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UnitedHealth Group To Buy PacifiCare In Cash-Stock Deal

by Staff Writer

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UnitedHealth Group Inc. has agreed to pay $8.1 billion in cash and stock for PacifiCare Health Systems Inc.[@@]

UnitedHealth says it hopes to complete the deal by early 2006 and make PacifiCare a subsidiary of its UnitedHealthcare unit.

The deal is subject to approval by shareholders of PacifiCare, Cypress, Calif., and by regulators, including federal antitrust regulators.

The deal agreement calls for PacifiCare shareholders to receive $2.2 billion in cash and a total of about 112 million shares of stock.

UnitedHealth, Minnetonka, Minn., has about 22 million health plan members and large specialty benefits operations.

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PacifiCare provides or administers health coverage for 3.3 million people and provides specialty benefits, such as behavioral health benefits, for 11 million people.

The company is strongest in California and other Western states, and it has won a reputation for innovation in health plan design. PacifiCare was, for example, the first carrier in California to develop a systematic program for making incentive payments to doctors who get good health care quality performance marks.

PacifiCare has 705,000 Medicare plan members in California, Nevada, Oklahoma, Texas and Washington state, and UnitedHealth executives say the company is making the PacifiCare deal mainly to get into the newly revived Medicare plan market.

A few years ago, private carriers were complaining about red tape in the Medicare plan market and rushing to get out. Since then, Congress has enacted a law that encourages preferred provider organization plans to participate and appears to give carriers more flexibility in pricing.