Sources Say HMO to Sell Assets to Consortium

Financially troubled Western Health Plans, which on Saturday rejected an acquisition bid by an Orange County-based company, has agreed to sell certain assets--including its 130,000-member Greater San Diego Health Plan--to a local hospital consortium, sources familiar with the negotiations said Monday.

Officials at Western declined to discuss the supposed asset sale. Similarly, Cindy Cohagen, a spokeswoman for the hospital consortium that includes the Sharp HealthCare organization and Mercy and Grossmont hospitals, said she was unable to confirm that the consortium had completed a deal with Western.

However, Western’s board announced the asset sale during a lengthy board meeting Saturday, according to Alan Hoops, chief operating officer of Cypress-based PacifiCare, which in June made a bid to acquire Western’s assets. PacifiCare, which has enrolled 50,000 San Diegans in its health plan, hoped to bolster its market share by acquiring Greater San Diego Health Plan.

Few Specifics

However, Cypress executives in attendance for part of Western’s six-hour board meeting “were told that they’d rejected us and accepted the (consortium) offer,” Hoops said Monday. “That’s what we were told. Other than that, we weren’t given a lot of specifics about why we were rejected.”

Two hospital industry sources who are familiar with Western’s search for more capital confirmed Monday that Western had completed a deal with the hospital consortium that also includes Scripps Memorial, Palomar-Pomerado, Children’s and Tri-City hospitals.

State regulators have been pressuring Western to complete a deal that would prevent disruptions in medical care for Greater San Diego Health Plan members in San Diego.

The state Department of Corporations last week sent a five-person team to San Diego to review Western’s financial status and to determine if Greater San Diego Health Plan members have been getting adequate care.

“We do that routinely when a company has major financial problems,” said Warren Barnes, a supervising attorney with the department. “In this case, there were enough rumors” about service problems to warrant an in-depth inspection, Barnes said.

Barnes, who declined to comment on whether Western had completed the deal with the local hospital consortium, suggested that Western seemed close to finding a solution to its financial problems. State regulators “were neutral” on which offer--PacifiCare or the hospital consortium--seemed more likely to cure Western’s financial ills.

$20.2-Million Loss

Western, which has lost $20.2 million over three years ending June 30, has been searching for a capital infusion that would return the company to state-mandated minimums.

The hospital consortium in November offered $21 million for Western’s assets--the most valuable being the Greater San Diego Health Plan. However, Western and the consortium were unable to complete that deal.

Earlier this year, a sister company of Mercy Hospital offered to make a $15-million investment in Western. Although that cash investment would have bolstered Western’s capital to state-mandated levels, Western was again unable to complete the deal.

In late June, Western entertained a “friendly” acquisition bid by PacifiCare, a highly profitable, publicly owned health maintenance organization with 360,000 members in California, Oregon, Texas and Oklahoma.

However, Western rejected that offer Saturday, Hoops said. “We felt our offer was both equitable and workable, and we are disappointed that it wasn’t accepted,” he said.

The deal that Western evidently completed with the hospital consortium would make good sense for patients, health-care providers and the member hospitals, according to a local hospital executive, because doctors affiliated with hospitals in the consortium account for 75% of Greater San Diego Health Plan’s members.

“That means those hospitals will be the key providers for those patients,” the executive said. “I’d guess that (the consortium) would give the plan a new name, just to distance themselves from Western and its problems.”

The consortium offered $21 million for Western’s assets in late 1988, but the dollar value in the most recent round of negotiations was unclear Monday. It also was uncertain what a completed deal would mean for Western’s creditors, including doctors and hospitals who are owed money for services.