Medica buying Mayo Clinic division

Minnetonka-based Medica is acquiring a division of the Mayo Clinic that serves as the third-party administrator for more than two dozen employer health plans that currently cover about 260,000 people.

The division called Mayo Clinic Health Solutions is a health benefits management company that administers health plans for employers that "self-insure," meaning they take the financial risk for the cost of medical claims.

Financial details were not disclosed. Mayo Clinic said the deal sets the stage for future collaboration that could be important as more health plans adopt "narrow network" rules that make it tough for patients to visit certain doctors and hospitals.

"We will explore other opportunities down the road that support better access to Mayo Clinic for patients with serious and complex medical conditions, and Medica will have membership growth potential," Mayo Clinic said in a statement to the Star Tribune. "We're still very early in the process."

Mayo Clinic Health Solutions provides plan administration services to 28 customers including the Mayo Clinic's employee health plan. Enrollees in the clinic's health plan should see no changes in health insurance benefits due to the transaction, according to a Mayo Clinic spokesman.

Also known as MMSI, the division was created in 1986. Mayo Clinic said the division's services will transfer to Medica over a two-year period.

"Today, with Medica's acquisition of MMSI, we can bring greater capabilities and flexibility through new technologies for customers," said John Naylor, the Medica chief executive, in a statement.

When doctors and hospitals provide services, they submit bills to the third-party administrator, which reviews them to certify payment by the employer's plan. The administrator also is involved with the payment of premiums and deductibles by health plan enrollees.

Companies like Medica perform all these functions for employers with "fully insured" health plans, too, where the insurance company also takes financial risk for the cost of medical claims. With fully insured plans, the insurance company can make money when premiums exceed health plan costs, and can lose money when costs exceed premiums.

As a third-party administrator, by contrast, companies like Medica simply collect a service fee from the self-insured employer.

Health plans have increasingly moved to limited networks of doctors and hospitals to control costs. In the individual market, for example, no health plans being sold in the Twin Cities include access to Mayo Clinic on an in-network basis.

Patients typically face much higher deductibles and out-of-pocket costs when they receive care from an out-of-network doctor or hospital.

Christopher Snowbeck • 612-673-4744