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Peter Ratican

Chairman, CEO and President

Maxicare Health Plans Inc.

Peter Ratican has seen good times and bad during his 10 years at the helm of Maxicare. Originally brought in to save the ailing HMO, he orchestrated a 21-month turnaround culminating in the company’s emergence from Chapter 11 bankruptcy protection in 1990.

Under Ratican’s guidance, Maxicare has gone from being the 29th-largest to the ninth-largest HMO in California, with 295,000 members in the state and a total enrollment of 550,000 in seven states.

“Our objective is to reach 600,000 this year, and if not, next year,” said Ratican, a certified public accountant who previously served at DeLaurentiis Entertainment Group Inc., MCA Inc., and Price Waterhouse.

While Ratican has succeeded in growing Maxicare’s top line, his success at the bottom line remains elusive. In 1997, Maxicare reported a net loss of $35.1 million on revenues of $663.8 million, vs. net income of $19.4 million on revenues of $562.8 million a year earlier.

The red ink continued flowing in the first quarter of 1998, with Maxicare posting a net loss of $2.7 million vs. a net loss of $9.9 million for the like period a year earlier.

Maxicare’s stock performance has followed suit, trading last week at about $6.75 a share, near its 52-week low of $6.

“We’ve had problems with our pharmacy costs,” explained the 52-year-old Ratican. “We’re in various stages of attempting to get the proper balance, possibly through generic rather than branded products.”

Those higher drug costs, combined with a demand from doctors and hospitals for higher fees, will require Maxicare to impose premium increases “approaching double digits” in 1999, Ratican said, with annual increases of 6 percent or so for two or three years after that.

Ratican said those increases would be sufficient to bring Maxicare back into the black and bolster its stock price. No dramatic cost-cutting moves are planned.

“We already have one of the lowest overhead rates in California,” he said. “Our unit costs for administrative are $9 per member per month, while the industry average is $12 to $20. And we don’t have any debt or goodwill.”

Big premium increases may please Wall Street, but what does Ratican plan to tell customers? “If you want access to good-quality health care, you have to pay for it,” he said. “Over the long haul, if we keep growing and raising our prices by an appropriate level and keep serving our members, it will pay off in the bottom line.”

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