KAISER: May Sell N. Texas Operations To Harris Methodist

      Kaiser Permanente may sell its "unprofitable Dallas-Fort Worth HMO to Harris Methodist Health Plan" in a move that would create the state's largest HMO. The Dallas Morning News reports that earlier this week, "Kaiser and Harris signed a nonbinding letter of intent ... to move forward with due diligence on the deal." The combined operation "would control about 42% of the local HMO population," which consists of about 405,000 members. The proposed deal would allow Kaiser members "to keep their current doctors, who would become part of the Harris network" (Ornstein, 2/20). The Fort Worth Star-Telegram reports that "Harris ... is the largest HMO in the area with about 300,000 members," while "Kaiser ranks third with about 130,000 members." Combined service areas under a merger of the plans "could offer significant savings in administrative expenses," which the Star-Telegram notes "are becoming more important as HMOs struggle to maintain earnings while medical costs creep upward" (Fuquay, 2/20). In the midst of the proposed union, "Harris has also been discussing a merger with Blue Cross and Blue Shield of Texas," the Dallas Morning News reports.

Know When To Fold Them
      The "decision to sell is a dramatic about-face for Kaiser," which has "tried but failed to build a foundation from Dallas-Fort Worth to expand throughout Texas and the Southwest." Last year, "Kaiser's North Texas HMO posted a $50 million loss, the largest of any HMO in the state," and "Kaiser's performance in North Texas ranks near the bottom." Dr. William Gillespie, president and executive medical director of Kaiser's southwest division, noted that "market realities have dictated Kaiser's inability to grow in North Texas." He said "local consumers want choices and personal control, and Kaiser's health plans are more restrictive." Kaiser has repeatedly come under investigation for alleged inappropriate treatment of patients, but "Gillespie said current sale discussions are unrelated to the investigations of Kaiser or numerous medical malpractice lawsuits filed against the HMO" (2/20).

A Clear Winner
      The Star-Telegram reports that a "merger would also give Harris a big boost in Dallas County, where fewer residents belong to HMOs compared with Tarrant County." Harris, which has faced recent physician fee disclosure battles in Texas, does not maintain its own physician practices, but instead "contracts with independent physicians who treat the HMO's patients." Under the deal, "the Permanente Medical Association of Texas, the physician group that provides most medical services to Kaiser members," would "become an independent, multispecialty group" that could contract with any insurer (2/20).