Why 2 New York insurers plan to merge

A planned merger between Capital District Physicians Health Plan and The Lifetime Healthcare Co. will allow the insurers to beef up their scale and investments in technology, executives say. 

In May, the two upstate New York insurers announced plans to affiliate. If approved, the Lifetime Healthcare Cos., which owns Excellus Blue Cross Blue Shield and Univera, would become the parent company of CDPHP. 

John Bennett, MD, CEO of Albany-based CDPHP, told Becker's the plan has been eyeing an affiliation for around five years and found the right partner in Lifetime. 

"We talked to a lot of people, and a lot of other health plans," Dr. Bennett said. "The reason why it's happening now, from our standpoint, is we found the right partner who shares our mission, vision and values." 

The insurers operate in mostly separate markets, with small areas of overlap. The merger would create a company with continuous geography across upstate New York, Jim Reed, CEO of Rochester-based Lifetime Healthcare, told Becker's. 

"If you look at what it will take to be successful in healthcare in the future, having a larger scale to spread investments and administrative costs and technology over a larger population is one of the primary factors in what brought [Dr. Bennett] and I together to talk about how our two organizations could work more collaboratively," Mr. Reed said. 

Several plans pitching mergers in recent years have cited administrative efficiency, and scaling up investments in new technologies as reasons behind such moves. 

"The cost of technology and operations is becoming extremely expensive, but it's also moving to become the nexus of innovation and customer value creation, so you cannot afford to fall behind," Don George, CEO of Blue Cross Blue Shield of Vermont, told Becker's in October when the company became part of BCBS of Michigan. 

CDPHP, Excellus BCBS and Univera will retain their separate brand identities for the most part, the executives said. 

"That was one of the many things we were looking for in a partner — the fact that we will keep the CDPHP brand in most of our membership," Dr. Bennett said. "The areas where we overlap with Excellus are pretty small. We do view this, as we get stronger, as an area of growth. We're particularly interested in growing into the Hudson Valley. We have a presence there, but we believe there's a big opportunity there. 

The deal must be approved by federal and state regulators before moving ahead. The companies are proceeding "in good faith, working with the regulators to move this as fast as we possibly can," Mr. Reed said. 

Some proposed health plan mergers have been held up by regulators and public opposition. In February, nonprofit plans SCAN Group and CareOregon called off a proposed merger in response to regulatory concerns. 

In a May 28 statement, the Medical Society of the State of New York urged regulators to take "great caution" when reviewing the proposed deal between Lifetime and CDPHP. 

"Fewer health insurance companies will lead to a lack of market competition," Jerome Cohen, MD, president of the medical society, said. "This has the potential to lead to higher premiums, fewer choices, poorer customer service, stifling of medical innovation, and further restrictions in patient access to care." 

Beyond scaling the businesses, the proposed deal provides an opportunity for the two organizations to share thought leadership, Mr. Reed said. 

"[These organizations], in their respective markets, have a leadership position in how we interact with healthcare providers centered around localism," he said. "While there won't always be an exact overlap of how we do business today, there's so much learning that we can take from each other, or the opportunity in the future to continue building on the concept that healthcare is local." 

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