Cost Care Tentatively Agrees to Buyout by Competitor

Cost Care Inc. of Huntington Beach has tentatively agreed to a $6.75-million cash buyout by an Illinois competitor, a deal that would create the nation’s largest independent health-care cost-management firm.

If the acquisition is completed, Cost Care will become a subsidiary of Healthcare Compare Corp. in Downers Grove, Ill., but will remain headquartered in Huntington Beach.

“We plan to operate as a separate subsidiary of Healthcare Compare and we don’t foresee any changes in our employment level,” said Lawrence Goelman, Cost Care’s president.

Both companies said the acquisition is still tentative. Joseph Whitters, Healthcare’s chief financial officer, said his company is now poring over Cost Care’s books. “We are very encouraged by everything that we see,” he said.

The merger is contingent on a variety of factors, including shareholder approval.

Healthcare and Cost Care advise insurance companies and self-insured employers on how to control medical costs. The two companies are called utilization-review firms because they try to save money for their clients by reviewing hospital treatments to make sure the length of stay and type of surgery is not excessive.

Healthcare’s decision to purchase Cost Care is part of that company’s growth strategy, analysts said. The Illinois company is particularly interested in the California market and just last year acquired Affordable Healthcare Concepts, a Sacramento medical-cost management firm.

“Healthcare Compare’s strength is with government-based groups, such as the mail handlers’ unions and the letter carriers unions,” said Leonard Yaffe, an analyst with Montgomery Securities in San Francisco. “Cost Care’s strength is its business on the West Coast and its private corporate business.”

Cost Care represents about 4,000 employers whose medical insurance policies cover between 2.5 million and 3 million employees and dependents. Healthcare has about 12,000 clients who provide insurance for about 6 million people.

Healthcare has 500 employees and reported fiscal 1988 revenue of $20.8 million and income of $2.3 million. Cost Care, which employs 280, is privately held and does not release its financial figures.