Tuesday, July 26, 2005 | 10:50 a.m.
Sierra Health Services Inc. announced Monday afternoon that its profit dropped 11.5 percent in the second quarter, but the number of Nevadans it insures continued to rise.
The Las Vegas-based company said its net income dipped to $33.8 million, or $1.01 per share, in the second quarter from $38.2 million, or $1.10 per share, in the year-ago quarter.
Sierra's second-quarter revenue dropped 21 percent to $348 million from $441.3 million in the year-ago quarter.
The declines were attributed to the ending of Sierra's TRICARE military contract, which managed military personnel's health benefits and ended Aug. 31.
Sierra earned $9.6 million in the second quarter from the run off of its TRICARE contract, compared with $140.7 million a year ago.
"At this point, we don't expect to see any more money coming in," Sierra spokesman Peter O'Neill said of the TRICARE contract. "We will record $5 million in the third quarter to pay remaining claims."
Sierra said it now expects to earn closer to $3.50 per share for its full-year guidance, compared with the $3.50 to $3.60 per share it previously projected.
In midmorning trading, Sierra's stock was trading down $4.24 per share, or 6.1 percent, at $64.96 per share on the New York Stock Exchange.
While the insurer's overall financial health dipped during the quarter, it posted gains in the number of people it insured on its commercial, Medicaid and Medicare plans.
Revenue from Sierra's health plan operations increased to $320.4 million in the second quarter from $280.7 million a year ago.
"Business is very very good in Las Vegas and continues to be very good," Sierra Chief Executive Dr. Anthony Marlon said today in a conference call with investors, analysts and media.
Sierra operates as Sierra Health & Life and Health Plan of Nevada for its traditional health plans and reported a 13.6 percent increase to 245,100 Nevadans insured through those plans at the end of the second quarter. In the year-ago quarter it insured 215,700 Nevadans.
"We've really been very pleased with our commercial membership growth this year," O'Neill said. "For the last couple of years we've grown at double-digit rates."
Sierra projected in April that it would experience a 9 percent to 11 percent increase in the number of people it insures. In the first six months, Sierra increased its plan members by 8.4 percent, O'Neill said.
He attributed the increase to the valley's population growth, which brought new businesses such as Wynn Las Vegas, and expansions within existing employer accounts.
Commercial premium increases are averaging 5 percent to 7 percent before benefit changes that increase employees' contributions through co-payments, co-insurance and deductibles, O'Neill said.
Sierra's private Medicare plan, Senior Dimensions, increased the number of Nevadans it insures by 4.8 percent to 54,700 at the end of the second quarter from 52,200 in the year-ago quarter.
Sierra projects its Medicare plan members will increase by about 5 percent this year, which is slightly better than last year, Marlon said.
Sierra recently received approval from the Centers for Medicare and Medicaid Services to offer a preferred-provider organization private Medicare plan in Nevada, three Arizona counties and seven Utah counties. Those plans will begin enrollment in September.
It is awaiting approval on a statewide Medicare PPO plan and Medicare Part D, or prescription-drug plans, in 10 states that would begin next year once traditional Medicare beneficiaries receive drug coverage.
Sierra said it expects to spend between $8 million and $10 million through the rest of the year for marketing and administrative costs associated with the prescription-drug plans.
The company expects to generate between $100 million and $200 million in revenue next year from the new Medicare plans, Marlon said.
The number of people covered on Sierra's Medicaid plan increased 2 percent to 52,000 Nevadans.
For the year, Sierra expects to increase Medicaid members by about 5 percent, Marlon said.
Sierra recently signed three-year provider contracts with University Medical Center and Universal Health Services Inc. -- owner of Valley, Desert Springs, Summerlin and Spring Valley hospitals.
This marks the first time all of Sierra's health plan members can seek care at UMC, O'Neill said.
The contracts were negotiated with a "mid-single digit range" increase to the existing contracts, O'Neill said.
"It's consistent with our overall hospital cost increases," he said.
Hospital contracts increased between 6 percent and 8 percent, which is in line with hospital cost trends, Marlon said, adding that the UMC contract rates were reduced slightly to match other local hospital rates.
On Dec. 31, Sierra's contract with HCA Inc. -- owner of Sunrise, MountainView and Southern Hills -- expires, but formal contract negotiations have not begun, O'Neill said.
Sierra also operates 13 physicians' practices, called Southwest Medical Associates, and one outpatient surgery center.
Two other physicians' clinics are planned, one for the northwest part of the valley and another in the southwest part of the valley.
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