HealthPartners of Arizona fell victim to its own success.
Like some HMOs operated by national managed-care companies, hospital-owned HealthPartners grew too big too fast to monitor its costs.
That's one reason cited by Kaiser Permanente for its $270 million loss last year and by Oxford Health Plans for its recent financial problems.
Last week HealthPartners' owners, Phoenix-based Samaritan Health System and TMC HealthCare in Tucson, agreed to sell their managed-care company to United HealthCare Corp., the for-profit managed-care giant based in Minneapolis, for a reported $235 million (June 15, p. 4).
The sale is expected to close Sept. 1 after all necessary state and federal regulatory approvals are obtained.
United, with more than $17 billion in annual revenues, has the deep pockets to deal with HealthPartners' journey through managed care's fast lane.
The Phoenix-based plan aggressively marketed its choice of physicians while capitalizing on Samaritan's reputation and strong physician network.
The strategy paid off, with enrollment ballooning 138% to 519,000 as of last March from 218,000 in 1996. HealthPartners was formed in 1995 through the merger of health plans owned by seven-hospital Samaritan and TMC, parent of Tucson Medical Center.
"It's been perceived to be a very good product that's been very well-marketed," said Robert Milligan, a healthcare attorney and partner in the Phoenix law firm Gallagher & Kennedy.
But HealthPartners was shedding money nearly as fast as it gained enrollees, losing $11.8 million last year compared with a profit of $720,000 in 1996.
It also was mired in about $400 million of debt, according to published reports. HealthPartners and Samaritan officials denied that figure. Although HealthPartners spokesman Steve Feinberg wouldn't disclose the debt load, he blamed the losses on a malaise common among HMOs: escalating medical losses and flat premiums.
In all, HealthPartners would need up to $70 million over the next three years to shore up its stressed infrastructure, Feinberg said. Last November, Samaritan said it would seek a capital partner or buyer for HealthPartners.
The anticipated consolidation of HealthPartners with United's 160,000 enrollees in Arizona, including those expected from United's proposed acquisition of Humana, will make the combined plan more than double the size of its next-largest competitor, Phoenix-based InterGroup Health Plan. The name of the combined plan has not been determined.
"Consolidation is needed. Instead of having to deal with a billion managed-care plans in Arizona, it will now be a billion minus two," said Reginald Ballantyne III, president of PMH Health Resources, which operates a 211-bed hospital in Phoenix.