HEALTH NET SETS CHARGE OF $252 MILLION.

Byline: Brent Hopkins Staff Writer

WOODLAND HILLS - Seeking to clear up past clouds over profits, Health Net Inc. obliterated its fourth quarter earnings on Tuesday as it announced a one-time charge of nearly a quarter of a billion dollars.

The managed care company's revenue climbed 3.2 percent in the quarter from the same period a year ago, but the $252 million charge reversed the previous period's profit and sent Health Net into the red. Settling contested charges with providers took up the bulk of the charge, accounting for $169 million and intended to smooth over contentious relations with hospitals and doctors.

``In order to thrive in the future, we must eliminate any lingering drag on our earnings from past issues,'' said president and chief executive officer Jay Gellert in a conference call. ``We believe we have a strong, stable provider network that's critical to our business.''

Revenue increased to $2.87 billion from $2.78 billion in the fourth quarter of 2003. Net income flipped to a loss of $85.6 million, 77 cents per share, from a profit of $89.3 million, 77 cents per share, in the like period.

For the full year, revenue improved to $11.65 billion from $11 billion in 2003. Revenue dropped dramatically to $42 million, 38 cents per share, from $234 million, $1.98 per share, the year before.

The provider settlement charges stem from a practice Health Net adopted in late 2001 of challenging large, incomplete claims from providers. While refusing to pay the costs for claims it believed were improperly documented kept Health Net's costs down, chief financial officer Buddy Piszel said the company was better served by settling the claims and fostering better relations.

``We believe the practices were appropriate, given the market conditions at the time,'' he said. ``In early 2004, we began to see that our claims review practice was causing way too much friction between the hospitals and Health Net.''

Though the company had previously announced that Piszel would be cleaning up after signing on last year, the size of the charges surprised stock watchers. Merril Lynch analyst Doug Simpson referred to it as ``pretty big for a company of this size'' and reiterated his neutral rating in a note to investors.

``This is the latest in a series of charges taken by Health Net over the last year or so as the company has struggled to find its footing,'' he wrote.

Though it didn't wow analysts, investors didn't seem overly concerned, with shares climbing 2 percent to close up 56 cents at $28.58. Matthew Borsch, an analyst with Goldman Sachs' New York office, wrote in a note to investors that the company had made progress, but wasn't fully out of a rough period.

``With the massive, all-encompassing fourth quarter charge and Health Net's new CFO seeking to restore credibility to the numbers, the worst may be behind Health Net,'' he wrote. ``Whereas 2004 was a 'problem recognition' year,' 2005 will be a tough turnaround year with buyers likely to stay away from Health Net until 2006.''

Brent Hopkins, [phone]

brent.hopkins(at)dailynews.com