In three separate deals announced last week, Louisville, Ky.-based Humana will spend nearly $700 million to acquire three managed-care plans.
The burst of activity contrasts with what was widely viewed as a recent retrenchment by Humana. Since January, the company has sold two of its local plans, announced plans to eliminate 900 jobs companywide, unveiled a new corporate logo and promised a more personalized approach to providing healthcare benefits (March 17, p. 11).
In the biggest of the three deals, Humana agreed to buy Miami-based Physician Corporation of America in a cash deal valued at $400 million. The acquisition will greatly boost Humana's business in Florida and Texas and transform it overnight into a major Medicaid managed-care player.
In Florida, Humana's total enrollment would jump nearly 30% to nearly 1.5 million enrollees. And in Texas, the plan's total enrollment would nearly double to about 660,000 enrollees. PCA's Medicaid enrollment is nearly 600,000, compared with just about 53,000 for Humana.
"This represents the purchase of a (Medicaid) franchise . . . but we're not exposing ourselves to undo risk because it only represents 10% or 11% of our portfolio, and we want a broad, balanced portfolio," said Humana spokesman Greg Donaldson.
Total Humana enrollment in all markets in all product lines would rise by more than 25% to slightly more than 6 million enrollees. Combined annual premium income would be about $8.2 billion.
Under the deal, Humana will buy PCA stock at $7 per share and assume $130 million in debt. The companies expect the transaction to close in the third quarter of 1997.
Like Humana, PCA has experienced recent operational troubles.
PCA took $130 million worth of charges last year in connection with its stumbling workers' compensation business. Those losses prompted a previous suitor, Las Vegas-based Sierra Health Services, to call off a stock swap deal announced last November.
In the second largest of the three deals, Humana agreed to buy ChoiceCare, Cincinnati's largest HMO, for $16.38 per share, or $250 million in cash.
ChoiceCare serves more than 245,000 enrollees in the Cincinnati area, with about 195,000 in HMO and point-of-service products and 50,000 in other plans; Humana has about 65,000 enrollees in the region.
The ChoiceCare deal is expected to close in the fall, Humana said.
And in the third deal, Humana agreed to acquire Health Direct, a 28,000-enrollee HMO owned by Advocate Health Care, an eight-hospital system headquartered in Chicago, for $20.5 million in cash.
As part of the deal, Humana will also provide coverage to Advocate's more than 23,000 employees in Chicago.