Medica closing research institute, citing funding woes

Minnetonka-based Medica is closing a research institute it created in 2010 to generate studies on the cost and quality of health care.

The move comes after the nonprofit health insurance company in 2016 posted its biggest operating loss ever due to red ink in the ­Medicaid and individual health insurance ­markets.

Medica Research Institute published studies on health care for women and low-income children, as well as health economics. In one report last year, a researcher at the institute led a study on how consolidation of physician practices in the Twin Cities seemed to drive significant price increases for health care services.

"The continued instability in the insurance market is creating challenges and opportunities that require us to focus our efforts and resources on our core health plan business," Medica said in a statement. "In addition, federal funding for primary research is increasingly uncertain, as budget cuts are being debated in Congress."

The 12-person research institute will suspend operations Oct. 2. The nonprofit comprises ­researchers, administrators and affiliated scholars.

All jobs are being eliminated, but spokesman Greg Bury said workers can apply for open positions at the insurance company.

"A major factor in this move is funding for primary research," Bury said via e-mail. "Research funding that is available is increasingly being funneled to larger research organizations, making it much more difficult for smaller ­organizations."

Medica said another factor driving the closure is the concentration of grant money at "larger research organizations, making it harder for smaller organizations to secure research funding."

Medica is one of the three largest nonprofit health plans in Minnesota. It posted an operating loss of $270 million for 2016 on $4.5 billion in ­revenue. At the time, Medica's HMO was the largest managed-care organization in Minnesota's Medicaid and MinnesotaCare public health insurance programs, but has since dropped the state contract saying payment rates were too low.

The health plan eliminated 350 jobs following the ­decision.

In the individual market where self-employed people buy coverage, Medica is the only insurance option, and one of just a few, in Iowa, Kansas and Nebraska. Like other health insurers, Medica has seen financial losses in the individual market, which is undergoing sweeping changes, along with the federal Affordable Care Act.

Despite the problems, Medica disclosed earlier this year an additional $25 million investment during late 2016 in a Massachusetts-based IT firm that is building a new administrative platform for the insurance company. The company also wants to expand its individual market offerings in ­Wisconsin.