Exhibit 99.1
5995 Plaza Drive Cypress, California 90630 Tel. (800) 631-0969 |
News Release
CONTACT: | Tyler Mason | Dan Yarbrough | ||
Media Relations | Investor Relations | |||
(714) 226-3530 | (714) 226-3540 | |||
tyler.mason@phs.com | dan.yarbrough@phs.com |
PacifiCare Health Systems Announces
3rd Quarter 2005 Results
• | Q3 EPS was $1.21 per diluted share, up 29% from prior year |
• | Net income totaled $118 million, up 34% from Q3 2004 |
• | Commercial MLR improved by 220 basis points year-over-year |
• | Total senior membership up 7% from prior year |
CYPRESS, Calif., October 27, 2005 —PacifiCare Health Systems, Inc. (NYSE: PHS), today announced that reported net income for the third quarter ended September 30, 2005 was $118 million, or $1.21 per diluted share. This compares with reported net income of $88 million, or $0.94 per diluted share, for the third quarter of 2004. Results in the quarter were favorably impacted by $17 million after taxes, or $0.17 per diluted share, in federal income tax settlements and legal matters either settled or reserved. Offsetting this, the company incurred costs totaling $9 million pre-tax, or $0.06 per diluted share, in one-time items related to the proposed merger with UnitedHealth Group, as well as $13 million pre-tax, or $0.08 per diluted share, associated with Medicare Part D readiness.
“We experienced solid year-over-year growth with our third quarter earnings, which were ahead of consensus expectations and our guidance after excluding the one-time items, and Part D
readiness costs,” said Chairman and Chief Executive Officer Howard Phanstiel. “This year-over-year earnings growth was driven by higher senior and commercial membership, and a 220 basis point decrease in the commercial medical loss ratio.”
Revenue and Membership
Third quarter 2005 total operating revenue of $3.8 billion was 21% higher than the same quarter a year ago. Total commercial revenue rose 22%, driven by an 8.6% rise in premiums per member per month (PMPM) and 14% growth in fully insured and ASO membership, including the acquisitions of American Medical Security Group (AMS) and the group health business of Pacific Life Insurance Company. Senior revenue grew 19% over the third quarter of last year, primarily as the result of a premium increase of 11.9% PMPM and a 7% rise in membership.
Specialty and Other revenue grew 34% over the third quarter last year, primarily as the result of membership growth and increases in retail service contract and mail order fulfillment revenues at PacifiCare’s pharmacy benefit management company. Additionally, membership increased year-over-year at PacifiCare’s behavioral health and dental and vision businesses by 27% and 43%, respectively.
Health Care Costs
The private sector commercial medical loss ratio (MLR) in the third quarter improved 220 basis points from the prior year, to 81.3%. This improvement was driven primarily by business mix changes resulting from the AMS and Pacific Life transactions. The MLR for same store membership was flat year-over-year as a result of the company’s strategy of increasing premiums at levels equivalent to health care cost trends.
The government sector senior MLR improved by 20 basis points year-over-year, to 84.7%, and by 280 basis points sequentially primarily as a result of the receipt of higher than expected risk-adjustment payments related to its Medicare Advantage business.
The consolidated MLR of 82.9% was 120 basis points lower than the third quarter of the prior year.
2
Selling, General & Administrative Expenses
The SG&A expense ratio of 14.2% in the third quarter of 2005 was 120 basis points higher than the third quarter of 2004 and 80 basis points higher sequentially. The year-over-year increase was primarily a result of changes in business mix related to the acquired AMS and Pacific Life business, as well as costs incurred in connection with the company’s preparations to administer the new Medicare Part D benefit, and expenses related to the proposed merger with UnitedHealth Group. The sequential increase is primarily attributable to increased spending related to Part D readiness, the proposed merger, staffing growth at the PBM, a full quarter’s impact of the Pacific Life acquisition, and incentive compensation accruals reflective of improved operating results.
Other Financial Data
Medical claims and benefits payable (MCBP) totaled approximately $1.3 billion at September 30, 2005, which was an increase of approximately $58 million from the prior quarter.
Days claims payable for the third quarter compared to the prior quarter increased slightly to 39.5 days from 38.8 days. After excluding the non-risk, capitated portion of the company’s business, as well as other non-claim related liabilities, days claims payable decreased by three tenths of one day from 66.7 to 66.4 days.
Cash flow from operations in the third quarter of 2005 was $928.7 million. This includes the positive effect of certain large items in the quarter, including the early receipt in September of approximately $500 million from the Centers for Medicare and Medicaid Services (CMS) representing PacifiCare’s October payment. Additionally, accounts receivable decreased due to the collection of receivables from CMS.
Conference Call, Webcast and Website Information
PacifiCare will host a conference call and webcast on Thursday, October 27, 2005 at 8:30 AM Pacific time, 11:30 AM Eastern, to discuss this release in further detail. Interested parties can access the live conference by dialing (877) 601-3546, password “PacifiCare”. A replay of the
3
call will be available through November 18, 2005 at (800) 234-2685. Additionally, a live webcast of the call will be available at www.pacificare.com. Click on Investor Relations, and then Conference Calls to access the link. In accordance with Regulation G, a reconciliation of GAAP results to any non-GAAP measurements referred to in this release and during the conference call will be posted with the earnings press release on our website.
