Merger Takes Shape

April 6, 2007
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GRAND RAPIDS — Priority Health officially took over operations of Care Choices from Trinity Health on April 1, but the price tag remains unknown.

Priority Health's job now is to sell itself to Care Choices customers and providers in southeastern Michigan, said Rob Pocock, associate vice president of communications. The purchase of Care Choices is the first foray into Michigan's most populous and competitive market for Priority Health, majority owned by Spectrum Health of Grand Rapids.

The purchase price is based on a formula that incorporates the number of Care Choices' approximately 143,000 members that Priority Health is able to retain after one year, Pocock said.

"We honestly don't know what the purchase price is," Pocock said. "If for some reason membership drops dramatically, we don't pay as much as if we're able to keep and grow the membership."

Rick Murdock, executive director of the Michigan Association of Health Plans, said that's not an unusual provision in similar deals around the country. However, the Priority/Care Choices deal and last year's more controversial Blue Cross Blue Shield purchase of M-CARE from University of Michigan have been the only two commercial line mergers in Michigan since the 1990s, Murdock said.

"We're starting to work now with the local employers and agents out there to convince them we have the products and services they want to offer their employees," Pocock said. "We're going to start calling on physicians in that network to make sure they agree to stay in our network."

Care Choices' current members won't see much in the way of change until the renewal of health coverage contracts, he said. The phrase "Underwritten by Priority Health" will be added to printed materials, but he said Care Choices membership cards will remain valid under current contracts.

"It should remain seamless and transparent to all the former Care Choices members," Pocock said. "We will eventually be introducing the Priority Health name in the southeastern region and phasing out the Care Choices name. It could be March of 2008 until the Priority Health name is fully in place over there."

Pocock said the number of full-time employees at Care Choices' Farmington Hills headquarters was reduced from 172 to 136. "About the third week of January, we had done our due diligence and made decisions about who would be offered full-time positions," Pocock said.

The number of workers was reduced by normal attrition and the elimination of duplicate services, but other positions may be added, he said.

Care Choices' senior leadership was retained, including Mike Koziara, vice president in charge of the eastern office; Jelka Petrovic, associate vice president of sales; Barry Coffield, director of operations; Miriam Bielski, director of customer service; Jeanne Dunk, director of provider network services; and Dr. Gil Burgos, medical director.

Rick Byrne, Michigan market health insurance analyst for HealthLeaders-InterStudy of Nashville, said Care Choices had been rumored to be for sale for about two years before Priority Health took the bait. Pocock said 15 companies had looked at buying Care Choices, and Murdock added there had been previous interest. "There was interest, from what I heard, from a number of organizations. Whether they were serious bids, I can't say that," Murdock said.

Byrne said he thinks it's a natural marriage.

"We have two cultures coming together that are nearly identical, and it makes you wonder, why didn't they do this a year or two ago?" Byrne said. "Care Choices found a really good suitor in Priority Health. The two companies seem to have a similar culture, similar mission, similar core values. Even their organizational structures are similar.

"There is almost no overlap in their coverage areas. It really is an excellent expansion for Priority. This is the kind of deal you should look for if you were to contemplate a merger."

Byrne and Murdock said the Southeast Michigan market is more competitive and more union-driven than the West Michigan market.

Southeast Michigan is a highly competitive area," Murdock said. The lineup includes Blue Cross Blue Shield, bolstered by its M-CARE acquisition, Health Plus in Flint, as well as for-profit national players such as Aetna, Humana and United Health Care, the largest plan in the country."

Byrne added, "The Southeast Michigan market is more heavily weighted by union involvement. Priority Health is going to have to learn how to play ball in that kind of park."

Byrne added that about 25 percent of Care Choices membership belongs to unions. Care Choices is also a major plan for Ford Motor Co.'s salaried work force.

"I think that Priority Health has its organizational structure in really good order. Their sales force is really good, too," Byrne said. "I don't think they're going to find major problems in learning the Southeast Michigan market."

Priority Health, claiming 460,000 members, reported net income of $23.9 million in 2006 on total revenue of $1.35 billion. For 2006, Care Choices reported net income of $1.8 million on $305.3 million in revenue.    

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