Highmark CEO foresees merger benefits out of state

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The proposed merger of Independence Blue Cross and Pittsburgh's expansion-minded Highmark Inc. would create the biggest health insurer in Pennsylvania.

But to Kenneth R. Melani, Highmark's chief executive officer, important opportunities in the merger lie beyond the state's borders.

Melani is picturing, for example, a company in New Jersey that uses AmeriHealth Administrators to handle its health insurance paperwork. AmeriHealth is a subsidiary of Independence Blue Cross.

If the companies were united, "we could use AmeriHealth's sales force" to persuade that company to offer Highmark's vision-insurance plans to its employees, Melani said.

Highmark owns three vision companies - Davis Vision Inc., which provides managed-care vision benefits; DVSC Inc., which handles vision-insurance claims; and Viva, which distributes eyeglasses, including fancy designer shades.

"You have the relationship," Melani said in a recent interview in Philadelphia. "You can begin to cross-sell."

Besides their "Blue" insurance plans, both companies offer a variety of non-Blue plans and insurance services under various names across the nation.

Yesterday, Melani and Independence Blue Cross chief executive Joseph A. Frick stopped by The Philadelphia Inquirer, part of a statewide media tour to promote their merger plans to editorial boards in hopes that they will nudge the Pennsylvania Insurance Department to approve the deal.

The proposed merger has had the support of Gov. Rendell, but is running into resistance from the Republican-led Banking and Insurance Committee.

Part of Frick and Melani's pitch is that they say the merger would generate $951 million in total over six years to be used to increase coverage for the state's uninsured, while stabilizing ever-rising premium costs to subscribers.

They estimate that $178 million of the $951 million will come from increased sales opportunities.

"There will be two big 'gets' for Pennsylvania," Melani said.

First, he said, profits from these businesses will accrue to the Blues' bottom line, some of which is used to finance state programs to cover for the uninsured and for other initiatives, such as Independence Blue Cross' support for nursing education or Highmark's $20 million pledge toward the construction of a free-standing children's hospital in State College.

Second, he said, much of the work will be handled by Pennsylvania employees - more than enough to offset the 1,270 that may have to be redeployed in the cases where there are duplicated jobs.

Frick gave another example. An Independence Blue Cross subsidiary now sells Medicaid insurance policies in various states, but sells only pediatric Medicaid in Florida.

Highmark provides computer-analytic services as well as marketing and administrative support to Florida Blue Cross and Blue Shield.

If Highmark and Independence were one company, and Florida Blue Cross and Blue Shield wanted to expand its Medicaid insurance offerings, it might be willing to use Independence's Medicaid expertise.

True, Independence could make the pitch on its own, but it would be easier to go through the door that Highmark had already opened.

"They might say, 'I'll partner with this new company,' " Frick said.

Both companies are pinning a lot of their hopes on the potential of FutureScripts L.L.C., a fledgling pharmacy-benefits-management subsidiary of Independence. The business negotiates prices for drugs and distributes them to subscribers, handling claims information.

Highmark now uses Medco Health Solutions Inc. Medco, which has distribution facilities in Willingboro, is one of the nation's largest pharmacy-benefits-management companies.

But the combined company could make a run at Medco, Melani said. He again pointed to Highmark's relationship with Florida Blue Cross and Blue Shield.

"We could take FutureScripts down there," Melani said.