Risk Factors Regarding Forward-Looking Statements
The statements in this news release that are not historical facts are forward-looking statements within the meaning of the Federal securities laws, and may involve a number of risks and uncertainties. Such forward-looking statements include, but are not limited, to the company’s expectations regarding financial results, including earnings, for the full-year 2005. Important factors that could cause results to differ materially from those expected by management include, but are not limited to, failure to implement programs to achieve expected membership, revenue or earnings targets as a result of adjustments to premiums or benefits; the inability to execute strategies related to cost controls, including medical management programs; actual medical claims differing from current estimates; the inability to maintain required capital levels at the company’s regulated subsidiaries; the inability to maintain profitability and growth levels at the company’s specialty businesses; provider contractual or financial problems or bankruptcy; unexpected increases in competition; new regulations or laws relating to capitation; Medicare reimbursements, benefit mandates, service, utilization management, provider contracts and similar matters; and the inability to comply with existing bank covenants. Additional information on factors, risks, and uncertainties that could potentially affect our financial results may be found in documents filed with the Securities and Exchange Commission.
PacifiCare Health Systems is one of the nation’s largest consumer health organizations with approximately 3.3 million health plan members and approximately 12 million specialty plan members nationwide. PacifiCare offers individuals, employers and Medicare beneficiaries a variety of consumer-driven health care and life insurance products. Specialty plan operations include behavioral health, dental and vision, and complete pharmacy benefit management through its wholly owned subsidiary, Prescription Solutions. More information on PacifiCare Health Systems is available atwww.pacificare.com.
4
PACIFICARE HEALTH SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In thousands, except per-share amounts) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Revenue: | ||||||||||||||||
Commercial | $ | 1,731,062 | $ | 1,419,140 | $ | 4,976,111 | $ | 4,219,045 | ||||||||
Senior | 1,763,833 | 1,480,778 | 5,021,313 | 4,332,078 | ||||||||||||
Specialty and other | 242,668 | 181,199 | 694,816 | 501,891 | ||||||||||||
Net investment income | 32,879 | 24,509 | 95,281 | 64,183 | ||||||||||||
Total operating revenue | 3,770,442 | 3,105,626 | 10,787,521 | 9,117,197 | ||||||||||||
Expenses: | ||||||||||||||||
Health care services and other: | ||||||||||||||||
Commercial | 1,415,012 | 1,192,632 | 4,071,329 | 3,559,411 | ||||||||||||
Senior | 1,493,221 | 1,257,631 | 4,333,357 | 3,730,703 | ||||||||||||
Specialty and other | 139,735 | 101,678 | 409,488 | 276,170 | ||||||||||||
Total health care services and other | 3,047,968 | 2,551,941 | 8,814,174 | 7,566,284 | ||||||||||||
Selling, general and administrative expenses | 528,951 | 401,050 | 1,453,811 | 1,142,525 | ||||||||||||
Operating income | 193,523 | 152,635 | 519,536 | 408,388 | ||||||||||||
Interest expense, net | (19,611 | ) | (10,182 | ) | (55,117 | ) | (31,852 | ) | ||||||||
Income before income taxes | 173,912 | 142,453 | 464,419 | 376,536 | ||||||||||||
Provision for income taxes | 55,802 | 54,285 | 168,026 | 145,343 | ||||||||||||
Net income | $ | 118,110 | $ | 88,168 | $ | 296,393 | $ | 231,193 | ||||||||
Weighted average common shares outstanding used to calculate basic earnings per share | 86,808 | 83,691 | 86,373 | 84,296 | ||||||||||||
Basic earnings per share | $ | 1.36 | $ | 1.05 | $ | 3.43 | $ | 2.74 | ||||||||
Weighted average common shares and equivalents outstanding used to calculate diluted earnings per share | 97,896 | 94,492 | 97,405 | 95,416 | ||||||||||||
Diluted earnings per share | $ | 1.21 | $ | 0.94 | $ | 3.06 | $ | 2.44 | ||||||||
OPERATING STATISTICS | ||||||||||||||||
Medical loss ratio: | ||||||||||||||||
Consolidated | 82.9 | % | 84.1 | % | 83.7 | % | 84.7 | % | ||||||||
Private - Commercial | 81.3 | % | 83.5 | % | 81.4 | % | 83.8 | % | ||||||||
