The deal announced Tuesday, which is expected to receive final approval by this summer, would shake up Minnesota's healthcare business and political landscapes. Acquiring UCare would allow Minneapolis-based Fairview to build a much larger insurance division, creating arguably the most powerful integrated network of hospitals and doctors in the state. Fairview—which left the Minnesota Hospital Association just weeks ago for undisclosed reasons—recently became the full owner of health insurer PreferredOne.
For UCare, the merger may be a do-or-die situation because the health insurer lost nearly all of its state Medicaid business. UCare eliminated more than a quarter of its workforce last year after Minnesota decided to end most Medicaid managed-care contracts with UCare, according to the Star Tribune.
“This proposed combination mirrors a growing national trend of payer/provider partnerships and has the potential to transform how healthcare is delivered and financed in Minnesota,” Fairview's interim CEO, David Murphy, said in a news release. Murphy, the former CEO of a shoe company, has served as Fairview's temporary leader since Rulon Stacey resigned unexpectedly last year.
Fairview and UCare executives were not available for an interview. A UCare spokeswoman said no further information would be shared beyond the news release.
Nearly all of UCare's insurance business comes from taxpayer-funded programs. Approximately 76% of its 2015 revenue came from Minnesota's Medicaid programs alone, according to UCare's financial documents analyzed by Modern Healthcare. UCare ended last year with almost 500,000 members, but a vast majority of those are Medicaid members who are moving to other plans, leaving UCare with about 150,000 covered lives.
UCare still has almost 93,000 Medicare Advantage members and also sells health plans on Minnesota's Affordable Care Act exchange. UCare posted $3.5 billion of revenue last year. But the company's profit dropped by 74% to $27.7 million, with a potentially dire outlook for 2016.
“This is, for UCare, a necessary survival strategy,” David Feinwachs, former general counsel for the Minnesota Hospital Association, said about the merger. He added that Fairview's new insurance arm, which would combine the commercial business of PreferredOne and government-run programs of UCare, would create a major competitor to the other HMO giants in the state: Blue Cross and Blue Shield of Minnesota, HealthPartners and Medica.
HealthPartners, a $5.7 billion integrated health system with a major health plan, also serves as a prominent member and board member of the Minnesota Hospital Association.
“If you're going into the insurance business in a big way like this, you're likely to play your cards close to the vest,” Feinwachs said, indicating that Fairview may have decided to leave the hospital trade group to keep its distance from HealthPartners.