San Diego-based FPA Medical Management pushed eastward earlier this month with an announced acquisition of Norwalk, Conn.-based Health Partners, a physician practice management firm started by two HMOs.
The $115 million stock-for-stock transaction and supporting contracts with HMOs give FPA an opportunity to spread its delegation-style management services (July 7, p. 36).
The transaction is expected to close by the end of September.
The deal signals growing payer confidence in FPA, which will soon have at least four national contracts with HMO companies (See chronology).
Birmingham, Ala.-based MedPartners, the largest PPM company in terms of revenues and also one of the most aggressive, announced one national contract in March.
"FPA's edge is that they've been able to get many more national agreements than MedPartners," said Lori Price, a senior healthcare analyst with Oppenheimer & Co. in New York. "They've actually demonstrated outside of California that they've lowered prices in each market they move into."
MedPartners continues to pursue national contracts, but executives indicated the company won't cut prices to gain market share.
"We are disciplined in our pricing strategy," said Edward Novinski, executive vice president in charge of managed care at MedPartners. "We will be recognized by the plans for giving greater value than they have today, and that isn't always necessarily a lower price."
Norwalk, Conn.-based Oxford Health Plans and Woodland Hills, Calif.-based WellPoint Health Networks, which own about 38% and 20% of Health Partners, respectively, both agreed to sign deals with FPA.
The deal gives FPA a beachhead in the plum New York metropolitan market, where several payers are ready and waiting. FPA has or will have contracts with three HMOs that do significant business there: Aetna U.S. Healthcare, Foundation Health Systems and Oxford.
Health Partners is the largest PPM in the market with 333 primary-care physicians serving 103,000 HMO enrollees, according to FPA.
But New York is a relatively untapped market for PPMs, and Health Partners will serve as a springboard for FPA to organize physicians in New York and New Jersey. Health Partners also will be a platform for growth in Texas, where it has 85 physicians serving 35,000 HMO enrollees.
Health Partners has 65 physicians doing fee-for-service business in Kentucky, Ohio, Virginia and Washington, D.C.
Oxford, which is Health Partners' largest payer, has agreed to enter a 10-year strategic agreement under which FPA will provide physician services to Oxford members in mutual markets. Under the deal, FPA and Oxford will collaborate on enrollee satisfaction and quality improvement initiatives.
WellPoint agreed to enter a memorandum of understanding with FPA calling for "mutual cooperation" in WellPoint's markets, focusing initially on Arizona, California and Nevada, FPA said.
The transaction is expected to add about $160 million to FPA's 1997 pro forma revenues. Analysts expect FPA to more than double its 1996 revenues of $440.3 million in the current year.
Oxford will own about 5.5% of FPA, and WellPoint will own about 3.5% after the transaction, FPA Chief Financial Officer Steven Lash said.
Health Partners' current president and chief executive officer, Charles Berg, will become president of FPA's eastern region.