Dec. 9--Health America, the region's second largest managed care insurer,
is in negotiations that could lead to the purchase of Aetna Health Plans of Western Pennsylvania.
The transaction would give a boost to Health America's membership growth,
which flagged last year in the face of a massive campaign by Blue Cross of Western Pennsylvania to invade the managed-care market, a source familiar with the discussions said.
Depending on terms of the deal, it could also give Health America, whose Nashville-based parent, Coventry Corp., operates in eight states, a reciprocity agreement or joint-marketing relationship with Aetna Health Plans, whose Connecticut-based parent corporation is shifting its insurance business away from property and casualty products and into health care.
A reciprocity arrangement here, if it is established along with a sale, would enable Aetna to serve corporate clients in the Western Pennsylvania market, which it has been unable to crack. Aetna's efforts to sell its operations in this region have been rumored for months. Among other attempts,
it discussed a possible sale to the University of Pittsburgh Medical Center, which has since set its sights on acquiring Best Health Care, a health maintenance organization that is in the process of getting state licensure.
Aetna's ranking officer here, Steve Jones, could not be reached for comment on the talks, and Health America declined comment.
But health-care industry analysts said a sales agreement would make sense, particularly if it includes joint marketing.
'I think it's probably a good move for Health America,' said Jere Cowden,
an industry consultant. 'Obviously, they're hoping to expand their market share.'
Until last year, Health America was the region's largest managed-care insurer -- with about 250,000 members in its plans -- and had been chalking up annual membership growth at double-digit rates. But growth slowed to about 6 percent in the first half of 1995, after it lost a couple of high-profile accounts, including the University of Pittsburgh, to Blue Cross. Blue Cross,
which came late to the managed-care market, has since claimed first place in it, with some 500,000 members. The slowdown for Health America helped lead to layoffs and a change in top management earlier this year.
Aetna has been running a distant fourth in the region's managed-care market race, with roughly 23,600 in its Western Pennsylvania plans as of the end of last year.
Aetna, on its own, 'was never really successful here,' said Dan O'Malley,
a consultant in Towers Perrin's Downtown office. Typically, a managed care operator has to get somewhere between 30,000 and 40,000 members before it reaches 'the critical mass' of volume needed to obtain adequate discounts from health care providers and to shoulder overhead costs.
