In what may be a step toward an eventual merger or for-profit conversion, Blue Cross and Blue Shield of Kansas City (Mo.) is dissolving a 10-year-old HMO joint venture with a group of healthcare providers and paying part of the proceeds into its for-profit subsidiary.
The not-for-profit insurer said last week that it plans to pay $56 million to buy out its partners in TriSource HealthCare, a for-profit HMO joint venture it co-owns with five area healthcare companies. The Kansas City Blues has operated TriSource through TriLink HealthCare, its for-profit holding company, since 1991.
Under the deal, the insurer will pay $26.6 million to its TriLink subsidiary, with the remaining $29.4 million being divided among the venture's other co-owners, which include 19 individual hospitals.
Some observers, though, expressed concern that the Kansas City Blues may be laying the groundwork for a future conversion or merger-possibly with its neighbor and former suitor Topeka-based Blue Cross and Blue Shield of Kansas. "There's speculation that this move is a preparatory step toward something bigger, perhaps a change in ownership, and that's put us on heightened awareness," said Scott Holste, spokesman for the Missouri attorney general's office.
TriSource covers about 85,000 enrollees in greater Kansas City and northwest Missouri under its Blue-Advantage plan. Its partners include the 15-hospital Health Midwest system, University of Kansas Medical Center, Olathe Medical Center, North Kansas City Hospital, Providence Medical Center and Blue Cross and Blue Shield of Kansas. Neither the Kansas City Blues nor any of its partners would comment on the transaction, citing a confidentiality agreement. But in a written statement, the organization said it was buying out TriSource because the arrangement was no longer viable.
"Integrated delivery systems like TriSource have had challenges all around the country," John Kennedy, the insurer's senior vice president of managed care, said in the statement.
Indeed, TriSource is at least the second provider-Blues HMO venture to call it quits in recent months. StrongCare, a 50-50 joint venture between the University of Rochester (N.Y.) Medical Center and Blue Cross and Blue Shield of the Rochester Area, was dismantled last September after posting years of losses (Sept. 11, 2000, p. 2).
But unlike StrongCare, TriSource's bottom line had been improving. According to the Missouri Department of Insurance, the HMO venture earned $3.9 million on revenue of $175.3 million in 2000. That's up from a loss of $1.4 million on $158.5 million in revenue in 1999.
That's why some observers are wary the buyout is part of a renewed attempt by the Kansas City Blues to either switch to for-profit status or merge with the Kansas state Blues plan, based only 75 miles away.
In 1996, the Kansas City Blues sought to convert to a publicly held, for-profit company, saying it needed capital to compete with big, national managed-care companies that were entering the Kansas City healthcare market. The plan was scuttled, however, amid heated opposition from consumer advocates.
Soon afterward, the insurer began pursuing a merger with Blue Cross and Blue Shield of Kansas. But that idea was shelved, too, after regulators declared the organizations would first have to pay back the public funds each had amassed during the years as a not-for-profit.
Both Blues plans filed lawsuits in 1997, seeking declarations that they had no such charitable obligation. The Kansas state Blues plan settled its case in August 2000-and freed itself to pursue future mergers or a possible conversion-by agreeing to create a $75 million charitable foundation in the state.
The Kansas City Blues is still wrangling over its potential obligation after a Missouri Appeals Court ruled in June 2000 that it was a charitable not-for-profit and therefore had to use its assets to benefit the public.
"If the (TriSource) deal results in the loss of assets by the not-for-profit, or if its for-profit subsidiary unduly benefits from the deal, then they would be violating the court's ruling," said Barbara Gorham, staff lawyer for Consumers Union in San Francisco.