PacifiCare Purchases Health Plan in Texas

PacifiCare Health Systems Inc., which operates the nation’s largest managed care plan for people on Medicare, said Monday it has completed its $117.5-million cash acquisition of a troubled Texas health plan, effective today.

The Santa Ana company, which is trying to cut its own costs to relieve pressure on profit margins, said it acquired Harris Methodist Health Plans in Arlington from Texas Health Resources.

After the final documents were signed Monday, about 150 Harris employees were dismissed, effective immediately, because their jobs overlapped with existing PacifiCare jobs. Fired employees are receiving severance compensation and outplacement assistance.

The company will review other areas of the combined business.

Harris, which had 850 employees before the acquisition, is expected to be pared below 425 employees, according to the Dallas Morning News. The reduction is seen also as part of a plan to reverse losses at Harris by cutting costs, raising premiums and shutting unprofitable programs, the newspaper reported.

In a press release, PacifiCare said the transaction has received all necessary approvals from regulators, including approval from the Texas Department of Insurance and antitrust clearance under the federal Hart-Scott-Rodino Act.

The costs of the merger are expected to drag down earnings this year by up to $5 million, but company officials said they expect the acquisition to add $9 million to $15 million to net income next year.

The transaction adds 294,000 members to PacifiCare’s Texas operation, raising total membership there to 470,000 and making it one of the state’s largest health plans. It also adds about $80 million in assets to the company.

PacifiCare set up a long-term agreement with Texas Health’s hospitals to provide continuity of care for Harris members and to give PacifiCare’s North Texas members and contracting physicians access to the hospitals.

PacifiCare has 4 million members in nine states and Guam.

In a separate release Monday, PacifiCare said it agreed to connect its employer groups, consumers and brokers to Employease Inc.’s network, first in California and later in the other states it operates.

Bloomberg News and Dow Jones contributed to this report.