Insurer expects loss in quarter Mid Atlantic blames increased claims, inadequate revenue

July 09, 1996|By Jay Hancock | Jay Hancock,SUN STAFF

Mid Atlantic Medical Services Inc. served another disappointing warning to shareholders yesterday, saying that unexpectedly sick patients will cause it to book its first quarterly loss in years.

The Rockville-based health insurer, which covers more than 1.5 million health maintenance organization members and other beneficiaries from Pennsylvania to North Carolina, said it expected to lose between 5 and 10 cents per share -- $2.4 to $4.8 million -- for the three months that ended June 30. In the same period last year it earned 29 cents per share.

The news came after the stock markets closed yesterday. But Mid Atlantic's stock, already beaten down by poor results in the first quarter, could take another hit. Wall Street analysts had expected it to earn a profit of between 13 cents and 26 cents per share in the second quarter, according to I/B/E/S Earnings Estimates.

Mid Atlantic stock closed yesterday at $14.25 per share, well under its 52-week high of $25.13 in November.

In a prepared statement, the company blamed the results on higher-than-expected claims, inadequate revenue, continuing losses on its Medicare business and continuing "unsatisfactory results" in its Medicaid business.

The percentage of revenue spent on health services "may approach" 95 percent for the second quarter, up sharply from 83 percent for the same period in 1995, the company said.

But Medicare and Medicaid contribute a relatively small portion of Mid Atlantic's revenue. The 95 percent companywide loss ratio suggests that lackluster controls on medical utilization are catching up with the company, said Thomas E. Hodapp, health care analyst in the San Francisco office of Robertson Stephens, an investment firm.

"That probably means they're losing money now on commercial," nongovernment business, he said. "They don't have real tight controls," he said. "These numbers are a surprise, but the fact that they're having problems is not."

Mid Atlantic earned $61.1 million, or $1.28 per share, on $943.4 million in revenue last year.

Last week, Wall Street analysts had expected the company to earn between $1.25 and 79 cents per share for 1996.

Those estimates are likely to be revised downward.

Precise earnings results for the second quarter will be disclosed next month, the company said.

The fact that Mid Atlantic is locked into many of its contracts through the end of 1996 doesn't bode well for profits in the year's second half, either, Hodapp said.

"I think they're going to try to raise premiums next year," he said. "They really can't do too much this year. They're pretty much booked."

Mid Atlantic did say that it boosted premiums for its contracts that took effect July 1.

"We are obviously very disappointed in the year's financial results to date and have taken significant measures to correct the company's course," said George T. Jochum, Mid Atlantic's chairman and chief executive officer.

"We believe that the second quarter is our low point, and that the third and fourth quarters should show sequentially better results."

Pub Date: 7/09/96

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.