By Cheryll Powell, Akron Beacon Journal, Ohio Knight Ridder/Tribune Business News
Apr. 3--Akron General Health System is officially getting out of the insurance business.
The health system confirmed Tuesday that it is selling its managed-care insurer, HomeTown Health Network, to The Health Plan of the Upper Ohio Valley, an independent, non-profit insurer in southeast Ohio and northern West Virginia.
Under the agreement, HomeTown retains its name in Northeast Ohio, as well as its local offices in Massillon.
All of HomeTown's existing contracts remain in place, meaning its 84,000 enrollees can keep going to the same doctors and hospitals, HomeTown President William C. Epling said. Their premiums and copays won't change.
'It should be pretty transparent to the outside world,' Epling said. 'We tried to maintain the HomeTown identity.'
There aren't immediate plans to reduce HomeTown's staff of 185.
With the sale of its insurance arm, Akron General can focus solely on providing health care, rather than paying for it.
'This arrangement allows Akron General Health System to direct our resources toward what we do best -- providing outstanding care for our patients,' Alan J. Bleyer, Akron General's president and chief executive officer, said in a prepared statement.
Along with HomeTown, the health system includes flagship Akron General Medical Center, Lodi and Massillon Community hospitals, Edwin Shaw Hospital for Rehabilitation, a home health-care agency and a health and wellness center.
The deal includes a 10-year, exclusive contract, which guarantees that HomeTown's new owner won't send patients to Akron General's competitors.
'They want the revenue source without the headache, and that's pretty understandable,' said Sandy Steever, editor of Health Care Mergers & Acquisitions, a monthly trade publication.
HomeTown was established in 1987, when Massillon Community Hospital decided to start a health maintenance organization (HMO) to insure its workers.
Akron General took over the plan in 1999 when it acquired Massillon Community Hospital.
Until the mid- to late-1990s, many hospitals were starting health plans or acquiring one as part of an ongoing effort to build systems that can provide all aspects of medical care.
But many shaky marriages between two apparent adversaries -- the hospitals that provide health care and the insurers that must pay for that care -- have fallen apart in recent years.
'The hospitals almost uniformly had felt that there were conflicts between running an acute-care facility and a managed-care company,' Steever said. 'Hospitals are trying to get as much money as they can, and HMOs make money by withholding as much money as they can.'
It's difficult for small, regional players to be competitive and raise the capital needed to survive.
HomeTown has about half as many enrollees as The Health Plan's 156,000 members. Likewise, HomeTown had revenues of $122 million last year, compared to The Health Plan's $221 million.
During the first three quarters of 2002, The Health Plan posted a loss of $634,000, according to HealthLeaders Research, a managed-care research firm based in Nashville.
During that same period, HomeTown lost $3.4 million or $11.50 per member per month -- one of the worst loss ratios in the state, according to HealthLeaders.
The deal gives the combined insurer a primary service area encompassing 19 counties in eastern Ohio and 19 counties in northern West Virginia.
'In our business,' Epling said, 'the big just keep getting bigger. For us to keep competitive, we needed to become a larger regional player.'
The Health Plan has developed its own information systems and other administrative functions that keep overhead lower, said Dave Mathieu, vice president of marketing.
The Health Plan's administrative costs are about 7 percent of its revenues, while HomeTown's are 12 to 13 percent, he said.
'We're going to see what economies of scale we can accomplish,' he said.
Officials from HomeTown and The Health Plan declined to disclose the financial terms of the deal, which must be approved by insurance regulators in Ohio and West Virginia.
During the past 15 months, buyers have been paying an average of $200 to $275 per enrollee for the 29 insurance plans that were sold, Steever said.
Epling said he expects the sale to be completed by June.
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(c) 2003, Akron Beacon Journal, Ohio. Distributed by Knight Ridder/Tribune Business News.
