Health Systems, WellPoint Vow to Expand : Health care: Merging companies say they expect to benefit from cost savings, partly through job cuts.
WellPoint Health Networks and Health Systems International officially announced their merger Monday and vowed to expand to other parts of the country.
The combined company also expects to benefit from extensive cost savings, including the elimination of an unspecified number of jobs, executives of the two companies said. The cuts are expected to affect some jobs in Woodland Hills, where both firms are based.
As expected, WellPoint confirmed Monday that it has signed a definitive agreement to buy Health Systems International in a stock swap valued at more than $1.89 billion. The deal came after directors of Blue Cross of California--WellPoint’s biggest stockholder--rejected an offer by Blue Shield of California to buy WellPoint for $4.8 billion.
The merger, which requires shareholder and regulatory approval, would create the nation’s largest publicly held managed-care company, with 4.4 million members, including 4.2 million in California, and combined revenue of $5.4 billion.
In interviews Monday, WellPoint and Health Systems executives emphasized that the new company would play a leading role in expanding prepaid, managed care to other parts of the country. Managed care is the umbrella term used to describe health maintenance organizations and other health plans that closely monitor medical services, limit hospital stays and require members to use doctors and hospitals in a specific network.
California--with nearly 12 million people enrolled in HMOs--has long led the nation in its acceptance of managed care. But Health Systems and WellPoint officials view the merger as creating a “platform” for expansion into states where managed care has not caught on.
“I think this truly is an evolving national company,” said Leonard D. Schaeffer, chairman of WellPoint and Blue Cross, who would become chief executive and president of the new company.
Health Systems--the corporate parent of the Health Net HMO--has about 216,000 members in five western states other than California. And it recently entered the Northeastern market by acquiring stakes in managed-care plans in Connecticut and Pennsylvania, where it competes with rapidly growing HMOs such as U.S. Healthcare and Oxford Health Plans.
Malik M. Hasan, the chief executive of Health Systems who is to be chairman of the new company, discussed the expansion opportunities during a Monday morning conference call with analysts and investors. He noted that health plans in Connecticut get about $170 per member per month on average, while in California the rates are about $118, even though medical costs are roughly the same in both states.
“I’m tired of making a living in California,” he quipped. “I’d rather have a soft living in the Northeast.”
Separately, the companies said they plan to get at least $200 million in annual savings through the merger. Schaeffer said the new company would be “downsizing dramatically” by eliminating redundant jobs in marketing, sales and physician network development.
Some jobs that might otherwise be eliminated could be saved because of a $2.5-billion contract awarded to Health Systems on Friday. The two companies together employ about 6,000 people.
Further savings should come through improved cost cutting with the doctors and hospitals the company contracts with, officials said.
“The synergies with WellPoint were so awesome that it became clear very early in the process that this was the transaction we should concentrate on,” Hasan said.
