WellPoint looking to increase its size by buying more health plans

After taking a few years to digest its numerous health plan acquisitions, WellPoint is hungry again for deals.

A WellPoint Inc. executive said at a recent investors conference that the company, built by acquiring BlueCross BlueShield-affiliated plans, would like to acquire more Blues plans. "Our [merger and acquisition] strategy is always first to acquire a Blues plan," said Wayne DeVeydt, WellPoint's executive vice president and chief financial officer, according to a conference transcript. "We think the brand is very powerful, and we have seen from our history of acquiring Blues plans that it has been a very successful model."

But WellPoint is expanding its strategy beyond Blues plans as well -- a necessity, analysts said, given the unfriendly regulatory environment it might face by trying to acquire such insurers.

DeVeydt, speaking Sept. 19 at the Merrill Lynch Global Pharmaceutical, Biotech and Medtech Conference in London, also said WellPoint would look at acquiring small, single-state plans. Those small plans "are going to be suffering from the macroeconomic investment that needs to be made in this business," DeVeydt said.

Echoing retired chair and CEO Larry Glasscock's comments to the journal Health Affairs in January, DeVeydt told the conference audience that there is still much consolidation to be done among health plans. "If you looked at us 10 years ago, the top 10 companies made up 27% [of the market]. Today the top 10 companies make up 54%. I would venture to say that in the next five to 10 years, the top 10 will make up 75% to 80%. So we are far from being done on consolidation," he said.

The prospect of a bigger WellPoint -- along with United HealthGroup, one of the two biggest private-pay plans in the country -- is not appealing to physician organizations that have fought insurers' market consolidation.

Referring to WellPoint, William G. Plested, MD, immediate past president of the American Medical Association, said, "The reason they feel they have to consolidate is it gives them more leverage in 'the market.' Physicians are the market. That means [WellPoint] will be able to use the monopolistic position they have in order to deal with physicians, who they only deal with individually, which is grossly unfair."

Blues plan acquisition not easy

Analysts said even though WellPoint has the money and wherewithal to add to the 14 states where it operates Blues-licensed plans, the regulatory landscape might make any deal difficult. The only for-profit Blues plan not owned by WellPoint is Triple-S Inc. of San Juan, Puerto Rico. It filed for a $250 million initial public offering on April 27, though it has not yet begun trading on the New York Stock Exchange.

Otherwise, WellPoint would have to buy a nonprofit plan and convert it to for-profit, which requires state regulatory or legislative approval. Analysts say the chances of conversion are not guaranteed, especially with some states having rejected conversion plans in the past few years.

WellPoint's predecessor companies have had setbacks in bids to buy Blues plans.

In 2004 WellPoint Health Systems lost a bid to buy CareFirst, which operates Blues plans in Maryland, Virginia, Delaware and the District of Columbia, when the Maryland Legislature rejected the company's application to convert from a nonprofit to a for-profit company. Anthem lost court fights to buy BlueCross BlueShield of Kansas in 2003 and Horizon Blue Cross Blue Shield of New Jersey in 1997.

In 2003 and 2004, states including Washington and North Carolina also rejected Blues plans' conversion requests, as they became skittish that an out-of-state company would swoop in and buy their locally owned plans.

WellPoint's last Blues acquisition was in 2005, when it paid $6.5 billion to acquire New York-based WellChoice, the parent company of Empire BlueCross BlueShield.

The strategy of acquiring Blues plans has "pretty much dried out," said Allan Baumgarten, a Minneapolis-based health plan industry analyst.

Single-state plans available

But analysts say WellPoint should have no trouble acquiring small, single-state plans. "Any move by [large insurers] to acquire one of smaller plans would get more scrutiny, but in the end would go through," Baumgarten said.

But as DeVeydt himself noted, WellPoint might not have to buy a company to effectively acquire its business.

As an example, DeVeydt cited a deal WellPoint struck in September with M Plan, an insurer whose owners include Indianapolis hospital system Clarian Health. M Plan was shutting down its commercial HMO, citing a lack of funding that prevented it from creating and marketing wellness programs, high-deductible health plans, technology initiatives and other efforts corporate customers wanted. The deal put a potential 125,000 new members in WellPoint's hands by naming its Anthem Blue Cross and Blue Shield subsidiary in Indiana as the preferred carrier for former M Plan customers.

WellPoint is not the only insurer pursuing this market. Also in Indiana, the state's insurance department said the 52,000 customers of Indianapolis-based Benicorp, which the department placed in receivership in August because of financial troubles, could move free of charge into plans issued by United Healthcare. Insurance commissioner Jim Atterholt said in a prepared statement that he selected United because of its "robust" network of physicians and hospitals.

WellPoint spokesman Jim Kappel declined to describe specific acquisition targets but said, "We have always said that one of our priorities is to look for opportunities for additional mergers and acquisitions. We believe we are in an industry suitable for further consolidation."

But ultimately, Dr. Plested said, patients suffer when the market consolidates."Monopolistic behavior has never worked to the benefit of anyone except the monopolist," he said.