Private - Senior | 74.1 | % | 69.5 | % | 75.4 | % | 72.4 | % | ||||||||
Private - Consolidated | 81.2 | % | 83.2 | % | 81.4 | % | 83.6 | % | ||||||||
Government - Senior | 84.7 | % | 84.9 | % | 86.3 | % | 85.9 | % | ||||||||
Selling, general and administrative expenses as a percentage of operating revenue (excluding net investment income) | 14.2 | % | 13.0 | % | 13.6 | % | 12.6 | % | ||||||||
Operating income as a percentage of operating revenue | 5.1 | % | 4.9 | % | 4.8 | % | 4.5 | % | ||||||||
Effective tax rate | 32.1 | % | 38.1 | % | 36.2 | % | 38.6 | % | ||||||||
PACIFICARE HEALTH SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In thousands) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Operating activities: | ||||||||||||||||
Net income | $ | 118,110 | $ | 88,168 | $ | 296,393 | $ | 231,193 | ||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation and amortization | 15,961 | 12,686 | 46,567 | 37,407 | ||||||||||||
Stock-based compensation expense | 7,740 | 7,445 | 23,719 | 27,822 | ||||||||||||
Tax benefit realized for stock option exercises | 1,848 | 2,618 | 23,339 | 15,982 | ||||||||||||
Amortization of intangible assets | 5,461 | 4,946 | 16,318 | 14,839 | ||||||||||||
Deferred income taxes | 30,723 | (1,122 | ) | 4,951 | 32,899 | |||||||||||
Amortization of capitalized loan fees | 1,037 | 1,077 | 3,113 | 3,232 | ||||||||||||
Amortization of notes receivable from sale of fixed assets | — | (1,421 | ) | (2,626 | ) | (4,172 | ) | |||||||||
Provision for (recovery of) doubtful accounts | (1,518 | ) | 1,601 | (2,582 | ) | 425 | ||||||||||
Amortization of discount on 10 3/4% senior notes | 529 | 71 | 977 | 213 | ||||||||||||
Loss on disposal of property, plant and equipment | 668 | 2,325 | 767 | 2,749 | ||||||||||||
Amortization of deferred gain | (175 | ) | — | (175 | ) | — | ||||||||||
Changes in assets and liabilities, net of effects of acquisitions: | ||||||||||||||||
Receivables, net | 78,240 | 9,645 | (6,102 | ) | (41,555 | ) | ||||||||||
Prepaid expenses and other assets | (2,442 | ) | 11,930 | 4,591 | 1,087 | |||||||||||
Medical claims and benefits payable | 57,801 | (14,100 | ) | 100,903 | 39,100 | |||||||||||
Accounts payable and accrued liabilities: | ||||||||||||||||
Accrued taxes | 19,124 | 7,075 | 1,049 | (971 | ) | |||||||||||
Other changes in accounts payable and accrued liabilities | 81,613 | 49,677 | 43,430 | 27,909 | ||||||||||||
Unearned premium revenue | 513,964 | 4,084 | 516,357 | (394,223 | ) | |||||||||||
Net cash flows provided by (used in) operating activities | 928,684 | 186,705 | 1,070,989 | (6,064 | ) | |||||||||||
Investing activities: | ||||||||||||||||
Purchase of marketable securities, net | (128,311 | ) | (131,561 | ) | (276,133 | ) | (242,546 | ) | ||||||||
Purchase of property, plant and equipment | (36,879 | ) | (17,815 | ) | (68,850 | ) | (45,087 | ) | ||||||||
Acquisitions, net of cash acquired | (4,218 | ) | — | (58,964 | ) | — | ||||||||||
Sale (purchase) of marketable securities - restricted, net | (1,480 | ) | 2,632 | (43,385 | ) | 29,495 | ||||||||||
Proceeds from the sale of property, plant and equipment | 6 | — | 2,458 | — | ||||||||||||
Net cash flows used in investing activities | (170,882 | ) | (146,744 | ) | (444,874 | ) | (258,138 | ) | ||||||||
Financing activities: | ||||||||||||||||
Proceeds from issuance of common stock | 9,130 | 12,130 | 28,507 | 43,206 | ||||||||||||
Principal payments on long-term debt | (8,638 | ) | (417 | ) | (26,077 | ) | (1,365 | ) | ||||||||
Purchase and retirement of common stock | (1,141 | ) | (62,409 | ) | (14,986 | ) | (102,951 | ) | ||||||||
Adjustment to fair value of 10 3/4% senior notes | — | — | (7,487 | ) | — | |||||||||||
Payments on software financing agreements | (179 | ) | (1,462 | ) | (2,907 | ) | (5,515 | ) | ||||||||
Net cash flows used in financing activities | (828 | ) | (52,158 | ) | (22,950 | ) | (66,625 | ) | ||||||||
Net increase (decrease) in cash and equivalents | 756,974 | (12,197 | ) | 603,165 | (330,827 | ) | ||||||||||
Beginning cash and equivalents | 670,295 | 879,792 | 824,104 | 1,198,422 | ||||||||||||
Ending cash and equivalents | $ | 1,427,269 | $ | 867,595 | $ | 1,427,269 | $ | 867,595 | ||||||||
PACIFICARE HEALTH SYSTEMS, INC.
