NEW YORK (CNNfn) - Oxford Health Plans Inc. stock's illness, caused by complications from an earnings warning, infected other health care companies' shares Monday.
By mid-afternoon, even before trading was halted on the New York Stock Exchange following a 554-point dive, Oxford (OXHP) had lost more than half of its value and was trading 40-5/8 lower at 28-1/8. In a continuation of losses that began right at the outset of trading it finished down 42-7/8 at 25-7/8.
Other health-care related issues were hurt as well. When trading was halted for the day, Cigna (CI) was down 6-1/8 to 163-1/4 while Aetna (AET) fell 6-11/16 to 68-11/16. PacifiCare Health Systems (PHSYB) shed 5-5/8 to 63-1/4 and Wellpoint Health Networks (WLP) was off 8-5/16 to 47-9/16.
Oxford said that it expects to take a charge of $47-$53 million in the third quarter to set up reserves for unanticipated medical claims.
That charge forced the company to warn that its third-quarter losses would be in the range of between 83 cents and 88 cents per share, a sharp reversal from estimates of earnings of 47 cents per share.
That amounts to earnings $111 million lower than estimates.
It was a tough blow for a company that was considered the darling of the health maintenance organization field, especially since it appears to be the result of technical problems.
An upgrade of Oxford's medical billing computer system ran into numerous troubles and delayed the billing of many medical claims. The company said that the delays became apparent during a recent review.
"We overestimated how much of our customer accounts receivable were collectable," said Stephen Wiggins, chairman of Oxford.
"The catchup of claims payments revealed payment obligations that exceeded our original estimates."
Oxford also said that it raised its estimates of future Medicare expenses and would incur other charges to deal with those costs.
That will result in further lower earnings for the fourth quarter to 25-27 cents per share, Oxford said, and earnings estimates for 1998 overall were lowered by 60-80 cents per share.
However, the fundamentals of the company are still basically sound, said Gary Frazier, health care analyst at Bear Stearns.
"Medical costs are the key challenges facing the HMO industry," he said. "The degree to which we've seen the shortfall here at Oxford is somewhat of an aberration.
"Now that Oxford has had a chance to get their medical claims in line, these kinds of shortfalls are probably going to be less likely going forward."
The news from the Norwalk, Conn.-based managed health-care firm was just the latest in a string of dismal earnings in the struggling sector.
On Sept. 29, insurance company Aetna Inc. issued an earnings warning about 40 cents per share below analysts' estimates. A few days later, Cigna weighed in with its own bad news, saying its third quarter estimates would fall 10-15 cents per share short of forecasts.
Analysts attribute some of the struggles to attempts by HMOs to move into the Medicare area, saying that this movement makes companies incur start-up costs.
Only about 13 percent of Medicare patients are in HMOs, however, providing a tempting market for managed-care providers.
-- by staff writer Randy Schultz