Delaware Blues seeks merger with deep-pocketed Highmark

The state's governor urges a cautious review, but the insurance commissioner says she will probably approve the deal.

By Emily Berry — Posted Sept. 6, 2010

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BlueCross BlueShield of Delaware wants to become an "affiliate" of Pittsburgh-based Highmark Inc., leaving behind its independence but winning access to Highmark's healthier finances and better technology.

Delaware Gov. Jack Markell urged a cautious review of the deal, and the U.S. Justice Dept. and Federal Trade Commission, while not commenting on the proposal, has said they are going to be more thorough in reviewing health insurance mergers and affiliations in general.

However, Delaware Insurance Commissioner Karen Weldin Stewart said she is likely to approve the deal, because her state's Blues plan is too small to survive on its own, despite having a majority market share on its home turf.

She said the Delaware Blues plan has struggled with operating on a relatively small scale and hasn't been able to upgrade claims payment systems or invest in up-to-date information technology. "It's a small Blue. Smaller Blues will probably be nonexistent at some time in the future."

Under a proposed arrangement, the Delaware Blues would remain locally operated and retain headquarters in Wilmington, Del.

Highmark would add the Delaware Blues' nearly 400,000 members to its 4.7 million. The Delaware plan has 2,700 health care professionals in its network. Financial terms of the deal were not disclosed.

Delaware state Rep. Danny Short, who once worked for the Delaware Blues plan, said it was clear to people in the health insurance industry there that the Blues plan had to hitch its wagon to a bigger plan to survive, particularly in the face of health system reform. "Being a company confined to the state, even though their market share may be great, the numbers are relatively small," he said.

BlueCross BlueShield of Delaware held a 56% market share in the state, according to the American Medical Association's most recent report on health plan competition. The figures, gathered by HealthLeaders-InterStudy, are based on enrollment as of January 2007.

More efficiency expected

Both companies said not much would change for Delaware physicians except that claims might be paid more quickly because of Highmark's claims payment technology.

Elliott Jacobsen, special adviser to Weldin Stewart, said the Delaware Blues plan has been fined for "computer errors" that affected payments to physicians. He said he hoped that having access to Highmark's claims payment systems would eliminate those kinds of errors.

The Medical Society of Delaware did not immediately take a position for or against the affiliation agreement. "There's always a concern, though, when your homegrown plan is acquired by or affiliates with a larger insurer, because we've established over many, many years a rapport with the senior leadership of the local Blue plan, and we have an ability to work with them and really advocate for our members' needs," said the society's executive director, Mark Meister. "The prospect of an affiliation, merger or change in control could potentially disrupt that."

Meister met with Highmark President and CEO Kenneth Melani, MD, shortly after the merger announcement. Meister said he was pleased that Dr. Melani said Highmark wants to let physicians manage care.

Second time around

This is the Delaware Blues' second affiliation with a larger plan. CareFirst, a Blues plan based in Maryland, took on BlueCross BlueShield of Delaware as an affiliate in 2000. That tie was severed in 2006 by order of the Delaware insurance commissioner.

In 2003, in response to CareFirst's bid to become for-profit, which would free it for acquisition by Blues giant WellPoint, Maryland lawmakers adopted legislation changing the makeup of CareFirst's board. Concerned that the new rules would affect Delaware's representation on the board, the state's insurance commissioner ordered the plans to split. After a review of that decision by a new commissioner, the split became official in 2006.

The proposed affiliation with the Delaware Blues also is the second for Highmark. It brought on Mountain State BlueCross BlueShield, the West Virginia Blues plan, as an affiliate in an arrangement that began in 1999 and was made permanent in 2004.

More recently, Highmark attempted a merger with Independence Blue Cross, the Philadelphia Blues plan that has a large presence in eastern Pennsylvania.

The attempt to merge those two companies fell apart in January 2009, when then-Pennsylvania insurance commissioner Joel Ario said he would approve the deal only on the condition that the combined company give up one of its Blue trademarks.

Highmark remains under close scrutiny by the Pennsylvania Insurance Dept.

The agency is amid a review of the competitive landscape for health insurers across the state and is concentrating on BlueCross BlueShield-affiliated companies.

The review is continuing despite the announcement that Ario would leave to lead the Dept. of Health and Human Services office overseeing health insurance exchanges.

Neither Highmark nor Blue Cross Blue Shield of Delaware would comment on how contracting, reimbursement or medical management might change for Delaware physicians under the new affiliation arrangement.

"BCBSD will retain and enhance its local relationship with hospitals, doctors and other providers," said a "Q and A" page on the Delaware Blues' website. "We anticipate no changes in our provider network."

Highmark spokesman Michael Weinstein said in an e-mail: "The two companies will soon begin to develop a plan to identify the best ways to address the needs of all stakeholders, including physicians. We do anticipate that physicians in Delaware will see enhanced services, since BCBSD will have access to Highmark's technological capabilities, which include a system of electronic connectivity for various administrative functions with physician practices."

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Blue partners

BlueCross BlueShield of Delaware has announced that it wants to become part of Pittsburgh-based Highmark Inc. Both are nonprofit BlueCross BlueShield affiliates, but Highmark is much larger.

Highmark Inc.

Headquarters: Pittsburgh
Members: 4.7 million
Network: 49,000 health care professionals
Revenue, 2009: $13.7 billion
Net income, 2009: $187.3 million

BlueCross BlueShield of Delaware

Headquarters: Wilmington, Del.
Membership: Nearly 400,000
Network: 2,700 health care professionals
Revenue, 2006 (latest available figure): $469 million
Net income, 2006: $27.1 million

Source: Highmark Inc.; BlueCross BlueShield of Delaware

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