Capital Problem Appears Solved for HMO’s Owner : Sale of Greater S.D. Health Plan to Go Ahead

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 seven 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-year period 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 would 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 around the country.

“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 would probably retain their 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, would “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 will be 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 at the forefront of (board members’) minds.”

Western’s board unanimously agreed to sell Greater San Diego Health Plan during a Saturday board meeting, 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, a 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.”