Two major not-for-profit hospital systems in Texas are close to consolidating their acute-care operations but intend to leave their money-losing managed-care businesses behind.
The systems are 15-hospital Texas Health Resources, based in Irving, and 15-hospital Baylor Health Care System, headquartered in Dallas.
The two systems, which would have combined annual revenues of $2.6 billion, say they intend to sign a letter of intent by the end of this month to consider a merger.
Harris Methodist Health System and Presbyterian Healthcare System merged to form Texas Health Resources last July, and the merged systems almost immediately began discussions with Baylor. Baylor was fresh off an ill-fated attempt to sell all or part of itself to a for-profit chain (June 23, 1997, p. 3).
Executives said they still have to resolve whether the deal will be a full-asset merger or affiliation. They are also mum on governance and leadership issues but said they expect a definitive agreement by July 1.
But whatever deal the two systems hash out, it likely won't include the joint operation of their respective managed-care plans.
Texas Health Resources owns the 283,000-enrollee Harris Methodist Health Plan. The plan lost $8.6 million on $489 million in revenues last year.
"Texas Health Resources' vision is to have delivery, financing and management integrated, but that definition isn't necessarily 100% ownership of a health plan," said Douglas Hawthorne, the system's president and chief executive officer.
The system has separate and ongoing discussions to sell all or part of its HMO to Blue Cross and Blue Shield of Texas and Kaiser Foundation Health Plan of Texas, which both operate HMOs in Dallas.
Regardless, Baylor won't be taking on any of the plan's financial liabilities. They'll remain with Texas Health Resources or the plan's new owners.
"We're not interested in anything that carries losses," said Boone Powell Jr., president and CEO of the Baylor system.
Powell said Baylor also is evaluating whether it wants to maintain its 45% stake in a Dallas HMO run by Aetna U.S. Healthcare. It lost "less than $1 million" last year and has about 109,000 enrollees, he said.