BALANCE SHEET DATA
(Unaudited)
(in thousands) | September 30, 2005 | December 31, 2004 | September 30, 2004 | ||||||
Assets: | |||||||||
Cash, equivalents and marketable securities | $ | 3,602,365 | $ | 2,760,869 | $ | 2,454,200 | |||
Receivables, net | 328,672 | 317,362 | 303,945 | ||||||
Property, plant and equipment, net | 250,404 | 226,594 | 152,920 | ||||||
Goodwill and intangible assets, net | 1,560,303 | 1,505,799 | 1,189,373 | ||||||
Other assets | 469,420 | 416,293 | 371,544 | ||||||
Total assets | $ | 6,211,164 | $ | 5,226,917 | $ | 4,471,982 | |||
Liabilities and stockholders’ equity: | |||||||||
Total medical claims and benefits payable | $ | 1,308,500 | $ | 1,192,400 | $ | 1,066,600 | |||
Current portion of long-term debt | 35,157 | 37,534 | 6,059 | ||||||
Long-term debt | 1,018,403 | 1,051,520 | 607,470 | ||||||
Other liabilities | 1,324,177 | 757,025 | 731,299 | ||||||
Total stockholders’ equity | 2,524,927 | 2,188,438 | 2,060,554 | ||||||
Total liabilities and stockholder's equity | $ | 6,211,164 | $ | 5,226,917 | $ | 4,471,982 | |||
MEMBERSHIP DATA
| |||||||||
(Unaudited) | September 30, 2005 | December 31, 2004 | September 30, 2004 | ||||||
Commercial: | |||||||||
HMO | 1,744,500 | 1,927,900 | 1,923,700 | ||||||
PPO and indemnity | 749,000 | 582,500 | 304,800 | ||||||
Employer self-funded | 104,000 | 82,600 | 40,700 | ||||||
2,597,500 | 2,593,000 | 2,269,200 | |||||||
Senior: | |||||||||
Medicare Advantage | 731,600 | 704,700 | 693,300 | ||||||
Medicare Supplement | 42,000 | 36,200 | 34,300 | ||||||
CMS Disease Management | 4,300 | 2,500 | 1,500 | ||||||
777,900 | 743,400 | 729,100 | |||||||
Total membership | 3,375,400 | 3,336,400 | 2,998,300 | ||||||
Specialty Membership: | |||||||||
Pharmacy benefit management(A) | 5,917,800 | 5,588,700 | 5,526,300 | ||||||
Behavioral health(B) | 4,770,100 | 3,813,600 | 3,762,300 | ||||||
Dental and vision(B) | 1,171,600 | 1,040,500 | 821,100 |
(A) | Pharmacy benefit management membership represents members that are in our Commercial, Medicare Advantage, Medicare Supplement or CMS Disease Management plans, excluding members covered under other PBM contracts. All of these members either have a prescription drug benefit or are able to purchase their prescriptions utilizing our retail network contracts or our mail service. |
(B) | Behavioral health, dental and vision membership includes PacifiCare members in our Commercial, Medicare Advantage or Medicare Supplement plans that are also enrolled in our behavioral health, dental and/or vision plans. |
PacifiCare Health Systems, Inc.
Membership Information
(Unaudited)
September 30, 2005 | June 30, 2005 | September 30, 2004 | ||||||||||||||||
(In thousands)
| Commercial | Medicare Advantage | TOTAL | Commercial | Medicare Advantage | TOTAL | Commercial | Medicare Advantage | TOTAL | |||||||||
Managed Care Membership (1) | ||||||||||||||||||
Arizona | 170.3 | 110.6 | 280.9 | 174.9 | 109.4 | 284.3 | 154.7 | 95.6 | 250.3 | |||||||||
California | 1,481.2 | 357.5 | 1,838.7 | 1,481.0 | 359.0 | 1,840.0 | 1,488.3 | 357.1 | 1,845.4 | |||||||||
Colorado | 224.2 | 54.2 | 278.4 | 224.2 | 53.1 | 277.3 | 250.5 | 52.1 | 302.6 | |||||||||
Florida | 33.6 | — | 33.6 | 37.0 | — | 37.0 | — | — | — | |||||||||
Guam | 25.9 | — | 25.9 | 26.5 | — | 26.5 | 27.5 | — | 27.5 | |||||||||
Illinois | 41.8 | — | 41.8 | 44.0 | — | 44.0 | — | — | — | |||||||||
Michigan | 52.4 | — | 52.4 | 53.5 | — | 53.5 | — | — | — | |||||||||
Nevada | 52.1 | 26.1 | 78.2 | 48.6 | 26.3 | 74.9 | 38.9 | 25.5 | 64.4 | |||||||||
Oklahoma | 70.4 | 16.6 | 87.0 | 71.1 | 15.9 | 87.0 | 85.4 | 15.1 | 100.5 | |||||||||
Oregon | 55.5 | 23.1 | 78.6 | 55.4 | 23.1 | 78.5 | 58.6 | 23.0 | 81.6 | |||||||||
Texas | 156.7 | 101.1 | 257.8 | 158.7 | 93.6 | 252.3 | 93.8 | 79.9 | 173.7 | |||||||||
Washington | 69.1 | 40.7 | 109.8 | 63.8 | 41.3 | 105.1 | 71.5 | 45.0 | 116.5 | |||||||||
Other states | 164.3 | 1.7 | 166.0 | 172.0 | — | 172.0 | — | — | — | |||||||||
