Health-Care Company Seeks Shortcut to Expansion : PacifiCare Moves to Acquire Firm in Oregon

Hoping to find a shortcut to its expansion into Oregon, PacifiCare Health Systems said it is negotiating to acquire Capitol Health Care, a 40,000-member health maintenance organization based in Salem.

The Cypress-based health-care company, which fell into a financial slump last year, is hoping the acquisition of Capital Health will give the company a stronger position in the Oregon market and a chance to lower overhead costs, said John Siefker, PacifiCare’s chief financial officer. PacifiCare has 16,000 members in Oregon.

“Last year, we had an awful lot on our plate,” Siefker said. “The management focus now is to improve our overhead costs and expand into Oregon.”

The acquisition of the nonprofit, tax-exempt company would give 8-year-old PacifiCare a position in the Oregon market that might have taken three or four years to achieve, said analyst Larry Selwitz of Bateman Eichler, Hill Richards in Los Angeles. PacifiCare has a total membership of 210,000 in California, Oregon, Oklahoma and Texas. An HMO provides nearly unlimited health-care services in exchange for a fixed payment.

“PacifiCare has been trying to break into Oregon for a while,” Selwitz said. “By acquiring a large critical mass such as Capitol Health Care, they didn’t have to go to all these little organizations or start from scratch,” he said.

Lower Overhead

The acquisition of Capitol Health Care would also give PacifiCare a management team with a reputation of “great efficiency” to lower overheads, Siefker said.

In exchange for a piece of Oregon’s market, PacifiCare can give Capital Health Care participation in a larger health-care system, protection from competition and advertising and marketing benefits, Siefker said.

Details of the acquisition were not disclosed pending completion of negotiations. However, Siefker said a written agreement would probably be drawn up within two months. The agreement has to be approved by Oregon’s insurance division. Lately, PacifiCare has been struggling and reported net income of $3 million in its fiscal 1986 year, a 47% decline from its net income of $5.7 million for the prior year. Company spokesmen blamed the loss on an unusually high number of catastrophic illnesses and procedures as well as increased spending on drugs and care for seniors.