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Health Net Boosts Marketing Amid Increase in Profit, Stock

During an investor conference earlier this month, Woodland Hills-based Health Net punctuated a year in which it has almost doubled its stock price and announced several quarters of profit improvements. The company has also raised its public profile, launching a series of advertisements throughout different media which feature celebrity actors like Fred Dalton Thompson and highlighting Health Net’s Decision Power program, an information resource available to Health Net members. “We’ve resumed advertising and a number of aggressive marketing approaches for the first time in several years, and we’re very confident about our prospects for the future,” said Health Net spokesman David Olson. “Decision Power is an interactive way to help our members make the best health care decisions, and it is really a unique feature.” That feature may be one of the company’s assets that made it a frequent mention in conversations about possible takeovers in the health care sector. In August, Banc of American Securities analyst Joseph D. France discussed possible takeover scenarios in a report to investors, in which he said that either Aetna Inc. or Cigna Corp. would be likely buyers. He also cautioned against being too optimistic about takeovers, saying that they often end up only benefiting investors in the company being acquired. Still, investors have been drawn to Health Net shares, the stock’s price closed at $51.03 last Wednesday, after being as low as $27.37 earlier in the year. In early November, the company announced third quarter net income of $78.2 million on revenues of $3.06 billion, exceeding analysts’ expectations. Health Net’s medical care ratio, which shows the portion of revenue used to pay for medical care, also dropped by 1.1 percent to 83.4 percent. At the time, the company was predicting 2006 earnings per share of $2.90, but about a week later it raised those estimates to $3.10 per share. In an investor conference last month CFO Anthony Piszel said that a number of factors helped turn 2005 into a year of recovery for Health Net. It agreed earlier this year to pay $120 million to settle a class action suit brought by doctors over bill submissions. Piszel said the company managed to reach deals with 37 hospitals without losing one as a client. Fewer complaints Piszel added that after revamping its policies after the lawsuit, Health Net has become one of the better payors in the health care business, generating among the fewest number of complaints about its business practices. The company also recognized that it needed to increase its rates and improved profit margins. Although raising rates cost the insurer somewhat in membership, gross margins improved and membership rates have become stable, Piszel said. “The number one factor is that Health Net has diversified its business,” said Olson. “We have commercial operations in six states and we’re very active in Medicare. We’re expecting to see some very nice growth as a consequence of that diversity.” Starting at the beginning of next year, Health Net’s plan choices will be offered by Benu Inc., which markets health care plans in Oregon and Southwest Washington. Benu will combine Kaiser Permanente with either Health Net or Cigna Healthcare in a single offering. Its target market of mid-sized employers could be a good fit for Health Net’s diversity strategy. “We are pleased to join this innovative approach to providing more benefit choices to the region’s brokers, employers and employees,” said Cindy Fineran, Health Net of Oregon’s vice president of sales at the time of the announcement. “Throughout the past few years, Benu has demonstrated the appeal and effectiveness of offering Fortune-500 like benefit choices for mid-size companies. This is a unique opportunity for Health Net in Oregon and Southwest Washington.” Olson said the company is also pleased with the strides it’s made in its core businesses this year. Health Net won an eight-year extension of its contract to provide Medi-Cal services to Los Angeles County residents. It also remains a leading Tricare provider for members of the military, generating over $2 billion serving members in the Midwestern and Northeastern states. The sector has become more active as U.S. military activity has picked up, Olson said. Its high-deductible, patient directed plans have been slow to pick up in California, which Olson attributes to efficiently run medical groups, but the plans are selling better in other parts of the country. Olson would not speculate as to the market’s current opinion of Health Net as a possible takeover prospect, but said that “the fact that we’re returning to the advertising marketplace underscores our confidence in our business.”

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