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Maxicare Health Plans Inc. has been mugged and nearly left for dead on Wall Street.
The Los Angeles-based health maintenance organization's stock was trading last week as low as $1.63 a share, down 91 percent from its 1987 high of $18.63 and down 94 percent from $28.50 in 1986. As recently as December, a share of the HMO sold for more than $6.
Trading in Maxicare stock last week was extraordinary heavy, reaching 2.67 million shares on Tuesday and 2.44 million on Wednesday -- making Maxicare the most active of any stock traded over the counter. On average, about 90,000 Maxicare shares trade each session.
"This damn thing is a house on fire," says Steve Reid, veteran health care industry analyst with Wedbush Securities Inc. downtown. "What disturbs me about Maxicare is that we haven't seen an uptick for two weeks."
The market is reacting to a string of Maxicare losses reaching back to the fourth quarter of 1986. Since then Maxicare has suffered more than $50 million worth of red ink on revenues of $1.74 billion -- and has yet to report 1987's fourth quarter, which is also expected to show a loss.
The red tide follows the decision in fall 1986 by Fred W. Wasserman, the 48-year-old founder, chairman and chief executive of Maxicare, to acquire big HMO rivals HealthAmerica Corp., of Nashville, and Healthcare USA Inc., based in Orange County. (Wasserman and other Maxicare officials were not available for comment last week.)
Undeniably, the HMO buying binge launched Maxicare into the ranks of the nation's major league medical providers. The company's patient enrollment surged to 2.2 million from 700,000 -- making it the largest publicly held HMO in the country -- and revenues grew to a $1.8 billion annual rate.
But the buyouts were financed with debt, also of the major league variety. Today Maxicare carries more than $490 million in long-term IOUs on its balance sheet, requiring debt service payments of $12.5 million per quarter. Since taking on that debt load, Maxicare has not reported a profit.
Too, the $379.2 million purchase of HealthAmerica is proving difficult, say analysts. The big HMO was largely of the "staff model" type -- like local HMO Kaiser Permanente, made up of on-staff physicians...