Blue Cross Blue Shield of Maryland announced yesterday that it is buying a 16 percent stake in Preferred Health Network, a for-profit managed-care company primarily owned by local hospitals.
Blue Cross will take over marketing of PHN, whose primary product is a "triple-option" plan that allows members greater choice than does a standard HMO -- they can, for example, go to doctors not in the plan -- at a slight additional cost. PHN, now 10 years old, was a pioneer of that type of plan, which is growing rapidly in popularity nationally.
The deal, according to executives of the two companies, gives PHN a more robust marketing operation, while Blue Cross adds a potentially popular product and gains more access to the District of Columbia and its Maryland suburbs.
"What's important for us is the opportunity to grow our networks and to expand geographically, to grow the business out of our normal marketing area," said William L. Jews, president and CEO of Blue Cross. Under its licensing agreement with the national Blue Cross and Blue Shield association, the Maryland Blues may not market products with the cross and shield logo or name in Montgomery or Prince George's County or in the District of Columbia.
Except for the marketing function, PHN will continue to operate as a separate company, based in Linthicum. About a dozen of its sales employees will move to Blue Cross in Owings Mills; other than that, officials said, there will be no impact on employment. Members of PHN and of the various Blues plans, and participating doctors and hospitals, will not be affected.
"From the PHN point of view, we're taking a strong network and strong product, and reaching a strong regional marketplace," said Chester E. Burrell, PHN's chairman.
The deal requires the approval of the Maryland Insurance Administration. Jews said he hopes to get an OK in time for the deal to close before the end of the year. Blue Cross is to pay about $3 million for its share of PHN.
"There are a lot of synergies" in the arrangement, said William F. Simmons, president of Group Benefit Services, an insurance brokerage. "PHN has an excellent product, but it's never been able to get it off the ground; Blue Cross has a good distribution network. Blue Cross gets a sophisticated product it would take them years to develop on their own."
Jews said he thought the future of the industry lay not just in consolidations, but in joint ventures among insurers, hospitals, doctors and other players.
For that reason, he said, he was glad to enter into a partnership with PHN, whose hospital owners include, in the Baltimore area, Greater Baltimore Medical Center, Mercy, Northwest, St. Agnes, University of Maryland Medical Center and the five Helix hospitals: Church, Franklin Square, Good Samaritan, Harbor and Union Memorial.
Also among the owners of PHN are four Washington-area hospitals, Shady Grove Adventist of Rockville, Suburban of Bethesda, Washington Adventist of Takoma Park and Georgetown University Medical Center, which will be selling its interest as part of the restructuring.
PHN has 50,000 members, about 20,000 of whom are employees of member hospitals and their dependents. It had income of $1.1 million last year on revenues of $75 million, and income of $45,243 on revenues of $68.2 million for the first 10 months of 1996.
Blue Cross Blue Shield of Maryland had income of $44.3 million on revenues of $1.9 billion in 1995 and income of $21.8 million on revenues of $1.5 billion for the first three quarters of 1996.
Pub Date: 12/06/96