After a false start, Philadelphia-based Graduate Health System has accepted an offer from Health Systems International, a Woodland Hills, Calif.-based managed-care company, to be its partner in the creation of a regional integrated delivery system in the Northeast.
Last week HSI announced that it had reached a definitive agreement to acquire Graduate's 98,000-enrollee HMO, Greater Atlantic Health Service, and other for-profit subsidiaries of Graduate, for $100 million in cash and notes.
Greater Atlantic Health Service serves the Philadelphia area and southern New Jersey. HSI serves more than 1.6 million enrollees in seven states.
Shattuck Hammond Partners and Robertson, Stephens & Co. advised Graduate and HSI, respectively, on the deal.
As part of the transaction, HSI will acquire Founders Health Care, a Graduate subsidiary that manages primary-care physician practices. It also will acquire Graduate's home medical services company and other healthcare businesses.
In addition, a new for-profit management company headed by Harold Cramer, Graduate's chairman and chief executive officer, will be created by HSI.
The as-yet-unnamed company will enter a long-term agreement with HSI to manage Graduate's seven not-for-profit hospitals and the for-profit subsidiaries acquired by HSI. Graduate executives and administrative employees will be employed by HSI's management company.
HSI's $100 million payment will be used to endow Graduate's hospitals.
The transaction, which is expected to close by the end of September, follows the breakup of another Graduate partnership that never got off the ground (Nov. 21, 1994, p. 3). Under the failed agreement, announced early last year, Graduate and Philadelphia-based Independence Blue Cross were to merge their for-profit operations into a new subsidiary and fold Graduate's not-for-profit hospitals into an integrated network being formed by the Blue Cross plan (Feb. 7, 1994, p. 8).
Malik M. Hasan, M.D., HSI's chairman, president and CEO, said the deal with Graduate "represents a major step forward in our Northeastern strategy."
Last year the managed-care company established a presence in the market with its purchase of a 51% share in Integrated Health Networks, a Philadelphia-based managed-care firm, from Main Line Medical Enterprises, Radnor, Pa. (Nov. 7, 1994, p. 47). The HMO has been renamed QualMed Plans for Health of Pennsylvania.