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Oxford 2Q loss widens
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August 11, 1998: 3:08 p.m. ET
HMO posts $508M loss, takes $326M in charges; suffers another setback
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NEW YORK (CNNfn) - Oxford Health Plans, the struggling managed-care company that long ago left shareholders with heartburn, suffered a debilitating second-quarter deficit, due largely to $326 million in charges.
The Norwalk, Conn.-based company posted a loss of $508 million, or $6.41 per diluted share, down significantly from earnings of $37 million, or 45 cents per share, a year earlier. It is Oxford's fourth consecutive unprofitable quarter.
On an operating basis, which excludes special charges, Oxford lost $1.56 per share.
Analysts had expected the company to post an operating loss of 37 cents per share, according to First Call.
"I don't think anyone had a clue about what (Oxford) would or would not earn," said S&P Equity Group analyst Robert Gold, adding the estimate represented analysts' best guess.
"It looks to me like the company's Medicare business is worse than we feared. But they took so many different charges that the (earnings report) is very confusing," he said. "Frankly, I have concerns about the whole (health maintenance organization) business at this point. I just don't know if it's viable."
During the quarter, Oxford's revenue rose 12 percent from a year ago to $1.2 billion.
The company's medical loss ratio, a key barometer of HMO industry performance, climbed to 103 percent from about 80 percent a year ago, meaning the company pays out $1.03 for every $1 it takes in.
According to analysts, most managed-care companies operate with a loss ratio of between 85 percent and 88 percent.
During the quarter, Oxford recorded restructuring charges of $174 million and an unusual charge of $112 million associated with its turnaround plan. The company also took nearly $19 million for property depreciation and $21 million in financing charges.
"The actions announced today represent a 'line in the sand' separating Oxford's past and its future as we implement our plans to restore Oxford to profitability," Chief Executive Norman C. Payson said.
He further stated that the second-quarter loss "does not provide a clear picture of the company's current operating performance because of the one-time charges and non-recurring expenses."
Among other things, the restructuring charge will cover the costs of consolidating operations, the termination of certain lease commitments and the "disposition of non-core assets."
A portion of the unusual charge will go toward the write-off of the company's investment in the now bankrupt FPA Medical Management Inc. and toward beefing up various reserves and allowances.
Oxford shares (OXHP) dropped nearly 8 percent Tuesday following the news, falling 3/8 to 6-3/16 at midday, down dramatically from their highs of more than 80 in November. Click here to see a chart of Oxford's stock activity.
Last month, Oxford told doctors it will cut their fees in an effort to return to profitability.
The HMO also said it will raise customer premiums and limit the number of visits its patients can make to health providers outside the Oxford network. And the company said it is considering reducing the number of hospitals in its network.
Prescription for pain
Oxford's troubles began late last year when the company said it expected sizable losses and that it had underestimated the cost of delivering health care to its 2 million members.
The company posted a $291 million loss for 1997 and has since raised $710 million from private investors and brought in a new management team to execute its turnaround strategy.
Also Tuesday, Oxford said it had contributed $152 million to its New York units to satisfy New York State Insurance Department concerns, adding the department's examination of those units was complete. 
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Oxford Health
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