Since United HealthCare Corp. purchased MetraHealth Cos. last year, United has been rapidly consolidating systems and making acquisitions.
Minneapolis-based United announced last June it would buy MetraHealth for $1.65 billion (July 3, 1995, p. 9). In the whirlwind of consolidations, MetraHealth had begun operations only five months before, when Metropolitan Life Insurance Co. and Travelers Insurance Co. combined their health insurance business.
Since the deal closed last October, United also has converted thousands of MetraHealth's 10 million indemnity enrollees to more profitable HMOs or other managed-care plans.
Combining with MetraHealth created a giant national company with a full range of diversified products and more than 40 million enrollees. It moved John Penshorn, vice president at Piper Jaffray, a securities brokerage in Minneapolis, to call the acquisition "a watershed event in the evolution of healthcare services in America."
United's move was followed by WellPoint Health Networks' announcement earlier this year that it would buy the group health operations of Massachusetts Mutual Life Insurance Co. for $380 million (Jan. 15, p. 3). And just last week Aetna said it would acquire U.S. Healthcare for $8.9 billion in a similar move to offer a full range of healthcare products (See story, p. 2).
Piper Jaffray took United public in 1984 and makes a market in United stock.
Last month, United won the top spot as "most admired" healthcare company for the second year in a row in Fortune magazine's ranking of 417 companies.
United expects to have integrated all its management teams by the end of the year, Lee Newcomer, M.D., United's chief medical officer, told MODERN HEALTHCARE.
"We've been acquiring health plans for a long time, so we've learned to move fast," he said. Acquisitions at United have been almost "a semi-annual event," he said. The result is a company with a market capitalization of about $11.3 billion, the nation's largest for-profit HMO.
In fact, since the MetraHealth merger, United has acquired HealthWise of America, a Nashville, Tenn.-based HMO, and PHP, a Greensboro, N.C.-based HMO. United also agreed to acquire the remaining 50% of Community Health Services in Baton Rouge, La.
MetraHealth brought with it more than
1 million enrollees in the geographic areas served by the three new acquisitions. The new acquisitions will fill in gaps in networks serving those enrollees, Penshorn said.
In addition, last November United said it would form a new organization with the Medical Society of Virginia to offer a jointly owned HMO (Dec. 4, 1995, p. 36). Newcomer said "all the legal work is done" in setting up the venture, and a CEO will be named soon.
Converting indemnity enrollees to managed care hasn't been a breeze. According to Penshorn, from December 1995 to January, the MetraHealth networks had a net gain of 74,300 enrollees, most of them in HMOs and other managed-care plans. But in that period United also lost 58,100 MetraHealth indemnity enrollees to competitors.
United has set an ambitious goal of tripling its Medicare enrollment over the next 21 months to about 117,000. One way it will do that is by converting retirees at large Fortune 500 companies-which were MetraHealth's stronghold-into Medicare risk plans, Penshorn said.
Newcomer said United "never has intended" to convert all indemnity enrollees to HMOs since "indemnity isn't going away." HMOs don't meet the needs of many employers, he said, although those employers may want their workers to move to more managed plans such as PPOs and point-of-service plans. That's where United hopes to pick them up, he said.
Another "huge opportunity" is snagging the 2 million enrollees that its employer customers now have in competing HMOs, Newcomer said.
Ohio is a microcosm of this strategy. According to Richard Siehl, head of the healthcare group at Baker & Hostetler, a law firm in Columbus, the merger with MetraHealth has strengthened United's hand in Ohio.
United acquired two physician-owned HMOs in that state two years ago. United now can use MetraHealth's indemnity enrollees in Ohio to get better contracts with providers and thus obtain leverage with employers, Siehl said. United also can offer multistate employers coverage outside of Ohio.
As a result, United is "giving the local HMOs-particularly those in the more rural areas-a competitive situation they have never seen before. United is more sophisticated than many of the indigenous HMOs," he said.
In California, where United didn't have a presence before acquiring MetraHealth, "we're feeling the positive effect of the corporate merger," said Bud Volberding, president and chief executive officer of MetraHealth Care Plan of California. MetraHealth has 750,000 enrollees in the state, 85,000 of them in HMOs. It had its best January enrollment growth ever, he said.
No other United regions use capitation as extensively as California, Volberding said. United's philosophy of "operating in a less controlling and more data-rich environment...is causing us to rethink the way we approach controlling costs in California," he said.
United also brings "incredible expertise in the science of medicine," he said.
The California plan won't abandon capitation, but United's approach "will probably lead us to new products, to capitation done in a slightly different way," he said.
The shift will involve a different interaction with physicians, providing them more information. To control costs, there will be less reliance on prospective financial incentives in favor of giving physicians feedback on their performance and figuring out how to help them do better, Volberding said.
"We think in California that we know all the answers, and to my pleasure I've found that not to be true," he said.
Also pleasing to Volberding is the California plan's intention to enter the Medicare market. "I was with Metropolitan Life for eight years, and I have always wanted to do Medicare," he said.
The transaction has been good for shareholders. Since United acquired MetraHealth, United's market capitalization has climbed to more than
$11 billion from $8.6 billion. The increase was largely the result of United's stock price going up to $63 per share April 1 from $45 last Sept. 15, when United held an investor conference on the proposed deal.
Piper Jaffray expects United's earnings to grow an average of 25% annually for the next five years. It forecasts a 34% increase in earnings per share this year to $2.85 from $2.12 last year.