Blues acquire Shore HMO, Delmarva Health

August 04, 1993|By Patricia Meisol | Patricia Meisol,Staff Writer

Blue Cross and Blue Shield of Maryland moved yesterday to buttress its managed-care presence by purchasing the Delmarva Health Plan of Easton.

The acquisition by the CFS Health Group Inc., the management company for three of the Blues' four health maintenance organizations, increases CFS' membership by 12.5 percent and gives the state's largest health insurer an important toehold on the Eastern Shore, where traditional business is declining.

Delmarva, owned by Memorial Hospital of Easton and a group of physicians, was acquired for $7 million -- $6.25 million in cash and the remainder in escrowed funds. Its net worth as of June was $2.8 million.

The sale, already approved by state insurance regulators, was completed yesterday. CFS said the sale could result in a decline in the surplus of its parent, Blue Cross, by a maximum of $3.75 million. But that figure is likely to be reduced by profits in the third and fourth quarters, the company said. CFS assumes Delmarva assets worth $7.2 million and liabilities of $4.4 million.

The membership of Delmarva and CFS, combined with another Blues HMO, the Columbia Medical Plan, is likely to make Blue Cross and Blue Shield the largest HMO in the state. It has jockeyed back and forth for first place with Mid-Atlantic Medical Services Inc.

David D. Wolf, CFS president, said the purchase would allow Blue Cross to offer a managed-care option to subscribers who are switching from traditional insurance plans.

"We were looking to build out, and Delmarva was looking to affiliate with a larger organization," he said. With the acquisition, managed care is now an option for Blue Cross subscribers in all but two counties of the state. Delmarva's network of doctors and other providers covers nine counties on the Eastern Shore. CFS is the holding company for CareFirst, FreeState Health Plan and Potomac Health. The three HMOs had a combined profit of $5.4 million on revenues of $270 million last year. They have been profitable since June 1991, but membership has been dropping.

Delmarva, founded in 1982, had profits of $575,800 on $29.3 million in revenues last year. Its membership has grown 18 percent in the past three years, and it reported profits in each of those.

"One of the assets we saw is that Delmarva has a good reputation for providing service and it is also operating from a financial standpoint very successfully," Mr. Wolf said. The HMO's chief executive officer, Richard W. Moore, will stay at Delmarva to expand it, Mr. Wolf said.

Bruce Mitchell, an associate with William M. Mercer Inc., benefits consultants, said Delmarva's continued success would depend on whether CFS maintains its current level of service and physician network.

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