Universal American reports $91.8M loss in 2nd quarter

Unlike a number of other publicly traded health insurers that did very well in the second quarter, Universal American Corp., which specializes in Medicare Advantage products, reported an adjusted net loss for the second quarter. Its revenue slid and its medical-loss ratio came in significantly higher than expected. It reported a $91.8 million loss for the quarter.

In the second quarter of 2012, Universal American reported net income of $4.7 million. At 3 p.m. EDT Friday, its share price was $9.99, 8.4% below where it closed Thursday.

Medicare Advantage is Universal American's bread and butter, and the carrier posted revenue in that segment of $394.9 million, well below a projection of $404.5 million made by Raymond James Financial healthcare analyst Michael Baker. Other equity analysts expressed similar disappointment in Universal's Medicare Advantage performance.

In the second quarter of 2012, Universal's Medicare Advantage business posted revenue of $397.3 million.

Universal American CEO Richard Barasch said in a written statement that the company is taking steps to improve its Medicare Advantage business going forward, but said some of the bad news was due to federal budget cuts limiting Medicare pay increases to Medicare Advantage plans.

Baker said Universal's medical-loss ratio for Medicare Advantage—the percentage of premium paid out in medical claims—was 88.2%, well above the 80.9% Baker had been projecting. He has posted an “underperform” rating on the insurer's shares, citing what he sees as “the company's lack of scale in an increasingly competitive business, weaker growth prospects and the reliance on loosely managed products such as private fee-for-service while reimbursement pressures drive the need for greater control.”

Universal wrote off $92 million—not included in the adjusted net loss—in “goodwill” related to its $227.5 million acquisition last year of APS Healthcare, a provider of healthcare disease management and care coordination, clinical quality and utilization review, and behavioral health services.

“Taking a writedown of the goodwill associated with APS Healthcare is a recognition that the deal has not worked out the way we had expected,” Barasch said.

Deutsche Bank healthcare analyst Scott Fidel said that the APS writedown is equivalent to 40% of the original deal valuation. He said the size of the charge confirms that Universal American “significantly overpaid for this asset.”

Universal American's board of directors approved a special cash dividend of $1.60 a share and also authorized a $40 million share buyback.

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