Not-for-profit insurance collaboration in N.Y. could be blueprint, experts say

A collaboration between two noncompeting not-for-profit health plans in New York could serve as a model for similar companies seeking to survive in increasingly competitive medium-sized markets, those familiar with the deal said.

With their headquarters about 300 miles apart on either end of the New York State Thruway, Albany-based Capital District Physicians' Health Plan, also known as CDPHP, and Buffalo-based Independent Health don't compete. But they offer similar products to similar customers and are facing similar economic pressures. They have opted to pool resources and share thinking on how to manage new realities.

“We're noncompeting plans with a lot of synergies,” CDPHP spokeswoman Ali Skinner said. “We've been working with Independent Health for 30 years, so it only made sense that we make this more official and look at an alliance that will bring us scale.”

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Independent Health rebounded last year to post a $20 million surplus on revenue of $1.84 billion after losing almost $54 million in 2012, according to its 990 tax form. Conversely, CDPHP's consolidated statement of income showed an almost $44 million loss for 2013 against more than $2 billion in revenue after posting an almost $16 million profit on just under $1.8 billion in revenue in 2012.

Steve Valentine, president of the Camden Group, a Los Angeles-based healthcare consultant, said both groups likely had some “adverse selection” with people who are not in the best of health choosing their plans or had some newly employed beneficiaries who had previously put off seeing a doctor.

But he also noted that, combined, they have 800,000 beneficiaries and about $4 billion in revenue.

“They're substantial—these are not two wimpy plans,” Valentine said. “They have plenty of revenue and critical mass to compete with the big guys who have more resources.”

The companies will be “sharing best practices and expertise, in all areas of each company's respective operations,” according to a joint news release.

“This strategic alliance will allow each of our plans to remain independent and highly responsive to the needs of our respective communities,” Dr. Michael Cropp, Independent Health president and CEO, said. “This is not a merger, but a unique alliance to exchange and implement ideas and strategies that are essential to continue driving sustainable healthcare.”

While New York City and Long Island markets belong to commercial plans, not-for-profits are the leading plans in the rest of the state. According to the American Medical Association, CDPHP has a 32% share of the Albany-Schenectady-Troy market with UnitedHealthcare at 18%. The AMA reports that Independent Health has a 45% share of the Buffalo-Cheektowaga-Tonawanda market with Blues affiliate HealthNow New York controlling 24%.

“Strategic alliances like this allow the partners to invest in new technologies that empower patients and assist clinicians in providing better care,” said Dr. Nancy Nielsen, clinical professor at Buffalo State, State University of New York's School of Medicine and Biomedical Science. “This move seems like a home run for everyone.”

Attorney Stephen Wu, a specialist in antitrust litigation, said it didn't appear that customers served by the two plans would be harmed by the collaboration.

“I think it's a little interesting that it's not a full-blown acquisition and merger,” said Wu, a partner in the Chicago office of McDermott Will & Emory. “I think it's something to watch—if not on the front end—but to see what happens and what they eventually come up with.”

Valentine said the partnership provides a view to the future. “This kind of partnership is unusual today, but it won't be in the long term,” he said.

Jim Redmond, spokesman for Rochester, N.Y.-based Excellus Blue Cross and Blue Shield, questioned how much encroachment bigger commercial plans would have on CDPHP's and Indepent Health's Albany and Buffalo territories.

“They are much more well-known in their markets than the national for-profits,” he said.

Nielsen, a former AMA president, agreed that the national for-profits have a smaller regional presence and that the exchange market is still a small part of their business. But she added that this could change quickly if local companies begin to steer their employees toward the exchanges.

“Not-for-profit organizations need to invest in technology to stay current with the deeper pockets of for-profit health plans,” Nielsen said. “Advances in technology that connect patients to their providers in innovative, convenient ways are here—smartphone apps and webcams, for example. Clinicians need information from insurers to provide seamless, coordinated care and that will require much more sophisticated data analytics on the part of the health plans. All that requires money, so efficiencies and alliances will form.”

Follow Andis Robeznieks on Twitter: @MHARobeznieks