Shares of

PacifiCare Health Systems

(PHSY)

, which runs the largest

Medicare

health maintenance organization in the U.S., rose 7% after reporting earnings on Tuesday that beat Wall Street's expectations, largely on the strength of an increase in premiums as well as a reduction of shares.

The stock was up 4 1/16 to 58 5/8. (PacifiCare finished up 1 13/16, or 3%, at 56 3/8.)

For the first quarter ended March 31, operating income, excluding credits and charges, rose to $117 million, or $1.94 a diluted share, from $116 million, or $1.61 a share, a year earlier. The consensus estimate of analysts polled by

First Call/Thomson Financial

was $1.70.

PacifiCare, based in Santa Ana, Calif., far exceeded the analyst estimate partly because the company instituted a share buyback program that strengthened earnings per share by 33 cents compared to the year before. By March 31, PacifiCare had repurchased 2.1 million shares worth $94 million.

The numbers exclude a reduction in health care costs of $9 million (or $5 million, or 14 cents a diluted share, after tax), $3 million (or $2 million, or 5 cents a diluted share) in credits received for premiums in Oklahoma and $6 million (or $3 million, or 9 cents per share) in charges. Including these credits and charges, operating income totaled $123 million, or $2.04 a share.

Revenue rose to $2.8 billion from $2.5 billion a year ago.

Membership stood at 4 million, a 12% increase over a year ago, with the purchase of

Harris Methodist Health Plans

adding 245,000 of that total.

However, the company's costs increased as the medical care ratio of 85.1% for the first quarter rose 30 basis points from a year ago. Without the $9 million credit, the ratio would have been 85.4%, a 60-basis-point increase from the year before.

The commercial medical care ratio increased 50 basis points from a year ago and the Medicare medical care ratio rose 40 basis points.

Looking ahead, PacifiCare expects second-quarter 2000 diluted earnings per share to be comparable to the $1.94 a share reported in the first quarter and full-year 2000 diluted earnings per share to grow 25% from the year-ago $6.23 to about $7.78. Analysts currently expect $1.70 for the second quarter and $6.98 for the full year.

The Medicare medical care ratio for the second quarter is expected to remain comparable or slightly higher than the first quarter.