LV's Sierra Health to go it alone

Sierra Health Services Inc. of Las Vegas said today it's backing away from exploring possible mergers because of a wave of lawsuits against health maintenance organizations nationwide.

In its earnings report, the managed care company stated that "as a result of market conditions, the board has decided that a major recapitalization does not appear in the best interests of shareholders at this time."

Sierra first announced possible recapitalization plans in March, as part of an effort to shore up its stock price. Company spokesman Peter O'Neill said this would have entailed "taking on a partner," who would have purchased a major stake in the company.

"Because the environment is a little volatile, we kind of need to wait until the dust settles before we undertake any major activity like that," O'Neill said. "Everything is still on the table, but in the short term, it isn't a good idea."

Prominent class-action lawyers nationwide in recent weeks have sued the nation's largest managed care companies, alleging their practices place company profits ahead of patient health care needs.

The company is currently authorized to spend $21 million on share repurchases, and Sierra said it will proceed with those efforts.

Meanwhile, Sierra reported a decline in its quarterly earnings, partly because of continuing struggles with an HMO it acquired in Texas last year.

Sierra's earnings fell 29.4 percent to $8.9 million, or 33 cents per share. Over the same period, revenues rose 15 percent, to $322.6 million.

The earnings drop was caused by a sharp increase in medical expenses, which rose 42 percent over the year-ago period, to $173.8 million. Sierra's membership rose just 7.4 percent since the third quarter of 1998, to 1.28 million -- but the company's health maintenance organization saw a membership increase of 57 percent, giving it nearly 320,000 members. That increase was caused by Sierra's acquisition of Kaiser Permanente's Texas HMO last year.

Sierra said it is still working to restructure its struggling operations in Dallas. The company said it is reducing its workforce there by more than 15 percent, and selling off its local pharmacy operations in Dallas-area Albertson's stores. Sierra expects to take a restructuring charge in the fourth quarter, but said the effort will ultimately save as much as $8 million per year.

"Additional fourth quarter charges may be recorded pending the timing and outcome of currently disputed legal issues," the company's earnings release stated, without elaborating.

Despite the earnings decline, Sierra's stock price increased 75 cents this morning to $8.75.

archive