Greatwest Sells Hospitals and Gives Itself New Name

Greatwest Hospitals Inc. on Monday completed the sale of all its hospital operations to American Healthcare Management Inc. of Dallas and marked the dramatic shift in strategy from owning hospitals to operating prepaid health insurance plans by changing its name to HealthCare USA.

“I feel like we’re on the threshold of starting a whole new company,” said Harlan Loomas, chairman and chief executive officer, in a phone interview Monday. “It’s one of those very rare opportunities to be in the right place at the right time. It’s exciting.”

The Santa Ana-based company sold its money-losing hospital group to American Healthcare for about $88 million. Net cash proceeds to HealthCare USA were about $45 million.

HealthCare USA previously announced that the sale would probably result in a loss of between $3 million and $3.5 million to be recorded in the second quarter, ending March 31. The loss will reflect write-offs of certain mortgage debts and provisions for future costs related to the sale of the hospital group.

The group sold includes seven Southern California hospitals, a clinic, eight health-service companies and five medical office buildings. In fiscal 1984, the group lost $367,000 on revenues of $107 million.

Interest in Michigan HMO

HealthCare USA currently operates General Medical Centers, a 90,000-member health maintenance organization (HMO) in Southern California. Last fall, it acquired 51% of Independence Health Plan Inc., a Southeastern Michigan HMO with about 120,000 members. Subject to shareholder approval on May 6, HealthCare USA plans to acquire the remaining 49% of the Michigan company for $58.6 million, or $26 per share. The total acquisition price is about $120 million. HealthCare USA also operates a 10,000-member plan in Hawaii and a joint-venture HMO in Lexington, Ky., and plans to open a new HMO in Phoenix in July, 1985.

American Healthcare officials said the company plans to continue operating all the newly acquired hospitals for the time being. However, the company said it will proceed with HealthCare USA’s previously announced plans to close down two smaller hospitals in Pomona within the next three years and consolidate those operations at a new hospital in Diamond Bar.

“We were aware of the properties they had and we sought them for some time,” said Ralph Kuhns, senior vice president and treasurer of American Healthcare, in a phone interview. “Southern California is an important area and we like being in that part of the country,” Kuhns said.

Regional Office Opened

American Healthcare recently opened a new Western regional office in Newport Beach to supervise the newly acquired facilities along with its 13 other Southern California hospitals, nursing facilities and residential retirement homes.

The seven Southland hospitals that changed hands are: Santa Fe Community Hospital, Los Angeles; Greater El Monte Hospital, El Monte; Woodruff Community Hospital, Long Beach; San Clemente General Hospital, San Clemente; Chapman General Hospital, Orange, and Orange Grove Community Hospital and Valley Hospital, Pomona.

Kuhns said the company has retained essentially all the administrative and management personnel and “a large percentage” of the staff at each facility it acquired. Industry analysts praised HealthCare USA’s change of strategy when it was announced last year, because health maintenance organizations can be extremely profitable. And, each year, more Americans join HMOs because they provide a full range of health care services at a reduced cost. About 15 million Americans belonged to HMOs in 1984, up from about 13 million in 1983, according to the Group Health Assn. of America.

Difficulty in Competing

Analysts said that as hospital occupancy rates declined in recent years, HealthCare USA and other smaller hospital companies have had a difficult time competing against large hospital chains which benefit from economies of scale.

For the first fiscal quarter, ended Dec. 31, HealthCare USA posted net income of $245,000, compared with net income of $560,000 for the same quarter last year. The company attributed the 56% drop in profits to expenses related to acquiring a majority interest in Independence Health Plan. However, revenues increased to $37.5 million from $10.9 million, reflecting additional revenues from Independence Health Plan and growth in its Southern California plan.

For the 1984 fiscal year ended Dec. 31, American Healthcare reported net income of $9.3 million, compared with $4.1 million for fiscal 1983. Revenues more than doubled to $261.2 million from $102 million.