Lifeguard Inc., a Northern California HMO, reversed plans to affiliate with health giant Blue Shield of California following a breakdown in talks over the past 10 days.
Blue Shield was mum on why the union was canceled, but a Lifeguard executive said the company was not able to identify any major cost savings from affiliation and that it values its independence "now more than ever."
"Because we're such a unique organization, there weren't that many things where we were going to see economies of scale," said Chief Marketing Officer Tom Carter. "Lifeguard is going to focus on staying independent and operating independently, and that was a goal from the beginning."
Lifeguard CEO Mark Hyde added in a press release that his staff is "energized by our independence," and the company "never intended to relinquish control of its operations."
Based in San Jose, Lifeguard claims 185,000 members, roughly 30,000 of them in Alameda and Contra Costa counties and the rest throughout Northern California. The company has struggled with losses and other financial difficulties over the past few years and watched as other California HMOs were either taken over or ceased operations. Health Plan of the Redwoods, a 78,000-member HMO based in Santa Rosa, filed for bankruptcy in May and is in the process of liquidating.
Meanwhile, Lifeguard's Silicon Valley customer base is in the midst of an especially difficult economic downturn, increasingly conscious of cost when shopping in the extremely competitive health care industry.
But Lifeguard has staged something of a turnaround, breaking into the black in the first quarter of this year and posting positive cash flow in the second. It had hoped to cement that progress with the Blue Shield deal, announced in May. Lifeguard planned to remain independent, leaving its plans and services unchanged, while slowly consolidating with Blue Shield's administration.
Blue Shield has grown to be the state's fourth-largest health plan partly through such marriages, including its 1997 acquisition of Southern California-based Care America and its 265,000 members. It now has about 2.2 million members, offering it substantial clout in negotiations with hospitals and other health care providers and the scale to sell a variety of plans. The company issued a terse statement Monday confirming it will not affiliate with Lifeguard.
Both Blue Shield and Lifeguard maintained that the end of the union will not affect their strategy for the future or future financial plans.
"It's business as usual," said Carter.
Ryan Tate is a general assignment business reporter. Reach him at 925-977-8568 or rtate@cctimes.com
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