Merger of HPA and PacifiCare Is in the Works : Health: The link would create the state’s third-largest health maintenance organization.


PacifiCare Health Systems and Health Plan of America on Tuesday announced a proposed merger that would form one of the three largest health maintenance organization in California, company officials said.

The merger would give Cypress-based PacifiCare the foothold in Northern California that its rivals, including FHP International Corp. in Fountain Valley, have sought.

The new HMO would also be able to compete in Northern California for Medicare patients, said Terry Hartshorn, PacifiCare’s president and chief executive officer.

PacifiCare has more than 121,000 Medicare patients in Southern California. HPA does not contract with Medicare.


Terms of the proposed merger were not disclosed. Privately held Health Plan of America, headquartered in Orange, was valued by analyst Rae Alperstein of Kemper Securities Group in Los Angeles at between $90 million and $95 million.

PacifiCare, which is publicly held, earned $17.6 million on fiscal 1990 sales of $975.8 million. This fiscal year, for the nine months ended June 30, it has earned $17.7 million on $893.8 million in revenue.

“We know that PacifiCare is going to move into Northern California, and this gives it the opportunity to do that quickly and perhaps more efficiently than if they put the marketing dollars to work starting from scratch,” Alperstein said.

PacifiCare runs HMOs in four states outside California--Oklahoma, Oregon, Texas and Washington--and is active in the Medicare market. It has 700,000 members, more than 500,000 of them in Southern California, but no presence in the Bay Area, Hartshorn said.


By contrast, HPA has 125,000 members, 44,000 of them in the Sacramento Valley and the Bay Area, but it is licensed to operate in the key counties that have 90% of the state’s population, he said.

Together, the companies would be second only to Kaiser Permanente in annual revenue and third in the number of California members.

Officials declined to give details of the merger, such as who would head the combined company or what its name would be.

The proposed deal was announced after the close of the market Tuesday. PacifiCare stock was off 75 cents to $32.50.