PACIFICARE: AGREES TO PURCHASE FHP INTERNATIONAL
PacifiCare Health Systems Inc. announced yesterday that itThis is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.
has agreed to purchase FHP International Corp. for $2.1 billion
in stocks and cash, LOS ANGELES TIMES reports. The merged
company, which will have combined revenues of more than $8.6
billion, would become the fifth-largest HMO in the U.S., with 1.4
million members in Southern California and four million in 15
states and Guam (Marsh, 8/6). The new company would also have
approximately one million Medicare members, "making it the
largest provider of managed care to Medicare recipients."
The deal is subject to state and federal regulatory review and
must be approved by the stockholders of both companies
(Zuckerman, NEW YORK TIMES, 8/6).
ROOM TO GROW: PacifiCare said that it expects the merger
will increase its efficiency and enable it to offer lower prices,
"as it seeks to expand ... in the fiercely competitive" HMO
market. PacifiCare President and CEO Alan Hoops said, "This
merger should provide a platform in which we can improve services
and value to our customers. Economically, it makes terrific
sense and it will give our members broader choice in health care
providers" (HOUSTON CHRONICLE, 8/6). WALL STREET JOURNAL reports
that the merged company would help "bolster PacifiCare's fast-
growing Medicare operations." Specifically, Hoops said that he
hopes the merger will help the company expand its Medicare HMO,
Secure Horizons, "into a nationally recognized brand name"
MEDICARE MONOPOLY: According to the LOS ANGELES TIMES, the
merged company would serve "25% of the roughly 3.5 million
Medicare recipients" who are currently enrolled in HMOs across
the country. Hoops said that since only 10% of all Medicare
beneficiaries are enrolled in HMOs, the company sees "'enormous'
growth potential in Medicare." LOS ANGELES TIMES notes that
"Medicare business is much more attractive to HMOs than the
membership numbers alone suggest" because Medicare reimbursement
rates are "three to four times" higher than payments from private
members. PacifiCare currently has 537,000 Medicare enrollees or
25% of its overall membership "of nearly 2 million." The
Medicare members "accounted for 60% of the company's 1995 revenue
of $3.7 billion" (Olmos, 8/6).
REORGANIZATION: Under the agreement, Hoops will continue as
PacifiCare's president and CEO. FHP's President and CEO Westcott
Price said that he would remain with the company during the
transition period. PacifiCare officials said that they
anticipate $110 million in savings during the first year as a
result of the transition. The savings would result from
"administrative and overhead reductions" and through "better
medical management." Employment reductions are expected at FHP
"because of two companies' overlapping operations in California."
The JOURNAL notes that PacifiCare and FHP's headquarters are only
10 miles apart in Southern California (8/6).
PROTESTS: According to the CHRONICLE, patients rights
groups have "criticized the proposed merger, saying improved
profits and improved health care often do not go hand in hand."
Jamie Court, head of Consumers for Quality Care, called the
merger "dangerous," and said that the proposed deal "is part of
the consolidation of the industry that will put health care in
the hands of a few very large HMOs." He added, "We'll see a
monopoly that has a very small group of people determining the
standard of health care for everyone and those people will be
bean counters, not doctors or nurses." Court said that he is
particularly concerned about the PacifiCare/FHP deal because both
companies "have been cited for quality-of-care violations in the