Health Systems International's failed merger with WellPoint Health Networks cost $20.2 million, HSI said in its 1995 year-end financial report.
The company's earnings rose modestly overall last year, but merger costs caused fourth-quarter profits to slip despite a surge in revenues.
To preserve its profit margins in the competitive California market, HSI said it cut provider payments in 1995. It also said it will share the sacrifice with providers this year and has frozen salaries across the board, even for senior managers.
For the year ended Dec. 31, 1995, net income for Woodland Hills, Calif.-based HSI rose 2% to $89.6 million, or $1.83 per share, from $88.1 million, or $1.77 per share, in 1994. Revenues climbed 18.5% to $2.7 billion from $2.3 billion.
In an interview earlier this month, Malik Hasan, M.D., HSI's chairman, president and chief executive officer, said that amid pressure from payers to lower premiums, the company was able to preserve its margins in its commercial business by renegotiating provider contracts.
Because cuts were passed along to providers, HSI's medical-loss ratio for its commercial plans-its healthcare expenses as a percentage of premium revenues-remained flat at 79.4%. By comparison, that ratio for competitor PacifiCare Health Systems, based in Cypress, was 82.5% in the fiscal year ended Sept. 30, 1995, and crept up to 85.8% in the quarter ended Dec. 31, 1995, according to PacifiCare data.
The scuttled merger with WellPoint, a Blue Cross of California subsidiary, cost HSI $6.7 million in the fourth quarter. Despite a 26% jump in revenues-to $741 million from $589.5 million-net income slipped to $23.4 million, or 48 cents a share, from $23.8 million, or 48 cents a share, in the year-ago quarter.