PACIFICARE: TO SELL ITS ILLINOIS HMO

      "Ending months of speculation, PacifiCare Health Systems has
 announced plans to sell its Illinois operation, FHP of Illinois,"
 to Des Moines, IA-based Principal Health Care Inc.  Chicago
 Tribune reports that the companies "have signed a non-binding
 letter of intent; a definitive agreement is expected" to be
 completed within 35 days.  Terms of the deal were not disclosed. 
 Tribune reports that if the deal is completed, "Principal would
 become one of the largest players in Illinois' managed care
 marketplace" and would also gain a strong "foothold in the
 Medicare managed care business, "which experts predict will
 explode in Illinois over the next several years."   
      MORE TO COME
      Ken Linde, president and CEO of Principal, said, "We're
 committed to being a major player in Illinois and the Midwest."
 He said that the company is actively pursuing additional buyouts,
 although he would not disclose any specifics.  Principal
 currently has about 20,000 HMO members in Illinois.  Tribune
 reports that Illinois is Principal's number one market for its $4
 billion a year traditional indemnity business.  The company "also
 offers 80,000 Illinoisans" a PPO.  
      SO LONG ...
      FHP was the state's seventh-largest managed care operator
 with 60,000 employer-insured HMO members, 4,000 Medicare HMO
 members and 12,000 PPO members.  Tribune reports that while "the
 plan was profitable last year, officials foresaw tough times
 ahead, in light of ongoing price competition among HMOs and a
 restricted ability to negotiate more favorable arrangements with
 doctors and hospitals."  FHP CEO Gary Cole said, "We have
 suffered by being down on the totem pole in terms of size.  It's
 been a struggle for us to compete."  Tribune  reports that "[a]
 string of acquisitions and identity changes over the last 12
 years has also taken its toll, as have financial problems" at
 PacifiCare, "FHP Illinois' giant California-based parent" (see
 AHL 6/30) (Graham, 7/1).