SHELLY GARCIA Staff Reporter The merger of CareAmerica with Blue Shield of California is still awaiting approval, but the downsizing already has begun at least as far as office space is concerned. Late last month, CareAmerica signed a lease that will keep the health maintenance organization in Warner Center’s Trillium, the building it has occupied for about five years. But the 200,000 square feet CareAmerica currently leases will be reduced by nearly half, to just 103,000 square feet. “We currently have a lot more space than we need,” said Ross Goldberg, senior vice president for communications and marketing at CareAmerica in Woodland Hills. The CareAmerica acquisition was completed in November 1997, but the deal still awaits approval from the California Department of Corporations, which is expected to act sometime this summer. Until that happens, CareAmerica is operating as a wholly owned subsidiary of Blue Shield. The merger will give a much-needed boost to the companies, both of which were small fish operating in a sea increasingly dominated by large players, according to industry analysts. CareAmerica, with 267,000 members and $541 million in revenues in 1997, barely registers on the radar screen in an age of billion-dollar HMOs. Blue Shield, with about 1.6 million members and revenues of $1.54 billion in 1997, will become the fifth largest HMO in California following the merger “and they’ve got much bigger health plans ahead of them,” said Steve Valentine, president of The Camden Group, an El Segundo-based health care consulting firm. “Blue Shield needs to get bigger and CareAmerica needs to get bigger.” But much of CareAmerica, which had a sizeable presence in Warner Center, likely will be absorbed into Blue Shield as a result of the merger, consultants say. “It’ll be gone,” said John Edelston, whose Woodland Hills-based HealthPro Associates Inc. consults on managed care delivery systems. “When you look at the last 10 years of consolidations in this industry, you don’t see these companies anymore. It takes a couple of years, but I don’t think you’re going to see them operate two separate plans.” CareAmerica currently has about 500 employees in its Warner Center offices. Many functions, including human resources, public relations and financing, will be consolidated with Blue Shield after the merger is approved. “Functions that are truly corporate-based will either be eliminated or severely scaled back,” Goldberg said. He said the company is not at liberty to talk about the number of employees that might be eliminated because the merger has not yet been approved. Blue Shield, with headquarters in San Francisco, also operates a Los Angeles office with 210 employees, who handle sales, member services, provider relations, medical management and other activities for the region. That office is expected to eventually pick up a number of the activities now handled in Woodland Hills. “Chances are they’ll still need the marketing and sales departments,” said Valentine. “But clearly there will have to be some economies of scale.” That’s especially true for Blue Shield, which is one of the few non-profit HMOs in operation. While many other providers that are publicly owned can raise funds through stock offerings, Blue Shield can only rely on the income its operations generate in order to grow. For example, consultants said it takes about $1,000 to enroll a senior citizen in a medical plan, so enrollment drives can be very expensive and it takes time to recoup those funds. While the San Fernando Valley will likely lose another headquarters as a result of the deal, it is expected to retain one portion of the merged business: the senior care programs. With a combined enrollment of about 120 members, senior care is a small segment of the business, but it generates higher revenues for HMOs because seniors use more medical services more often. “Seniors use a substantially greater number of hospital days,” said Edelston. The typical HMO member, enrolled through his or her workplace, generates about $120 a month in revenues. The typical senior enrolled in a Medicare-backed program, by contrast, generates revenues of $600 a month in California. (Medicare has different payment schedules for different states.) This is not the first time CareAmerica’s plans have been dramatically altered. The company initially moved into the Trillium under a sublease agreement with the expectation that Unihealth, its former owner, would also situate its offices there. But soon after the move, Unihealth changed its plans and CareAmerica was left with a space that officials said was always too big for its needs. Last summer, CareAmerica signed a $35 million lease to move into a 162,000-square-foot facility in West Hills Corporate Village, an office complex under development by Regent Properties. But soon after, Blue Shield acquired the company from Unihealth, the Burbank-based owner of a number of hospitals and physician groups throughout California, and plans to relocate were put on hold. The West Hills offices will be subleased, and Blue Shield said it has not yet made any decisions about the property. Boeing Co., however, has just signed a lease for about 120,000 square feet in West Hills, and other sources said that it will occupy a portion of the space that had been leased to CareAmerica.