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Columbia-HCA to Acquire Ohio Blue Cross

March 30, 1996

CLEVELAND (AP) _ Columbia-HCA Healthcare Corp., the nation’s biggest for-profit hospital chain, marks its first significant foray into the insurance business with the acquisition of most of Blue Cross & Blue Shield of Ohio.

The $299.5 million purchase, confirmed by both companies Friday, must be approved by the state insurance department and Blue Cross policyholders.

By hooking up with insurance companies and health maintenance organizations around the country, Nashville, Tenn.-based Columbia hopes to guarantee itself a ready source of new patients. In January, it signed a deal with the Blue Cross-Blue Shield organization in West Virginia in which Blue Cross agreed to use Columbia hospitals.

The acquisition, the first of a Blue Cross company by a for-profit hospital chain, could put Columbia into competition with HMOs that now buy services from its hospitals and clinics.

Such conflicts crippled another combined hospital-HMO company in the early 1990s. Humana Inc., based in Louisville, Ky., split in two in 1993 after finding that its hospitals and HMOs were working against each other.

``There is potential, obviously, for (internal) conflict,″ said John Hindelong, an analyst for Donaldson, Lufkin & Jenrette in New York. ``But there is also a chance to complement the skills on the insurer side with the skills on the provider side. It becomes a matter of management.″

Kent Clapp, Blue Cross president and CEO, will be chief executive officer of the yet-unnamed entity to be based in Cleveland.

Insurers like Blue Cross seek to cut health care costs by fostering competition among service providers like Columbia, pushing them to charge less and become more efficient.

Salomon Brothers analyst Mark Banta said Columbia risks hurting the close relationships it has traditionally had with doctors because its insurance arm may have to pressure them to accept lower fees.

Columbia/HCA reported net income in 1995 of $961 million, 18 percent better than 1994′s earnings of $814 million. Annual revenues rose 22 percent to $17.7 billion.

Cleveland-based Blue Cross & Blue Shield of Ohio covers 1.5 million people with traditional insurance and managed care plans. It generates $2 billion in annual premiums.

It is the latest of the 68 independent Blue Cross-Blue Shield plans around the country to seek conversion from nonprofit to for-profit status in order to better compete.

Under the deal, Blue Cross & Blue Shield will continue to operate as a smaller entity, providing some insurance and a guarantee of all policies written by the new company.

Blue Cross said there won’t be any changes in services, benefits or premiums.

``For all practical purposes, we will simply be changing the name on our doors around the state,″ Clapp said.

Columbia’s aggressive acquisition strategy of recent years has left it with 340 hospitals, 130 surgery centers and 200 home health agencies in 36 states, England and Switzerland. It operates three northeast Ohio hospitals, a surgery center and a diagnostic center.

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