Corporate Healthcare Financing Inc., a Baltimore firm that designs health care plans for self-funded companies, was sold yesterday to a publicly traded Detroit company in a deal valued at $15 million.
United American Healthcare Corp., operator of health maintenance organizations and managed-care programs in four states, said it acquired Corporate Healthcare for cash, UAH stock and a seven-year note to be paid quarterly.
Corporate Healthcare assembles group health packages, including re-insurance for catastrophic illnesses, for divisions of such companies as General Motors, AMOCO, Westinghouse and Genetic Therapy. Its strategy is to design a plan for an employer and contract out each part to a specialist. It subcontracts more than $150 million worth of benefits, reinsurance, billing and claims administration, most of it to other Maryland companies.
Both companies said Corporate Healthcare founder Louis J. Nicholas would remain as chairman and chief executive officer of the company, which will become a wholly owned subsidiary of the Detroit firm.
The company has 40 employees, offices in five cities and annual revenues between $5 million and $6 million. Its client companies typically have 400 employees or more. The sale does not include Mr. Nicholas' major stake in a Minnesota company, Corporate Healthcare Financing of Minnesota, which is to be sold separately.
United American manages health plans in Cleveland and Southeast Michigan and is now entering markets in New York and Washington,D.C. It reported $20.8 million in revenues for the nine months ending March 31. Its president, Julius V. Combs, said yesterday that UAH would use Corporate Healthcare's expertise to aggressively enter the third-party administration of health benefits.
United American also yesterday reported its third-quarter earnings for the period that ended March 31 were down 41.63 percent over the year-ago period as the result of investments in new businesses in Washington and New York, where it hopes to enroll medical assistance patients in its HMOs.
United American's stock, which has been battered over recent months along with many health care companies, closed at $8.675 yesterday on the New York Stock Exchange, down 75 cents.
It had traded at more than $17 in February.
"I think what is happening is that revenues are not growing as fast as we would like to see," said James M. Meyer, analyst of Janney Montgomery Scott in Philadelphia. He said the company's margins are dropping because it is not seeing more revenues from its acquisitions of the past few years in Washington and New York.
"The ultimate test is whether they get Medicaid patients into their plans. They have to do it everywhere to be successful," he said.
In Baltimore yesterday, Mr. Nicholas said he decided to sell his company after concluding that survivors in the health care industry must be fluent in the managed-care market. "That is not an easy area," Mr. Nicholas said, adding that the acquisition would give Corporate Healthcare expertise to design HMOs for its clients and potentially triple its business.
Mr. Nicholas said he would own 5 percent of United American's stock. United American has 6.3 million shares outstanding. He also will have a seat on United American's board.
It is the second time in five years that Mr. Nicholas has created and sold a health care company. In 1988, he sold a health benefits firm that administered insurance for private companies for $12 million.