After months of speculation and new legal troubles, Blue Cross and Blue Shield of Missouri confirmed last week that it's talking with BJC Health System of St. Louis about forming an alliance or affiliation of some kind.
The St. Louis Post-Dispatch disclosed the discussions last fall, but neither side would confirm the talks.
Blue Cross is Missouri's largest insurer with 1.9 million covered lives. Its for-profit Alliance Blue Cross and Blue Shield subsidiary handles all its managed-care business and is publicly traded as RightChoice Managed Care. BJC is the largest hospital consortium in eastern Missouri, with 13 hospitals and six nursing homes.
A Missouri Blues-BJC combination would create a powerful if not dominant integrated delivery system in the St. Louis metropolitan area and the state. The plan is licensed to operate in most of Missouri, except the northwest corner, which belongs to Blue Cross and Blue Shield of Kansas City.
Ironically, BJC's president and chief executive officer, Fred Brown, is the sole nominee to become chairman-elect of the American Hospital Association's board of trustees in 1998. That's the year the AHA has targeted to open up its membership to integrated delivery systems with insurance and physician components.
Blues President Roy Heimburger said the Alliance Blues subsidiary is conducting "an in-depth analysis of a possible business combination or other form of strategic alliance or affiliation" with BJC. The two companies are going to hold exclusive discussions until March 18, Heimburger said.
One option under consideration is the purchase by BJC of all of RightChoice's Class A common stock, which closed at $14.25 per share on Jan. 23. With 18.7 million shares outstanding, that translates to a total price of about $266.5 million.
Any transaction would be subject to approval from stockholders, state regulators and the Blue Cross and Blue Shield Association.
BJC issued a statement after the Blues' release saying it had "nothing to add." It said it had been preparing to assume and manage financial risk since its formation.
The disclosure of talks comes less than a month after a Missouri judge ruled the plan illegally moved most of its insurance businesses into a new for-profit subsidiary.
Ron Ashworth, CEO of Unity Health System, said: "I don't think substantially it will affect our relations with Blue Cross. In this community, managed-care companies and insurers are driven by what the community wants, and the community wants provider choice, of physicians and hospitals."
Kevin Kast, CEO of St. Louis Health Care Network (SSM), said, "We really don't expect any interruption of current patient-physician relationships.
Bill Bradley, senior vice president of Tenet Healthcare Corp., said, "I think an ownership interest by BJC and Blue Cross potentially could limit our access to Blue Cross. But providers becoming payers has a way of alienating a lot of other payers as well."
Tenet just announced it's negotiating to buy three St. Louis hospitals (See p. 14).
An observer with knowledge of the situation wondered why, if the Blues wanted to sell RightChoice, it didn't invite investment bankers to solicit bids from entities other than BJC. By not doing so, he said, the Blues opens itself to shareholder suits.