Sisters of Mercy sells health insurance business to Coventry [St. Louis Post-Dispatch]

July 01--Gathering cash to expand its hospital operations, the Sisters of Mercy Health System has sold its insurance subsidiary to Maryland-based Coventry Health Care Inc.

Mercy's sale of this asset will allow the nonprofit health care provider to focus on its core business of hospitals, physician groups and outpatient services, a Sisters of Mercy spokeswoman said Wednesday.

Mercy, based in Chesterfield, operates St. John's Mercy Medical Center in Creve Coeur and St. John's Mercy Hospital in Washington, Mo. Mercy employs more than 11,000 people in the St. Louis area.

In turn, Coventry's acquisition of the Mercy Health Plans subsidiary will bolster its market in the Midwest, where it competes against United Healthcare and various Blue Cross/Blue Shield plans.

The for-profit, publicly traded company owns Group Health Plan in the St. Louis area and operates as Coventry Health Care in other Midwestern states.

Neither organization would disclose the sales price, but an expert pegged the price at less than $300 million. The sale -- subject to regulatory approvals -- is expected to close this fall.

Established in 1994, Mercy Health Plans has about 180,000 members, most of them in Missouri and Arkansas.

It "operated very successfully for a time, but the environment changed and continues to change today," said Barb Meyer, a Mercy vice president. "Health care reform is pretty uncertain, and we just feel that the health plan will be better served today by an organization with a larger infrastructure."

Coventry, based in Bethesda, Md., is known for its strong "back office" operations including centralized data systems.

Meyer said Mercy Health Plans members' current contracts would not be affected by the sale. "Right now, the folks who have coverage are not going to see any changes," she said. "Members are going to continue to be covered under the plan."

With the acquisition, Coventry will have about 1.2 million members in six Midwestern states.

Mercy Health Plans "has kind of a break-even financial performance currently, so it's something that Coventry would hope to improve over time," said Jon Kunkle, a Coventry spokesman. "They're doing fine. They've had good years, some bad."

In 2008, Mercy Health Plans reported a 2.2 percent profit margin, which matched the national average for health insurers, according to a study by the Business Health Coalition. The company was outperformed by Aetna, WellPoint/Anthem, United Healthcare and Coventry/Group Health Plan.

Mercy Health Plans currently employs 420 workers, and "the majority of" those workers will become Coventry employees, Meyer said.

When asked what would become of the other employees, she said: "We're still working through the transition ... There may be some (Mercy Health Plans) employees who remain with Mercy."

Meyer would not rule out layoffs or the closure of offices.

"Coventry will certainly look at areas of duplication, but I think that will be minimal," she said. "That's a question for Coventry."

About 270 Mercy Health Plans employees work at the health system's offices on South Outer Forty Drive in Chesterfield; about 140 are based in Springfield; and a handful work in Arkansas.

"We can't even start to make those decisions until we get more of a certainty of closure," Coventry's Kunkle said.

Wednesday's announcement was Mercy's latest restructuring move. In March, Mercy announced that it was cutting 226 jobs systemwide. More recently, Denny DeNarvaez -- Mercy's regional president for eastern Missouri -- left the company for another job.

Exiting the insurance business allows Sisters of Mercy to focus on being a health provider, Meyer said.

"It was very much a strategy decision," she said. "We are obviously looking at strengthening the services we offer today and expanding those when the opportunities present themselves and it's appropriate to do so."

Mercy has hospitals and physician groups in four states -- Missouri, Arkansas, Kansas and Oklahoma -- mainly along the I-44 corridor from St. Louis to Oklahoma City. It employs about 37,000 in the four states.

Last fall, Mercy acquired St. John's Regional Medical Center in Joplin, Mo., a hospital licensed for 367 patient beds.

Meyer said the Mercy system might use some of the proceeds from selling its subsidiary to acquire more hospitals and physician groups.

"Gaps exist, so we're looking at areas where we can fill in the gaps," she said.

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