Blues Sell PPOM To Denver Firm

August 6, 2004
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The president of PPOM promises a “seamless” transition to a new corporate owner that brings to the table the capital needed to finance expansion into new markets.

PPOM, which has the largest network of health-care providers in the Midwest, was sold last week by Blue Cross Blue Shield of Michigan for $200 million to a Denver-based private equity group, KRG Capital Partners LCC.

The sale will not affect PPOM’s existing participating agreements with care providers or contracts with health insurers, President Jeffrey Connolly said. The company will retain the PPOM brand name that appears on health cards of people whose employers contract with health plans that use the PPOM network.

“It should be seamless,” Connolly said of the transition in ownership. “There will really be no change in terms of our operations.”

The Southfield-based PPOM, which operated as a for-profit subsidiary of the nonprofit Blue Cross Blue Shield of Michigan, provides access to a care network for 1.1 million people in six Midwestern states through third-party commercial insurance carriers and self-funded group health plans. PPOM negotiates participating agreements with hospitals, physicians and other care providers and then sells access to the care network to insurers and administers claims.

The PPOM network includes more than 380 hospitals and 55,000 physicians in a core market of Michigan, Ohio and Indiana. The company has a smaller presence in parts of Wisconsin, Illinois and Kentucky

The sale to KRG Capital Partners gives PPOM a corporate owner that’s been investing in the health-care sector in recent years.

Under KRG Capital Partners, PPOM now has the flexibility to offer broader services — such as disease management — to subscribers, which Connolly hopes will make the company a more attractive and valuable option to employers and “a bigger part of their heath plan.”

More importantly, KRG Capital Partners has capital PPOM can tap to grow market share in existing markets and penetrate new markets, Connolly said. PPOM needs to continue to grow in order to compete in an industry going through a period of consolidation, he said.

“It establishes a better platform for us. At the end of the day, we have an entity that has capital that will support our efforts to grow,” he said. “Now we’re really able to compete with these national players and at a better level.”

PPOM’s plans for growth and the future, Connolly said, do not include having the company do underwriting.

“It’s not our intention to become an insurance company or an HMO,” he said.

Blue Cross Blue Shield of Michigan acquired PPOM in 1997 for $182. The company over the years was a “strong investment,” transferring cash of $133 million to the parent company in a seven-year period that was reinvested into the health insurer, Blues CFO Mark Bartlett said.

Blue Cross Blue Shield, which is focused on growing in Michigan, sold PPOM in order to allow the network provider to pursue its strategic goals.

“While PPOM has provided us with a solid return, its continued growth and expansion requires a company poised to facilitate its future. KRG Capital is well positioned to help PPOM achieve that growth objective,” Blue Cross Blue Shield of Michigan President and CEO Richard Whitmer said.    

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