Another provider-owned HMO has met hard financial times, and its West Coast parent system is looking for a buyer or a capital partner to rescue the plan.
Sacramento, Calif.-based Sutter Health retained investment banking firm Morgan Stanley last week to find a capital partner or buyer for its Omni Healthcare HMO. Omni is a for-profit HMO operating in 25 Northern California counties. It has 160,000 enrollees, of which 60,000 are beneficiaries of Medi-Cal, the state Medicaid program. It doesn't have a Medicare risk contract.
Although Omni had been profitable in recent years, it posted a $196,000 loss in 1997 on revenues of $174.6 million. That compares with net income of $1.3 million in 1996 on revenues of $157.6 million.
Its management also has been in flux: Omni's former chief executive officer, Robert Edmondson, resigned late last year to take a job with Aetna U.S. Healthcare.
"We would consider all qualified buyers," said Robert Fahlman, Omni's interim chief executive officer and president. He declined to disclose potential suitors. Fahlman added that Sutter, a 21-hospital system with annual revenues of more than $2 billion, would accept the best offer made, be it either a buyout or partnership.
Fahlman said the closure of a potential buyout or partnership deal will take four to six months. Suitors will be required to honor existing relationships between Omni and its provider network.
Omni is among a spate of hospital-owned or hospital-affiliated managed-care plans to run into financial difficulty in recent months. HMOs in Connecticut, Illinois, Louisiana, Minnesota, Missouri, Oklahoma and Washington state have reported problems. Last week three Wisconsin hospital-owned HMOs posted losses (See story, p. 2).
In addition, Omni is the second small California HMO to go on the block in the past year. In July, Burbank-based UniHealth sold 265,000-enrollee CareAmerica Health Plans to Blue Shield of California, San Francisco, for $175 million (Aug. 4, 1997, p. 18).
Officials said the decision to sell or find a capital partner for Omni was required for growth in the face of competition from larger HMOs. While Omni's enrollment has increased by nearly a third since 1996, its market share is just a fraction of that held by giants such as Kaiser Permanente and PacifiCare Health Systems, which combined cover about 7 million people in California.
"This is an industry that has consolidated dramatically, and comparatively smaller HMOs like Omni are facing serious competitive challenges from larger health plans that have been created through mergers and acquisitions," said Edward Schroeder, president and CEO of St. Joseph's Regional Health System, a Sutter affiliate based in Stockton that created Omni in 1985.
"Omni needs to grow," said Van Johnson, Sutter's president and CEO. "Moving Omni to the next level will require either a substantial investment or a new sponsor."