Blue Shield of California signed a definitive agreement last week with Burbank, Calif.-based UniHealth to acquire its for-profit subsidiary CareAmerica Health Plans and CareAmerica Life Insurance Co. for $175 million.
The deal, expected to close late this year, will create a not-for-profit company with 1.9 million enrollees and annual revenues of about $2.1 billion. In a reversal of the usual conversion process, CareAmerica will shed its for-profit status and be integrated into not-for-profit Blue Shield.
The sale by UniHealth, a not-for-profit holding company that owns hospitals and medical groups, reflects "a radical shifting of its focus from a hospital-based integrated delivery system to a physician-based network management company," said Peter Boland, an analyst in Berkeley, Calif. "I suspect shedding their hospitals may be the next shoe to drop."
The arrangement makes Blue Shield a stronger rival to Kaiser Permanente, the state's largest not-for-profit health plan, with 5 million California enrollees. Blue Shield will be the fifth-largest plan in the state, behind PacifiCare Health Systems, WellPoint Health Networks and Foundation Health Systems.
CareAmerica adds 45,000 Medicare risk enrollees to the 2,000 Blue Shield has garnered since starting its program last year.
"CareAmerica's expertise and experience will help us leapfrog over some of our development costs" in Medicare risk, said Wayne R. Moon, Blue Shield's chairman and chief executive officer.
In return, CareAmerica enrollees will have access to a broader provider network and innovations such as Blue Shield's open-access HMO, which helped boost enrollment by 30% last year, he said.
Bruce Bodaken, Blue Shield's president and chief operating officer, said the plan was able to incur the costs of developing one of the first open-access HMOs in the country because it doesn't have to answer to investors. Its profits plunged last year to $19 million from $40 million in 1995.
"Wall Street penalizes you pretty heavily" for hits to the bottom line, he said. "We could have said we can't afford to make that kind of investment. It will pay off. Our horizon has to be a little bit longer than the for-profits."
In February, MODERN HEALTHCARE*disclosed UniHealth had joined the ranks of integrated delivery systems seeking to divest themselves of their health plans. In April, MODERN HEALTHCARE*identified Blue Shield as the likely buyer (April 7, p. 12).
UniHealth executives have declined to provide any specific reason for divesting the company's managed-care plan. But a source close to the company said owning an HMO was no longer part of UniHealth's strategic plan.
A UniHealth spokeswoman would not comment on speculation that the company also plans to sell its eight hospitals.