Blue Cross and Blue Shield of Massachusetts has launched an extraordinarily public campaign to elbow its way into an affiliation with its not-for-profit Blues counterpart in Rhode Island.
In a packet sent to the media, which led to an article in a Providence, R.I., newspaper, the 1.7-million-enrollee Massachusetts Blues bluntly offered to affiliate with its next-door neighbor or to loan money to the Rhode Island plan to help it "regain a competitive position in its market."
Any affiliation would be under the umbrella of a new holding company that would run both Blues plans and possibly others in New England, according to a proposal outlined in the media packet. A new holding company would be created to take on that role. Financial details were not disclosed.
Massachusetts Blues officials also want representation on the Rhode Island plan's board of directors. They told the Providence Journal-Bulletin earlier this month that they regard Blue Cross and Blue Shield of Rhode Island as "a company that needs to be fixed."
Although the Rhode Island Blues acknowledged late last year that it's willing to consider a merger, news reports have indicated that it wants that process to play out behind closed doors. Not that all its secrets are hidden: Potential suitors are well aware that the Providence-based health plan, the largest in the state, with 467,000 enrollees, has lost $47 million in the past two years, according to figures provided by the insurer. That includes a $23.6 million loss last year on $875 million in revenues.
In contrast, Boston-based Blue Cross and Blue Shield of Massachusetts, which lost $97 million as recently as 1996, posted $77 million in profits in 1997 and 1998, including earnings of $64 million last year on $3.4 billion in premium revenues, according to figures provided by the insurer. It expects to report $45 million in profits this year.
Those healthy bottom-line numbers appear to have bolstered the Massachusetts plan's confidence, as it has disregarded pleas for secrecy by the Rhode Island Blues. It has made its affiliation strategy public; extensively lobbied elected officials, healthcare providers and consumer advocates in Rhode Island; and generally done everything possible to make its intentions known.
"We don't want to be part of a process where the public is cut out," said Peter Meade, a Massachusetts Blues executive vice president.
Blues plans in New England are in a dither over Anthem's $120 million agreement to buy Blue Cross and Blue Shield of New Hampshire (Feb. 22, p. 4), after the Indianapolis-based parent of several Blues plans snapped up Blue Cross and Blue Shield of Connecticut two years ago. Massachusetts Blues officials want to cut Anthem off before it attempts a similar coup in Rhode Island.
An Anthem spokesman confirmed that Anthem is a likely bidder for the Rhode Island plan and that Anthem has signed a confidentiality agreement with the Rhode Island Blues.
Rhode Island is notoriously difficult terrain for outside hospital or health insurance companies that want to merge with in-state groups. In fact, state legislators are working on a tough new bill, similar to Rhode Island's Hospital Conversion Act, that would make it more difficult for out-of-state insurers to acquire local health plans. That effort is being led by Rep. Patrick Kennedy (D-R.I.), a frequent Anthem critic.
Rhode Island Blues officials, meanwhile, continue to avoid commenting on merger strategies or their level of interest in joining forces with the Massachusetts Blues.
"This process is still ongoing, and we'll evaluate any and all offers that come in," said Scott Fraser, a spokesman for the Rhode Island health plan
Hospitals in the state are watching the situation carefully to ensure the Rhode Island Blues is "sensitive to our concerns," said Ed Quinlan, president of the Hospital Association of Rhode Island.
The state's hospitals hope the health plan retains local control and honors all existing contracts. A speedy review by regulators is another key concern, Quinlan said.