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Foundation Health Systems Inc.
(NYSE: FHS)
Foundation Health Systems Inc.
(NYSE: FHS)
21600 Oxnard Street, Woodland Hills, Calif. 91367 (818) 676-6978
President: J.M. Gellert
Revenues (FYE December 31, 1998):
$8.9 billion
Net loss (FYE December 31, 1998):
$165 million
Market capitalization: $1.12 billion
Employees: 14,000
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Business New Haven
11/29/1999
By: Kristine Hansen
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HMOs, PPOs, managed care, Medicare - these terms have become increasingly commonplace conversation-fodder at office water coolers and around kitchen tables.
Whatever one's individual understanding or knowledge of each, most know that these terms have to do with health care and/or health insurance. In Connecticut, many are familiar at least with the name Physicians Health Services (PHS) either through advertising or personal coverage. Although PHS is located in Connecticut, its parent hails from the opposite end of the country.
Providing coverage to more than five million subscribers, Foundation Health Systems Inc. is the fourth-largest publicly traded health-care company in the U.S. The company offers individual and group coverage as well as health maintenance organizations (HMOs) for Medicare and Medicaid and government-sponsored managed-care plans. Foundation also offers preferred-provider organization plans (PPOs).
Other managed-care products include that of cost containment and administration and additional products and services for vision, dental, mental health and pharmacy.
Foundation divides its efforts into two principal functions: health-plan services, and government contracts and specialty services. Through its health-plan services Foundation offers HMOs, which are federally qualified and state-licensed, in a number of states. It contracts with a defined group of enrollees for a specific monthly fee and offers programs for group, individual, Medicare and Medicaid plans in specific geographical areas.
In its government contracts and specialty-services sector, Foundation offers multi-year contracts for managed care, including government-sponsored programs for the Civilian Health & Medical Program of the Uniformed Services (CHAMPUS). Actual coverage is provided through subcontracts with other parties. In the case of CHAMPUS, there are three TRICARE contracts for coverage in several states.
The company has undertaken several initiatives to improve financial performance (it posted net losses in 1998 and 1997) and allow for greater concentration in its core business areas. That core includes the Northeast, Florida, Arizona, California, Oregon and its government contract and specialty areas.
Since mid-1998, Foundation has been selling off operations including call centers, pharmacy processing and certain workers compensation operations. Earlier this year health plans in Texas, Oklahoma and Louisiana were sold. The company is also working to close its processing facility in Colorado, and has sold some of the associated real estate.
In recent developments, Foundation announced the sale of its health plan's Intergroup of Utah Inc. and QualMed Plans for Health Inc. of New Mexico. It also announced an agreement to sell its QualMed Washington Health Plan. Likewise sold were two hospitals in Los Angeles.
As Foundation withdraws from the Colorado market, Pacificare of Colorado has agreed to offer coverage to Foundation's QualMed Plans for Health of Colorado. By now, Foundation has completed its divestiture plans.
The course of action undertaken by Foundation to focus on a narrower core has had positive effects on its financial performance. Revenues for the first nine months of 1999 were up 1.2 percent at $6.5 billion and net income up 271 percent to $105 million (86 cents per share), compared to a comparable 1998 net loss of $61.4 million (50 cents per share). The company generated a positive cash flow position for the quarter ended September 30: Debt was substantially reduced from the prior year's level, with a revolving credit balance at $1.2 billion - $323 million less than the balance a year ago.
Foundation's stock has experienced wide swings over the past year, with a mid-year peak price of 20 1/16, and then dropping to a 52-week low of 6 1/4 earlier this fall. The stock is presently trading in the middle of that range, closing at 9 on November 15.
Analysts are mixed on recommendations from hold to buy to strong buy, but the majority are banking on buy. Earnings estimates for the 1999 year come in at an average of $1.09 per share and for the year 2000 at $1.36 per share.
Looking back to Foundation's Connecticut-based PHS, the company named Karen Coughlin president and CEO of its Northeast division. Also, Physicians announced program specifics for its Medicare HMO, expected to debut at the dawn of the new year. The plan will provide three choices of health coverage, with access to more than 7,000 doctors and all hospitals in the state.
So will continue the water-cooler and kitchen-table discussions.
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