It wasn't a clash of egos, but fundamental differences that doomed the merger of Health Systems International and WellPoint Health Networks, according to Malik Hasan, M.D., chairman and chief executive officer of HSI.
The planned $1.6 billion merger, which fell apart last December, would have created the nation's second-largest for-profit managed-care company.
HSI now is considering "different venture-partner candidates" to differentiate itself in the marketplace, Hasan said. HSI will seek to align itself more closely with providers, he said.
Hasan made the remarks early this month at the 1996 Health Care Forecast Conference sponsored by the University of California-Irvine College of Medicine.
In his first comments at a public forum on the collapse of the WellPoint-HSI merger, Hasan said "the differences were fundamental...Egos were not the reason."
Hasan did not elaborate on what those differences were.
Many industry analysts speculated that the proposed union failed because of a power struggle between Hasan and WellPoint Chairman and CEO Leonard Schaeffer. Each apparently wanted control over the new company's merger and acquisition activities.
"Superficial seductive factors" lure parties into alliances, Hasan said. "When we first looked at (the merger) we thought it was made in heaven." WellPoint and HSI are located across the street from each other in Woodland Hills, Calif.
"Our investment bankers said, `You should save $270 million a year"' on avoiding duplication alone, he said. "It looked like a no-brainer."
The planned merger was "embraced enthusiastically" by all concerned. "Then reality struck," he said.
HSI is now asking, "What are the best alliances for a company like ours?"
The idea of partnering more closely with physicians, who are an HMO's "natural partners (is) intriguing*.*.*.*very exciting," Hasan said. If mutual trust is present, such alliances would allow differentiation between HMOs, he said.
Currently, all HMOs are equally subject to market pressures to lower prices. This is "death by slow increments," Hasan said. HSI's current premiums are 7% lower than in 1995, he said.
A plan must set itself apart through its providers, Hasan said. In regions where all plans contract with virtually all providers, "the next step is aligning with fewer groups," Hasan said.
HSI is working on information systems outlining patterns of care. When they are complete, "we will take them to physicians we think can take that dose of castor oil, and we think that can be the beginning of a wonderful relationship," he said.
HSI may temporarily lose market share as a result of that move, and providers also may lose business. "But it will come back," he predicted.