Green Spring Health to grow Addition of Merit to create a Md.-based giant

Health care

October 28, 1997|By M. William Salganik | M. William Salganik,SUN STAFF

Columbia's Green Spring Health Services Inc. stands to double in size as its parent company, Magellan Health Services Inc. of Atlanta, announced plans yesterday to buy Merit Behavioral Care Corp. for $560 million in cash and assumed debt.

The New Jersey-based Merit will be merged into Green Spring, said Dr. Henry T. Harbin, Green Spring's president and chief executive officer. That would create a Maryland-based company with more than $1 billion of annual revenue, providing managed-care mental health services for 40 million people by contracting with more than 50,000 clinicians and mental health facilities.

There will be "a net addition of jobs" at Green Spring's headquarters, Harbin said. However, he said it would be "premature" to give a number, because management will spend the next month or two deciding which functions will move where.

Green Spring, which is in the process of building a new headquarters, has about 2,000 employees nationally, including about 700 at headquarters. Merit, based in Park Ridge, N.J., has about 2,800 employees.

Magellan also is in the process of buying Human Affairs International, another managed behavioral health firm, in a deal valued at $422 million, but plans to run that independently.

The latest deal marks the extreme acceleration of an already rapid consolidation among firms that function as HMOs for mental health.

As recently as June, Green Spring covered about 15 million members, making it the fourth largest company in the field. It has added members through its own growth -- new contracts with the health system for military dependents and with Blue Cross of Michigan will bring it to about 20 million -- while its parent was buying the second and third largest companies, Merit and HAI.

"It's like Pac-Man," said Elizabeth Edgar, director of state health programs for the advocacy group National Alliance for the Mentally Ill.

"From a market-share position, there are a lot of synergies," said Robert M.Wasserman, vice president for research at Southeast Research Partners in Boca Raton, Fla. "This makes them a powerhouse. They could be close to 40 or 50 percent market share" of the insured population.

By combining functions such as data processing, credential reviews and claims processing, and by eliminating the costs of competing against each other for contracts, a Green Spring/Merit combination could save $20 million in the first year, Harbin said.

The companies also bring different strengths -- Green Spring is strong in contracts with Blue Cross companies, Merit with commercial insurers and large national companies who contract directly.

Both also have early footholds in the growing fields of public contracts, as states begin to contract out Medicaid programs and operation of mental hospitals.

But the consolidation raises some concerns for patients and mental health providers.

"There is effectively less choice for consumers," said Monica E. Oss, president of Open Minds, a Gettysburg, Pa., firm that publishes newsletters and provides consulting in the behavioral managed care industry.

"Our main concern is that there may be one managed care approach to psychiatric care, and there won't be a variety of ways of looking at treatment protocols and outcomes," said Dr. Stephen S. Sharfstein, president of Sheppard Pratt Health System, which runs a psychiatric hospital in Towson and a number of outpatient clinics. "It's important to have practice variation so we can learn."

Oss said that for the combined company, "there are probably going to be 15 to 20 states where they have 50 to 75 percent market share." While the number of national competitors is shrinking rapidly, she predicted that local and regional providers throughout the country will develop their own networks to compete for state and commercial HMO contracts.

Pub Date: 10/28/97

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