Ailing Western Health Confirms It Will Sell S.D. HMO to Joint Venture
Financially ailing Western Health Plans acknowledged Tuesday that it has agreed to sell its 125,000-member Greater San Diego Health Plan to a joint venture that includes several local hospitals, Aetna Life Insurance Co. and Partners National Health Plans.
Terms of the agreement-in-principle, which calls for a definitive agreement to be completed by Aug. 18, were not revealed.
The deal evidently solved a longstanding capital problem for Western, a health-plan operator that lost $20 million during the three years ended June 30. State regulators have been concerned that Western’s cash woes eventually would spill over and swamp the Greater San Diego Health Plan.
Despite its cash problems, Western will continue to operate the Greater San Diego Health Plan until the deal with the consortium is completed, according to Bill Murray, a spokesman for Dallas-based Partners, a health-care company with more than 2 million members nationwide.
No Premium, Benefits Changes
“There will be no (immediate) change in premium or benefits,” Murray said. Members “won’t even recognize that there’s a transition period.” Most members who remain with the revamped plan will probably retain the same doctor, Murray said.
However, members--and companies that pay for employees who join the local health plan--eventually “will have to decide if they want to go with Aetna Choice” during the next regularly scheduled open enrollment period, Murray said.
Western, which is owned mainly by San Diego doctors who provide care for the health plan’s members, will “most likely” enter bankruptcy proceedings once the deal is completed, Western Chief Operating Officer Sam Westover said Tuesday.
Those proceedings would determine how much money is available to pay Western’s creditors, including area doctors and hospitals that have cared for members of Greater San Diego Health Plan, a health maintenance organization (HMO).
Western’s board is “giving careful consideration . . . (to the) serious issue” of paying bills owed to creditors, Westover said.
“Our board’s been concerned about maximizing values for shareholders and creditors,” Westover said. “Those issues continue to be a the forefront of (board members’) minds.”
Western’s board unanimously agreed to sell Greater San Diego Health Plan at a board meeting Saturday, Westover said. Shareholders will vote on the sale at an upcoming meeting.
The deal must first be approved by Western shareholders and state and federal regulators.
Hospitals in the consortium include: Children’s Hospital and Health Center, Community Hospital of Chula Vista, Grossmont Hospital, Mercy Hospital and Medical Center, Palomar Medical Center, Pomerado Hospital, Scripps Memorial-Chula Vista, Scripps Memorial-Encinitas, Scripps Memorial-La Jolla, Sharp Cabrillo Hospital, Sharp Memorial Hospital and Tri-City Hospital.
The consortium in November offered a reported $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. Western subsequently reopened negotiations with the consortium and began negotiations with other interested groups.
If the deal with the consortium is completed, Greater San Diego Health Plan members would be transferred to Choice, an Aetna-owned health plan with 7,500 members in San Diego. Hartford-based Aetna’s Choice program operates HMOs in several large cities, including Chicago, Milwaukee and Washington. The San Diego operation is Aetna Choice’s only program in California.
Eventually, Murray said, the San Diego operation would be “integrated with the Partners network of HMOs.”
Partners is a joint venture owned by Aetna and VHA Enterprises, a subsidiary of Dallas-based Voluntary Hospitals of America. Aetna and VHA created the joint venture in 1986.
Partners, which is buying a small HMO in the San Francisco Bay Area, entered California in 1986 with the acquisition of a small HMO in San Bernardino.
Partners’ “corporate objective calls for growth” in California, Murray said. Partners joined the local consortium because, “like any business deal, it’s easier to buy an established business than to start off from scratch,” Murray said.
In addition to the relatively tiny HMO in San Diego County, Partners has for the past year provided an alternative form of medical care for military retirees and dependents of active military personnel in Southern California.
Partners subcontracted with Foundation Health Corp. to provide so-called “reform initiative” health-care programs for the Civilian Health and Maintenance Program of the Uniformed Services. During the past year, 25,292 military retirees or dependents in Southern California have joined programs administered by Partners.
The Department of Defense on Tuesday granted Foundation a six-month extension to operate the “reform initiative” programs.
Partners’ military operation will remain separate from the small commercial operation, Murray said. However, the company is expected to merge portions of the two later.