Total Managed Care Membership | 2,597.5 | 731.6 | 3,329.1 | 2,610.7 | 721.7 | 3,332.4 | 2,269.2 | 693.3 | 2,962.5 | |||||||||
Total Membership | ||||||||||||||||||
Commercial | ||||||||||||||||||
HMO | 1,744.5 | 1,758.2 | 1,923.7 | |||||||||||||||
PPO | 749.0 | 746.2 | 304.8 | |||||||||||||||
Employer self-funded | 104.0 | 106.3 | 40.7 | |||||||||||||||
Total Commercial | 2,597.5 | 2,610.7 | 2,269.2 | |||||||||||||||
Senior | ||||||||||||||||||
Medicare Advantage | 731.6 | 721.7 | 693.3 | |||||||||||||||
Medicare Supplement | 42.0 | 40.0 | 34.3 | |||||||||||||||
CMS Disease Management | 4.3 | 4.2 | 1.5 | |||||||||||||||
Total Senior | 777.9 | 765.9 | 729.1 | |||||||||||||||
Total Membership | 3,375.4 | 3,376.6 | 2,998.3 | |||||||||||||||
September 30, 2005 | June 30, 2005 | September 30, 2004 | ||||||||||||||||
PacifiCare | Unaffiliated | TOTAL | PacifiCare | Unaffiliated | TOTAL | PacifiCare | Unaffiliated | TOTAL | ||||||||||
Specialty Membership | ||||||||||||||||||
Pharmacy benefit management (2) | 3,263.5 | 2,654.3 | 5,917.8 | 2,942.6 | 2,560.3 | 5,502.9 | 2,998.3 | 2,528.0 | 5,526.3 | |||||||||
Behavioral health (3) | 2,010.1 | 2,760.0 | 4,770.1 | 1,984.6 | 2,641.6 | 4,626.2 | 2,055.8 | 1,706.5 | 3,762.3 | |||||||||
Dental and vision (3) | 929.2 | 242.4 | 1,171.6 | 939.2 | 244.1 | 1,183.3 | 647.9 | 173.2 | 821.1 |
(1) | Managed care membership includes HMO and PPO membership whether risk or self-funded. |
(2) | Pharmacy benefit management PacifiCare membership represents members that are in our Commercial, Medicare Advantage, Medicare Supplement or CMS Disease Management plans, excluding members covered under other PBM contracts. All of these members either have a prescription drug benefit or are able to purchase their prescriptions utilizing our retail network contracts or our mail service. |
(3) | Behavioral health, dental and vision PacifiCare membership represents members in our Commercial, Medicare Advantage or Medicare Supplement plans that are also enrolled in our behavioral health, dental and/or vision plans. |
PacifiCare Health Systems, Inc.
Percent of Health Care Services and Other Expenses
Capitated vs. Other Expenses
(Unaudited)
Three Months Ended September 30, | ||||||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||||||
(In millions)
| Commercial | Senior | Commercial | Senior | ||||||||||||||||||||
(amounts in millions) | ||||||||||||||||||||||||
Capitation expense | $ | 374 | 26 | % | $ | 841 | 56 | % | $ | 387 | 32 | % | $ | 724 | 58 | % | ||||||||
All other health care services and other expenses | 1,041 | 74 | % | 652 | 44 | % | 806 | 68 | % | 534 | 42 | % | ||||||||||||
Total health care services and other expenses | $ | 1,415 | 100 | % | $ | 1,493 | 100 | % | $ | 1,193 | 100 | % | $ | 1,258 | 100 | % | ||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||
(In millions) | 2005 | 2004 | ||||||||||||||||||||||
Commercial | Senior | Commercial | Senior | |||||||||||||||||||||
(amounts in millions) | ||||||||||||||||||||||||
Capitation expense | $ | 1,135 | 28 | % | $ | 2,389 | 55 | % | $ | 1,188 | 33 | % | $ | 2,137 | 57 | % | ||||||||
All other health care services and other expenses | 2,936 | 72 | % | 1,944 | 45 | % | 2,371 | 67 | % | 1,594 | 43 | % | ||||||||||||
Total health care services and other expenses | $ | 4,071 | 100 | % | $ | 4,333 | 100 | % | $ | 3,559 | 100 | % | $ | 3,731 | 100 | % | ||||||||
PacifiCare Health Systems, Inc.
Changes in Medical Claims and Benefits Payable
(Unaudited)
(In thousands)
| |||||
Balance June 30, 2005 | $ | 1,250,700 | |||
Other health care accruals | 30,100 | Increase primarily due to increases in accruals for the CMS Disease Management program and other estimated amounts owed to CMS. | |||
Provider capitation | 10,900 | Increase in provider capitation accruals for amounts due to providers related to amounts received from CMS. | |||
All other changes | 16,800 | ||||
Balance September 30, 2005 | $ | 1,308,500 | |||
PacifiCare Health Systems, Inc.
