Jul. 15--Independent Health Association said Tuesday that it is laying off 50 employees, outsourcing some technology and telecommunications jobs, and selling the majority of its third-party administration business to a local industry veteran.

The Williamsville-based health insurer, the second-largest in Western New York, said it is taking steps to sustain its growth, become more efficient, and respond to challenges facing the entire healthcare industry.

In particular, officials cited the recession and the uncertainty of healthcare reform and other actions at both the state and federal levels.

"It's imperative on the company to ensure that our core operations are efficient, aligned and managed properly, with the ultimate goal of providing affordable, quality care to our customers," said spokesman Frank Sava. "The actions we're taking today are really to secure our leadership position going forward in 2010 and beyond."

In all, 108 employees are affected, or just over 10 percent of the company's workforce of 1,000.

Independent Health's cuts mark the latest in the health insurance sector locally. Health- Now New York, parent of Blue- Cross BlueShield of Western New York, cut 17 jobs in February and another 19 in March, while Univera Healthcare also cut 17 in February.

"These tough times create opportunities to improve and simplify our business, reduce our administrative expenses, and become even better stewards of every premium dollar we receive from our members," said Dr. Mi-


chael Cropp, Independent Health president and CEO. "In essence, we feel it is necessary to contract in the short term, in order to expand in the future."

First, the company said it is selling most of the assets in its Nova third-party administrator business to a new joint-venture company that is being formed by Ronald K. Zoeller.

The Nova business has shrunk since Independent Health bought it in 2003, so the sale will allow the insurer to concentrate instead on its larger in-house self-funded division, which is three times the size. That business and those clients are not affected by this sale.

Zoeller, CEO of Azeros Healthcare LLC and founder of North American Health Plans in Amherst, will own most of the new company, while Independent Health will retain a minority stake. Details are still being worked out. Forty-three Nova employees will join the new firm when the deal closes Oct. 1.

Independent Health bought Nova Healthcare Administrators from First Niagara Financial Group in February 2003. The unit handles the back-office processing and other administrative functions of "self-funded" employee medical and dental benefits, for smaller employers who pay their own healthcare costs instead of using a fully-paid insurance plan.

Nova administers benefits for 16,800 medical members and 55,000 dental members, with more than 100 employer clients.

In addition, though, Independent Health also has its own self-funded business that is separate from Nova, with 41,600 members. It administers plans for larger clients such as M&T Bank Corp. and Rich Products Corp., which have shifted over time from community-rated and fully funded coverage to paying their own expenses.

Independent Health's own self-funded benefits "mirror" its fully insured medical products, so it's easier for those employers to transition, Cropp said. By contrast, he said, Nova's niche services are "highly customized, requiring significant programming and services."

And while Nova has added a few businesses since 2003, Independent Health hasn't concentrated on it, so the overall activity has fallen. It's "marginally profitable" or at least break-even over time, but "it hasn't been our focus to grow that organization," said Mike Faso, Independent Health's senior vice president of finance and ancillary business services.

Officials considered fully integrating the two businesses, but decided it wasn't financially feasible or beneficial. Zoeller was consulting for Independent Health to evaluate its businesses, and discussions naturally evolved from there, Faso said.

By turning it over to Zoeller, officials hope to "grow and develop" the new company, which is "why we have maintained a minority interest," Faso said.

"To make headway on the TPA side, we need a competent leader to focus on building it in the markets that the TPA serves," said Faso. "We understand Ron's passion for making this business work and that's why we have confidence in him as a leader of this organization to bring it forward."

Additionally, Independent Health has signed a contract with local technology service consultant PCI to outsource its internal computer support and telecommunications functions. That will allow its remaining technology staff to work on "higher-return opportunities" specific to healthcare, such as electronic medical records and electronic exchange of clinical information, Sava said.


Fifteen employees will join PCI on July 15.

The company did not release financial terms for either deal.

Finally, Independent Health is cutting 50 jobs across all areas of the company, including three who are not being kept by Nova and Zoeller. Affected employees will receive outplacement services and severance.

"Slowing the growth rate on health care costs is imperative if we are going to improve the long-term fiscal health of our company, our community, and our nation," Cropp said.

Sava said officials have not yet fully quantified the amount of cost-savings, but stressed that's not the only goal of the moves. Both he and Cropp stressed that the nonprofit insurer's finances are stable, citing eight years of surpluses, including a prediction for a small one in 2009.

The company has 370,000 members overall, and recently snared Kaleida Health, Erie 1 BOCES and Canisius College as sole contracts, with nearly 25,000 members among them. It's also the market leader in Medicare with 54,000 members, and has grown its pharmacy benefit management service to 66,500 members nationwide.

"The company is continuing to perform well," Sava said. "There is cost-savings, but there's also an opportunity to really fine-tune our core competencies."

jepstein@buffnews.com