PacifiCare's Maxicare buyout goes on critical list.

PacifiCare's Maxicare buyout goes on critical list

The saga of dueling press releases between rival local health maintenance organizations Maxicare Health Plans Inc. and PacifiCare Health Systems Inc. apparently concluded last week, when PacifiCare was stymied in its pursuit of Maxicare, an HMO operating in Chapter 11 bankruptcy.

In the days following Cypress-based PacifiCare's April 19 announcement that it wanted to buy Maxicare, a flurry of news releases came out of both company's front offices.

In the releases, Maxicare first described PacifiCare's bid as "puzzling" and then said last Thursday that merger talks were unconditionally terminated. PacifiCare, for its part, said April 19 it anticipated its proposals would be delivered not only to Los Angeles-based Maxicare's management but to Maxicare's creditors. It then announced April 23 that the "terms of acquisition" of Maxicare were being discussed with Maxicare, and then, when the merger stalled April 25, said it would "continue to review its options."

Meanwhile, as PacifiCare's takeover bid fizzled, the company's stock took ill on Wall Street, falling from $20 a share last week to $16.75 on heavy trading volume. PacifiCare's 52-week high is a little more than $30 a share.

Some analysts last week talked of a combined PacifiCare-Maxicare empire of nearly 1 million members - but in fact, Maxicare would have become part of a much larger empire than that if PacifiCare had succeeded in its takeover plan.

PacifiCare is 58 percent owned by Uni-Health America, a Burbank-based non-profit health conglomerate formed in 1988 by the merger of HealthWest Foundation and LHS Corp., formally known as the Lutheran Hospital Society.

The president and chief executive of UniHealth, Paul Teslow, is also a board member of PacifiCare, and he attended a regularly scheduled PacifiCare board meeting last week at which takeover plans of Maxicare were discussed. Teslow could not be reached for comment last week.

The chairman of PacifiCare, Samuel Tibbits, is a board member of UniHealth America, and former president of the LHS Corp. Last year, Tibbits received "The Pinnacle Award" from UniHealth in recognition of his contributions to the health care industry.

Despite the ties between UniHealth and PacifiCare, last week UniHealth officials said that its majority stake and board seat on PacifiCare amounted only to a "portfolio" investment. A UniHealth spokesman, Ross Goldberg, said that because UniHealth also operates another HMO, the non-profit CareAmerica, it kept an "arm's length" distance from PacifiCare.

Alan Hoops, PacifiCare executive vice president and chief operating officer, said that UniHealth does not have much involvement in the day-to-day affairs of his HMO.

PacifiCare, with 638,000 enrollees, posted a net of $10.8 million on revenues of $650.2 million in fiscal 1989 ended Sept. 30. In the first quarter of 1990, PacifiCare reported a net of $2.95 million on revenues of $204.4 million.

In contrast to the publicly held and growing PacifiCare, Maxicare is best-known as the HMO that declared Chapter 11 bankruptcy last March, following a disastrous and debt-financed expansion in 1986 led by Fred Wasserman, the HMO's co-founder, chief executive and chairman.

After taking on $450 million in debt in 1986, buying two rival HMO's and growing to 2.3 million members from 700,000, Maxicare collapsed, unable to service the interest on its debt and has not reported a profit since.

Wasserman left in August 1988, replaced by Peter Ratican.

Today Maxicare has about 320,000 members and has plans to emerge from bankruptcy before the federal bankruptcy court in Santa Ana.

Both Maxicare and PacifiCare are "contract-model" HMOs: Unlike Kaiser Permanente, Maxicare and PacifiCare do not own hospitals or employ doctors directly. Instead, the two HMOs contract with hospitals and doctors, who agree to provide health care to enrollees for regular monthly fees, on a per capita basis. The enrollees are made of employees from companies that chose Maxicare or PacifiCare as a health care provider.

Feelings run high between PacifiCare and Maxicare, in part because PacifiCare's publicly announced "pick-off strategy," in which it enrolled 58,000 former Maxicare members last year - members Maxicare much wanted to keep to help with its planned turnaround.