Medical Claims and Benefits Payable (MCBP) Information
(unaudited)
Three Months Ended | |||||||||||||||||
9/30/2004 | 12/31/2004 (4) | 3/31/2005 | 6/30/2005 | 9/30/2005 | |||||||||||||
Commercial | Days in the period | 92 | 92 | 90 | 91 | 92 | |||||||||||
A | MCBP ($000s) at end of period | $ | 680,842 | $ | 679,615 | $ | 782,200 | $ | 828,100 | $ | 841,900 | ||||||
B | Total HMO and PPO commercial members (000s) at end of period | 2,228 | 2,239 | 2,376 | 2,504 | 2,494 | |||||||||||
C=A/B | MCBP per member at end of period | $ | 305.58 | $ | 303.54 | $ | 329.21 | $ | 330.71 | $ | 337.57 | ||||||
D=A/(Health care costs/Days in quarter) | Days claims payable | 48.4 | 47.8 | 49.6 | 50.1 | 49.8 | |||||||||||
E | IBNR ($000s)(3) | $ | 553,904 | $ | 562,669 | $ | 634,148 | $ | 680,960 | $ | 692,078 | ||||||
F | Claims expense per day ($000s)(3) | $ | 7,352 | $ | 7,533 | $ | 8,509 | $ | 9,498 | $ | 9,817 | ||||||
G=E/B | IBNR per member at end of period | $ | 248.61 | $ | 251.30 | $ | 266.90 | $ | 271.95 | $ | 277.50 | ||||||
H=E/F | IBNR days claims payable | 75.3 | 74.7 | 74.5 | 71.7 | 70.5 | |||||||||||
I | Days to turn claims(1), (2) | 61.5 | 62.4 | 59.5 | 60.3 | 60.3 | |||||||||||
J = H/I | IBNR days claims payable/days to turn claims ratio | 1.23 | 1.20 | 1.25 | 1.19 | 1.17 | |||||||||||
Senior | |||||||||||||||||
A | MCBP ($000s) at end of period | $ | 385,758 | $ | 394,831 | $ | 420,100 | $ | 422,600 | $ | 466,600 | ||||||
B | Total Medicare Advantage and Medicare Supplement members (000s) at end of period | 729 | 743 | 758 | 766 | 778 | |||||||||||
C=A/B | MCBP per member at end of period | $ | 529.16 | $ | 531.40 | $ | 554.22 | $ | 551.70 | $ | 599.74 | ||||||
D=A/(Health care costs/Days in quarter) | Days claims payable | 28.2 | 28.4 | 26.8 | 26.9 | 28.7 | |||||||||||
E | IBNR ($000s)(3) | $ | 291,238 | $ | 310,250 | $ | 333,204 | $ | 319,132 | $ | 317,291 | ||||||
F | Claims expense per day ($000s)(3) | $ | 4,660 | $ | 4,994 | $ | 5,655 | $ | 5,486 | $ | 5,395 | ||||||
G=E/B | IBNR per member at end of period | $ | 399.50 | $ | 417.56 | $ | 439.58 | $ | 416.62 | $ | 407.83 | ||||||
H=E/F | IBNR days claims payable | 62.5 | 62.1 | 58.9 | 58.2 | 58.8 | |||||||||||
I | Days to turn claims(1), (2) | 44.9 | 47.4 | 49.7 | 45.8 | 45.8 | |||||||||||
J = H/I | IBNR days claims payable/days to turn claims ratio | 1.39 | 1.31 | 1.19 | 1.27 | 1.28 | |||||||||||
Consolidated | |||||||||||||||||
A | MCBP ($000s) at end of period | $ | 1,066,600 | $ | 1,074,446 | $ | 1,202,300 | $ | 1,250,700 | $ | 1,308,500 | ||||||
B | Total members (000s) at end of period | 2,957 | 2,982 | 3,134 | 3,270 | 3,272 | |||||||||||
C=A/B | MCBP per member at end of period | $ | 360.70 | $ | 360.31 | $ | 383.63 | $ | 382.48 | $ | 399.91 | ||||||
D=A/(Health care costs/Days in quarter) | Days claims payable | 38.5 | 38.3 | 38.2 | 38.8 | 39.5 | |||||||||||
E | IBNR ($000s)(3) | $ | 845,142 | $ | 872,919 | $ | 967,352 | $ | 1,000,092 | $ | 1,009,369 | ||||||
F | Claims expense per day ($000s)(3) | $ | 12,012 | $ | 12,527 | $ | 14,164 | $ | 14,984 | $ | 15,212 | ||||||
G=E/B | IBNR per member at end of period | $ | 285.81 | $ | 292.73 | $ | 308.66 | $ | 305.84 | $ | 308.49 | ||||||
H=E/F | IBNR days claims payable | 70.4 | 69.7 | 68.3 | 66.7 | 66.4 | |||||||||||
I | Days to turn claims(1), (2) | 54.7 | 56.7 | 55.5 | 54.5 | 54.5 | |||||||||||
J = H/I | IBNR days claims payable/days to turn claims ratio | 1.29 | 1.23 | 1.23 | 1.22 | 1.22 | |||||||||||
K | Days receipts on hand(3) | 5.3 | 5.8 | 6.2 | 6.3 | 5.5 |
Note | 1 - Excludes pharmacy, third party administered claims and Pacific Life claims. |
Note | 2 - September 30, 2005 days to turn claims assumes no further improvement in speed. |
Note | 3 - Excludes pharmacy claims. |
Note | 4 - Excludes the impact of 19 days of AMS operations. |
7
PacifiCare Health Systems, Inc.
