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WellChoice deal may spur alliances here

The top executive of Blue Cross Blue Shield of Western New York said Tuesday's blockbuster acquisition of WellChoice by WellPoint will not change the strategy of Western New York's largest health insurer.

"I don't think that it will have a significant impact on the market," said Alphonso O'Neil-White, president and CEO of Buffalo-based HealthNow New York. "This deal would not either accelerate or decelerate our plans."

But some industry experts say the region's three nonprofit health insurers, as well as those in other parts of Upstate New York, may have to take some aggressive and even collaborative steps if they want to remain competitive and keep out the new health insurance giant.

"It's going to definitely put more pressure on other insurers to consolidate themselves or form alliances with other insurers to keep the encroaching WellPoint/WellChoice monster from making a full-out assault on their business," said Micaela Brown, market analyst for HealthLeaders Research in Nashville, Tenn.

Indianapolis-based WellPoint, the nation's biggest insurer with nearly 29 million members, said on Tuesday that it would pay $6.5 billion in cash and stock to buy WellChoice, the largest insurer in New York.

The deal calls for New York-based WellChoice, parent of Empire Blue Cross and Blue Shield, to become a separate subsidiary of WellPoint. New York City will become the headquarters for the company's Northeast Region.

The widely expected deal adds 5 million members in and around New York City, and gives WellPoint a strong presence in the Northeast to compete with rivalUnitedHealth Group of Minneapolis. WellPoint will serve 33 million members in 14 states, compared to 22.4 million forUnitedHealth.

"It's basically the Godzilla of health plans," Brown said. "This really cements WellPoint's No. 1 position nationally and keeps United at a pretty distant second place."

The deal comes just a few years after Empire converted from a nonprofit insurer to a publicly traded entity, in a highly-controversial move that was aggressively opposed by various organizations and critics, including Consumers Union.

It also tightens the competitive landscape in New York City.

The merger doesn't have a significant direct impact on Western New York. Both WellPoint and WellChoice are independent Blue Cross and Blue Shield companies, licensed to market their business under that brand only in specific markets.

WellChoice, for example, only operates under those brands in 10 counties of downstate New York and certain counties in northeastern New York. The greater Buffalo market, on the other hand, is already assigned to HealthNow New York, while the Rochester area falls under Excellus Blue Cross and Blue Shield. So there's little overlap except for national contracts.

"I don't see any direct impact," said Ronald Zoeller, president and CEO of North American Health Plans in Amherst, a third-party plan administrator which competes slightly with WellPoint in other markets and sees its growth as a threat. "The three local health plans do not really compete with WellPoint or WellChoice."

However, HealthNow also owns Blue Shield of Northeastern New York, which operates in 13 counties in the greater Albany area and competes directly with WellChoice's Blue Cross of Northeastern New York. That poses a threat to HealthNow, although one it says it can handle.

"Competition is always a good thing for the market," O'Neil-White said. "However we think we will not only be able to continue to hold our own in that market, but grow in that market."

Observers predict WellChoice, under WellPoint, will try to make more inroads in upstate and Western New York through national contracts and non-Blues plans, using its size and scale to offer a wider range of products at competitive prices. But O'Neil-White said HealthNow's local roots will help, since it knows the regional market and culture better.

"I think being a local, regional plan does give you an advantage," he said. "They're not regionally based, and that may work to their disadvantage."

The bigger question, experts say, is how the deal will affect other companies' decisions about their own futures, especially given the size of the company that decided to sell instead of going it alone.

"It does give them pause because they may not be able to compete on price or on product," said Betsy Stoll, director of policy and development for Community Catalyst, a Boston-based health care consumer advocacy organization. "I would bet they're nervous, but they may just want to see how it plays out."

Locally, HealthNow has talked in the past of converting to a for-profit company, but has since shelved those plans. However, it remains a possibility, if its future plans require it to raise a significant amount of capital that it can't produce on its own, O'Neil-White said.

"We have a strategic plan that the board and management have developed and we're sticking to it," he said. "Conversion remains an option, although it is not being considered at this point. I don't think this merger would make us change our position on that."

He said HealthNow's strategy does include potential acquisitions of or mergers with other health plans, but "we're not looking to sell."

"We intend to retain our identity, our independence," he said. "We're in a growth mode right now, whether through organic growth or through acquisitions or mergers."

But Brown said the region's nonprofits might be better off forming alliances with each other or others, sharing services, joint ventures and research in order to be as competitive as possible with outsiders.

"They will be forced to make some sort of pre-emptive strike before the WellChoice/WellPoint beast comes at them," Brown said. "They'll have to do something to band together to keep that string of nonprofits along the I-90 corridor strong."

Others aren't intimidated. "We always are looking for the best solutions to meet our customers' needs, and in the future that may call for collaboration," said Dr. Michael Cropp, CEO of Independent Health Association. "But for now, we would welcome WellPoint/WellChoice into this market."


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