Newspaper article St Louis Post-Dispatch (MO)

Missouri Approves Health Merger

Newspaper article St Louis Post-Dispatch (MO)

Missouri Approves Health Merger

Article excerpt

State regulators blessed the impending marriage of two of St. Louis' largest managed care providers, but they forced them into a prenuptial agreement limiting their ability to raise rates.

Blue Cross and Blue Shield of Missouri, through its publicly traded subsidiary, RightChoice, gained state approval to acquire HealthLink Inc., a provider of health care networks for big employers, unions and commercial insurers.

RightChoice will pay $92 million cash, including $62 million in revolving credit.

With HealthLink, RightChoice becomes the largest managed care company in the metropolitan area. The acquisition also means that Blue Cross can expand in Illinois, Kentucky and Indiana and take advantage of HealthLink's ties with unions and major employers, said Frederic Brussee, RightChoice's chief operating officer.

HealthLink "is extremely important to us as a geographic expansion vehicle," Brussee said. "It has a strong brand name and a well-developed provider network."

Together, the networks will cover more than 1.3 million people from Missouri to Kentucky.

Their size in the St. Louis area is in dispute, however. The Missouri Department of Insurance estimates that RightChoice's membership will jump to more than 1 million people, or about 48 percent of the market. Blue Cross calculates the membership at 576,763 members, or about 35 percent of the market.

Market share is important because state regulators were concerned that RightChoice's dominance would restrain trade and lead to higher insurance rates, said Randy McConnell, an insurance department spokesman.

Nevertheless, the state approved the deal contingent on several conditions:

Both managed care entities agreed to initially link their raises in rates to inflation. They agreed to cap the rise in average premiums to 90 percent of the increase in the medical portion of the Consumer Price Index for the St. Louis area. For new members, that rate cap expires in a year; for existing members it expires in two years. HealthLink also will keep its administrative fees at or below 90 percent of the rise in the overall CPI.

(These restrictions only apply in Missouri, however.)

RightChoice will continue allowing HealthLink to rent its provider networks to commercial insurers, even if they compete with RightChoice. Many out-of-state insurers covering companies across state lines "rent" provider networks like HealthLink's instead of setting up their own. HealthLink must stay open to those insurers through Dec. 31, 1996.

Neither RightChoice nor HealthLink will extract promises from hospitals to guarantee them the lowest prices for health services. RightChoice already has such deals with three St. Louis area hospitals, which the company asked the state not to identify.

If more hospitals acquiesced to RightChoice, they would be tempted to shift unreimbursed costs onto other private insurers, much like they do when Medicaid doesn't fully reimburse health charges, McConnell said. …

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