Medical Claims and Benefits Payable (MCBP) Information
(unaudited)
Q3 2005 compared to Q3 2004 | ||||||||||||
Analysis | Commercial | Senior | Consolidated | |||||||||
Days to turn claims - September 30, 2005 | 60.3 | 45.8 | 54.5 | |||||||||
Days to turn claims - September 30, 2004 | 61.5 | 44.9 | 54.7 | |||||||||
Increase (decrease) in days to turn claims from September 30, 2004 to September 30, 2005 | (1.2 | ) | 0.9 | (0.2 | ) | |||||||
Q3 2004 claims expense per day ($000s) | $ | 7,352 | $ | 4,660 | $ | 12,012 | ||||||
Expected IBNR increase (decrease) from improved speed of claims payments ($000s) | $ | (8,822 | ) | $ | 4,194 | $ | (2,402 | ) | ||||
Total members at September 30, 2004 (000s) | 2,228 | 729 | 2,957 | |||||||||
IBNR increase (decrease) per member from improved speed of claims payments | $ | (3.96 | ) | $ | 5.75 | $ | (0.81 | ) | ||||
MCBP per member at September 30, 2004 | 305.58 | 529.16 | 360.70 | |||||||||
Expected MCBP per member Q3 2004 assuming improved speed of claims payments | $ | 301.62 | $ | 534.91 | $ | 359.89 | ||||||
MCBP per member at September 30, 2005 | $ | 337.57 | $ | 599.74 | $ | 399.91 | ||||||
MCBP per member increase (decrease) over third quarter of prior year | 11.9 | % | 12.1 | % | 11.1 | % | ||||||
Compares To: | ||||||||||||
Health care cost per member - Three months ended September 30, 2004(1), (2) | $ | 162.08 | $ | 541.93 | $ | 255.61 | ||||||
Health care cost per member - Three months ended September 30, 2005(1), (2) | $ | 174.41 | $ | 591.65 | $ | 273.85 | ||||||
Health care cost increase per member over third quarter of prior year | 7.6 | % | 9.2 | % | 7.1 | % |
Note 1 - Excludes pharmacy claims.
Note 2 - Excludes CMS Disease Management program.
PacifiCare Health Systems, Inc.
Medical Loss Ratio Information
(Unaudited)
COMMERCIAL | SENIOR | TOTAL | |||||||||||||||||||||||||||||
(amounts in millions) | Premiums | Health Care Services Expenses | MLR | Premiums | Health Care Services Expenses | MLR | Premiums | Health Care Services Expenses | MLR | ||||||||||||||||||||||
Nine Months Ended September 30, 2005: | |||||||||||||||||||||||||||||||
Private Sector | $ | 5,296.6 | $ | 4,314.0 | 81.4 | % | $ | 83.3 | $ | 62.8 | 75.4 | % | $ | 5,379.9 | $ | 4,376.8 | 81.4 | % | |||||||||||||
Government Sector | — | — | N/A | 4,953.3 | 4,275.4 | 86.3 | % | 4,953.3 | 4,275.4 | 86.3 | % | ||||||||||||||||||||
Consolidated | $ | 5,296.6 | $ | 4,314.0 | 81.4 | % | $ | 5,036.6 | $ | 4,338.2 | 86.1 | % | $ | 10,333.2 | $ | 8,652.2 | 83.7 | % | |||||||||||||
Three Months Ended September 30, 2005: | |||||||||||||||||||||||||||||||
Private Sector | $ | 1,839.3 | $ | 1,495.6 | 81.3 | % | $ | 28.7 | $ | 21.3 | 74.1 | % | $ | 1,868.0 | $ | 1,516.9 | 81.2 | % | |||||||||||||
Government Sector | — | — | N/A | 1,740.5 | 1,473.9 | 84.7 | % | 1,740.5 | 1,473.9 | 84.7 | % | ||||||||||||||||||||
Consolidated | $ | 1,839.3 | $ | 1,495.6 | 81.3 | % | $ | 1,769.2 | $ | 1,495.2 | 84.5 | % | $ | 3,608.5 | $ | 2,990.8 | 82.9 | % | |||||||||||||
Nine Months Ended September 30, 2004: | |||||||||||||||||||||||||||||||
Private Sector | $ | 4,448.4 | $ | 3,727.3 | 83.8 | % | $ | 72.7 | $ | 52.6 | 72.4 | % | $ | 4,521.1 | $ | 3,779.9 | 83.6 | % | |||||||||||||
Government Sector | — | — | N/A | 4,276.1 | 3,675.2 | 85.9 | % | 4,276.1 | 3,675.2 | 85.9 | % | ||||||||||||||||||||
Consolidated | $ | 4,448.4 | $ | 3,727.3 | 83.8 | % | $ | 4,348.8 | $ | 3,727.8 | 85.7 | % | $ | 8,797.2 | $ | 7,455.1 | 84.7 | % | |||||||||||||
Three Months Ended September 30, 2004: | |||||||||||||||||||||||||||||||
Private Sector | $ | 1,496.7 | $ | 1,249.3 | 83.5 | % | $ | 24.3 | $ | 16.8 | 69.5 | % | $ | 1,521.0 | $ | 1,266.1 | 83.2 | % | |||||||||||||
Government Sector | — | — | N/A | 1,463.7 | 1,242.7 | 84.9 | % | 1,463.7 | 1,242.7 | 84.9 | % | ||||||||||||||||||||
Consolidated | $ | 1,496.7 | $ | 1,249.3 | 83.5 | % | $ | 1,488.0 | $ | 1,259.5 | 84.6 | % | $ | 2,984.7 | $ | 2,508.8 | 84.1 | % |
PacifiCare Health Systems, Inc.
