Priority Health in Grand Rapids, Mich., is weighing a second merger with a struggling provider-owned HMO after its acquisition of NorthMed, an unprofitable physician-owned HMO in Traverse City, Mich., this month.
A Priority Health official expressed confidence last week that the plan could handle the expansion.
Priority Health and its majority owner, Spectrum Health, have been in talks with Muskegon, Mich.-based Hackley Health, which is the parent of Hackley Hospital, about a merger with Hackley's Physicians Health Plan of West Michigan.
PHP lost money in 1998 and expects more red ink this year, said Chief Executive Officer Ron Franzese, who declined to give exact figures. He called Medicaid a "significant drain."
PHP would add 48,000 enrollees to Priority Health's 267,000, which include 30,000 acquired from NorthMed.
Priority Health has managed to turn around its financial picture after incurring losses in 1998 (See chart). Moody's Investors Service factored those losses into its recent decision to change the outlook on Spectrum Health's Aa3 bond rating to negative from stable.
Spectrum Health is the parent of the organization resulting from the merger of the two largest hospitals in Grand Rapids-the former 529-bed Butterworth Hospital and the former 332-bed Blodgett Memorial Medical Center. The hospitals merged in September 1997.
Priority Health rebounded thanks to an 8.5% premium increase and better utilization management of one of its large-employer contracts, said Guy Gauthier, Priority Health vice president of finance.
But Moody's expressed concern that merger activity could divert Spectrum Health management from current operations. Spectrum Health also is progressing toward a merger with Kent Community Hospital, a long-term-care facility in Grand Rapids.
Gauthier said he doesn't expect the NorthMed acquisition to affect profitability. He said Priority Health has grown to 267,000 enrollees from 50,000 in seven years.
Northern Michigan Hospital in Petoskey and Munson Healthcare in Traverse City received small shares in Priority Health as part of the NorthMed transaction, Gauthier said. Both hospitals were minority shareholders in NorthMed and contributed capital to bolster the plan during its final months of operation (July 26, p. 14).