Blue Cross and Blue Shield of Maryland has agreed to invest in and take over the marketing of a provider-sponsored managed-care company.
The deal will duplicate some of the plan's insurance products in Maryland, but it gives it a vehicle to penetrate certain parts of the state that are off limits to the 1.4 million-enrollee plan.
Under Blues licensing restrictions, the Maryland plan can't sell insurance in two counties that are adjacent to the District of Columbia. They are the domain of Blue Cross and Blue Shield of the National Capital Area, the District of Columbia's Blues plan.
But Preferred Health Network can.
Formed in 1986, PHN is owned by 28 hospitals. They include University of Maryland Medical System and Helix Health System in Baltimore, and Greater Southeast Community Hospital and Georgetown University Hospital in Washington. The Linthicum, Md.-based company also includes 1,400 primary-care physicians, 2,100 specialists and 500 ancillary providers.
The provider-sponsored company started out as a health coverage vehicle for employees of the hospitals and medical offices in the network and now covers 20,000 network employees. But total enrollment is only 55,000.
The Maryland Blues will buy a 16% stake in PHN for $3 million. PHN has growth potential that the Blues could develop and profit from as a part-owner, said Gregory Devou, executive vice president and chief marketing officer of the Owings Mills, Md.-based Blues plan.
PHN's main offering is a "triple-option" plan providing more choice to enrollees than does the Maryland Blues' point-of-service plan and those of other competitors, Devou said.
Usually a plan offers an either-or choice on access to specialists: Go through the network's primary-care "gatekeepers," or go outside the network at reduced levels of coverage.
PHN offers those two options plus a middle ground in which enrollees can choose a specialist in the network without going through a primary-care physician. That option still carries a reduced reimbursement, but it's not as much as the penalty for going out of the network, Devou said.
The Maryland Blues is banking its initial stake on the potential for a stepped-up marketing effort to greatly improve on that enrollment. The Blues plan's marketing and distribution force is 10 times the size of PHN and most likely will promote the provider-sponsored plan to small work forces of fewer than 200 employees that value choice, he said.
"They have a stronger product, and that's where we'll be able to get the gain from," he said.
If the strategy works, PHN will gain increased patient flow while the Blues plan profits from growth through increased value of its 16% share plus an as-yet-undetermined percentage of revenues as a marketing fee.
The agreement, which must be approved by Maryland insurance regulators, allows the Blues to exercise options that could give it more than a 50% stake in PHN, Devou said.