PacifiCare Health Systems Inc., Santa Ana, could be gearing up to spend as much as $20 million on an advertising and marketing campaign designed to recast its image.
The managed-care company has retained Select Resources International, a West Hollywood consulting firm, to help find an advertising agency. PacifiCare wants an agency capable of handling an account valued at $15 million to $20 million, according to AdWeek, a trade magazine.
Figures from New York-based Competitive Media Reporting, which tracks advertising spending, showed that PacifiCare spent roughly $10 million on advertising in 2000. AdWeek reported that PacifiCare has parceled its advertising out to about 15 agencies, with the largest piece being handled by DavisElen of Los Angeles.
DavisElen plans to pitch the PacifiCare account, agency President Bob Elen told AdWeek.
“We don’t see this as cause for concern,” he said.
Select Resources International “will begin working to evaluate potential agencies (that) could assist us in the tactical execution of advertising and other marketing efforts to develop and support our health plans and new products,” said Ben Singer, a PacifiCare spokesman. “We will have to talk more about in the first quarter of next year.”
The AdWeek article said that PacifiCare is “eager to shed its image as an HMO and win back the confidence of Wall Street.” PacifiCare’s stock price has plunged from nearly 40 in February to around 14 late last week.
One research analyst who follows PacifiCare wasn’t impressed.
“PacifiCare seems to believe that they have a PR problem with Wall Street,” said Sheryl Skolnick, a managing director at New York-based Fulcrum Global Partners LLC. “They don’t seem to understand that their inability to operate a fundamentally sound business consistently (is the problem). When consistency exists in your business model, your reputation and stock price follow.”
But Wall Street is only part of PacifiCare’s concern. The company is trying to recast itself as a broad-based supplier of health services to the general population.
In the AdWeek article, Jim Frey, PacifiCare’s senior vice president for branding and strategic initiatives, said PacifiCare wants to find an advertising agency that can show its involvement in areas outside of insurance, such as clinical drug trials and sales of over-the-counter medications.
The company’s Singer said PacifiCare recognizes “the concerns of Wall Street and others. That’s why we’re working diligently to improve our operations through our two-year business plan and we feel we’re making progress in many areas.”
The company’s marketing efforts are part of an overall strategy, Singer said.
“One of those areas we think is important is examining how we’re going to re-position the company and its products in the future,” he said. “But it doesn’t take precedence over what’s right in front of us in terms of priorities and addressing those issues we’ve identified as keys to our turn-around. This is not, at least from our viewpoint, a matter of putting the cart before the horse.”
In a Securities and Exchange Commission filing, PacifiCare described its marketing as a two-step process aimed at employer groups and employees.
“We use various techniques to attract commercial members, including work site presentations, direct mail, medical group tours and local advertising. We also use television, radio, billboard and print media to market our programs,” the company said.
PacifiCare also said in the filing that it markets its Secure Horizons Medicare HMO to beneficiaries “primarily through direct mail, telemarketing, our Web site, television, radio and community-based events with participating physician groups. Most Secure Horizons members enroll directly in a plan, generally without the involvement of insurance brokers, except when enrolling as part of an employer group retiree offering.”
The AdWeek article noted that much of DavisElen’s efforts have been focused on Secure Horizons.
But analyst Skolnick said she’s seen a shift in PacifiCare’s marketing efforts.
“I do believe that PacifiCare is trying hard in its Main Street markets, (such as) Southern California and Texas. It’s (emphasizing) preferred provider organizations, rather than only HMOs.”
PacifiCare officials are banking on its new preferred provider organization, launched a month ago in California and several other key markets, as a way to improve its overall performance. PPOs are more popular than HMOs with many consumers because they allow greater freedom of choice among physicians, particularly specialists.
On the other hand, PPOs also are considered more volatile than HMOs because with more member freedom, cost control and utilization become more difficult.
“If you say ‘no,’ the members get very angry,” Skolnick said.
Skolnick suggested that PacifiCare should be looking to its basic HMO program.
“When the economy softens, employers and employees tend to choose basic healthcare, not bells and whistles,” she said. “Employers no longer need to use health insurance as a recruitment and retention tool. That was appropriate for the market two years ago, with the dot-com boom, not today.”
As PacifiCare moves to recast itself, it has some advantages, according to Ryan Abbate, managing director of Pacific Communications, a Costa Mesa-based agency that specializes in healthcare communications, including advertising and brand development. Chief among those, Abbate said, is its brand equity.
“It enables PacifiCare to take advantage and leverage (its name) into other areas. They’re in an enviable position over someone that would have to start from scratch,” Abbate said. n
