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Negotiations halted over sale of HealthCare Group: M-Plan owner, Medical Mutual 'agree to disagree' but leave door open

April 24, 2006

A plan to merge the parent of Indiana's largest HMO with an Ohio insurer has fallen through, but both companies continue to shop for other deals.

Cleveland-based Medical Mutual of Ohio a month ago cut off negotiations to buy The HealthCare Group LLC of Indianapolis, which operates M-Plan Inc. But Medical Mutual "would never say never" to future overtures, said Michael Taddeo, the insurer's vice president of national network development.

"We've agreed to disagree," he said, declining to elaborate on why negotiations fell apart.

He did say the two companies "maintain a lot of respect for each other," and that Medical Mutual would consider other partners to help it grow in Indiana.

HealthCare Group CEO Alex Slabosky declined to comment on the merger talks. Late last year, he said Medical Mutual was interested in buying a controlling percentage of The HealthCare Group.

A source close to the negotiations who asked for anonymity said The HealthCare Group will still consider potential suitors that could help spur its growth.

Last fall, when IBJ first reported on talks between the two companies, M-Plan spokesman Andrew Stoner said the company was seeking ways to expand product offerings.

"We have a lot of competitive pressures and employer expectations, as all health plans do," he said in October.

Aside from M-Plan, HealthCare Group also includes Encore Health Network, a preferred provider organization.

M-Plan is Indiana's largest HMO, and The HealthCare Group ranks third in the state for enrollment among managed care organizations, trailing only Anthem Blue Cross and Blue Shield and Sagamore Health Network Inc.

Based on premiums collected in Indiana, M-Plan alone ranks second, behind only Anthem, a subsidiary of Indianapolis-based WellPoint Inc. M-Plan collected $610.2 million in premiums last year and recorded a $7.5 million profit, according to the state Department of Insurance.

However, that premium total represents a decrease of nearly $30 million from a year earlier. M-Plan's enrollment-along with that of many other HMOs-also dropped from 2004 to 2005.

Meanwhile, some larger insurers have fortified their market share here.

UnitedHealthcare Indiana, a subsidiary of Minnesota-based United Health Group, counts nearly 350,000 covered lives in Indiana and has added 20,000 since the start of the year.

Last fall, Medical Mutual started using Encore's physician and hospital network, which encompasses Indiana and adjacent states. Medical Mutual covers 25,000 people in Indiana primarily through its PPO. It has 1.6 million members overall.

"Indiana's a good market from the standpoint that we feel that it could use competition," Taddeo said.

Big companies like Anthem dominate the Indiana market, and smaller competitors struggle to match their network size and discounts, said Gregory Wright, an Indianapolis-based independent insurance consultant and broker. "As a broker, I want to see more competition," he said. So does Tracy Williams, CEO of Wabash American Benefits, an Indianapolis-based third-party administrator. "That said, the Indiana market has never been widely supportive of an HMO delivery model," he said. PPOs dwarf HMOs in popularity here, he said, noting that many consumers shy away from HMOs because they typically lack out-of-network coverage.

"You have to have a product that people want to buy, and the HMO product hasn't been a product that large numbers of businesses in Indiana probably want to buy," he said.

Still, M-Plan offers sizable discounts and generally fares well on the insurance department's annual consumer complaint index, Wright noted.

"I think M-Plan is well-situated to survive in this marketplace," he said.
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