Minnesota’s UnitedHealth Group Inc. is making its mark here since paying $9 billion for Cypress-based PacifiCare Health Systems Inc. two years ago.
The health insurer has kept the PacifiCare name as a brand for some offerings, including Medicare plans. PacifiCare’s Costa Mesa-based pharmacy, Prescription Solutions, also has kept its name.
But the UnitedHealth name is coming to the forefront.
PacifiCare’s headquarters on Valley View Street in Cypress now bears the UnitedHealth name. Much of the company’s advertising now is under UnitedHealth.
Earlier this year, the company ran ads talking about bringing “two great companies together.” That was followed by a campaign that ran from March to June that more prominently showcased the UnitedHealthcare name and uses a color called “power fuchsia” to get its message across.
Current and planned ad campaigns emphasize UnitedHealth, said David Hansen, UnitedHealth’s Pacific regional chief executive, who came from PacifiCare.
The moves aren’t surprising. They reflect the integration of PacifiCare’s administrative operations into UnitedHealth, which coveted the company as a way to crack the California market and to expand into plans for seniors.
Instead of running PacifiCare as a subsidiary, UnitedHealth has melded the operation into its own and kept the name where it’s most known, among seniors and regional employers.
That could change, too. At a recent meeting in Costa Mesa, PacifiCare representatives told employers and insurance brokers to expect to see the UnitedHealth name become more prominent.
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UnitedHealth’s been busy in California since it bought PacifiCare. It’s added some 6,000 doctors and 10 hospitals to its statewide network, switched PacifiCare to its computer system and planned for a preferred provider plan.
The company counts about 2.5 million members in California, including some 232,000 in Orange County enrolled in health maintenance organizations.
PacifiCare has gained as part of UnitedHealth, said Hansen, who started with PacifiCare in 1999 and took his current post last month.
“We had a lot of limitations in terms of being a regional HMO,” he said. “The overall mission is the same. The difference is that now, in a $75 billion organization, the resources that you have,that frankly we didn’t have on a PacifiCare basis,are unbelievable.”
Being part of UnitedHealth, which is projected to have sales of $76 billion this year and had a recent market value of $65 billion, helps as California reforms healthcare, according to Hansen.
“There are areas where frankly, we have the ability to be a catalyst for change in the healthcare system that we couldn’t have gotten to on a legacy PacifiCare basis,” Hansen said.
UnitedHealth and other managed care companies could benefit from any reform coming out of Sac-ramento, but more so under Gov. Arnold Schwarzenegger’s plan.
Its mandate that all Californians have health insurance could lead to more sales of health plans to individuals for UnitedHealth.
And UnitedHealth and other insurers escape a proposed tax under the governor’s plan, unlike doctors and hospitals.
The downside: The plan would require insurers to spend 85% of premiums on healthcare.
That “will inevitably reduce operating margins and profits for plans accustomed to administrative costs above 20%,” said Paul Keckley, executive director of the Deloitte Center for Healthcare Solutions, a unit of Deloitte & Touche LLP.
Hansen, a genial, professorial type, is in charge of health plan operations in California, Alaska, Hawaii, Nevada, Oregon and Washington.
“I don’t spend as much time in Hawaii as I’d like,” he joked.
His business is set to expand with UnitedHealth’s pending $2.6 billion buy of Sierra Health Services Inc., a Las Vegas-based regional HMO.
The deal’s come under some fire from regulators and doctors because of fears UnitedHealth could control nearly 80% of the Nevada health insurance market.
The Sierra Health deal aside, UnitedHealth is looking to grow on its own in the West, Hansen said.
“I know of no acquisitions relative to the Pacific region,” he said. “Other than the Sierra deal, I think that we feel we’ve got the appropriate presence in each of the markets.”
Tough Going Early On
UnitedHealth has had its ups and downs since buying PacifiCare.
In 2006, the company was hit by a stock option grant scandal that led to the December departure of former chief executive William McGuire.
And early integration and cost-cutting at PacifiCare led to customer service problems.
UnitedHealth could be past those issues.
Goldman Sachs & Co. analyst Matthew Borsch recently upped his rating on UnitedHealth’s stock to “neutral” from “sell,” citing expectations of better profits in its commercial business during the second half. UnitedHealth could begin to “turn the corner” on selling plans and on customer service now that what Borsch called the most disruptive phase of the integration is behind it.
In an earlier interview, Hansen said UnitedHealth’s issues weren’t a distraction.
“Our overall strategic direction and performance goals remain the same, and we continue to grow our business in California as well as the rest of the country,” he said.
Earlier, Hansen worked as vice president of PacifiCare Health Plans, managing operations in Washington and Oregon. He also was senior vice president of sales and service for PacifiCare’s major accounts division, which covered work with companies, governments and group retirees.
Before PacifiCare, he spent seven years in the 1990s with Deloitte Consulting.
Howard Phanstiel, PacifiCare’s chief executive credited with turning around the company before its sale to UnitedHealth, now serves as an adviser to the company, talking with UnitedHealth Chief Executive Steven Hemsley and others.
“He continues to be active in terms of providing feedback to us, specifically around issues (with) the prospective changes in the governor’s proposal and the proposals in the California marketplace,” Hansen said.
Phanstiel, who lives in West Los Angeles, no longer has an office in Cypress. He works closer to his home in Century City.
“To Howie’s credit, in 1999, it didn’t look like PacifiCare was going to make it,” Hansen said. “We were a company that was struggling from a profitability perspective, and I think to his credit, we turned it around.”
