The Texas attorney general's office last week approved the sale of the Harris Methodist Health Plan to Health Care Service Corp., the parent company of the newly merged Blue Cross and Blue Shield plans of Texas and Illinois.
The 308,000-enrollee Harris Methodist plan, owned by 14-hospital Texas Health Resources, lost $99.1 million last year, including nearly $50 million that was allocated for future losses.
Because Irving, Texas-based THR is a not-for-profit organization, the sale was subject to review by Attorney General John Cornyn. Last week his office determined that the sale did not break any Texas charity laws.
HCSC has yet to file financial documents with the Texas insurance department, a necessary step in acquisition.
"(HCSC said) they have some items still to work out," an insurance department spokesman said.
One of those items may be price. HCSC reportedly dropped its offer to $100 million last month from an original $140 million.
Spokesmen from both organizations declined to comment on those prices, which were reported in the Dallas Morning News and the Fort Worth Star-Telegram.
Earlier this month, Harris Methodist reported a net operating loss of $49.5 million on revenues of $586.6 million for 1998.
The HMO had set aside $49.6 million to cover losses through 2001. A new state regulation requires managed-care plans that are more than three years old to calculate anticipated losses and create a reserve for them.
THR must pay for the loss and the reserves. In 1997, the system reported net income of $50.1 million and assets of $1 billion, including the HMO's financial performance.
In January, THR entered into a tentative mergerlike partnership agreement with nine-hospital Baylor Health Care System, based in Dallas (Feb. 1, p. 18).
It's clear why THR would want the plan off its hands, but it's not so clear why HCSC would want to buy Harris Methodist given the plan's financial performance.
But Allan Baumgarten, an industry analyst and author of a recent report on Texas HMOs, said the purchase could make good business sense for several reasons.
HCSC is the parent company of the Texas and Illinois Blues, which merged last year to become a 5-million-enrollee insurer.
The addition of Harris Methodist's 308,000 enrollees would more than double the number of Texas Blues HMO enrollees, he said. In addition, Harris Methodist has a large customer base in the Fort Worth area, where the Texas Blues HMO products have only a weak foothold.
"Harris Methodist complements them in a geographic sense as well as in a product sense," Baumgarten said.