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After earnings struggle, Health Net focuses on California duals

Managed care insurer Health Net reported 2012 fourth quarter earnings down 91 percent from the previous year, after litigation, severance costs and declines in commercial enrollment.

The longtime TRICARE military health plan contractor saw fourth quarter 2012 earning of $5.1 million (6 cents per share), down from $60 million in the fourth quarter of 2011. The  company had fourth quarter 2012 revenue of about $2.8 billion -- roughly equal to fourth quarter 2011 -- but took several losses, and is also spending $30 million on healthcare reform compliance.

Last quarter, Health Net saw a $13.8 million pretax loss in its divested segment (including the sale of a prescription drug business to CVS), $7 million in litigation expenses, $5 million in severance costs and higher medical utilization, all while it renegotiated a contract with hospital networkTenet Healthcare.

Health Net's struggles have led some Wall Street analysts to speculate if the company might sell business assets, such as its commercial health plan segment, valued at $750 million to $1 billion by one analyst. 

Although overall membership declined slightly in 2012, to 2.6 million commercial members and 2.9 million TRICARE members, Health Net says enrollment in its tailored network commercial health plan is growing, ending the year with about 432,000 members. Enrollment in the company's Medicare Advantage plans also increased by 14 percent in 2012, to 234,000, and in late January, Health Net of California renewed a five-year contract to provide Medi-Cal dental benefits in Los Angeles and Sacramento counties.

In a conference call, Health Net executives reaffirmed its previous 2013 net income guidance of $2.00-$2.10 per share for the year and said they're now focusing largely on care services for Medicaid-Medicare eligible patients and long-term and community-based services, especially in California, where the company is based.

Talking with analysts and investors, Health Net president and CEO Jay Gellert said the company sees Medicare Advantage and many employer-sponsored health plan markets as fairly crowded.

"There isn't near the opportunity that exists in some other places. Our focus therefore has been, as we said, on the duals where you have in California something like 13 percent or 14 percent of all the duals in the United States," said Gellert, who joined the company in 1996. "That's an area where we think that there is real opportunity to really fundamentally change service for people and better in the economics."

Health Net is one of nine managed care contractors participating in California's federally-approved dual eligible demonstration in Los Angeles County, home to about 271,000 dual eligible patients.

The company is also looking to the small business market. Gellert said he's encouraged by its small group segment, which is set to comprise 40 percent of its commercial enrollment in 2014. In provider pricing, Gellert said, "I actually believe that large group is neutral to negative leverage."

Addressing the possibility of selling individual and small group plans in any of the 19 regions of California's health insurance exchange, Gellert said, "We're waiting really to get more information on some of the rules and structure of the exchange."

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