PacifiCare Profit Falls 5% on Medical Costs

PacifiCare Health Systems Inc. blamed higher medical costs for a 5% decline in first-quarter profit, but the Cypress-based healthcare provider still raised its earnings forecast for the full year.

PacifiCare reported net income of $67.0 million, or 71 cents a share, compared with $70.8 million, or 96 cents, for the same period a year earlier. The latest results surpassed Wall Street’s expectations by 8 cents a share.

The company said premium hikes helped push total revenue for the quarter to $2.96 billion, up 8% from $2.74 billion a year earlier.

However, rising hospital, physician and pharmaceutical costs -- a problem felt across the insurance industry -- ate into profit for PacifiCare.

Still, the company said membership growth allowed it to hike its earnings guidance for the year to a range of $3.07 to $3.17 a share, up from its earlier estimate of $2.95 to $3.05.

PacifiCare gained more than 40,000 members in its commercial and Medicare plans during the first quarter, and the increase was particularly strong in its small group plans.

“No question, I’m pleased with the first-quarter performance of our commercial business,” Chief Executive Howard Phanstiel told analysts during a conference call Thursday. “Overall, I’m enthused about our strong start for 2004.”

Noting the uptick in merger activity among health insurers, Phanstiel said PacifiCare had turned itself around and was in position to possibly grow by making an acquisition.

“I’d like to think we’ve made enough progress now that we have the team and we have the financial strength ... we would need to do an acquisition,” he said. “We will continue to be in the hunt and look for opportunities.”

PacifiCare has more than 3 million health plan members and about 9 million specialty plan members nationwide.

The company’s shares fell $1.05 on Thursday to $39 on the New York Stock Exchange.