Reconciliation of Non-GAAP Measures
(Unaudited)
Non-GAAP Measures
We utilize certain non-GAAP measures to evaluate our performance and consider these measures important indicators of our success. These measures should not be considered an alternative to measurements required by accounting principles generally accepted in the United States. In addition, our non-GAAP measures may not be comparable to similar measures reported by other companies.
Medical Loss Ratio Premiums and Health Care Services Expenses
The following sets forth a reconciliation of premium revenues and health care services expenses used in the calculation of our medical loss ratio to the revenue and health care services and other expenses (which is the closest GAAP financial measure) as shown on the consolidated statements of income:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In millions) | 2005 | 2004 | 2005 | 2004 | |||||||||||
Private - Commercial: | |||||||||||||||
Commercial revenue | $ | 1,731.1 | $ | 1,419.1 | $ | 4,976.1 | $ | 4,219.0 | |||||||
Net effect of specialty premiums, administrative service fee revenue and eliminations | 108.2 | 77.6 | 320.5 | 229.4 | |||||||||||
Consolidated private - commercial premiums | $ | 1,839.3 | $ | 1,496.7 | $ | 5,296.6 | $ | 4,448.4 | |||||||
Commercial health care services and other expenses | $ | 1,415.0 | $ | 1,192.6 | $ | 4,071.3 | $ | 3,559.4 | |||||||
Net effect of specialty health care services and other expenses and eliminations | 80.6 | 56.7 | 242.7 | 167.9 | |||||||||||
Consolidated health care services expenses related to consolidated private - commercial premiums | $ | 1,495.6 | $ | 1,249.3 | $ | 4,314.0 | $ | 3,727.3 | |||||||
Government - Senior: | |||||||||||||||
Senior revenue | $ | 1,763.8 | $ | 1,480.8 | $ | 5,021.3 | $ | 4,332.1 | |||||||
Net effect of specialty premiums, private - senior premiums, administrative service fee revenue and eliminations | 5.4 | 7.2 | 15.3 | 16.7 | |||||||||||
Consolidated government - senior premiums | $ | 1,769.2 | $ | 1,488.0 | $ | 5,036.6 | $ | 4,348.8 | |||||||
Senior health care services and other expenses | $ | 1,493.2 | $ | 1,257.6 | $ | 4,333.4 | $ | 3,730.7 | |||||||
Net effect of specialty health care services and other expenses, private - senior health care services and other expenses and eliminations | 2.0 | 1.9 | 4.8 | (2.9 | ) | ||||||||||
Consolidated health care services expenses related to consolidated government - senior premiums | $ | 1,495.2 | $ | 1,259.5 | $ | 4,338.2 | $ | 3,727.8 |
PacifiCare Health Systems, Inc.
Guidance Metrics
October 27, 2005
(Unaudited)
GAAP Net Income(1) | $352 - $357 million | |
GAAP EPS - Full Year(1) | $3.63 - $3.68 | |
GAAP EPS - 4th Quarter(1) | $0.57 - $0.62 | |
Average Outstanding Shares(1) | 97.7 million | |
Run Rate Net Income(1)(2)(4) | $375 - $380 million | |
Run Rate EPS - Full Year(1)(2)(4) | $3.86 - $3.91 | |
Run Rate EPS - 4th Quarter(1)(2) | $0.89 - $0.94 | |
Revenue Increase(1) | 17.5% | |
MLRs | ||
Consolidated(1) | 83.5%-84% | |
Private - Commercial | 81%-82% | |
Private - Senior | 73%-74% | |
Government - Senior(1) | 86.5%-87.5% | |
Gross Margins | ||
Commercial | 18%-19% | |
Senior(1) | 12.5%-13.5% | |
Specialty and Other(1) | 41%-42% | |
EBITDA(1) | $700 - $725 million | |
Cash Flow from Operations (CFFO)(1) | $600 - $650 million | |
SG&A Ratio(2)(4) | 13.5%-13.8% | |
Depreciation/Amortization | $89 million | |
Capital Expenditures(1) | $100 million | |
Commercial Membership Growth(1)(3) | Flat | |
Medicare Advantage Ending Members | 745,000 | |
Tax Rate(1) | 37.0% |
(1) | Indicates change since last issuance on July 28, 2005. |
(2) | Excludes anticipated Part D stand-alone administrative expenses for Q3 and Q4 2005. |
(3) | Excludes Guam membership from both December 31, 2004 and December 31, 2005. |
(4) | Excludes favorable impact of $0.17 related to federal income tax settlements and net legal matters either settled or reserved in Q3 2005. |