Caremark to Acquire Southland Group : Mergers: Illinois-based firm will absorb Friendly Hills Healthcare Network in a deal worth more than $100 million.


Caremark International has agreed to acquire one of Southern California’s largest medical practices for more than $100 million in a deal that illustrates how the rapidly consolidating health care industry and heightened competition are forcing many providers to seek bigger partners.

Under the tentative deal, Caremark, based in the Chicago suburb of Northbrook, will acquire the 274-bed Friendly Hills Regional Medical Center in La Habra, 14 medical offices in Orange and Los Angeles counties and certain other assets.

But Caremark officials stressed that Friendly Hills’ hospital and other physical assets were not the primary reason for the deal. Friendly Hills Healthcare Network is considered one of the nation’s most innovative medical groups in the area of managed health care. About 95% of the medical group’s 1993 revenue of $170 million came from contracts with health maintenance organizations and other managed-care firms.

C. A. Lance Piccolo, Caremark’s chairman and chief executive, described Friendly Hills as “a pioneer” in managed care that also “rates high in patient satisfaction while keeping patient costs as low as possible.”


Caremark, a diversified health care concern with 1993 sales of nearly $1.8 billion, specializes in home health care, prescription drug benefit management and physical rehabilitation services. The firm also manages medical practices and recently acquired a 165-physician group in Houston and a 100-physician practice in Oklahoma City.

Piccolo lauded Friendly Hills for its programs in disease prevention and in monitoring how patients are cared for in outpatient settings. More important, he said, as many HMOs and other insurers try to cut costs by eliminating unnecessary hospital visits or overly long stays, Friendly Hills claims one of the lowest hospitalization rates in the nation: about 157 hospital days per 1,000 patients, far better than the national average of 350 hospital days per 1,000 patients.

Caremark wants to expand its medical practice management services nationally and hopes to tap Friendly Hills’ 15 years of experience in managed-care contracting in California.

“What Friendly Hills brought us was a home run in that type of (managed care) technology,” Piccolo said.


Dr. Albert E. Barnett, who co-founded Friendly Hills in 1968 and serves as its chairman and chief executive, said the Caremark deal is a way for his group to remain competitive and expand its operations in California as the industry consolidates.

“We felt that Caremark had a lot to offer in terms of capital and expertise,” Barnett said. “We just didn’t feel we could generate that kind of capital on our own.”

He said Friendly Hills has had discussions with hospitals and insurers locally and nationally about possible mergers but preferred Caremark because “it’s more of a physician organization.”

Caremark attracted some unwanted attention earlier this month when a federal grand jury in Minneapolis charged the company and three employees with participating in an alleged $1.1-million kickback scheme involving illegal payments to a doctor for patient referrals. The indictments resulted from a nationwide federal investigation of the company that focuses on whether some Caremark payments to doctors, such as research grants, may been disguised kickbacks to obtain patients.


Caremark has denied any wrongdoing in either the Minneapolis case or the wider investigation.