Grand Blanc-based McLaren Health Care Corp., a 12-hospital not-for-profit integrated health system, has acquired MDwise, a 360,000 Medicaid health plan in Indianapolis, for an unspecified amount.
The deal is expected to close by the end of 2017.
MDwise, which has annual revenue of $1.5 billion, is a nonprofit HMO jointly owned by Indiana University Health System and Health and Hospital Corp. of Marion County, a public health organization.
The MDwise acquisition is the first of an expected several health care deals McLaren is expected to complete outside of Michigan in the coming years. It is looking at potential purchases of hospitals, health plans and physician groups in Ohio, Indiana and Michigan, McLaren CEO Phil Incarnati said.
"This expansion allows us to leverage the success and strength of our health plan expertise, and brings significant benefits to the individuals and families served by MDwise," Incarnati said in a statement. "In addition to providing a platform for future growth in Indiana, expanding our health plan operations allows us to create greater economies of scale and new opportunities to share data and best practices, all of which will improve the experience of both members and network providers."
Incarnati told Crain's that talks have been going on with MDwise for about four months. He said one reason McLaren was selected out of three finalists was because it has experience operating a health plan, physician group and hospital operation.
One of several integrated delivery systems in Michigan, McLaren also owns a 450-physician medical group and a 260,000-member McLaren Health Plan, a Medicaid and commercial HMO.
"After a lengthy selection process, we are confident McLaren Health Care will be an ideal choice to acquire MDwise," MDwise CEO Jim Parker said in a statement. "With their strong track record operating a successful health plan in Michigan, they have the expertise needed to assist MDwise to succeed in a rapidly changing managed care market while maintaining a high level of service to our members and provider partners."
Incarnati said he has asked Parker to stay on as CEO along with most of MDwise's management staff. "Jim was brought in recently by the two current owners, and we like him," Incarnati said.
MDwise will be managed as a separate subsidiary organization, but overseen by Kathy Kendall, CEO of McLaren Health Plan.
McLaren will maintain MDwise's Indiana operations, and MDwise members will not experience any changes to their benefits or provider network, the two organizations said in a statement.
MDwise will continue to offer the same services currently available under its Hoosier Healthwise and Healthy Indiana Plans. MDwise also sells individual health insurance on the state's health insurance exchange under MDwise Marketplace, according to MDwise's website.
Once the transaction is complete, MDwise and McLaren Health Plan will collectively serve more than 620,000 individuals, making it one of the region's largest provider-sponsored health plans.
Incarnati said adding MDwise will create a $6 billion health care system with 40 percent of revenue coming from insurance operations and 60 percent from hospital and physician business. He said MDwise will most likely expand into commercial and Medicare products in the future.
On how he views the Indiana health insurance market, Incarnati said that in many ways it is more favorable than Michigan's. He said provider rates are higher — and are built into Medicaid payment rates to health plans — and there are only four Medicaid plans competing for business compared with 11 in Michigan.
Incarnati declined to give the purchase price because he said it could change by the time of closing later this year. He said McLaren plans some changes with MDwise to improve its operations.
"The plan, depends on how you account for it, makes money, but the network activities lose money," he said. "We don't plan to operate it to lose money."
Savings at MDwise will come from creating scale, with back-office functions shared with McLaren corporate, and by fine-tuning patient utilization of health care services. "The provider community is fairly positive" about the change, he said.
But managing a new health care organization out of state presents its challenges for McLaren.
"We have been looking at Indiana and Ohio for some time," Incarnati said. "Being in Indiana creates integration and infrastructure that will help us grow our out of state business."
"McLaren buys health plan in Indiana" originally appeared in Crain's Detroit Business.
