BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe



AVON, Conn.-Columbia/HCA Healthcare Corp.'s purchase of Value Health Inc. is likely to create a new super vendor that will be knocking on the doors of many employers and health maintenance organizations.

The Nashville-based diversified health care corporation last week took a large step into prescription management, disease management, and several other managed care fields with its definitive agreement to acquire Value Health in a $1.3 billion stock swap.

Columbia/HCA, the largest private U.S. provider of health services, said that its merger with Value Health-which owns the largest independent drug management firm in the nation-could pave the way to negotiating contracts with large employers and managed care companies for a variety of specialty health services.

The purchase will permit Columbia/HCA, known mainly for its hospitals, home health services and surgery centers, to take on a variety of tasks that HMOs and corporate health plan sponsors now purchase from third-party administrators, managed care companies and other contractors. The deal includes Value Rx, Value Health's prescription benefit management operation and one of only two large independent PBMs in the nation.

Columbia/HCA three years ago started its own PBM, Columbia Pharmacy Solutions, serving both employers and HMOs, which has reached about $100 million in annual sales. It views that venture as successful but limited and wants "to rocket this thing into a huge national position," said Richard A. Schweinhart, a Columbia/HCA senior vp. The pharmacy management field was one of the few segments of health delivery in which Columbia/HCA felt it had little impact, he said.

"Smart providers are forming networks and are themselves taking on some attributes of managed care companies," said Robert E. Patricelli, chairman and chief executive officer of Value Health. "Big provider organizations are challenging managed care for a bigger piece of the pie."

Potential suitors began approaching Value Health last year after it announced it would spin off its Value Rx unit into a separate company and focus more on areas like disease management and health care information technology. The spinoff never occurred, though, because an offer arose from Columbia/HCA to buy Value Health outright.

"As they say on Broadway, a funny thing happened on the way to the spinoff," Mr. Patricelli said.

Mr. Patricelli will leave the company when the sale becomes final, which is expected to occur by the middle of 1997.

Under the terms of the agreement, Value Health shareholders will each get 0.58 shares of Columbia common stock for each share of Value Health stock owned. Columbia/HCA expects to issue about 35 million shares of its common stock to Value Health stockholders in exchange for 54.7 million outstanding shares of Value Health.

On Friday, Columbia/HCA stock closed at $39.13 per share, while Value Health shares closed at $22 each.

In addition to Value Health's PBM business, Columbia/HCA also will get Value Behavioral Health, a provider of managed behavioral services; Value Health Sciences, which produces high technology to support disease management services; and Community Care Network/Medview, a workers compensation and group health network and cost management unit.

No major job losses were expected because of the acquisition, except for about 30 employees in the administrative headquarters of Value Health in Connecticut. That office will be eliminated.

The union between Colum-bia/HCA and Value Health will be a "natural fit," Mr. Schweinhart said. It will significantly increase Columbia's drug purchasing power for its hospitals and surgery centers.

Columbia/HCA, through Value Health's broad range of managed health services, will be able to provide HMOs and self-insured employers with "virtually everything you need-essentially one-stop shopping," he said. Col-umbia/HCA will be able to market drug protocols and disease management programs for managed care and provide patient data from its own 345 hospitals for Value Health's research.

Analysts were unsure whether Columbia/HCA's latest move would cause a change in PBM pricing for health plan sponsors, though Mr. Patricelli said "over time" it will probably create a positive change for payers.

Barry Barnett, a principal of Fort Lee, N.J.-based Kwasha Lipton L.L.C., said the acquisition of Value Health matches Colum-bia/HCA's current strategy of buying rural or community hospitals and using delivery systems to propel patients through them more efficiently. PBM data and programs developed through Value Health disease state management and behavior modification programs, in combination with discounting, are "guaranteed to drive people through (Colum-bia/HCA) hospitals," he said.

"There is a major consolidation in health care, and one may look at Columbia as the 500-pound gorilla," he said.

"It (the acquisition) has introduced Columbia to a whole client base they never had before in any significant manner," said Bob Eicher, a principal in New York-based A. Foster Higgins & Co. Inc.

Analysts say Value Health's 1995 acquisition of another PBM, Diagnostek Inc., may well have laid the groundwork for an eventual takeover by a larger company. The rapid absorption of Diagnostek, a $216 million acquisition, created the largest PBM in the nation not owned by a pharmaceuticals manufacturer. But it's also caused financial strain for Value Health when Diagnostek's performance faltered.

"I guess you could say they stumbled," said Mr. Schweinhart, though he added that Value Health was able to continue to grow and to reorganize despite problems with Diagnostek.

Foster Higgins' Mr. Eicher agreed the Diagnostek deal did not weaken Value Health to the point that it was forced to seek suitors.

Columbia/HCA's acquisition of Value Health may be viewed as the further eclipse of an endangered species: the independent, large PBM. Several large drug management firms in the last few years have been bought by drug companies in controversial, high-stakes deals:

Medco Cost Containment Services Inc. was bought by Merck & Co. Inc. in 1993 for $6.6 billion. Medco began operating independently of Merck in 1995.

Diversified Pharmaceutical Services Inc. was bought by SmithKline Beecham Corp. in 1994 for $2.3 billion.

PCS Health Systems Inc. was purchased by Eli Lilly & Co. in 1994 for $4 billion, with PCS operating as an independent subsidiary.

MedPartners/Mullikin acquired Caremark International Inc. for $2.5 billion in 1996.

The sole independent player remaining among leading, national PBMs sees possible gains for itself following Value Health's acquisition.

James M. Guller, vp-marketing for St. Louis-based Express Scripts Inc., said the purchase creates new considerations for buyers who may value a PBM's independence.

"Buyers may start to think not only who the PBM is, but who the parent is," he said.

Mr. Guller believes the merger will enhance Express Scripts' competitive edge somewhat, especially since it will be the only remaining large, independent PBM.

"It presents an opportunity for us," he said.

Columbia/HCA, too, will be able to market itself as owning a PBM free from potential interference by pharmaceutical makers, Mr. Schweinhart noted.

"Do you want to have a PBM that is pushing their own drugs or do you want someone who will make an independent decision for you?" he said.

"There is still a lot of competition in the PBM market," agreed Richard Trapp, vp-finance for Employer Purchasing Alliance in Tampa, Fla., which manages 10 employer coalitions around the United States. The Alliance contracts with ValueRx, the Value Health PBM. "They'd have to buy a lot more than one PBM" to have any significant effect on the market.

Columbia/HCA, in addition to its hospitals, owns 135 outpatient surgery centers and more than 550 home health sites. It has revenues of $20 billion and, with 285,000 workers, is the ninth-largest employer in the country.

The company's 1996 plan to buy the majority of the assets of Blue Cross & Blue Shield of Ohio is in limbo.

The national Blue Cross & Blue Shield Assn. has sued to strip the Ohio plan of its Blues trademark and local citizens groups also have criticized the proposal.

Joanne Wojcik contributed to this report.