FHP International Cancels Talks to Buy Bridgeway : * Acquisitions: The Fountain Valley-based company had been trying to get its foot in the door in the Bay Area but was blocked by a stalemate on reimbursement formulas.
FHP International Corp.’s bid to gain a foothold in Northern California faltered Thursday as it announced that it was calling off negotiations to acquire Bridgeway Plan for Health.
The two health-maintenance organizations said they had agreed to end merger talks begun in May after they were unable to agree on terms for hospital and physician contracts.
Bridgeway’s owner said Thursday that the HMO is no longer for sale.
“We’ve taken it off the block for now,” said James Heimarck, president of Bridgeway’s parent company, California Pacific Health, adding that a recent hospital merger in San Francisco made keeping Bridgeway as an independent company more attractive.
FHP, one of the largest HMOs in the United States, will begin exploring other ways to crack the Bay Area health-care market, FHP spokeswoman Anna Marie Dunlap said.
“Northern California is still a very important market to us,” said Dunlap, associate vice president. “You basically have two options: make an acquisition or develop the market ourselves. I’d say we’d probably lean toward the second option.”
One analyst welcomed the merger collapse, saying that an FHP plunge into the overheated Northern California health-care market would be “risky.”
“They have a terrific franchise in Southern California, and I don’t quite follow the reasoning that they have to be statewide,” said Michael M. LeConey of Baird, Patrick in New York.
FHP’s stock, which is traded on the over-the-counter market, jumped $1 on the news to close at $20 per share.
FHP executives have said that they hoped buying Bridgeway would help them attract more big corporate clients with employees statewide. LeConey disputed that logic.
“There just aren’t that many statewide employers, and they’re not substantial enough . . . in terms of the total employed population of California to warrant FHP spending a lot of time and effort to enter what is unquestionably the most competitive health-care marketplace in the country--if not the world,” he said.
The Bay Area is home to Kaiser Permanente, as well as roughly 25 other HMOs, but the statewide employers whose business FHP hopes to attract account for no more than 6% or 7% of the employed population, LeConey said.
FHP has more than 640,000 members and operates HMOs in Utah, Arizona, New Mexico, Guam and in Southern California. Its northern outpost is now Ventura County, Dunlap said.
Bridgeway has 63,000 members at 53 affiliated hospitals in 12 counties, in the Bay and Sacramento areas.
California Pacific Health also owns California Pacific Medical Center, created from a merger of Children’s Hospital of San Francisco and Pacific Presbyterian Medical Center. The merger, which took place during the FHP-Bridgeway negotiations, has changed the market climate and persuaded California Pacific Health that Bridgeway “retains value,” Heimarck said. He placed Bridgeway’s value at more than $25 million.
Both companies said the deal disintegrated over complex contract negotiations involving the reimbursement of physicians and hospitals for their services to the merged HMO. Neither company would specify the financial dimensions of the disagreement.
