Two major Southern California health care providers announced separate acquisitions Tuesday, further fueling the fast pace of consolidation among medical firms seeking to add muscle to compete under national health care reform.
The larger of the two deals involves the smaller companies: Abbey Healthcare Group, a Costa Mesa maker of home health care equipment and drugs, said it will pay $197 million--mostly cash--to purchase Total Pharmaceutical Care Inc. of Torrance.
For the Record
Los Angeles Times Friday September 10, 1993 Home Edition Business Part D Page 2 Column 5 Financial Desk 1 inches; 27 words Type of Material: Correction
Abbey Healthcare Group--The Costa Mesa-based company provides in-home health care products and services. A story in Wednesday's editions incorrectly described its principal business.
In an unrelated announcement, Pacificare Health Systems Inc., a Cypress health maintenance organization that operates in several Western and Southwestern states, said it has signed an agreement to acquire California Dental Health Plan of Tustin.
Terms of the deal were not disclosed, but one analyst said it would be a very small transaction for Pacificare--an estimated cost of less than $20 million. Pacificare California President Jeff M. Folick said his company would pay cash for the dental HMO.
The news buoyed Pacificare's Class A common stock, which gained $2.25 to close at $39.75 a share in NASDAQ trading Tuesday.
Abbey's proposed acquisition of Total Pharmaceutical sent the Torrance firm's shares soaring $8 in NASDAQ trading to close at $21.25. However, Abbey's shares fell 75 cents to close at $22.125, primarily on concerns about the debt it would take on to complete the purchase.
Abbey is offering $19 cash and $4 worth of its common stock for each share of Total stock.
A spokeswoman for Abbey said the acquisition is part of a drive to broaden the company's offerings in the home health care market. Abbey, which has offices in 36 states, provides respiratory services, medical equipment and infusion services in a client's home. Total Pharmaceutical, with offices in 17 states, provides pharmaceuticals and some medical equipment for home infusion therapy patients.
Abbey said it plans to operate Total Pharmaceutical as a separate unit and that the acquisition will not affect employment at either company.
In purchasing California Dental, Pacificare, one of the country's largest HMOs, gains its first in-house, full service dental plan. The deal could also enable California Dental, which now has operations only in California and Hawaii, to expand into Oregon, Washington, Oklahoma and Texas.
Pacificare has marketed California Dental's dental and vision care plans under an alliance that began in 1988.
Douglas B. Sherlock, president of Sherlock Co., a Philadelphia financial adviser to HMOs, said there are significant marketing benefits for one-stop HMOs in states such as California, "where employee groups are demanding health programs that are offered statewide."
The deals announced Tuesday are "symptomatic of the consolidations that have been going on in the health care industry," said analyst Joel M. Ray of Kidder, Peabody & Co. in New York. "And we're going to see more. Whether driven by legislative or consumer demands, the trend is to larger (health care)-providing entities that can offer one-stop shopping."
He said that with eight major HMO mergers and acquisitions of HMOs this year, "the pace is about twice that of last year." One reason, said Ray, "is that capital markets have been reasonably good to medical acquisitions, although they aren't as good now as at the first of the year, because of growing concerns over government regulation and price controls" in the health care industry.
Still, Sherlock said, even though the cost of financing mergers and purchases is going up, "strategic concerns and the need to offer clients as much as possible will continue to drive these deals."
While consolidations often hurt consumers by making an industry less competitive, a Washington organization that monitors health care groups' quality says California consumers have little to fear so far.
"It is not a threatening trend unless you get to the point that there is no choice for the consumer," said Margaret O'Kane, president of the nonprofit National Committee for Quality Assurance. "In Minneapolis, you used to have 16 HMOs and now, because of consortium arrangements, there basically are two," she said. "That eliminates competition."
The acquisitions are subject to approvals by government regulatory agencies and shareholders of Abbey and Total Pharmaceutical.
Major Health Care Mergers
The purchase of Total Pharmaceutical Care Inc. by Abbey Healthcare Group Inc. would be the seventh-largest acquisition in the fast-consolidating health care market. Other major mergers, in millions of dollars:
Merger Amount Date Blue Shield of Calif. and Unihealth America merge $6,500.0 June, 1993 Columbia Healthcare merges with Galen Health Care 3,000.0 June, 1993 Health Net merges with QualMed 775.0 Aug., 1993 United Healthcare acquires HMO America 417.7 Aug., 1993 Maxicare buys HealthAmerica 400.0 Oct., 1986 Takecare purchases Lincoln National's 22 HMOs 250.0 Jan., 1992 Abbey Healthcare Group to buy Total Pharmaceutical Care 197.0 Sept., 1993 Foundation Health buys Century Medicorp 156.0 July, 1992 Pacificare acquires Health Plan of America 91.0 Dec., 1991 Homedco Group buys Glasroc Home Health Care 72.0 June, 1992 Maxicare buys Healthcare USA 67.0 July, 1986 Takecare acquires Comprecare 49.0 July, 1993 Pacificare Health Systems to buy California Dental Health Plan 20.0* Sept., 1993
Sources: Los Angeles Times; Alex. Brown & Sons
Researched by ADAM S. BAUMAN and C. A. WEDLAN / Los Angeles Times