Kaiser Permanente plans to acquire a major insurer and health care provider in Washington state—a signal it may be looking to more aggressively expand its national footprint, experts say.
Kaiser, a California-based managed-care operator known for its highly integrated operations, announced Friday that it plans to acquire Seattle-based Group Health Cooperative.
Because both organizations are not-for-profits, Kaiser committed to spending $1.8 billion on a foundation focused on improving health in Washington state as part of the transaction.
Kaiser currently operates 38 hospitals and hundreds of clinics across the country, employs about 18,000 physicians, and has about 10 million members—nearly 80% of whom live in California. Kaiser members pay an upfront fee to cover the cost of all their care, giving Kaiser a financial incentive to control costs.
Group Health—which generated $3.7 billion in revenue in 2014—has 590,000 members, along with specialty medical centers, clinics, and one hospital.
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The deal could take up to a year to finalize, according to Group Health President and CEO Scott Armstrong. The agreement, which is subject to approval by regulators, would be Kaiser's first major acquisition since the mid-1990s, Anna Wilde Mathews reports for the Wall Street Journal.
"Our approach, we believe strongly, is the right approach for how health care should be delivered in the country," Kaiser Chair and CEO Bernard Tyson said Friday. "This is a growth strategy we are after on how to continue to make health care more efficient, more effective, and affordable."
Tyson added that acquiring Group Health would be a "natural fit" because the health plan owns and operates clinics in a similar way to Kaiser. Armstrong said the acquisition would be "an opportunity to do more, better."
A market shift
The deal may signal that Kaiser is looking to expand its managed-care model more aggressively, Wilde Mathews reports.
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By contrast, Kaiser in the late 1990s exited markets in Texas, the Northeast, and North Carolina amid a backlash against managed-care organizations. But the passage of the Affordable Care Act and the shift to value-based care has made aspects of Kaiser's approach more popular nationally.
The time could be right for Kaiser to bring its managed-care model to other markets, some experts told the Journal, noting that Kaiser may be looking to find established regional partners rather than build businesses from scratch as it did in the 1990s.
Tyson signaled Kaiser was open to further expansion in a conference call with reporters Friday. "We'll continue to look at where there might be strategic fits," Tyson said. "Our goal is to continue to grow."
The Los Angeles Times reports that Kaiser is investigating a possible deal with Henry Ford Health System in Detroit. A spokesperson for Henry Ford told the Times, "Henry Ford Health System regularly talks with other organizations both locally and nationally, looking for opportunities to collaborate."
Kaiser said it would not comment on the speculation (Mathews, Wall Street Journal, 12/4; Evans, Modern Healthcare, 12/4; Terhune, Los Angeles Times, 12/4; AP/Sacramento Bee, 12/4).
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