PacifiCare, Health Plan of America Propose Merger : HMOs: The arrangement would create one of the 3 largest medical groups in the state.


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

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

The new HMO would also be positioned 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, while HPA does not contract with Medicare.

Terms of the proposed merger were not disclosed, as Health Plan of America, headquartered in Orange, is privately held. Analyst Rae Alperstein of Kemper Securities Group in Los Angeles, however, valued HPA at between $90 million and $95 million.


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

“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 of 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 San Francisco Bay Area, Hartshorn said.

In contrast, HPA has 125,000 members, 44,000 of them in the Sacramento Valley and the Bay Area, but is licensed to operate in the key counties that have 90% of the state’s population, he said. It does not contract for Medicare patients.


Together, the companies would be second only to Kaiser Permanente in annual sales, and third in the number of California members, after Health Net of Woodland Hills, which has about 840,000 members, Hartshorn said.

The proposed merger was announced after the close of the market Tuesday. PacifiCare stock closed at $32.50, down 75 cents from Friday.