primary care group in Colorado Springs.

Tufts, Mass. hospital group clash

Tufts Health Plan and Partners HealthCare are at an impasse over new contract terms, which, if not resolved by April 1, 2001, would shut out Tufts' 925,000 members from Partners hospitals. About 200,000 Tufts members who receive care from Partners-affiliated physicians would have to find new physicians.

The Partners health system, which includes some of Boston's most prestigious hospitals, including Massachusetts General Hospital and Brigham and Women's Hospital, is seeking substantial increases from Tufts. Partners maintains that it ran a 17% deficit on its Tufts contract last year.

Tufts, however, says it cannot meet Partners rate demands without jacking premiums up 20% to 25%.

Survey says premiums up 13%

U.S. employers will see an average 13% jump in health care insurance premiums for their employees next year, according to employee benefits consulting firm Hewitt Associates.

Premiums are expected to rise 10% for PPOs and point-of-service plans, 12% for indemnity plans and 13% for HMOs.

Employers indicated that they plan to pass along about 25% of the cost increase to employees. They also said they will use three-tier prescription drug plans, increase co-payments and drop plans that aren't cost-efficient in an effort to manage their health care costs.