Sierra Health Services has called off its nearly $500 million acquisition of Physician Corporation of America after Miami-based PCA reported continuing large losses on its workers' compensation business.
Las Vegas-based Sierra proposed buying PCA last November and received quick antitrust approval from the Federal Trade Commission. A Sierra-PCA consolidation, with annual revenues of more than $2 billion, would have created the country's eighth-largest managed-care company.
In January, however, the deal started to hit the rocks, leading Sierra to announce last week that the original deal is off, and new acquisition terms are open to negotiation.
"That deal no longer exists," Sierra spokeswoman Ria Carlson said.
In January, the state of Florida dealt a blow to Sierra when the Florida Agency for Health Care Administration opposed granting Sierra a state Medicaid license (Feb. 3, p. 8). The license was necessary to complete the deal with PCA.
In February, PCA announced it would take a large charge in the fourth quarter ended Dec. 31 to reserve for losses from its workers' compensation business. The company initially indicated the charge would be around $60 million. A statement released March 6 upped the pre-tax charge to the $95 million to $120 million range. Added to that is a $130 million charge to PCA's third-quarter earnings the company announced in November.
"The first charge came out in due diligence, but the new and additional monies were not discussed, and we feel we have to renegotiate," Carlson said.
In a statement, Anthony M. Marlon, M.D., Sierra chairman and chief executive officer, said: "If we decide to pursue a transaction, we will renegotiate the terms and announce them by March 31."
Carlson said the likelihood of a new deal hinges on the release of PCA's fourth-quarter earnings, expected by the end of this week.
PCA officials did not immediately return phone calls seeking comment.