Call it merger-lite.
Three years after a proposed merger between Pennsylvania's two largest health insurers was called off, Pittsburgh's Highmark Inc. is now in the process of absorbing most of the back-office computer functions of its would-be partner, Philadelphia's Independence Blue Cross.
Through a deal struck earlier this year, IBC will be using Highmark's operating platforms to handle core processing functions such as enrollment, claims and billing, essentially outsourcing its own hardware backbone to Highmark's data campus near Harrisburg. Some of IBC's ancillary business lines, like stop-loss, vision and dental, eventually will be moved onto Highmark's platforms, too.
It's a massive, multi-year, multi-millon-dollar undertaking -- and one that could position Highmark for similar, national deals going forward. But the project has flown under the radar as Highmark has spent the last year acquiring hospital systems, buying up land for a chain of medical malls, dueling with UPMC and conducting a search for a new CEO.
Highmark has similar claims-and-enrollment processing agreements in place with other Blues insurers, but the IBC deal is among the largest in terms of volume, adding millions of "covered lives" to the Highmark computer network -- if not its actual insurance network -- representing about two-thirds of IBC's total book of business, Highmark says.
In its own, internal description of the IBC contract, Highmark said that "this is Highmark's first true vendor relationship, and our plan is to use this experience to better position ourselves as we pursue other plans' business."
Highmark plans to spend up to $40 million on the implementation project, with extra costs to be picked up by IBC.
While IBC is essentially outsourcing its systems work, the Philadelphia insurer, according to one of its spokeswomen, will use its own employees -- not Highmark's -- to log the data into Highmark's system.
"What this means for IBC and our customers [is] it will allow us to further streamline our business operations with the goal to help drive down costs [and] expand and enhance capabilities," said IBC's Karen Godlewski.
For Highmark, the deal allocates the Pittsburgh company's hardware and administrative costs over a much wider customer base, a move that should -- at least in theory -- help the company maintain a good "medical loss ratio," which is the measure of how much premium money is spent on actual care, as opposed to administration and overhead.
Because of the 2010 Affordable Care Act -- the federal health care overhaul also known as "Obamacare" -- insurers must now spend at least 80 percent (for individual and small group markets) or 85 percent (large group plans) of premium dollars on medical care, quality control efforts and wellness programs, with the remainder allowed to go to administrative costs.
The migration project, which should be completed by March 2014, is still in its early phases, meaning the two companies are still reviewing business requirements, performing system analyses and deciding which portions of Highmark's systems will be customized for IBC and which will remain "vanilla."
IBC said the move was a no-brainer.
"We've had a productive vendor relationship with Highmark for decades, and the operating platform agreement is yet another example of how we are working with our Blue partners to transform the delivery of health care," Ms. Godlewski said.
"For Highmark, being selected by IBC means that the investments that we've made in our technology can be spread over more processing, enabling us to maximize the technology investments that we've made and maintain costs," said Highmark spokesman Aaron Billger. "Many companies license commercial software products to maintain and potentially lower costs, rather than building and maintaining systems internally."
Highmark and IBC also teamed together earlier this year -- along with New Jersey's Horizon Blue Cross Blue Shield and IT provider Lumeris -- to buy Boston-based NaviNet, a company that builds platforms to manage health-related transactions and the exchange of clinical information among insurers, hospitals and physicians.
Five years ago, after years of talk and courtship, Highmark and IBC formally proposed a full merger of the two insurers, complete with a new name and a consolidated company that would have controlled more than half of the state's health insurance market.
But after two years of vetting, the state Insurance Department helped spike the deal by insisting that the merged company give up one of the Blues trademarks as a condition of the merger.
Bill Toland: firstname.lastname@example.org or 412-263-2625.