UPDATE: Indy-based health insurer MDwise to be acquired by Michigan firm

Struggling Indianapolis-based health insurer MDwise Inc., which last year lost $60 million and cut about 20 percent of its workforce, has agreed to be acquired by Michigan-based McLaren Health Care, the firms announced Thursday.

The deal would create a combined firm with annual revenue approaching $6 billion.

The parties declined to reveal the acquisition price for MDwise, which will operate as a subsidiary. The deal is expected to close by the end of the year.

MDwise serves predominantly low-income customers. Of its total membership of 375,000, more than 90 percent are covered under Medicaid plans.

MDwise is now owned 50-50 by Indiana University Health and the Marion County Health and Hospital Corp.

IU Health issued a brief statement that it was “pleased that MDwise will become a part of a larger organization that shares its long-term commitment to serving the needs of Medicaid beneficiaries, and one that specializes in managing the financial risk that comes with providing health care benefits to vulnerable populations.”

Marion County Health and Hospital Corp., which also operates Eskenazi Health, the county’s health department and the Indianapolis EMS program, said MDwise had grown so large in recent years it seemed a good time to find a bigger company to run it.

“We’re a health care provider, focusing on county issues” said Dan Sellers, chief financial officer of the health and hospital group. “MDwise has grown into a mature company, with statewide reach.”

Jim Parker, president and CEO of MDwise, said the decision to sell was not a reflection on MDwise’s business results or its future prospects.

“It really reflected more than anything else that MDwise had now grown to a size that made it larger than either of the organizations were comfortable holding within their portfolios,” Parker told IBJ.

MDwise had revenue last year of $1.68 billion, which had risen about 50 percent since 2014, due to Medicaid expansion and the Obamacare exchanges under the Affordable Care Act.

Parker will continue to oversee the operation, and said most employees will not be impacted. The company’s headquarters on are Madison Avenue, just south of downtown. The company has about 350 workers.

McLaren plans to maintain MDwise’s Indiana operations, and MDwise members will not experience any changes to their benefits or provider network, according to the firms. MDwise will continue to offer the services currently available under its Hoosier Healthwise and Healthy.

MDwise has struggled in recent years. In February, it announced it would leave the Hoosier Care Connect program, which serves individuals 65 years and older, blind or disabled and who are not eligible for Medicare. As part of the move, the company told the state it would cut 80 employees, or about 20 percent of its workforce, including 23 case managers and 14 nurses.

In June, MDwise said it would pull out of Indiana’s insurance exchanges next year, citing growing uncertainty over the future of the Affordable Care Act. The company said it lost $21 million last year on the exchanges.

Once the transaction is complete, MDwise and McLaren will collectively serve more than 620,000 individuals.

McLaren CEO Philip Incarnati told IBJ that the purchase will give his company a platform to enter Indiana.

“Indiana has long been a market we were interested in expanding into,” Incarnati said.

McLaren’s system includes 12 hospitals, ambulatory surgery centers, imaging centers, a network of 450 primary care physicians, hospice providers and other services.

Based in Grand Blanc, Michigan, McLaren Health Plan provides health care benefits to more than 260,000 commercial, Medicaid and Medicare beneficiaries in the state. Until this point, it has contained its operations to Michigan. The company had revenues last year of about $4 billion and 24,000 employees.