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Their David struggling, hospitals turn to another Goliath


There was a terrific debate happening last year within the board room of SecureCare, the health-care plan that was owned by more than 400 Central Iowa doctors and Mercy Medical Center.

Though the plan was born out of the national health-care debate of the mid-1990s, times had changed. Doctors, who owned much of the risks, no longer wanted the exposure.   

At its peak, the plan covered roughly 40,000 Iowans. Some of the owners wanted out. In a game where being big can help in a lot of ways, SecureCare wasn’t big enough. Nearly everyone agreed the plan needed a stronger partner.

“This business is all about economy of scales,” said Dr. Don Burrows, SecureCare’s chairman and chief executive. “We were never really able to get a large enough network to favorably compete at the level needed for success.”

Where would SecureCare find the muscle to help? There were perhaps four or five large health-care plans interested, according to health-care officials When the bids were shaken out, only two were left standing: Wellmark Blue Cross and Blue Shield of Iowa and UnitedHealthcare Group.

And that’s where the debate centered. Do the doctors and Mercy sell to Wellmark, and in turn make the state’s dominant health-care insurer even bigger? Or do they bring in a strong outsider to inject competition into the market?

“We had long discussions about that decision,” said David Vellinga, who said he was philosophically in the middle of the debate.

The board chose UnitedHealthcare, who Vellinga said offered a higher price.

“It was a close, close decision,” he said. “But we made that decision because it was a better offer for our stockholders.”

So now UnitedHealthcare, which never had much of a presence in Iowa, is getting a boost of nitrous oxide to its plans to expand in the Hawkeye State. Mercy, whose network oversees 104 clinics, four rural hospitals and includes 23 affiliated hospitals across the state, has endorsed the company.

So, too, has the state’s other major health-care provider, Iowa Health System, according to Kathy Mallatt, the chief executive officer of UnitedHealthcare’s Iowa and Nebraska affiliate.

“That support is very helpful,” Mallatt said.

It’s more than helpful. It could mean the difference between success and failure. “It has allowed them to build their network more quickly than it would have naturally,” Burrows said.

UnitedHealthcare already serves more than 100,000 Iowans and has about 2,800 doctors and 44 hospitals in its current network.

Despite the numbers, and its ambition, UnitedHealthcare in Iowa is tiny compared to Wellmark, which controls roughly 60 percent of the state’s health-insurance market. UnitedHealthcare has a staff of 10 in Des Moines. Wellmark has 1,566 employees here.

Where it gets interesting is in taking a glance at UnitedHealthcare’s Minneapolis-based parent, which has deep pockets. Executives at the company said last month they expected sales next year to reach $29 billion and that earnings per share are expected to rise 20 percent to $5.05 per share.

The company is aggressive, and a physician, William McGuire, is chairman and chief executive, which gives it credibility among doctors, patients and Wall Street.

Wellmark has strong friends, too. Part of the Blue Cross Blue Shield Association, Wellmark is backed by a nationwide network of 42 plans that cover nearly 84 million people, or slightly less than 30 percent of all Americans.

Of course, UnitedHealthcare, being publicly traded, has split loyalties between paying shareholders and taking care of customers. Wellmark, a mutual insurance company that is owned by its policy holders, doesn’t have that issue to contend with. Forsyth, who once ran the University of Michigan Health System and who has a master’s degree in economics, runs the company tightly and has had remarkable success in Iowa.

UnitedHealthcare’s profit margin is expected to be 8.9 percent next year. Wellmark’s goal, which is hasn’t yet achieved, is to have a profit margin of 2 percent, Forsyth has said.

“Wellmark is strong and dominant because they’re a good company,” Vellinga said. “You don’t develop a position like theirs unless you’re a very good company.”

Whether the folks at SecureCare made the right decision in bringing UnitedHealthcare to town remains to be seen.

“Time will tell,” Burrows said. “When the smoke clears, this might have been the right decision. The jury is still out.”

Des Moines Business Record staff writer Michael Lovell writes a weekly column on business issues affecting Greater Des Moines. He appears on Sunday mornings to talk about business trends on WHO-TV. Contact him at 288-3336 or by e-mail at michaellovell@bpcdm.com.  

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