Consolidation continued to reshape Michigans managed-care industry last month as two of the states largest healthcare systems prepared to sell off their health plans after more than 20 years in the insurance business.
Last week, University of Michigan Health System received final clearance from the state attorney general to sell M-Care, its 200,000-member managed-care subsidiary, to Blue Cross and Blue Shield of Michigan. The $240 million deal, announced in September, was previously approved by state insurance regulators and the Justice Department. The acquisition was set to close
Dec. 31, the companies said.
Separately, Novi, Mich.-based Trinity Health agreed late last month to sell its 143,000-member managed-care unit in southwest Michigan to Priority Health, a Grand Rapids, Mich.-based HMO owned by three not-for-profit Michigan hospital systems. The final sale price wont be determined until after state regulators approve the deal, Trinity Health officials said. The transaction is expected to close early this year.
Michigan has a longer history of provider-sponsored health plans than elsewhere and has pretty much kept to that over time, whereas in other states, providers came a little later to the HMO business and didnt stick it out, said Allan Baumgarten, an independent healthcare consultant and research analyst. But now, even Michigan providers are beginning to feel the pressures of the changing (managed-care) marketplace.
Baumgarten said the proposed deals come at a time when HMO enrollment in the state continues to decline, with more employers migrating to PPOs and consumer-driven plans. As a result, many HMOs must choose between investing heavily in new products and quitting the business.
The University of Michigan said in a news release that the sale of M-Care, founded in 1986, would allow its 802-bed health system to refocus on providing patient care, training and research at a time when the health insurance industry is experiencing great turbulence.
Similarly, 44-hospital Trinity Health put its Trinity Health Plans unit on the auction block in March as part of an ongoing effort to streamline its operations (March 13, 2006, p. 17). The health plans HMO enrollment has declined nearly 30% since 2001. But according to Trinity Health spokesman Stephen Shivinsky, Its sale has more to do with our focus on our core business than some cyclical changes in membership numbers.
For Priority Health, the acquisition would expand its reach into southeast Michigan, double the size of its provider network and boost its membership by nearly one-third.
That increased size could help Priority Health stand its ground against far larger, regional and national rivals, many of them investor-owned. The not-for-profit health plan is owned by four-hospital Spectrum Health, Grand Rapids; six-hospital Munson Healthcare, Traverse City; and 219-bed Northern Michigan Regional Health System, Petoskey.
This will allow us to offer a statewide network for our employers and begin to sell to employers in the marketplace that we did not have access to in the past, said James Slubowski, Priority Healths chief information officer and vice president of enterprise operations.
Like much of the nation, Michigans health insurance market has undergone rapid consolidation. In 2006 alone, Molina Healthcare, Long Beach, Calif., acquired 90,000-member Cape Health Plan, Southfield; UnitedHealth Group, Minnetonka, Minn., acquired 80,000-member IBA Health Plans, Kalamazoo; and provider-owned Health Alliance Plan of Detroit acquired 70,000-member CuraNet, Okemos.
But the 4.7 million-member Michigan Blues still dominates the market. According to Datamonitor, it is the nations ninth-largest health plan by enrollment. In 2005, the not-for-profit insurer earned $294.9 million on revenue of $8.15 billion and held $2.6 billion in reserves.
M-Care represents the Blues first major health-plan acquisition in more than a decade. Under the deal, the Blues HMO subsidiary, Blue Care Network, would purchase M-Cares 180,000-member HMO and Medicaid businesses, while the Blues itself would buy M-Cares 20,000-member PPO. Baumgarten views the
M-Care deal largely as a defensive move to protect the Blues market share.
But both physicians and insurance industry representatives oppose the deal, arguing that the Michigan Blues already holds a virtual monopoly in the state. The Blue Cross family has between 70% and 75% of the commercial marketplace, said Richard Murdock, executive director of the Michigan Association of Health Plans.
Paul Farr, president of the Michigan State Medical Society, said he fears the deal would tighten the Blues stranglehold on providers by giving it further control of the fees paid to Michigan physicians and the ability to unilaterally reduce access to physician services by Michigan patients.
The Blues disputes those concerns, calling the acquisition a good business decision that would strengthen not-for-profit healthcare in the state.