FHP Drops Bid for HMO Based in Bay Area

FHP International Corp.’s bid to gain a foothold in Northern California faltered Thursday as it announced that it was calling off negotiations to acquire San Francisco-based Bridgeway Plan for Health.

The two health-maintenance organizations said they had agreed to end merger talks begun in May after they were unable to agree on terms for hospital and physician contracts.

“We’ve taken it off the block for now,” said James Heimarck, president of Bridgeway’s parent company, California Pacific Health, who said a recent hospital merger in San Francisco made keeping Bridgeway more attractive.

Fountain Valley-based FHP, which has 640,000 members in four states and Guam, will begin exploring other ways to crack the Bay Area health-care market, FHP spokeswoman Anna Marie Dunlap said.

“Northern California is still a very important market to us,” said Dunlap, associate vice president.

One analyst welcomed the merger collapse, saying an FHP plunge into the overheated Northern California health-care market would be “risky.”

Michael M. LeConey, an analyst with Baird Patrick in New York, said, “They have a terrific franchise in Southern California, and I don’t quite follow the reasoning that they have to be statewide.”

In over-the-counter trading, FHP’s stock jumped $1 on the news to close at $20 per share.

FHP executives have said they hoped that buying Bridgeway, which has 63,000 members, would help them attract more big corporate clients with employees statewide.

Both companies said the deal disintegrated over complex contract negotiations involving the reimbursement of physicians and hospitals for their services to the merged HMO.