Pennsylvania Blues shun closer ties, split

Capital Blue Cross and Highmark's Pennsylvania Blue Shield end joint operations after failing to agree on merging or forming a new regional company.

By Julie A. Jacob, AMNews staff. Oct. 8, 2001.

After 30 years of doing business together, Pennsylvania Blue Shield and Capital Blue Cross are parting ways. The reason: Capital didn't want to be bought by its partner.

The two companies ended a long-standing joint operating agreement last month. Under the agreement, the Capital Blues provided hospital insurance coverage and Pennsylvania Blue Shield -- the name under which Pittsburgh-based Highmark Inc. does business in central and eastern Pennsylvania -- provided physician coverage.

The Capital Blues wanted to develop a new working relationship because it was no longer feasible to divide insurance coverage between physician and hospital services, said James M. Mead, the Capital Blues' CEO. "The change in our industry is one of the things that has brought this need to reassess our business," he added.

The Capital Blues proposed that Pennsylvania Blue Shield and the Capital Blues create a new regional company to offer health insurance coverage in central Pennsylvania, he said.

Pennsylvania Blue Shield, however, wanted to merge with the Capital Blues, said Karen Early, Pennsylvania Blue Shield's spokeswoman. The company believed that a merger was the best way to serve customers.

"Our philosophy is that customers will not be served by Capital forming a new company to duplicate the services that Capital Blue Cross and Pennsylvania Blue Shield have already provided for years," Early said.

When it became clear that the Capital Blues' board of directors would not agree to a merger, Pennsylvania Blue Shield's board voted to end the negotiations Sept. 5. [...]