2 Blues plans work together on Medicaid management

Two Blues plans that have their eyes on the growing Medicaid market have agreed to take joint ownership of AmeriHealth Mercy, a Medicaid managed care organization based in Philadelphia, and pursue Medicaid contracts across the country.

Mercy Health System, a Catholic health system in Philadelphia, will sell its 50% share in the company for $170 million. Independence Blue Cross, one of Pennsylvania's four Blues plans, held the other 50% stake in AmeriHealth Mercy and will pay $35 million to boost its share to 60%.

Blue Cross Blue Shield of Michigan, which has about 4.3 million members in its home state, will buy a 40% share for $135 million, the company said.

"We at Independence Blue Cross see a tremendous opportunity to pioneer new business models, collaborative partnerships with like-minded Blues," said Independence President and CEO Daniel Hilferty.

Philadelphia-based Independence Blue Cross has about 3.1 million members.

Hilferty said the joint venture could expand to include other partner Blues companies, perhaps with other companies buying smaller stakes in the new business, or AmeriHealth could work with other Blues to administer Medicaid under a partnership. The new AmeriHealth Mercy will bid on managed care contracts in states across the country but will retain its "mission-driven" identity and "special commitment to the poor," Hilferty said.

The Michigan Blues plan sells commercial insurance and administers coverage through the federal Children's Health Insurance Program to about 30,000 Michigan children but does not administer Medicaid.

Michigan Blues President and CEO Daniel Loepp said part of the reason the company didn't pursue the Medicaid business was concern for its physician and hospital relationships. The company needed a partner like Independence Blue Cross to ensure that it could pay claims accurately and on time.

"That goes a long way toward keeping that bond we have with providers," Loepp said.

A few BlueCross BlueShield-affiliated plans around the country have a strong Medicaid MCO business, but they are not powerful Medicaid players as a rule.

The change in AmeriHealth Mercy's ownership will require approval by the Pennsylvania Insurance Dept. and attorney general. AmeriHealth Mercy has more than 4 million members in Medicaid, Medicare, CHIP and pharmacy benefits plans.

Though AmeriHealth Mercy will have missed opportunities to bid on some recent Medicaid managed care expansions, executives with the two Blues were focused on the long-term opportunity, as Medicaid eligibility expands in 2014 as prescribed under the Patient Protection and Affordable Care Act.

The use of managed care to administer Medicaid is expected to continue to grow, not only because of the eligibility changes in 2014, but also the poor economy that is driving people into Medicaid and the state budget shortfalls that create pressure for states to drive down costs.

Loepp said projections show about 25% of Michigan's population will be eligible for Medicaid by 2014, creating a significant market for AmeriHealth Mercy.

In recent months, Medicaid managed care contracts have gone to the so-called pure play MCOs, including Molina Healthcare and Centene, which focus all or nearly all of their business on Medicaid.

Large health plans, including Aetna, WellPoint and UnitedHealth Group, have been bidding on state Medicaid contracts along with companies like Molina and Centene. Executives see Medicaid as a growth market, even though the profit margin can sometimes be slim.

AmeriHealth Mercy isn't so sure that the new Medicaid enrollees who gain coverage in 2014 will be the younger, healthier and thus more profitable population, at least not right away, said Gale Pearce, chief marketing and development officer for AmeriHealth Mercy.

The plan's experience with Healthy Indiana, a state-run plan that covers previously uninsured low-income adults, showed a pent-up demand for health care -- so much so that the program was underfunded for a few years as enrollees filled prescriptions and visited physicians for the first time in years. Now that some of the immediate needs have been met, the company has been able to help enrollees get needed preventive care to maintain their health rather than address acute problems, Pearce said.

"We're glad," she said. "We felt like those people really needed us."

Before the 2014 expansion, states in many cases will seek to enroll some of the most difficult-to-treat patients into managed care -- not young mothers and children, but the elderly, the young who are disabled, and people with multiple illnesses or acute problems. That presents a challenge to MCOs, said Joshua Wiener, PhD, distinguished fellow and program director for Aging, Disability and Long-Term Care at RTI International, a North Carolina-based nonprofit research institution.

"Over the next couple of years, I think there's going to be a lot of activity in this area," he said. "There may be some new players who haven't been there before."

Some companies will position themselves for the eligibility expansion in 2014, which experts have said will probably bring younger, generally healthy adults into the program. In the meantime, that may mean trying to manage the more challenging elderly and disabled populations.

"For this new, more difficult-to-manage population -- or if it's just the expansion of the working population or low-income but not desperately poor population -- I think there are going to be substantial market opportunities," Wiener said. "I would think it would be to the advantage of managed care plans to try to get in early rather than later so they can get some experience."