Sierra Health sells Houston operation, sticks with Dallas

Friday, Oct. 27, 2000 | 11:02 a.m.

Battered by months of losses, Nevada's largest health insurer is selling a second Texas asset it owns. Meanwhile, the company also is proceeding with its plan to sell and lease back 11 office buildings in Las Vegas worth about $125 million.

Sierra Health Services Inc. announced Thursday it is selling its Houston Health Plan operation to AmCare Health Plans Inc., a health maintenance organization.

Terms of the deal, which is expected to close by Dec. 1, were not disclosed. The deal affects about 16,500 commercial members in the Houston area and about 5,300 Medicare + Choice policyholders in Beaumont, Texas. Sierra said the company's decision to discontinue Medicare + Choice coverage in Houston on Dec. 31 is not affected by the transaction.

By selling off the Houston assets, Sierra has only one operation remaining in Texas and, contrary to earlier speculation, plans to keep it.

"We're going to keep Health Plan of Dallas, which has been our only profitable entity in Texas," said Peter O'Neill, a spokesman for Sierra in Las Vegas.

O'Neill said with 85,000 members in the Dallas-Fort Worth area, the company was able to establish favorable contracts with Dallas-area hospitals and medical facilities. That wasn't the case in Houston, where the small membership level wasn't enough to leverage similar deals.

AmCare, a small Houston HMO, offers services in Oklahoma and Louisiana as well as in Texas.

"We plan to incrementally grow that (Dallas) position and achieve profitability," O'Neill said. "This is the tail end of a lengthy restructuring of our Texas operations."

Sierra's stock took a beating and analysts downgraded it when the company announced restructuring plans for the Texas Health Choice managed care operation and the Medical Group of Texas group practice when first-quarter results were announced in May.

Sierra operates as Texas Health Choice in that state.

The Dallas assets of the Medical Group of Texas were sold to MedicalEdge Healthcare Group Inc., Dallas, for an undisclosed amount last month. MedicalEdge was allowed to acquire the Medical Group name.

Sierra took a $3.6 million after-tax charge in the first quarter to cover restructuring costs in Texas.

The stock, which had traded near 52-week highs of $10 a year ago, fell to $3 in August. Today, it is trading at around $5.

About 135 employees were laid off at clinics in Irving, Mesquite, Plano and Arlington, Texas, and about 100 Las Vegas jobs were lost through layoff and attrition of Nevada's work force of 3,000.

"We have been unable to achieve profitability in the Houston market because of our membership scale and have recently recognized considerable losses," Anthony Marlon, Sierra's chairman and chief executive officer, said in a statement announcing the sale. "With the combined asset sales of Houston and (Medical Group of Texas), we are now in a much improved position to recognize growth and profitability in the Dallas market, focusing exclusively on our restructured health plan."

While the companies did not disclose a purchase price, O'Neill said Sierra would assume risk coverage for the first three months of the transitional period as part of the deal.

O'Neill also said plans are continuing for the sale of 11 Las Vegas buildings, including its 247,000-square-foot headquarters campus with Class A office space on North Tenaya Way, just off U.S. 95.

O'Neill said he could not offer specifics due to pending earnings announcements by the company scheduled Nov. 7. However, the portfolio, which also includes nine medical office properties with a total of 306,000 square feet scattered throughout Southern Nevada, is being listed by CB Richard Ellis.

Sierra plans to continue to occupy the Las Vegas properties under 15-year leases.

O'Neill said the company hopes the office deals close by the end of the year. He said the Las Vegas operation has never been unprofitable.