The big continued to get bigger last week as WellPoint, the nation's largest health insurer, laid plans to enter the potentially lucrative Ohio Medicaid market with the acquisition of a local hospital-owned HMO.
The deal comes a week after an American Medical Association report warned of the growing dominance of large insurers in local markets (April 24, p. 12).
In its third acquisition in less than a year, WellPoint agreed to purchase the 68,000-member Medicaid HMO of QualChoice health plan, owned by University Hospitals Health System, Cleveland, for an undisclosed sum. Under the deal, University Hospitals also will funnel its 85,000 QualChoice commercial members toward WellPoint's Anthem Blue Cross and Blue Shield of Ohio unit as it exits the insurance business by year-end.
Through Anthem, WellPoint already covers 2.9 million commercial and Medicare members in Ohio. But the insurer is new to the state's Medicaid market, which is moving to adopt mandatory managed care by the end of the year.
In March, WellPoint was selected by the state to serve Medicaid patients in northeastern Ohio and two other regions, with a total of 460,000 eligible beneficiaries. By acquiring QualChoice -- which also was chosen to serve the Northeast region -- WellPoint would eliminate a key competitor and gain a sizable foothold in the market, said John Jesser, Anthem's vice president of healthcare management for northern Ohio.
The deal is expected to close in the third quarter, pending regulatory approval.
As the health insurance industry has consolidated, QualChoice has found it increasingly difficult to compete, said University Hospitals spokeswoman Loree Vick. "The market is now dominated by a few, large (insurance companies), making it tougher for the smaller ones to make it," Vick said.
University Hospitals launched QualChoice in 1994 to attract patients to its six not-for-profit hospitals, but the subsidiary has struggled to make ends meet. Last year, for-profit QualChoice posted a net loss of $14.1 million on $406 million in revenue, compared with net income of $4 million on revenue of $369.2 million in 2004, according to data from the National Association of Insurance Commissioners.
Even so, several provider-owned Medicaid HMOs in Ohio have been courted aggressively by large insurers eager to enter the burgeoning market, said J.B. Silvers, a professor of health-system management at Case Western Reserve University in Cleveland. "I'll bet that (University Hospitals) is getting a sizable sum for QualChoice," said Silvers, who served as QualChoice's chief executive officer from 1998 to 2000.