Mid Atlantic to acquire HomeCall

May 12, 1994|By Patricia Meisol | Patricia Meisol,Sun Staff Writer

In an effort to tighten costs, the state's largest managed care company is buying a home health service.

Mid Atlantic Medical Services Inc. said yesterday that it has signed a letter of intent to acquire Frederick-based HomeCall Inc.

The deal, worth $11 million, depends on a final agreement and approval of HomeCall stockholders. HomeCall's stock could be converted to cash, or a combination of cash and Mid Atlantic stock with a value of $3.10 a share, or all Mid Atlantic stock. There are 3.1 million shares outstanding, and about 40 percent of the company is closely held by directors and management.

The Frederick company, a rising star in home health that emerged as a top provider in the market in the past two years, had revenues of about $16 million for the year ended March 31. It was started by a home economics teacher in 1974 and last year made 160,000 home visits.

With growth rates of 30 and 40 percent in the past two years, HomeCall directors decided they should consider strategic alliances and other ways of obtaining capital, said Artie R. Esworthy Jr., president of HomeCall and an associate professor in the business department of Frederick Community College.

As a publicly held company, he said, HomeCall also had a duty to maximize its shareholder equity. "Timing is important," he said, "and an entity like [Mid Atlantic] is a good company to fall under."

HomeCall is likely to keep its name and remain a separate entity, he said. It employs about 700 people and has contracts in the Washington area as well as West Virginia.

Mid Atlantic, based in Rockville, is one of HomeCall's biggest customers. Mid Atlantic decided to buy the home health agency to further reduce its costs as it opens a health maintenance organization for Medicare enrollees planned for the fall, said company spokesman Michael Savage.

"It represents an opportunity to broaden our managed care capabilities," he said, adding it would help contain costs in what already is a multimillion-dollar budget for home health care.

Until now, Mid Atlantic has relied exclusively on others to provide care for members of its various managed care plans, which include MD I.P.A. and Alliance.

The company said the HomeCall purchase is a one-time deal and does not represent a change in its strategy to serve essentially as an insurance agency and broker of services.

Mid Atlantic rounds up independent doctors and providers and offers their services to employers for a package price. It manages care for 1.1 million people, including more than 800,000 in Maryland.

Its ownership of HomeCall would essentially reduce the available market share for other home health providers to fight over.

"The pie has shrunk," said David McDaniel, executive director of Bay Area Health Care, a doctor-run agency smaller than HomeCall.

Mid Atlantic ended 1993 with a net income of $24.8 million on revenues of $646 million. Despite growth in revenues, HomeCall expects a dip in earnings for the year ended March 31, Mr. Esworthy said.

Mid Atlantic stock dropped $2 in Nasdaq trading yesterday to close at $46.50. HomeCall stock rose 60 percent to close at $2 a share.

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