Because of antitrust concerns, the Federal Trade Commission might require Cypress, Calif.-based PacifiCare Health Systems to sell off part or all of its Medicare business in San Diego.
That worry surfaced late last month as Terry Hartshorn, PacifiCare's chairman, speculated on the FTC's pending decision on his company's planned acquisition of Fountain Valley, Calif.-based FHP.
Hartshorn, who's also president and chief executive officer of the UniHealth system, spoke with MODERN HEALTHCARE*during a meeting of California hospital and healthcare system executives in Monterey. UniHealth is a minority stakeholder in PacifiCare.
The FTC is likely to scrutinize the impact of the proposed merger on the San Diego area, where the merged company would control about 90% of the Medicare market, he said.
The $2.1 billion acquisition of FHP by PacifiCare would create an HMO with
4 million enrollees in 15 states and U.S. territories. The merged company would become the country's largest Medicare HMO, with enrollment of nearly 1 million. Its Medicare market share in California would approach 50%.
The FTC has asked PacifiCare and several competing HMOs operating in California for information on the implications of the merger on the Medicare managed-care market.
But Susan Whyte Simon, a PacifiCare spokeswoman, said Hartshorn had been misunderstood. She stressed that the company had not yet supplied all the information requested by the FTC and that any speculation on what the FTC may require is "premature. We haven't been in the heads of the FTC.
"We consider the FTC inquiry to be kind of a normal, routine situation," Simon said. "We anticipated that when two of the three largest players in Medicare HMOs were looking at joining forces, there would be some matters the FTC wanted to look into because it's the first major merger of this sort. They've asked us a number of questions and we have given them information on numerous fronts, trying to answer their questions," she said.
Company officials expect the deal to close in January.
With his contract expiring in September 1997, Hartshorn is stepping down early next year as chief of Burbank, Calif.-based UniHealth, a system that includes seven hospitals and eight physician organizations. He will remain PacifiCare's chairman.
He also will serve as chairman of UniHealth's physician management company and accept other part-time assignments on the board.
Hartshorn, 51, has been in healthcare for 27 years, all his working life, and now is exploring other possibilities. "My wife and I talked about owning a restaurant," he said.
A search committee is seeking a replacement for Hartshorn and is considering internal and external candidates. He does not foresee any strategic changes at the company.
In another development, Keith Paul Bishop, the California commissioner of corporations, adopted an administrative law judge's decision and fined FHP $500,000 for the failure of TakeCare, an HMO acquired by FHP, to refer a child with a cancerous tumor to an appropriate specialist. The child, Carley Christie, was subsequently treated successfully by an out-of-network surgeon.
It's the largest penalty ever imposed on a managed-care organization in the state.
In a written statement, FHP said it will pay the fine. "FHP feels TakeCare was afforded the opportunity for a full and fair hearing by the Department of Corporations," the company said. "In the best interest of all parties involved, FHP will promptly pay the fine."