Maxicare reports quarterly profit after cutbacks.

Maxicare reports quarterly profit after cutbacks

In the second quarter of 1991, Maxicare Health Plans Inc. reported net income of $217,000 - not exactly a huge profit for a company with annual operating revenues of about $400 million but quite an accomplishment for one that had been losing millions and just emerged from Chapter 11 in December.

But this is not the same Maxicare that went broke last year. That Maxicare had about 2 million enrollees, operated in 26 states and owned its own hospitals, a television studio and airplanes. The new Maxicare has about 280,000 enrollees in seven states, about 100,000 of those in Southern California, and doesn't own much of anything. It does one thing - arrange managed health care plans.

"It's a much smaller company than it was at its apex," said Maxicare spokesman Ed Coghlan. "We don't try to be Kaiser or Cigna. We don't own hospitals. We shed all of our unprofitable operations. We're much leaner and meaner."

The business customers who stuck with Maxicare through the transition seem pleased with the new and improved health maintenance organization.

"We have a number of insurances, and that (Maxicare) is the one we have the least problems with," said Lynn Corman, benefits administrator at Bendix Oceanics Inc. in Sylmar, a maker of anti-submarine warfare systems. "There was a spell where some of the doctors were having problems (collecting on bills for providing care to Bendix employees). It was mostly the doctors who were panicking, nervous about getting paid."

David Jones, manager of benefits for McDonnell Douglas Corp. West in Long Beach, tells a similar story, adding that Maxicare's service during the reorganization was better than he expected.

Choosing his words carefully, since his company is going to bid for health care plans right now, Jones said: "In the areas where our employees avail themselves of the service, they (Maxicare) have adequate coverage. As far as changes in management, it's a little bit early to tell if that's going to make a difference better or worse. I haven't noticed much change."

Jones said McDonnell Douglas employees were allowed to opt out of Maxicare in mid-1990 and about 20 percent jumped ship.

Maxicare's road to recovery now depends on the company's ability to convince people that it is new and improved and financially viable, while holding onto its old name recognition and history in the health management business.

Maxicare's road to recovery now depends on the company's ability to convince people that it is new and improved and financially viable, while holding onto its old name recognition and history in the health management business.

On the one hand, Coghlan says the company is so changed that "we talk about that company (the pre-bankruptcy Maxicare) as if it's not us, because it isn't." In the next breath, he sells Maxicare based on its 19-year history and pioneering role in the HMO industry.

"Where it (Maxicare) lost its way is when it went into other things," he explained. "We'd change the name if we thought the name was a stigma. The financial problems were an encased period of time. We have the long view in mind. We've reduced our overhead 3 percent from last year."

In the second quarter, the company decreased its medical loss ratio to 84.7 percent from 85.6 percent a year earlier.

The second quarter profit, which compared to a loss of $833,000 on roughly the same revenue in the same period last year, came despite an increase in interest expenses, to $2.4 million from $92,000 in the second quarter of 1990.

For the first six months of 1991, Maxicare showed a loss of $1.15 million on operating revenues of $190.84 million, compared to a loss of $3.2 million on operating revenues of $196.66 million in the first half of 1990.

In a July 1, 1991, stock report titled "Maxicare Health Plans, Inc. - Rising from the Ashes" from Furman Selz Inc. of New York, an institutional brokerage and investment bank, analyst Randall S. Huyser in Furman's Northern California office wrote that Maxicare's "valuation looks very attractive."

"Since Maxicare's ill-fated acquisition binge and consequent massive financial losses in the late-1980s, the company has pared down to a core group of plans," Huyser wrote. "Top management has been in place for over two years and has done an impressive job executing the bankruptcy plan and restoring the company to profitability."

Maxicare stock has traded recently for about $8 per share.

The company is growing slowly, adding new options for its members gradually, although it still offers fewer choices in doctors and hospitals than it did before the bankruptcy.

Last month, Maxicare announced that it received approval from the federal government's Health Care Financing Administration to begin marketing a new senior health plan called Max 65 in Los Angeles and Orange counties.

The new plan is a Medicare supplement that features no premiums and no deductibles.