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News of the Day ... In Perspective

06/18/2006

California doctors reject UnitedHealthcare contracts

Nearly 300 doctors in the San Francisco Bay Area rejected contracts after UnitedHealthcare merged with PacifiCare and cut payments by as much as 30%. Doctors said the new rates did not even cover their costs.

Up to 900,000 patients may be affected statewide. If they choose to stay with a physician who is not in the PPO, they will have to pay higher out-of-network rates. Cisco Systems has agreed to cover any extra costs that its 700 employees incur for this reason.

UnitedHealthcare patients comprise 10 to 15% of local doctors’ practices, according to Dr. Larry Bonham, CEO of the Santa Clara County Independent Practice Association.

Physicians were especially rankled because UnitedHealthcare CEO William McGuire, MD, is the latest poster child of executive pay excess. Stock options are believed to make up the bulk of his net worth of more than $1 billion.

O’Connor Hospital in San Jose and Stanford University Hospital will continue to accept UnitedHealthcare patients until the end of the year. This will cost O’Connor about $1.5 million, stated CEO Joanne Allen (Mercury News 6/9/06).

In the wake of concerns over stock options improprieties such as backdating, UnitedHealthcare stock values plunged 20%.

A few years ago, a government pension plan tried to rein in the company by requiring it to start expensing stock options going forward.

“We believe that not expensing stock options may lead to overuse by companies that see them as ‘free money,’” the group said. “As Standard & Poor’s put it in its recent report, ‘When something is significantly underpriced, it is often also substantially overconsumed.’ We believe this concern is relevant to UnitedHealth” (thestreet.com 6/9/06).

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