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Health Plan Company Lost $169.7 Million in 3rd Qtr.

December 7, 1988

LOS ANGELES (AP) _ Maxicare Health Plans Inc., which has been painfully disgorging competitors it bought in an expansion binge, said Tuesday it lost $169.7 million in the third quarter.

Maxicare, the nation’s biggest health maintenance organization, said most of the loss - $113 million - was due to a special provision for losses on health plans the company has sold or is planning to sell in an effort to pare itself back to a profitable core.

The provision accounts for actual losses and for erasing ″goodwill,″ or the purported value of the plans’ names and reputations, from the company’s books, said spokeswoman Tobi Nyberg.

Maxicare, strapped with burdensome debt and rising costs, has so far this year sold health plans in 13 of the 26 states in which it did business, cutting membership from 2.3 million to 1.6 million as of Sept. 30 and 1.4 million as of this week.

The third-quarter loss of $169.7 million compares to a loss of $6.4 million in the third quarter of 1987. Revenue in the quarter ended Sept. 30 was $401.9 million, down from $464 million a year earlier.

In the first nine months of 1988, Maxicare lost $250.5 million compared to a loss of $28.3 million in the first three quarters of 1987.

Maxicare stock, which traded as high as $28 a share in earlier years, was trading at 50 cents a share in the over-the-counter market Tuesday, down 12.5 cents from Monday’s close.

It was the eighth straight quarter of losses for the company, which replaced its top management in August, is seeking to restructure its $460 million debt, and will boost premiums an average of 30 percent on Jan. 1.

Peter Ratican, installed as chairman and chief executive officer when previous management was ousted in in August, said sale of unprofitable plans and boosting rates should help the company deal with a cost squeeze affecting the intensely competitive industry.

″We think the price increases that we’ve pushed through to reflect the medical costs ... it is pretty good news,″ Ratican said, laying much of the blame for the company’s woes on years of spiraling hospital and doctors’ fees.

″We’re no better off than anybody else in this business, in fact we’ve done a lot better job of holding down costs than some others,″ Ratican said. ″In fact, this whole industry has been hammered.″

Maxicare, saddled with debt that includes $150 million in bank loans and $295 million in bonds, pins its hopes for recovery on a planned debt restructuring expected to be announced in January. Debt service costs in the first three quarters totaled $74.8 million.

Debts mounted during an expansion drive in the 1980s, including the 1986 purchases of HealthAmerica and HealthCare USA, whose lossed added to the drag on profits.

Maxicare intends to continue selling plans to reduce itself to a core composed of its best-performing plans in California, Indiana, Illinois, Ohio, Wisconsin, North and South Carolina and the Dallas area. Those plans have a total of 1.1 million members, said spokeswoman Nyberg.

Analysts said Ratican - who replaced founder Fred Wasserman after the ouster of Wasserman and his wife, Pamela Anderson, from management - was moving in the right direction, but may have taken the reins too late to help the company.

Maxicare, though shrinking, remains larger than the second-biggest HMO, U.S. Healthcare Inc. of Blue Bell, Pa., which has 900,000 members.

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