Continuing its buying binge, WellPoint Health Networks of Thousand Oaks, Calif., agreed late last month to acquire ailing MethodistCare, Houston's last hospital-owned HMO, for an undisclosed sum.
MethodistCare is the managed-care unit of the five-hospital, not-for-profit Methodist Health Care System, Houston. Though it amassed more than 78,000 members since its founding in 1996, the health plan ultimately fell victim to the rising healthcare costs that in recent years forced at least two other Texas hospital systems to sell off their HMOs.
In February 2000, Dallas-based Texas Health Resources sold its Harris Methodist Health Plan, a 300,000-member HMO and PPO, to PacifiCare Health Systems for $117.5 million. That same month, Memorial Hermann Healthcare System, Houston, and Christus Health, Irving, Texas, closed on the $62 million sale of their 131,000-member plan, Memorial Sisters of Charity Health Network, to Humana.
"It's a tough time for HMOs, particularly in the Houston area," said Bert Zimmerli, Methodist's chief financial officer. "So we made a strategic decision to refocus on our core hospital operations."
Zimmerli said that MethodistCare lost money last year, though he declined to give specific numbers. In 2000, the health plan lost $48 million on premium revenue of $186.2 million, according to the Texas Department of Insurance.
The acquisition, which is expected to close by June, enables for-profit WellPoint to enter the Houston HMO market for the first time. As part of the deal, Methodist's hospitals will provide medical services to all of the insurer's Unicare HMO and PPO enrollees, which now number 322,240 throughout Texas.
WellPoint's chief financial officer, David Colby, predicted the company would turn MethodistCare from a money loser into a profit generator. "We bring a lot more economies of scale to the operations, which will improve efficiency and productivity and, ultimately, profitability," Colby said.
WellPoint, the nation's fifth-largest health insurer with some 10 million members, has emerged as a ravenous consolidator over the past few years. In November, the company agreed to acquire 3.1 million member CareFirst Blue Cross and Blue Shield, the biggest health plan in the Washington-Baltimore area, for $1.3 billion.
In 2000, WellPoint made two unsuccessful attempts to acquire Aetna's healthcare business. But last March, it closed on its $700 million purchase of Cerulean Cos., the parent of 1.8 million member Blue Cross and Blue Shield of Georgia. Then, in October, the insurer announced a $1.3 billion merger with RightChoice Managed Care, a 2.8 million member plan that operates as the Missouri Blues.