Regence BlueCross BlueShield Invests Millions in For-Profit Ventures
July 19, 2012 – Regence BlueCross BlueShield is starting to look more like a for-profit healthcare business – with a dash of venture capital thrown in for good measure.
Neither Mark Ganz, CEO and president of Cambia Health Solutions, nor Jack Strother, who chairs its board, would respond to requests by The Lund Report to discuss their new corporate business strategy. Cambia is the parent company of Regence.
At the same time, Regence is asking the Oregon Insurance Division to approve a 9.6 percent rate hike for roughly 53,000 people who buy individual coverage – not those on Medicare or who get coverage through an employer. A public hearing is slated for July 30 in Salem starting at 3 p.m.
In the face of withering criticism, Regence backed off restricting 20,000 Portland-area individual members to just two smaller hospital networks, sparing many from having to choose between their physician, pay higher costs or find a new insurance provider.
In Washington state, Regence is also asking for a 15.7 percent rate increase for people who purchase their own health insurance despite having a surplus of nearly $1 billion.
Regence’s enrollment numbers are actually declining in all four states – Oregon, Washington, Utah and Idaho. In 2007, it had more than 1.1 million members in Oregon and since then has lost two major contracts – public school teachers and state employees. In the three other states, its membership numbers have fallen by more than 450,000 during the same time period.
Regence’s Entry into For-Profits
Regence’s entry into the for-profit investment world began taking shape about two years ago when it began aggressively shifting dividends from its Oregon and Utah insurance stock portfolio to its holding company, then known as The Regence Group -- $66 million in 2010 and another $62 million last year -- according to documents filed with the Washington Insurance Commissioner.
Under the leadership of Mark Ganz, CEO and president of The Regence Group, the insurer purchased a Seattle-based customized fitness and nutrition company, Kinetix Living Solutions, from Maveron, a capital investment firm.
Believing it was a prudent investment, Ganz authorized Regence to spend nearly double the market share for Kinetix, which had an estimated value of only $8.9 million at that time. Regence spent another $4.9 million to keep the company afloat, but to no avail.
Regence closed Kinetix down last December after losing $13.2 million in the deal, according to documents filed with the Oregon Insurance Division.
Late last year Regence brought in an investment team lead by John Morgan, the former president of HemCon Medical Technologies, Inc., and changed the name of its holding company to Cambia Health Solutions to better reflect its mission of transforming the healthcare system. Morgan is now president of a Cambia division known as Direct Health Solutions, and responsible for a portfolio of non-regulated businesses and Cambia’s direct and indirect investing portfolio.
Cambia Invests $15.5 Million
Since Morgan came on board, Cambia has invested $15.5 million in five profit-seeking health-related companies, including:
- Rise Health, a Jacksonville, Florida-based company that provides products and services to create accountable care organizations, and “closed on a $12 million deal in financing in January, and Cambia set the terms,” according to Gino Tenace, chief operating officer, who was unwilling to disclose the details about Cambia’s investment, only saying it was substantial.
- Care Team Connect, a web platform that improves patient outcomes by connecting hospitals, community providers, family members and patients. Cambia invested $5.2 million in its second round of financing. “Cambia Health Solutions sees great potential in the Care Team Connect product and is proud to lead the company’s Series B funding,” said Morgan in a press release last September.
- Morgan also has helped launch two new for-profit enterprises – neither of which has generated enough revenue to become self-sufficient. They include:
- Sprig Health, which calls itself “a common sense alternative to health insurance” and offers discounted services such as eye exams, pediatric visits and mammograms. According to high-level executives currently working at Regence, Sprig Health was created to compete with ZoomCare Medical Clinics, which has been highly successful. It runs four clinics in the Portland metropolitan area and was recently selected by Oregon Health & Science University for its employee healthcare.
- Hubbub Health, another Cambia creation, is a social networking website where people challenge each other to exercise and reduce their stress, and employers are offered customized health coaching.
Regence’s investment portfolio actually dates back to 2008 when it joined with BlueCross BlueShield of Tennessee and a private equity firm, Apax Partners of New York, to purchase a minority interest in TriZetto, an information technology company whose product, known as Facets, supports Regence’s computer system in enrollment, claims adjustment, customer service and billing.
Both Ganz and Vicki Gregg, president and CEO of the Tennessee plan, now sit on TriZetto’s board of directors.
