PacifiCare Taps New Market in 1st of Kind Franchise Deal : Health care: It will avoid regulatory complications by offering a Medicare alternative program through another HMO.
Borrowing a rapid-expansion technique from the fast-food and retailing industries, PacifiCare Health Systems said Monday it that will franchise its program for the elderly to a Massachusetts health maintenance organization.
The agreement to offer PacifiCare’s Secure Horizons, a Medicare alternative program, through Tufts Associated Health Plans in Waltham, Mass., is the first of its kind in the health care industry. It could also be the first of several such pacts that would allow the Cypress-based PacifiCare HMO to expand into a potentially huge market at less expense and with fewer regulatory hurdles.
So-called Medicare risk programs such as Secure Horizons operate under federal approval to offer Medicare recipients an alternative to fee-for-service hospitalization and physician services. HMOs are paid a fixed monthly payment by Medicare for each eligible member.
But only 2 million of the 35 million people 65 and older in the United States are enrolled in HMOs, said Eleanor H. Kerns, an analyst with the brokerage Alex. Brown & Sons in Baltimore.
PacifiCare says its Secure Horizons subsidiary is the nation’s largest HMO for seniors, but its 360,000 members are concentrated in just five states: California, Oregon, Washington, Oklahoma and Texas.
Federal regulations make it extremely costly and time consuming for an HMO operator to start from scratch in a new territory.
“We are not going into Massachusetts ourselves,” said Craig Schub, president of Secure Horizons U.S.A., “because the rules say you have to have a commercial HMO in the same area you have a Medicare HMO.” And the Medicare HMO cannot have more clients than the commercial HMO. By marketing itself through Tufts, Secure Horizons can use Tufts’ 340,000 commercial HMO clients to justify signing up as many as 340,000 Medicare clients.
Schub said he is negotiating similar franchise deals with HMOs across the Northeast. Schub would not disclose specifics of the Massachusetts franchise pact with Tufts except to say that it is a long-term contract “that takes us well into the next century.”
He said the Massachusetts plan will operate as Secure Horizons, Tufts Health Plan for Seniors and that PacifiCare will profit from a typical franchise arrangement in which it will receive a percentage of Tufts’ revenue. He declined to disclose further details.
On the Nasdaq market Monday, PacifiCare’s class A common stock rose $2.125 a share in heavy trading to close at a 52-week high of $50.25.
