Largest managed care firm in state to merge

ST. LOUIS -- The wager Jay Nixon and state insurance regulators made last year on providing health care for Missouri's poor has paid off -- big time.

Last year, the Missouri attorney general and state health care regulators ended a six-year legal fight with Blue Cross and Blue Shield of Missouri that allowed the nonprofit firm to become RightChoice Managed Care Inc., a for-profit company that Thursday announced a $1.3 billion sale to California-based WellPoint Health Networks Inc.

Part of RightChoice's deal with Nixon and state regulators created the Missouri Foundation for Health, which was granted 80 percent of RightChoice's common stock to fund care for the health needs of the poor and medically indigent in the state.

That stock, regulators predicted, would be worth $150 million four years from now.

Instead, following a dramatic rise in RightChoice stock combined with Thursday's sale announcement, the foundation is expected to have cash and stock worth about $900 million.

"It's just a stunning amount of money," Nixon said. "It's now the largest health care foundation in the history of our state, one of largest not-for-profits in our country and within eyesight of being a billion-dollar foundation."

The foundation, which held veto rights over any deal, has already approved the merger of RightChoice, which has 2.8 million members and is the largest managed-care company in the state.

Certain conditions

There were some conditions, including retaining a company presence in St. Louis. WellPoint's Midwest Region headquarters will be based here, and RightChoice CEO John O'Rourke will stay on staff to run it, said WellPoint CEO Leonard D. Schaeffer.

Thousand Oaks, Calif.-based WellPoint covers 9.8 million medical and 42 million specialty members in several states and also has a history as a former Blue Cross and Blue Shield company.

"We are great admires of what he (O'Rourke) has accomplished here with the RightChoice staff," Schaeffer said. "This is a company we wanted to be involved with for a while."

The state health foundation, along with other shareholders, will receive $66 a share, or about .62 shares of WellPoint stock for every share it holds in RightChoice. That's a 46 percent increase in value from RightChoice's Wednesday's closing price of $45.11.

WellPoint closed Thursday in trading on the New York Stock Exchange down $5.62 to $101.50; RightChoice was up $15.40, or 33 percent, to $62.10.

"Jay Nixon made a bet that if RightChoice was allowed to compete without constraints, it would allow us to unlock what we felt was a substantial amount of value," O'Rourke said. "His bet paid off."

Created in 1994

When Blue Cross and Blue Shield of Missouri created RightChoice in 1994 as a for-profit division, the Missouri Insurance Department and Nixon sued the company, which responded with its own suit. A state Circuit Court judge ruled against the company, but rejected terms of a proposed settlement.

The parties then withdrew their legal claim and agreed to an out-of-court settlement last January. That settlement created the independent health foundation, designed to take over Blue Cross' role of providing health care to Missouri's poor.

The foundation, which currently owns 57 percent of RightChoice, will own about 6 percent of WellPoint, making them a largest but not nearly the largest shareholder in the company, Schaeffer said.

The foundation, which hired it's first execution director just recently, will not offer direct health care services but will solicit grants. It expects to begin issuing funds to projects by the middle of next year.