Woodland Hills, Calif.-based WellPoint Health Networks has licensed its first East Coast HMO in a venture with a not-for-profit minority owner-Inova Health System-that had been seeking an aggressive partner.
The East Coast managed-care foothold gives WellPoint-which last week acquired the rights to the Blue Cross name and mark-more leverage in forging affiliations with other Blues plans, a goal set by WellPoint Chairman Leonard Schaeffer.
Those rights came when WellPoint stockholders approved a recapitalization as part of a plan by Blue Cross of California, its principal stockholder, to donate its $3 billion in assets to two charitable foundations.
The new HMO, National Capital Health Plan, was licensed April 18 to serve the District of Columbia and northern Virginia. For-profit WellPoint's first foray out of California was getting an HMO license for the Houston area late last year.
The WellPoint-Inova partnership, which evolved from Springfield, Va.-based Inova's affiliation with Massachusetts Mutual Life Insurance Co., turns out to be just what Inova was looking for. For-profit WellPoint bought Massachusetts Mutual's group health subsidiary in a $380 million deal that closed March 31.
Inova contracts with other HMOs but does not have a stake in any other plan. It proposed equity partnerships with other HMOs, but they weren't interested, said David Kibbe, Inova's senior vice president for managed care.
Inova operates three hospitals in Fairfax County, Va., with a total of 1,000 beds, as well as long-term-care facilities, home health services and urgent-care centers. It also owns physician practices and contracts with others.
"We're trying to create an integrated network, which is a large portion of WellPoint's interest" in us, Kibbe said.
What prompted a local not-for-profit provider system to partner with a giant California for-profit HMO? Although the details of the deal are still being worked out, WellPoint is giving Inova "global," or full-risk, contracts, which most other HMOs have been unwilling to do.
In global contracts, HMOs cede a high percentage of the premium dollar to providers, which are at risk for the full spectrum of a patient's care and are free to devise their own cost and quality controls.
"Some (HMOs) have been open with us, in terms of sharing risk. But many others want to control as much as they possibly can. They just want us to provide hospital care. We think that has a limited future," Kibbe said.
Inova will continue to contract with other HMOs "that want to work with us in a progressive risk arrangement, but we think some partnerships such as the one with WellPoint are also necessary, so that in 2005, we're still operating as an integrated health system instead of running a couple of hospitals."
As for the tensions between for-profit and not-for-profit systems, Kibbe said, "It's not the financing issue but the mind-set we're interested in."
"We have particular strengths and capabilities, but we also realize there is a product and market focus that a for-profit company often brings and that we're not as experienced at. That aggressiveness and sense of urgency can help us be competitive."
In addition, Kibbe said: "We're looking for an organization that wants to provide products across the spectrum. We want to be serving the elderly, the poor, the underinsured and commercial (markets).
"Some not-for-profits have the right mission of community service, but unfortunately they don't go about that as aggressively as they need to to succeed. Because the Columbias of the world and others are formidable healthcare organizations, we need to be both community-minded and aggressive. We're hoping a venture like this will bring that together," Kibbe said.
In a sense, WellPoint inherited the partnership with Inova, which participates with Adventist Healthcare Mid-Atlantic in a PPO formed by Massachusetts Mutual that now covers 100,000 lives. Massachusetts Mutual wanted to have an HMO to accompany its PPO and indemnity offerings. So the insurer asked Inova and Rockville, Md.-based Adventist to invest in a new HMO, Kibbe said.
A filing was made with the Virginia Department of Insurance, with Adventist and Inova listed as co-owners of the new HMO with Massachusetts Mutual. Then things were put on hold last fall as Massachusetts Mutual considered whether it wanted to sell its group health operations to WellPoint. At that point, Adventist pulled out of the venture, Kibbe said.
When WellPoint announced it was acquiring the Massachusetts Mutual operations, WellPoint and Inova officials discussed products and philosophies and agreed to partner. Kibbe said he's pleased because WellPoint "has more organizational commitment (to managed care) and a track record" of offering successful products.
WellPoint has identified the new HMO's service area "as a key geography that we would like to grow and invest in," a spokesman said. "We're excited about it."
The spokesman said branding strategies for the new HMO have not yet been determined. Meanwhile, WellPoint is operating Massachusetts Mutual's group health operations as Unicare.