Highmark sells off Medicare processing
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Highmark Inc. is selling its lucrative Medicare processing business to a Florida-based Blue Cross Blue Shield insurer to quell federal officials' concerns that its purchase of West Penn Allegheny Health System would represent a conflict of interest.
Diversified Service Options of Florida, a subsidiary of Blue Cross and Blue Shield of Florida Inc., is expected to complete the acquisition of Highmark Medicare Services Inc. by Jan. 1.
Officials declined to release a purchase price but described the transaction as "a stock deal." Highmark Medicare Services generated about $100 million in revenue, but Highmark officials said the loss of those funds would have little impact on the bottom line for the $15 billion to $16 billion insurer.
As a condition of the sale, Pennsylvania-based employees of Highmark Medicare Services will keep their jobs. About 130 of the total 940 employees statewide are based in the Pittsburgh area. "It was important to HMS that the jobs be retained in Pennsylvania," said Highmark Medicare Services President Patrick Kiley.
Had Highmark kept the Medicare claim processing business after completing its affiliation with West Penn Allegheny -- creating an insurer and health provider that also processes Medicare claims for the federal government -- that would have raised possible conflict questions with officials at the Center for Medicare and Medicaid Services.
Highmark officials said they anticipated this issue in June when they announced their planned affiliation with West Penn Allegheny and were immediately in discussions with the Center for Medicare and Medicaid Services about how to proceed.
Ultimately, Highmark officials said, they decided the possible conflict issue could hamper future growth for Highmark Medicare Services, so they decided to sell.
However, they downplayed the role of WPAHS in their decision.
"West Penn is only a small part of our strategy going forward," David O'Brien, executive vice president of Highmark, saying the insurer is in active discussions with physicians, hospitals and other providers "to expand our footprint in the provider world."
That does not necessarily mean that Highmark is trying to purchase physician practices, he said. "We hope that a lot of providers will stay independent."
Those plans, making Highmark a competitor in the provider market, have been cited by UPMC as the reason the region's largest health system will not negotiate a new contract with Highmark. The contract expires in June, with a one-year run out period to follow, which may or may not include physician services.
Thursday's announcement prompted a quick response from UPMC spokesman Paul Wood.
"Highmark's acknowledged lack of impartiality processing Medicare claims are exactly the same conflict of interest concerns UPMC has with Highmark if there were a commercial health insurance contract once the current one expires, the West Penn Allegheny acquisition is finalized and Highmark completes its grand vision of building a new provider system."
Less than a month ago, Highmark officials announced that they had won a five-year, $407 million contract to process Medicare claims for seven southern and western states. That contract -- which is being contested by another bidder -- was expected to add 500 jobs statewide, it was announced at the time. On Thursday, Highmark reiterated that additional jobs would be created throughout Pennsylvania if the contract is finalized.
Highmark is already the Medicare administrative contractor for Pennsylvania, New Jersey, Maryland, Delaware and the District of Columbia.
Although Highmark is best known as a commercial insurer, much of its annual revenue comes from its side businesses, which include servicing contracts and administering policies for the federal government.
In addition to its Medicare processing unit, Highmark makes money selling Medicare supplemental policies, collecting $360 million in Medicare supplemental plan premium business last year.
It also saw $660 million in direct-business premium revenue processing benefits for federal employees and families of soldiers, and it reported $1.5 billion in other Medicare-related revenue.
Highmark Medicare Services serves about 4 million Medicare beneficiaries but does not include those in Medicare Advantage or Highmark supplemental plans.
First Published December 9, 2011 12:00 am