New Alliance Health Plan of Erie, Pa., is ending its brief run as the nation's only "employer-owned" HMO. The 47,000-member health plan, owned by local businessman Joseph Prischak, agreed last week to be acquired by Bethesda, Md.-based Coventry Health Care for an undisclosed amount in stock.
The transaction will boost Coventry's Pennsylvania membership to 580,000, making it one of the state's largest health insurers. At the same time, it will alter New Alliance's regulatory status for the second time in just over two years-from provider-owned not-for-profit to privately owned and now to publicly traded.
Analysts said New Alliance signed the deal after waging a valiant but ultimately unsuccessful battle against insurance giant Highmark Blue Cross and Blue Shield, which controls 70% of the Western Pennsylvania market.
"The Blues has been so dominant in Pennsylvania that even national players like (UnitedHealth Group) have had trouble making inroads," said Greg Crawford, head of healthcare research for Fox-Pitt, Kelton in San Francisco. "A small, private plan like New Alliance didn't have much of a future on its own."
Prischak, who owns and operates the Erie, Pa.-based Plastek Group, a collection of plastics, toolmaking and transportation firms, took over New Alliance, then Alliance Health Network, in January 2000, after negotiating for six months with the HMO's former owner, a consortium of 11 Pennsylvania hospitals. New Alliance is the only exclusively employer-owned HMO in the country, according to company documents.
Alliance was launched in 1994 by 358-bed Hamot Medical Center and 434-bed Saint Vincent Health Center to challenge the dominance of 3.1 million-member Highmark. Nine other hospitals later joined the venture.
The health plan lost $11 million in 1999. When Prischak took over, he restructured Alliance as a for-profit company, laid off senior management, substantially raised premiums and cut reimbursement rates. But the belt-tightening did only so much. According to the Pennsylvania Insurance Department, the health plan lost $3.18 million last year on premium revenue of $69 million.
"Coventry has a track record of buying beat-up properties-typically provider-owned-then turning them around quickly and using the new membership to bolster its market penetration," Crawford said.
Executives at New Alliance did not return calls seeking comment.