Healthcare Business News

Highmark aims for more Pennsylvania clout with Blues deal

By Melanie Evans
Posted: February 18, 2014 - 7:30 pm ET

Insurance giant Highmark would broaden its reach in its core business across Pennsylvania under a deal announced Tuesday, less than a year after expanding into healthcare delivery by acquiring a distressed hospital system based in Pittsburgh.

Highmark, a not-for-profit Blue Cross and Blue Shield licensee based in Pittsburgh, would add the half-million members of Blue Cross of Northeastern Pennsylvania to its 4.3 million enrollees across 46 western and central Pennsylvania counties if state regulators approve the transaction.

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Healthcare has been an active market for mergers and acquisitions, with large players consolidating markets and in some cases diversifying across sectors, as was the case with Highmark's acquisition of financially faltering West Penn Allegheny Health System last April. West Penn now operates as Highmark's Allegheny Health Network.

Details of the deal that Highmark filed with the Pennsylvania Insurance Department were expected to be available Wednesday.

“The highest priority in our review of this application is to see that consumers will be protected and the impacted health insurers remain financially strong and the market competitive,” Insurance Commissioner Michael Consedine said in a statement on the department's website.

Blue Cross of Northeastern Pennsylvania, which already contracts with Highmark for claims processing, will benefit from Highmark's larger scale and resources to meet with the sector's increased regulatory requirements, said Highmark spokesman Aaron Billger. Highmark also owns a stake in two Blue Cross of Northeastern Pennsylvania subsidiaries.

Highmark is the state's largest insurer and holds 63% of the market in Western Pennsylvania and 35% of the market in the state's central counties. Comparable statistics were not available from the state Insurance Department for Blue Cross of Northeastern Pennsylvania, which did not respond to interview requests.

"The merger will allow us to create greater efficiencies and offer new products and services to meet the changing healthcare needs of our members, customers, providers and the people of northeastern and north central Pennsylvania," Denise Cesare, president and CEO of Blue Cross of Northeastern Pennsylvania, said in a news release.

Deals among insurers since the 2010 Patient Protection and Affordable Care Act have not surprised Leemore Dafny, a professor of management and strategy at Northwestern University. “Certainly some of the recent reforms with which the insurance industry has to comply will result in likely thinner margins” that will focus attention on costs, Dafny said.

The Affordable Care Act created new oversight and new markets for insurers, including the creation of medical-loss ratio requirements and regulated exchanges where individuals may buy subsidized health plans.

For regulators, the question is whether deals reduce costs without benefit to consumers, Dafny said. Newly consolidated companies that successfully reduce costs may nonetheless raise prices or leave them untouched, passing none of the benefit to consumers.

Follow Melanie Evans on Twitter: @MHmevans

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