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Aetna 4Q earnings drop due to lawsuit settlement charges

Aetna reported fourth quarter 2012 earnings today that were 49 percent lower than 2011, as the nation's third largest insurer took one-time charges related to the settlement of a $120 million reimbursement lawsuit announced last month.

Fourth-quarter operating earnings were $317.0 million, or $0.94 per share, while full-year earnings totaled $1.77 billion, or $5.13 per share. Net income for the fourth quarter of 2012 was $190.1 million, or $0.56 per share, and includes $0.44 per share of charges for other items, primarily a litigation-related settlement, offset by $0.06 per share of net realized capital gains. Full-year net income was $1.66 billion, or $4.81 per share.

Despite the charges, analysts were generally bullish on the company's performance for the fourth quarter, with earnings meeting the expectations of analysts polled by Bloomberg and coming in ahead of the company's own fourth quarter earnings guidance.

"These results bring to a close another solid year for the company, our customers and our shareholders. Looking back on 2012, Aetna continued to price with disipline and execute across our core business," said Mark T. Bertolini, Aetna chairman, CEO and president, in an earnings conference call.

The company also reported a slight uptick in its medical spending, increasing to 84.1 percent in 2012 from 80.7 percent for the same period last year. But by far, the largest one-time charge – about $78 million after taxes – was the result of the $120 million December settlement of a lawsuit brought by the American Medical Association and number of other state medical associations that alleged Aetna low-balled it's "usual customary and reasonable" (UCR) fees for out-of-network services.

With the settlement out of the way, Bertonlini and management painted an optimistic picture of the company's anticipated performance in 2013 and reiterated its earnings guidance of $5.40 per share.

In other news, Aetna also announced management changes at the company designed to bolster its growth strategy.

Current senior vice president and CFO, Joseph M. Zubretsky, has been tapped to lead Aetna's National Businesses, a new organization that includes Aetna's National Accounts business, as well as Aetna's emerging businesses, including Accountable Care Solutions, ActiveHealth Solutions, Medicity and iTriage.

Taking over for Zubretsky as CFO on February 25 will be Shawn Guertin, who has served with Zubretsky as Aetna's head of Business Segment Finance. Guertin joined Aetna in 2011 from Coventry Health Care, which Aetna announced plans to acquire last year.

Finally, Karen S. Rohan, executive vice president, will take on a newly-created position leading Aetna's Local and Regional Businesses. Rohan's responsibilities will include leadership of the company's Individual, Small Group and Middle Market businesses; its field organization, including regional alignment to customers; its local network strategy, regional sales and distribution infrastructure; and its Group businesses.

Rohan will continue to lead Aetna's integration efforts for its proposed acquisition of Coventry, which is expected to close in mid-2013.

"The management changes we are making ensure that we have Aetna's strongest leaders focused on driving our growth strategy across our core and emerging businesses," said Bertolini. "We have a unique opportunity to drive positive change in the healthcare marketplace by fundamentally changing the relationship between health plans, providers and patients to one focused on improving the quality of care as a way to reduce costs."

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