Washington Conducting Market Conduct Study
Last year, that computer system malfunctioned, creating serious problems for members of Regence BlueShield of Washington. That, along with serious complains filed with the Washington Insurance Commissioner, led Mike Kreidler, to conduct a market conduct study, which is delving into Regence’s finances and other operations.
In Washington, Regence has announced plans to leave the Medicaid market this summer where it’s been providing coverage to roughly 38,000 pregnant women and children. In Oregon, Regence dropped out of the Oregon Health Plan in the late 1990s and, unlike the other major health insurers in the state, appears to have no interest in the transformation effort led by Governor John Kitzhaber by participating in the formation of coordinated care organizations which are intended to provide integrated care to more than 600,000 people on Medicaid.
It’s still unknown whether Regence is serious about participating in Oregon’s health insurance exchange after it decided recently to eliminate one of its individual health plans and no longer offer mental health coverage or eye exams to that population, both of which are considered essential benefits.
Also, by raising its deductible from $1,000 to $2,500 for individuals who purchase their own insurance, Regence can no longer participate in the Family Health Insurance Assistance Program, which has been subsidizing health insurance premiums for low-income families since 1997, according to Tom Jovick, administrator.
Healthcare Advocates Question Regence’s Intentions
All of this has left healthcare advocates such as Laura Etherton, questioning the motivation of Regence and whether it’s serious about remaining true to its mission as an insurance company and doing whatever it can to keep people healthier.
“There’s nothing wrong with a company making money by investing in other areas, but it’s also important for Regence to deliver on its promise to their existing enrollees in Regence plans,” said Etherton, who is now a healthcare and public health policy analyst for U.S. PIRG and previously was a healthcare advocate with OSPIRG. “This is an exciting time in healthcare right now, and there’s a lot of potential for insurance
companies over the next several years to work with providers to help people stay healthy. There’s a huge demand for better and more efficient care. Insurance companies need to be a partner in helping reduce costs, cut waste and improve care – everyone needs to be on their A game right now.”
Etherton also criticized Regence for refusing to insure children under age 19 after passage of the Affordable Care Act and for its seemingly lack of interest in finding ways to trim costs and focus on prevention.
“Regence has been making money insuring healthy children for years,” she said. “Now that they need to cover sick kids, they’re taking their ball and going home.”
Although Regence has said that its costs would have increased dramatically had it not taken such action, Etherton disagreed. “Since the U.S. Department of Health and Human Services estimated the impact on insurers’ costs to be 1 percent or less for ending pre-existing condition denials. That’s peanuts compared with the double digit rate increases insurers have been dishing out every year to consumers over the last decade.”
Changes in Regence’s priorities have also attracted criticism from former employees and outside healthcare advocates.
As far as Regence’s ventures into the for-profit world, “Most of the non-profit Blue plans have for-profit subsidiaries or have investments in companies because they see significant business opportunities and, in some cases, want to conduct business free of state regulation,” said Allan Baumgartner, an independent research consultant in Minneapolis who’s been analyzing key trends in the health insurance market since the early 1990s.
But, he added, “whenever insurance companies go outside their core competencies, there’s a financial risk because they’re often not adequately equipped.”
Former Employees Speak Out
Matt Gibson was hired to launch the Medicare Advantage Plan for Regence BlueCross BlueShield of Utah in 2005, turning it into Regence’s most profitable line of business. But he resigned after a meeting with Ganz when he heard him say that he didn’t want
Regence to have a strong presence in the individual market if it meant the company would have to accept everyone.
“After hearing the remarks by Ganz, I felt like I was banging my head against the wall and was totally frustrated,” Gibson told The Lund Report. “Most of my old team voluntarily left, and it’s just not the same happy atmosphere there anymore. The company has taken a nose dive over the last three years. Ganz can’t blame the economy when other
carriers have done just fine. It’s mind boggling. I would have loved to have built my career there but couldn’t take it any longer.”
Shawnna Connolly, the senior Medicare products manager for Regence BlueShield of Washington, left the company 18 months ago.
“With Mark Ganz at the helm, Regence has shown an incredible lack of vision and leadership,” she told The Lund Report. “Regence isn’t positioning itself to play a strong role in the health reform world. Instead, it’s focusing its energy on creating and investing in for-profit entities to maximize its bottom line rather than look at how it can effectively
influence and affect healthcare costs in the long term. And, there’s been no emphasis by Regence to build its infrastructure to effectively control healthcare costs.”