PacifiCare Health Systems has put its managed-care operations in Florida up for sale, and healthcare industry pundits are wondering why. The company and state appear to be a perfect fit.
Cypress, Calif.-based PacifiCare runs the nation's largest HMO for Medicare beneficiaries, and Florida is second only to California as the state with the largest number of beneficiaries.
"It doesn't make sense," said Kim Streit, vice president of research at the Florida Hospital Association.
Florida's Medicare market is viewed as a great opportunity for managed-care plans and providers alike.
To date, 13 Medicare HMOs have set up shop in the state, according to the association. The largest is Humana Medical Plan, with 213,000 members. The smallest is Well Care HMO, with fewer than 20 people signed up.
PacifiCare operates PacifiCare of Florida, a 51,000-enrollee HMO created in 1994 through the acquisition of two smaller managed-care plans. It has commercial members and Medicaid recipients but no Medicare beneficiaries.
PacifiCare had worked to improve the two plans it acquired in Florida that were "very broken properties with significant quality problems," said Robert Hoehn, an analyst with Salomon Brothers. Hoehn said PacifiCare of Florida expected to be certified to accept Medicare enrollees by the end of the year.
But PacifiCare, whose Secure Horizons Medicare HMO is the largest senior plan in the country with 550,000 members, said in August it was exploring its options with regard to its 2-year-old Florida operations, which lost $13 million last year.
PacifiCare, which is planning to acquire FHP International for $2.1 billion, now says it has decided to look for a buyer for its Florida plan. The FHP deal is the subject of an intense antitrust investigation by the Federal Trade Commission (Dec. 2, p. 6).
"I don't understand. You would think that with their Secure Horizons, they could really make a dent in this market," Streit said.
Cheryl Brady, a PacifiCare spokeswoman, said the company will concentrate in geographic areas where the HMO and its planned partner-FHP-have a strong presence: the West Coast and Southwest. "Our plate is full," she said.
PacifiCare's decision has not quelled speculation that the HMO will try to keep one foot in the lucrative Florida market by entering a joint venture with Columbia/HCA Healthcare Corp., which signed full-risk contracts in July covering PacifiCare members.
An option would be franchising Secure Horizons in Florida to Columbia, as PacifiCare has done in Massachusetts with Tufts Associated Health Plan, said Peter Young, a consultant in Cape Coral, Fla.
"Secure Horizons is the right product for Florida Medicare risk. I expect the product to be offered in Florida by another entity," he said.
Brady said PacifiCare has no plans to franchise Secure Horizons in Florida. Columbia executives in Florida could not be reached for comment.
Doug Sherlock, an HMO analyst in Gwynedd, Pa., said PacifiCare's Florida plan "wasn't much of a chassis to build a comprehensive, large Medicare product on." Jettisoning the Florida operations "is highly consonant with the philosophy of PacifiCare acquiring FHP, which is effectively a merger of two regional operations," he said.
Sherlock said likely buyers would be other companies operating in Florida, such as Blues plans. Thirty-seven HMOs now operate in Florida.
"In today's environment, with very low margins, most HMO managers are reluctant to engage in geographic diversification," Sherlock said.
Other Medicare HMO players in Florida include Av-Med, CAC-United Healthcare Plans of Florida, Health Options, PCA Health Plans of Florida, Foundation Health Plan, PruCare and Cigna Healthcare of Florida.