Kaiser Permanente said late last week it will sell its Southwest division to HMO Texas, an affiliate of Las Vegas-based Sierra Health Services.
The sale includes a 123,000-enrollee health plan and a 150-member physician group in the Dallas-Fort Worth area.
The transaction is set to close by Oct. 31, pending approval by both boards of directors and regulatory agencies. Financial terms were not disclosed.
Oakland, Calif.-based Kaiser had announced its plans to sell the Southwest division in February and had signed a letter of intent to explore a sale to Texas Health Resources (March 2, p. 4). That did not come to fruition, however; a number of plans also expressed interest in the division but names of the suitors were not released.
The Southwest division lost more than $50 million last fiscal year, while nationally, Kaiser Permanente reported a $270 million loss, the first loss in its history. Similarly, this is the first time Kaiser has made a decision to sell a division or operation. The company has no plans to sell any others, said David O'Grady, a national spokesman for Kaiser.
While the Southwest division has faced financial losses for a few consecutive years, financial performance is only one factor among many, O'Grady said.
"The key factor was that we were not able to meet our consumers' needs," he said. "Our customers have been asking for more product, flexibility and physician choices than we were able to provide in that marketplace."
Kaiser's Texas operations also gained notoriety last spring when Texas Attorney General Dan Morales told lawmakers he had grounds to shut down the plan but the problems couldn't be discussed publicly. The plan subsequently obtained more financial help from its parent (Aug. 8, 1997, p. 61).
Kaiser health plans have exclusive contracts with Permanente physicians. As part of Sierra Health Services, the exclusivity goes away, said Ria Marie Carlson, a spokeswoman for Sierra. The health plan has an opportunity to contract with other physician groups, while physicians can contract with outside insurance carriers.
HMO Texas has 20,000 enrollees in the Houston area and wanted to expand its services.