Woodland Hills, Calif.-Based Insurer Health Net’s Vital Signs Get Stronger

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The Los Angeles Daily News

Health Net Inc. posted a 22 percent rise in second-quarter profits Thursday, propelled by greater enrollment and the severing of ties with certain government-sponsored plans.

Though Health Net met Wall Street’s expectations in a sector that has recently inched past analysts’ projections, many praised the company’s stellar management skills given economic conditions.

“The vitality of our future depends on our core operations,” said Jay Gellert, chief executive officer of the Woodland Hills-based insurer. “And with more and more consumers making informed choices about health care, we need to make sure people are confident with the service we provide.”

Before a managed-care company can instill confidence in its customers these days, it has to rise above the ill perception of the industry. At a time when movies like Denzel Washington’s “John Q” and Showtime’s recent series “Damaged Care” have portrayed health insurers in a tawdry light, Gellert said one must be sensitive when mixing medicine and business.

Even so, as the clash between capitalism and doing what’s right for patients comes under federal scrutiny, companies like Health Net and Thousand Oaks-based WellPoint are quick to rationalize their profits.

“Our second-quarter results affirm, again, that our strategies for pricing disciplines and business diversification continue to drive improvements,” Gellert said in a statement to investors.

But behind the glass-skinned towers of Health Net‘s headquarters, Gellert’s discipline translates to staying focused in an environment that’s often shrouded in controversy. “If I had it my way, I’d zap all the adversarial relationships in the system,” he said. “I’d also like to improve communication with physicians. Trust with our doctors is essential.”

Despite the devilish clown-faced lava lamp on Gellert’s desk, he isn’t candid when it comes to health care talk. The chief executive officer of Health Net takes his job seriously, and perhaps rightly so.

Jamie Court, a spokesman with The Foundation For Taxpayer & Consumer Rights, understands that communication is key to improving health care in the U.S. What he doesn’t understand is why corporations aren’t held legally accountable for maximizing profits by limiting care. “It’s a myth that the market is being driven by claims costs,” he said. “It’s being driven by greed.”

Whether it’s greed or savvy business practices, Wall Street certainly lauds the managed-care industry’s performance. Clifford Hewitt, an analyst with Legg Mason in Baltimore who doesn’t own stock in Health Net, said the health insurance sector is among the safest investments in the market right now.

Hewitt’s reasoning is based on Health Net‘s quarterly performance. The insurer said net income in the second quarter rose to $ 65 million, or 51 cents per shares, from a loss of $ 14 million, or 12 cents a share, in the same period a year ago. Revenues remained flat at about $ 2.5 billion.

“These results stem from Health Net‘s ability to develop a better product offering,” Hewitt said. “Health Net is really in the process of going from a second-tier company to a first-tier organization right now.”

That metamorphosis can be traced to 1998 when Gellert came aboard. Then a vice president, Gellert said he arrived at Health Net with expectations that change could revitalize the company. So far, it appears his ardent enthusiasm to alter Health Net‘s outlook has paid off.

The company has posted a steady stream of earnings since the third quarter 2001. “And Jay Gellert is singularly responsible for that vast of an improvement,” said Todd Richter, analyst with Banc of America Securities in New York. “The company was flat on its back three years ago and he (Gellert) is now perceived as one of the best CEOs in the industry.”

As for the future, Gellert isn’t trolling for potential acquisitions. Instead, he’s fixated on streamlining the business to enhance Health Net‘s line of products. To do that, exiting markets that pose less favorable profits could be inevitable.

And while improving revenues is almost always preferred, Gellert said corporate responsibility is especially important given the economy’s environment. “Excessive capitalism in any field is not beneficial,” Gellert said. “We want to be competitive with all of those companies out there, but we don’t want to go overboard where employees’ techniques are not responsive to social purpose.”

Health Net shares declined $ 1.90, or 8.1 percent, to close at $21.52 Thursday.

Consumer Watchdog
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