Advocate Health sells Winston-Salem's MedCost to Mass. healthcare group

MedCost LLC, a Winston-Salem based healthcare company, has been purchased by a Massachusetts group that provides third-party administrator insurance services.

The buyer is Health Plans Inc., doing business as HPI, based in Westborough, Mass. Founded in 1981, HPI is a wholly owned subsidiary of Harvard Pilgrim Health Care.

MedCost specializes in self-funded corporate health benefits and group insurance plans to employers in North Carolina, South Carolina and Virginia, as well as offering third-party administrator services through MedCost Benefit Services. It also has a proprietary PPO network.

HPI offers administrative services to employers, municipalities and Taft-Hartley plans. Among its chief management officials is chief financial officer Gray King, a former MedCost vice president of finance.

MedCost's primary office is at 165 Kimel Park Drive in Winston-Salem, with a satellite office at 1915 Rexford Road, Suite 120, in Charlotte.

With MedCost being listed at 336 employees, HPI has more than doubled its existing workforce of between 269 and 295.

Terms of the transaction were not disclosed by HPI or seller Advocate Health. Advocate was not quoted in Friday's HPI news release and could not be reached for comment on the sale.

"This strategic acquisition significantly expands HPI's geographic footprint, strengthens its network offerings, and enhances its ability to deliver innovative, cost-effective healthcare solutions to employers across the Southeast," HPI said.

"MedCost has built a strong reputation for its integrated care management, flexible benefit design capabilities, and deep provider relationships across North Carolina, South Carolina and Virginia with a network of 100,000 contracted providers and more than 150,000 members."

Marcia Harrison, vice president of Transformation for MedCost, said the sale "will allow us to expand our capabilities, while continuing our culture of providing customer-focused service to our employers and members."

MedCost background

MedCost was founded in 1983, equally owned by N.C. Baptist Hospital of Winston-Salem and Carolinas HealthCare System of Charlotte, later branded as Atrium Health.

Atrium Health took over full ownership of MedCost as part of its October 2020 acquisition of Wake Forest Baptist Medical Center.

In December 2022, MedCost became a business unit of Advocate Health, the nation's third-largest not-for-profit healthcare system focused on the Carolinas, Chicago and Milwaukee.

MedCost serves as the third-party administrator for thousands of Baptist employees, as well as Wake Forest University through the Wake Options Plan. The Wake Forest Baptist Health network is specifically tied to Baptist and its affiliated providers and facilities.

MedCost also partners with health insurers Aetna and Humana, as well as other third-party administrator, such as Benefit Plan Services and Key Benefit Administrators.

"This acquisition marks a major milestone in our national growth strategy," said Deborah Hodges, president and chief executive of HPI.

"MedCost brings a powerful combination of regional expertise, network ownership and care management capabilities that align perfectly with HPI's mission to reduce healthcare costs and improve member outcomes.

"Together, we will deliver even greater value to our clients, brokers, and partners."

HPI said that acquiring MedCost will provide "new opportunities to serve multi-state employers and health system clients with expanded national capabilities" as well as forge "stronger hospital partnerships to support direct-to-employer and value-based care strategies."

Controversial past

A multi-year federal lawsuit filed by N.C. Baptist Hospital employees against the system and MedCost was settled in December 2012 with a nearly $5.4 million settlement.

About 14,000 people were affected by the settlement, according to court documents.

A January 2009 complaint accused MedCost of requiring hospital employees to pay more in fees for health benefits than other corporate clients paid, including employees on the Wake Forest University Reynolds campus.

The lawsuit said Baptist "violated the duties, responsibilities and obligations imposed upon them as a fiduciary" under the federal Employee Retirement Income Security Act.

ERISA prohibits most employers from using companies they own to provide health benefits for employees unless they can show they are putting workers' interests first.

Baptist said the selection of MedCost was as a plan-sponsor function, not a fiduciary function, and therefore its actions were not governed by ERISA.

Those eligible for the settlement participated in the plan from March 6, 2002, to May 7, 2009. The amount of individual damages was based on the participants' years at Baptist and amount of health plan contributions.

Although Baptist officials repeatedly denied any wrongdoing, the hospital agreed in October 2009 to raise its plan discount and lower the co-payment for inpatient and outpatient services for 2009 and 2010. The percentage participants pay in total premiums could not be increased through 2014.

In 2014, the U.S. Labor Department approved an exception that allowed N.C. Baptist Hospital to continue using MedCost and MedCost Benefit Services.

"NCBH desires to enter into the exemption transaction because the transaction is in the best interest of the participants of the plan," Baptist said in 2014. "It enables participants to receive medical care in the most convenient and efficient manner possible, and medical care that is of the very highest quality."

In February 2019, a federal judge dismissed a lawsuit filed by a Clemmons whistleblower that accused N.C. Baptist and Carolinas of committing billions of dollars' worth of Medicare and Medicaid fraud. The lawsuit was filed in June 2009.

Judge William Osteen Jr.'s ruling against the whistleblower, Joseph Vincoli, may have ended his nearly 10-year legal quest since the case was dismissed with prejudice, meaning it can't be re-filed.

Osteen ruled Vincoli did not plausibly prove his fraud claims. Vincoli appealed the ruling to the Fourth Circuit Court of Appeals, but it was denied in June 2020.

Baptist said in a statement in February 2019 that "as we have contended all along, the case had no merit and the ruling of the judge confirmed that fact."