In another example of the high cost of consolidation attempts, WellPoint Health Networks reported that its failed merger with Health Systems International caused WellPoint's net income for the fourth quarter of 1995 to drop 74%.
For the fourth quarter ended Dec. 31, 1995, WellPoint posted net income of $13.3 million, or 13 cents per share, compared with net income of $52 million, or 52 cents per share, in the year-ago quarter.
That helped drag down net income 15% for the year to $180 million, or $1.81 per share, from $213.2 million, or $2.14 per share, in 1994, despite premium revenue growth of 12% to $2.9 billion from $2.6 billion. Revenues for the fourth quarter of 1995 grew 7.7% to $729 million from $676.8 million in the year-ago quarter.
HSI earlier reported costs of $20.2 million related to the scuttled merger, causing a slip in fourth-quarter 1995 profits (Feb. 19, p. 13). But HSI said it was able to preserve modest earnings growth last year by cutting provider payments (See related story, p. 60).
Both companies are located in Woodland Hills, Calif.
WellPoint said $18 million of a $34.5 million charge in the fourth quarter was related to the merger attempt. It attributed the rest of the charge to a new recapitalization plan associated with its parent, Blue Cross of California, going public, and to the write-down of some pharmacy operation assets to meet new accounting standards.
"With the extraordinary events of 1995 behind us, WellPoint is well positioned for further growth in 1996," said Leonard Schaeffer, WellPoint chairman and CEO, in a printed statement. Among other things, Schaeffer said the controversy over Blue Cross' public benefit obligation will be resolved with WellPoint's new recapitalization plan.
WellPoint also has an agreement to acquire the group life and health subsidiary of Massachusetts Mutual Life Insurance Co., which is WellPoint's first major step in its national expansion, he said.