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Highmark agrees to sell Medicare Services division

| Friday, Dec. 9, 2011

Highmark Inc. said on Thursday that it agreed to sell its Medicare Services division to a Florida Blue Cross company to avoid conflicts of interest as it seeks to build a company that combines medical services providers with its traditional insurance business.

Pittsburgh-based Highmark, the state's largest health insurer, said it will receive stock from purchaser Blue Cross and Blue Shield of Florida Inc., but would not disclose the value of the deal. The Florida Blue Cross company, based in Jacksonville, has 4 million members in that state.

Highmark Medicare Services Inc. processes Medicare claims under a contract with the federal government in Pennsylvania, New Jersey, Maryland, Delaware and the District of Columbia. It contributed about $100 million in revenue to Highmark's $14.6 billion total revenue last year. The deal is expected to close around Jan. 1.

Highmark began looking to sell the HMS division, which employs 940 workers, mostly in Pennsylvania, after announcing its $475 million plan to acquire West Penn Allegheny Health System, said David O'Brien, a Highmark executive vice president.

The Centers for Medicare and Medicaid Services, which oversees the contract to process Medicare claims, was concerned about a potential conflict if Highmark were paying claims to itself as owner of West Penn Allegheny.

"The decision was a difficult one but one which best positions HMS to maintain its current business and pursue its government business growth strategy," O'Brien said.

HMS will remain a separate subsidiary from the Florida Blue Cross company's First Coast Service Options division, which processes claims in Florida, Puerto Rico and the U.S. Virgin Islands. Highmark Medicare Services' offices and employees won't be affected, officials said yesterday.

"Employees in all sites will continue to operate in the same jobs and same locations following the close of the deal," said Patrick Kiley, HMS president. About 100 of the division's workers are in Pittsburgh.

Last month, HMS said it was awarded a five-year, $406.5 million contract to process Medicare claims in seven states: Louisiana, Arkansas, Mississippi, Texas, Oklahoma, Colorado and New Mexico. But that contract, which is expected to result in 500 new jobs in Pennsylvania, is on hold after a competitor protested the contract award.

First Coast Service Options CEO Sandy Coston said she expects to protest to be resolved and for HMS to be able to begin hiring for the new contract. Coston said her company has no intention of combining the subsidiaries from the two Blue Cross companies or moving jobs out of Pennsylvania.

O'Brien said in addition to West Penn Allegheny, Highmark also is seeking to acquire other medical providers, such as hospitals and physician groups, across the commonwealth as it rolls out its "provider strategy." The strategy involves integrating its insurance business with medical services to lower health care costs and improve quality, officials have said.

"West Penn is only a small part of our provider strategy going forward," O'Brien said.

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