PacifiCare Health Systems

(PHSY)

reported third-quarter net income that fell sharply from a year ago, as rising medical costs related to the company's transition from capitated contracts to per diem, fee-for-service or shared-risk arrangements with hospitals hurt the bottom line.

The Santa Ana, Calif., health care services company reported third-quarter earnings of $5.2 million, or 15 cents a diluted share, compared with $69.3 million, or $1.54 a share, for the same period a year ago. The latest third quarter includes a credit of $3.8 million, or 11 cents a diluted share, related primarily to the early termination of a license agreement. Results for the same period last year reflect a charge of $1.7 million, or 4 cents a share, for impairment and disposition activities.

First Call/Thomson Financial

carried a consensus estimate for a loss of 7 cents a share for the latest third quarter.

Revenue rose 14% to $2.87 billion from $2.52 billion.

PacifiCare expects fourth-quarter earnings of 20 cents to 30 cents a diluted share, excluding the effect of any restructuring charge the company may take as a result of its strategic review. Analysts expect the company to earn 7 cents a share, according to First Call.