Meridia Health System holds some key cards in Columbia/HCA Healthcare Corp.'s plan to create an integrated delivery system in Ohio.
An actuarial analysis released last week indicates that Meridia receives 63% of the proceeds of an HMO joint venture with Blue Cross and Blue Shield of Ohio as a provider incentive.
Meridia's incentive payment and its 12% equity interest in the joint venture are worth about $61 million, according to the analysis.
That detracts from the value of the Ohio Blues, which the analysis puts at $287 million.
It also makes Mayfield Heights, Ohio-based Meridia, which owns four community hospitals in the Cleveland market, a key acquisition target for Columbia, should Columbia buy the Blues.
The Blues released the analysis last week to combat what it said were misleading and speculative comments about its value.
Under a deal signed in March, Columbia would pay $299.5 million in exchange for most of the assets of the Cleveland-based insurer.
The purchase price is far less than some consumer groups believe the not-for-profit plan is worth. They want the public to receive compensation for the loss of not-for-profit assets.
Consumers Union and attorneys purporting to represent Blues policyholders had not seen copies of the analysis last week.
In a news release, the Blues tried to explain why its value is less than some suspect.
The value was established by studying the history of 17 business segments of the Blues and its subsidiary, Medical Life Insurance Company of Ohio, and projecting after-tax earnings for the next 10 years. The information was as of Dec. 31, 1995.
The consulting firm of Milliman & Robertson prepared six scenarios using various discount rates used to compare the profitability of a company against projected rates of return. The valuations ranged from $226 million to $317 million, with $287 million deemed the highest realistic figure.
The Blues said a current underwriting slump is greater than originally projected. It said it suffered a $20 million underwriting loss in 1995 and another $30 million loss in the first quarter of 1996.
Kent Clapp, the Blues' president and chief operating officer, said the insurer did not stage an auction for fear of corporate raiders.
"Corporate raiders might have paid more for the company, dismantled it and sold the parts off for more than the whole, which would have adversely affected community healthcare by eliminating (the Blues) as a competitor," Clapp said in the release.
The insurer did not offer an opinion on the fairness of the transaction to Blues enrollees. The actuarial analysis was used to write a fairness opinion prepared by the investment firm of Dean Witter Reynolds. It will be released to the Ohio Department of Insurance and will be included in proxy materials sent later this year to policyholders, the Blues said.
Meridia's provider incentive payment was valued at $55 million, after an adjustment for taxes. Its interest in the joint venture is worth another $6 million.
Columbia might not want to do the deal unless it also can buy Meridia, said J.B. Silvers, a health industry analyst for Case Western Reserve University's Weatherhead School of Management in Cleveland.
Silvers said it would be awkward for Columbia to operate an integrated delivery system if its insurance component were locked in a deal with a competing hospital system.
Officials for Columbia and Meridia could not be reached for comment late last week.
Meridia is considering six proposals from potential suitors, including Columbia. It expects to decide whether to accept any of them at a board meeting July 9.
Meridia has not revealed the amounts of any purchase offers.
In a joint venture with Sisters of Charity of St. Augustine Health System, Columbia operates three hospitals in the Cleveland area.
In other developments, the Ohio Blues lashed out at its accusers, filing legal motions to disqualify the lawyers who represent its policyholders in a class-action suit.
The targets of the motions called them outrageous lies meant to deflect attention from the real issue: the disposition of Blues assets.
"I don't know what they're smokin'," said former U.S. Sen. Howard Metzenbaum (D-Ohio), a counsel to the plaintiffs.
The Ohio Blues accused the Cleveland firm of Kohrman, Jackson & Krantz of a conflict of interest because its founding partner has ties to a local hospital.
In a separate motion, the insurer sought to discredit Metzenbaum, accusing him of trying to further his own political agenda of national healthcare reform.
The same motion repeatedly accused the Consumer Federation of America and Consumers Union of trying to steal the reserves of the Cleveland-based insurer.
Metzenbaum is president of the CFA, an umbrella group for Consumers Union and other organizations. Neither the CFA nor Consumers Union is a party in the lawsuit.
"(Blues) lawyers are grasping at straws and the straws are imaginary," said Judith Bell, director of the West Coast office of Consumers Union.
Consumers Union has worked to preserve not-for-profit assets in several Blues transactions around the country, including the one in Cleveland.
Bell said neither Consumers Union nor the CFA sought proceeds from any transaction.
Attorney Lee Kohrman called the motions "totally preposterous" and challenged the Blues to back up its charges.
Along with Metzenbaum, Kohrman's firm represents policyholders in a lawsuit to block the Ohio Blues' plan to transfer most of its assets to a subsidiary of Columbia. The lawsuit contends the deal gives Columbia a bargain and lines the pockets of Blues executives.
The Blues accused Kohrman of attempting to "keep Columbia out (of) the local healthcare marketplace" at the behest of a competitor, Cleveland-based Mount Sinai Health Care System.
Kohrman was chairman of the board of trustees of Mount Sinai Medical Center several years ago, a spokeswoman for the Mount Sinai system said. He now serves as chairman of Mount Sinai Health Care Foundation, which has no financial or governance connection to the health system, the spokeswoman said.
Mount Sinai recently was purchased by Wayne, Pa.-based Primary Health Systems. In its motion, the Ohio Blues said PHS tried to buy the insurer but lost out to Columbia.