Will Merger Talks Be the Next Step For Group Health and Kaiser Permanente?

Two of the country’s leading nonprofit HMOs, Kaiser Permanente Northwest and Group Health Cooperative of Puget Sound, will be working more closely together than ever before, with an actual merger among the possibilities, officials of the companies have announced. The boards of directors from both companies could reach a decision by November.

The combined company would be the largest health plan in the Northwest, generating $1.8 billion in revenue and covering more than 1 million members in Washington, Oregon and parts of Idaho.

In a joint statement, Group Health’s president and CEO, Phil Nudelman, Ph.D., and Kaiser Permanente’s Mike Katcher, president of the Northwest Division, said that large employers seek to lower costs by dealing with fewer plans and wider geographic coverage. “We believe that by working with each other, both Group Health and Kaiser Permanente will enhance their quality and cost-effectiveness even further,” said Katcher.

It’s unclear how physicians in either group will be affected by the alliance. Nudelman implied that redundant administrative positions, not physician jobs, would be eliminated if the two companies tie the knot.

Empire Blue Cross and Blue Shield is the latest Blues unit seeking conversion to a for-profit company. The 62-year-old plan wants to shed its quasi-governmental role as an insurer of the sickest of the sick and raise capital to enter New York’s highly competitive HMO marketplace, which includes Aetna U.S. Healthcare, Cigna, United HealthCare and Oxford Health Plans.

Despite front-page-reported scandals and poor earnings performance that plagued the company over the last three years, Empire BCBS has rebounded to add new members and report two profitable quarters in 1996. As part of its restructuring, Empire BCBS will create a $2.5 million charitable foundation to fund programs for uninsured New Yorkers.

Increasing enrollment in the company’s newest managed care plan options is a major initiative of Empire BCBS’s CEO, Michael A. Stocker, M.D. Nearly 524,000 enrollees out of its 4.7 million total membership are signed up with its managed care products. Approval is still needed from federal and state regulatory authorities.

Coastal Physician Group is foundering in a sea of debt, but the company is trying to reverse the tide and emerge as a profitable practice management company. Coastal officials have hired the investment banking firm Smith Barney for reorganization advice that could result in a possible sale of the company.

Already, the Durham, N.C., company is beginning to sell off its non-core assets to reduce its debt. Nine New Jersey primary care physician practices that are part of HealthNet and six Maryland practices of Physicians Planning Group were sold. “These transactions should put us more than 60 percent of the way toward meeting our $40 million debt obligation due in January 1997,” says President and CEO Joseph G. Piemont.

The company will concentrate on its core businesses, including emergency department staffing, government correctional health care services and billing and accounts receivable management. It intends to retain two of its managed care plans: Health Plan Southeast in Tallahassee, Fla., and Doctors Health Plan in Durham, N.C.

For the first six months of 1996, the company reported a net loss of $24.9 million on revenue of $298.8 million, a 28.7 percent decline from 1995’s revenue of $419.2 million.

The number of preferred-provider organizations grew 20 percent between 1994 and 1995, but the number of covered lives barely changed, and PPO penetration has plateaued in several markets, SMG Marketing Group reports.

By the end of 1995 there were 1,001 PPOs, compared with 802 at the end of 1994, according to the group. But the number of employees covered inched up by just 0.7 percent, to 79.6 million.

Insurers still operate more than half of all PPOs, followed by independent investors, which own about 16 percent. Physician and hospital joint ventures only operate 4.2 percent. Analysis of the average length of stay for medical/surgical patients increased from 4 percent to 4.1 percent.

Almost overnight, four of California’s largest managed care plans will become two. In early August, PacifiCare Health Systems said it would buy FHP International for about $2.1 billion in cash and stock. Most recently, Health Systems International (HSI) said it would merge with Foundation Health. Both of these companies rank among the 10 biggest for-profit health plans in the country. It’s not the first time the companies have considered a merger agreement. HSI, which attempted and failed to merge with Wellpoint Health Networks in 1995, considered a proposal from Foundation Health more than a year ago.

The new agreement calls for Foundation Health to fold its operations into HSI, creating a new company, Foundation Health Systems. Daniel D. Crowley, head of Foundation, will be chairman of the new company until the deal is completed, at which time HSI chairman and CEO Malik Hasan, M.D., will become the indisputable leader.


America’s 62 Blue Cross and Blue Shield plans reached a milestone recently. Enrollment in the Blues’ managed care plans — in HMO, PPO or POS models — has surpassed fee-for-service membership. Nationwide enrollment in the Blues system is 66.3 million, of whom 34.6 million, or 52 percent, are in managed care plans.


It’s official — but not too original. Aetna U.S. Healthcare is the new name of, you guessed it, Aetna and U.S. Healthcare. There’s also a new logo, which merges U.S. Healthcare’s famous apple with Aetna’s familiar logotype. “Our new health logo will be instantly recognizable to consumers as a symbol of Aetna’s strong, reliable national reputation and U.S. Healthcare’s leadership in affordable, high-quality managed care,” says Michael J. Cardillo, co-president of the Hartford, Conn., company.

The merger, which cost Aetna $8.9 billion, created the country’s largest medical benefits company. Aetna U.S. Healthcare claims 14.1 million enrollees in its various health plans. Of the total, about 10.3 million are covered under managed care plans. Since Aetna sold its casualty and life business to Travelers Insurance Group for $4.1 billion, the company is concentrating on its health care and retirement businesses.

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