With its hospital acquisitions hitting some snags and an insurance deal in Ohio facing an uncertain fate, Columbia/HCA Healthcare Corp. unveiled plans last week to become a major player in the health benefits management field.
In its boldest diversification to date, the country's largest for-profit healthcare company agreed to acquire Value Health of Avon, Conn., for $1.3 billion in stock.
Value Health is the country's largest independent pharmacy benefits company. It also has lines of business in mental health and worker's compensation benefits management, and it offers disease management consulting services. Value Health has total annual revenues of $1.9 billion.
The deal promises to boost Nashville, Tenn.-based Columbia's offerings to corporate clients and managed-care customers while providing further leverage to cut drug costs.
"This takes us from a bit player to a major player" in pharmacy benefits management, said Dan Moen, president of Columbia Sponsored Network Group.
Columbia's play for Value Health comes as more traditional hospital acquisition strategies have faltered.
A number of deals have stalled as state lawmakers raised questions about the conversion of not-for-profit hospitals into for-profits. Others haven't moved off the drawing board as some not-for-profits have had a change of heart about becoming part of a national for-profit hospital chain.
The fate of the company's proposed acquisition of Blue Cross and Blue Shield of Ohio also is uncertain as state regulators scrutinize the deal. A decision is expected shortly.
The Value Health deal also comes with some baggage attached, some financial analysts said.
In recent quarters, Value Health's earnings failed to live up to Wall Street's expectations. Company executives have cited greater price competition, high start-up costs for new business lines and the loss of some mental health contracts to managed-care organizations as reasons for the lagging profits.
In agreeing to be acquired, Value Health executives abandoned previous plans to spin off the company's prescription management division, ValueRx, which accounted for 80% of company revenues. The unit controls about $2.2 billion in annual mail-order and retail drug purchases for 2,500 corporations.
Upon the deal's close, Value Health executives are expected to leave.
The deal is subject to shareholder approval and antitrust review. Both companies expect the merger to be completed by mid-1997.
In a related matter that received far less attention, Columbia is becoming a part owner of an HMO in Alabama.
Louisville, Ky-based Humana has signed an agreement to sell its 30,000-enrollee Alabama division to Mobile-based PrimeHealth of Alabama for an undisclosed sum.
The deal will be funded by a limited liability company co-owned by Columbia and PrimeHealth, said Danny Rickert, PrimeHealth director of marketing and development.
Bruce Japsen and Louise Kertesz contributed to this story