In contrast to many other hospital systems, Novant Health, of Winston-Salem, N.C., found running an HMO to be a profitable business. In the end, though, three years of profits at Partners National Health Plans, Novant's managed-care subsidiary, were not enough for Novant to justify keeping the HMO.
Falling in line behind scores of other provider organizations that have divested their managed-care businesses, Novant said June 18 it was selling its 400,000-enrollee managed-care business to Blue Cross and Blue Shield of North Carolina. Blues officials said they intend to run Partners, a for-profit subsidiary of not-for-profit Novant, as a wholly owned subsidiary and maintain it as an independent business.
Pending regulatory approvals, the sale is expected to become final in the fall. Neither side would disclose the financial terms of the sale.
"Novant Health's primary mission is to provide healthcare services and provide patient care," said Jim Tobalski, Novant's spokesman. "In the future, we felt for Partners to continue to be successful that we would have to be linked up to an organization whose primary mission was to provide health plans to area residents."
Partners turned a $1.2 million profit on $623.4 million in premium revenue for 2000 and enjoyed a $3 million profit for its first quarter this year alone, said Stuart Veach, vice president of Partners.
With its HMO profits helping the delivery side of its business rather than hurting it, eight-hospital Novant last year reported overall net income of $4.9 million on revenue of $1.5 billion. The profitability of Novant's managed-care business stands in stark contrast to most of the other provider-owned plans in North Carolina, which have lost money in recent years.
Novant's decision to sell Partners and its 116,000-enrollee third-party administrator business, ACS Benefit Services, was announced within weeks of a decision by Carolinas HealthCare System, its chief rival in the Charlotte, N.C., market, to shut down its 29,000-enrollee Medicaid HMO, the Wellness Plan, by Sept. 30. Carolinas already had decided last year to transfer 52,000 commercial enrollees in the money-losing Wellness Plan to Blue Cross and Blue Shield of North Carolina (Nov. 27, 2000, p. 20). Those who opted to transfer to the Blues plan had to do so by May 31 of this year.
Partners, meanwhile, was beginning to suffer from Novant's strategy of limiting its provider network to Novant hospitals in its two major markets, Charlotte and Winston-Salem, Tobalski said.
In an environment where choice was becoming more highly valued among insurers, Partners was at a disadvantage because of its ties to Novant's hospitals.
"In the two regions that Novant was in, (Partners) offered the Novant facilities and only the Novant facilities in the main communities," Tobalski said. "In this marketplace, there's been a big swing back toward choice."
If the Partners sale is completed, there will be only one hospital-owned HMO left in the state, QualChoice of North Carolina, a 70,000-enrollee plan based in Winston-Salem. QualChoice is owned by North Carolina Baptist Hospitals, a three-hospital system whose flagship is 814-bed North Carolina Baptist Hospital in Winston-Salem. QualChoice lost $1.7 million on revenue of $42.4 million during this year's first quarter, said spokesman Terry Brewster. Though selling the HMO is "always an option," Brewster said, it is not being contemplated right now. "We are looking to stay the course," he said.
The Blues, already the largest insurer in the state with about 2 million enrollees, reported net income of $66.5 million on revenue of $2.1 billion last year, said spokeswoman Michelle Vanstory.
Blues officials became interested in Partners when Novant began shopping it around through the investment community several months ago, she said. Just three days before the sale, Vanstory had no comment and Tobalski said Partners was "a very important component of Novant."
The health plan was careful to structure the deal in such a way as to keep Partners a wholly owned subsidiary. By doing so, the Blues avoids running afoul of a state law passed in 1998 that would require it to convert to a publicly traded company if it merged with a for-profit company.
The Blues said it may still convert after the acquisition, which would require the company to secure a voting rights agreement and stock registration agreement.
Partners' 600 employees are likely to see only a minimal impact from the sale, and the company's headquarters are to remain in Winston-Salem.