Priority Health Aims For Statewide Market

March 28, 2008
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With Michigan’s economy in standby mode, Priority Health is pursuing a growth strategy to carry it from lake to lake.

Grand Rapids-based Priority Health, owned by Spectrum Health, is navigating new waters in southeastern Michigan. At the same time, it’s facing a new rival in Health Alliance Plan, owned by Henry Ford Health System. Both Priority Health and HAP have abandoned their regional focuses and are aggressively pursuing strategies to become statewide health coverage providers.

Priority Health’s acquisition of Care Choices from Catholic nonprofit hospital operator Trinity Health a year ago provided instant access to the Detroit-area markets that are essential to its future, CFO Greg Hawkins said.

The acquisition has positioned Priority Health as a “major player” in the state’s health insurance game, added Rick Byrne, an analyst with HealthLeaders-InterStudy.

Priority Health now serves 60 of the state’s 83 counties.

“It’s pretty clear that, if we’re not to that point already, we are approaching the point where we have three major statewide players offering health coverage: Priority Health, Health Alliance Plan and Blue Cross Blue Shield of Michigan,” Byrne said.

BCBSM claims 70 percent of the market. For-profit insurers still are struggling to snare share from the not-for-profits dominating Michigan’s health insurance market, he added.

“We believe competition is good,” said Kim Suarez, vice president of medical operations for Priority Health.

“We are not threatened by the fact that HAP is coming our way, and we hope that HAP is not threatened by the fact that we're coming their way. I think competition brings excellence and I think the citizens of this state deserve choice.”

Geographical expansion is the only option when local markets fail to provide enough economic activity to support steady growth, Byrne said. So Priority Health and HAP, both claiming about 550,000 members, are now are heading along Interstate 96 into each other’s traditional territories.

“It’s a question of the overall Michigan economy,” Byrne said. “The Michigan population has remained stagnant. The percentage of employers who offer group coverage to workers is going down. It’s either a same-size or smaller pie for everyone to fight over.”

Mark J. Zickel, Priority Health vice president for sales, client services and regional management, said the combined membership dipped after the acquisition. However, 85 percent of Care Choices’ employer groups were retained, he said.

An unexpected membership loss resulted from last year’s contract negotiations between the Big Three auto companies and the United Auto Workers, Zickel said. As the UAW took over responsibility for health benefits from the auto manufacturers under a Voluntary Employees’ Beneficiary Association trust, Priority Health was one of 43 health benefit providers dropped for General Motors’ hourly employees, Zickel said. That meant a loss of 17,000 members, including 2,000 UAW hourly workers from the GM plant in Wyoming, he said.

Another 12,000 to 13,000 members disappeared with Priority Health’s decision to drop a prescription drug program for people eligible for both Medicare and Medicaid, Zickel said.

But he pointed to Priority Health’s 40 percent market share in Kent and Ottawa counties, to an expansion to 12,000 people in Kalamazoo County and to 15,000 through Foote Health System in Jackson as positives.

Priority Health recently added Beaumont Hospitals and more than 1,900 doctors with the closely affiliated United Physicians to its provider network in southeastern Michigan. That’s significant for Priority Health, as Beaumont was not part of Care Choices’ network. Beaumont has three hospitals in the affluent suburbs of Troy, Royal Oak and Grosse Pointe.

“The best thing they can do at this point is try to promote their reputation for quality with providers and get some favorable contracts with the Southeast Michigan hospitals and doctor groups,” Byrne said. “That’s where you start the secondary effort to try to win business based on the strength of your network.”

Suarez, who works on provider relations, said larger providers on the east side of the state “that understand the politics of health care” are familiar with Priority Health.

“They were very welcoming,” Suarez said. “They were relieved and pleased when they found out it (the buyer of Care Choices) was Priority Health, given the other options. They like the fact that we’re provider-owned. They like the fact that we’re not-for-profit.

“There are a lot of Dr. Joneses and Dr. Smiths on the corner who aren’t familiar with the Priority Health name, and so that is one of the things we need to change.”

In addition to blitzing the Detroit area with billboards, Suarez said Priority Health intends to import the Priority Health Academy, a day-long set of seminars for health care providers already offered annually in Traverse City and Grand Rapids.

Meanwhile, HAP recently announced the biggest network expansion in its history, now including Saint Mary’s Health Care in Grand Rapids, Mercy General in Muskegon and Metro Health Hospital in Wyoming. It also reached an agreement with the West Michigan Regional Delivery Network, which includes 500 physicians.

HAP announced in March it had added all 11 Trinity Health hospitals in Michigan to its network, and signed an agreement with the Upper Peninsula Health Plan, with a network of 14 hospitals and 800 doctors, to offer its PPO product above the bridge.

Priority Health — which accounts for about half of Spectrum Health’s $2.1 billion in revenues — recently added Clare, Midland and Gratiot counties and part of Monroe County to its HMO roster, as well as increasing its coverage area in Bay, Gladwin, Isabella, Lenawee and Mecosta counties.

The challenge for Priority Health now will be in luring consumers, Byrne said.

“I think they’re facing a learning curve,” he said. “The West Michigan buyer and customer is a bit different from the ones we see in Southeast Michigan. They’re seeking more of a paternalistic health plan that does most of the work for them. In West Michigan, there’s more favor held for the consumer-driven health plan, the high-deductible health plan, that places more of a burden on the member.

“Their benefit designs will have to either acknowledge the realities of the Southeast Michigan customer or they are going to have to be willing to invest in some serious education efforts.” HQX

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