A long-planned consolidation of ownership in Health New England, a provider-sponsored HMO in central Massachusetts, finally was resolved last week. But it wasn't easy.
Baystate Health Systems of Springfield made good on its plan to purchase most of the shares of its original pro-vider partners, which helped launch the HMO in 1985.
Baystate, which owned 38% of 72,000-enrollee Health New England, acquired Holyoke (Mass.) Hospital's 9% interest in the HMO and the 3% stake owned by Noble Hospital in Westfield, as well as all but 6% of the 50% share of the HMO parceled out among physicians on staff at those two hospitals and Baystate's three hospitals. The deal increases Bay-state's stake in the HMO to 94%.
That plan dated back to last summer (June 17, 1996, p. 36). To realize it, Baystate had to establish the value of the approximately 600 shares outstanding and then reach new five-year contractual relationships with physicians who gave up their shareholder relationship in the sale.
After weathering those storms, a couple of other problems materialized: a $10 million tax cloud, and the ghost of a hospital merger that was killed two years ago.
An independent panel set the worth of Health New England at $46 million, but with $10 million of it in jeopardy because of a tax dispute, said Anthony Mott, executive vice president of Bay-state Health Systems.
A due-diligence investigation turned up the unsettled dispute with the Massachusetts department of revenue. That cloud was removed, however, after an audit, Mott said.
Then a few months ago, Sisters of Providence Health System sought to prevent Holyoke Hospital from relinquishing its stake in the HMO because of the Springfield-based system's pending complaint that Holyoke backed out of a binding agreement to affiliate in 1995.
An injunction was issued, but a legal maneuver around that injunction paved the way for last week's final settlement, Mott said. Approximately 250 physicians in 1985 bought shares with a book value of $500 each. Those shares today are worth $75,000 each, he said. Baystate decided to split shares 15-to-1 so physicians could better manage their decisions. With 15 shares worth $5,000 each, most of the physicians elected to retain a few and sell back the rest, Mott said.
That means Health New England still has nearly the same number of physician shareholders as before, but at a collective stake of 6% instead of the previous 50%, he said.