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Aetna falls on 2Q warning
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July 18, 2000: 12:24 p.m. ET
Stock drops 14% after insurer says longer hospital stays cutting into profits
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NEW YORK (CNNfn) - Beleaguered health insurer Aetna Inc. warned Tuesday it expects to fall well short of second-quarter earnings estimates because of soaring medical costs, news that sent its shares plummeting about 14 percent at midday.
The largest U.S. health insurer, which has been in talks to sell its financial services and international units to concentrate solely on its health care business, said it expects to post quarterly profit of 85 cents to 95 cents per diluted share for the April-to-June period, down from the First Call consensus forecast of $1.20 per share.
Although Aetna did not cite specific revenue numbers, the Hartford, Conn.-based insurer blamed the rising costs on longer hospital stays for maternity and other patients, increased emergency room visits and outpatient surgeries. Other factors included more specialist office visits and increased costs for physician administered injectables.
 "We are very disappointed with this increase in medical cost trends," said Aetna Chairman and CEO William H. Donaldson, a long-time Aetna board member who took the helm in March after the ouster of then-CEO Richard Huber.
At midday, Aetna (AET: Research, Estimates) shares sank 9-1/8 to 57-1/2.
Over the past several months, Aetna stock has recovered somewhat from a 52-week low of 38-1/2 amid reports that the company may reorganize or sell some of its divisions. But shares are still well off a yearlong high of 89-15/16.
Amid investor pressure to boost its flagging share price and a management shakeup, Aetna said in March that it planned to split itself into two companies -- one focused on health care; the other on its international business and financial services.
But soon after, the company launched buyout negotiations with Dutch-based ING Groep NV for the sale of its non-health-care divisions. However, Aetna disclosed in June that it had broken off exclusive talks with ING and widened the bidding to include other suitors. According to industry analysts and published reports, other potential bidders include Citigroup Inc. (C: Research, Estimates) and American International Group (AIG: Research, Estimates).
But over the past week, reports have surfaced that ING has re-emerged as the leading bidder. According to one weekend press report, ING is willing to buy the two Aetna divisions for up to $8 billion cash plus assumed debt.
Both companies have declined comment on the report.
"If something were completed, we would be announcing it," Joyce Oberdorf, an Aetna spokeswoman, said Tuesday.
An industry-wide problem?
To counter rising health care costs, Aetna said it will thoroughly review management processes, increase premiums on its health plan business, and restructure its co-payment system.
Stock in other health insurers also lost ground Tuesday after Aetna announced its lower-than-expected results. Shares of Cigna (CI: Research, Estimates) fell 4-3/32 to 97-3/8; UnitedHealth Group Inc. (UNH: Research, Estimates) dropped 3-3/16 to 83-3/4 and Pacificare Health Systems Inc. (PHSY: Research, Estimates) lost 3-11/16 to 58-9/16.
But are Aetna's cost-control problems likely to be mirrored in the quarterly results of other health insurers?
Industry analyst David Shove, of Prudential Securities, thinks that's unlikely -- saying that Aetna's management changes and uncertainty about its future has created some company-specific problems that may have dampened overall productivity during the quarter.
"Aetna is going through a huge transformation; both in its corporate level, with all of the changes they are trying to make, and at the health care level," said Shove, who has a "strong buy" rating on Aetna stock. "There's uncertainty around management, and all of those issues are probably affecting the results." 
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Aetna
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