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Highmark Courts Buyers for Profitable Vision Unit

Pittsburgh Tribune, Wednesday, June 22, 2016, Ben Schmitt

Highmark Health, which has lost about $773 million on the federal health insurance marketplace, appears to be exploring the sale of its profitable vision care business. 

The sale of Highmark's HVHC vision subsidiary could bring in $2 billion in revenue.

“We always keep our options open,” Highmark spokesman Aaron Billger said Wednesday. “HVHC is one of the most successful vision businesses in the industry that we built from scratch. It certainly is a strategic investment for Highmark.”

HVHC includes Visionworks, a group of 700 stores in 42 states, and an optical-insurance division called Davis Vision. The vision unit fabricates more than 4.5 million pairs of glasses a year and turned a profit of $122 million on revenue of $1.5 billion in 2015.

New York-based CapM, a merger-advisory firm, has contacted viable buyers during the past several months, The Wall Street Journal reported.

“We are routinely contacted by people that are interested in this no-core business of ours,” Billger said. “Any decision will focus on our strategic vision for the future of health care and bringing value to consumers.”

Officials at CapM declined to comment. Its website boasts advisory assignment transactions totaling more than $28 billion. According to the Journal, CapM is telling prospective buyers that HVHC should have revenue of about $1.65 billion in 2016, with adjusted earnings before interest, taxes, depreciation and amortization of about $190 million.

This spring, Highmark Health reported an operating loss of $565 million for 2015, attributing the financial challenge to the high cost of health care for people who buy federal Affordable Care Act health insurance plans. Highmark has attributed marketplace losses in 2014 and 2015 to providing coverage to people who were sicker than expected. It sued the federal government in May, seeking $223 million in payments it said it is owed for treating those patients in 2014.

James McTiernan, area vice president for national consulting firm Arthur J. Gallagher, said selling HVHC could help Highmark's cash flow.

“It's something that has a lot of instant value to them, and they could use the money for their core business — that being health insurance and health care delivery,” he said. “In that sense, it makes a lot of sense.”

He wondered whether Highmark would partner with a purchaser and continue to sell its Davis Vision optical insurance.

Highmark acquired HVHC, formerly known as Eye Care Centers of America, in 2006. HVHC has more than 9,000 employees and operates in all 50 states and Washington. It manufactures eyeglasses at five plants in Texas, New York and Newtown Square, Delaware County.

HVHC Inc., Visionworks and Davis Vision are headquartered in San Antonio, Texas.

Billger said Affordable Care Act marketplace losses would not be relevant in any potential sale.

“Highmark is a financially strong company and is not in need of a cash infusion,” he said. “The Affordable Care Act is a line of business we have already taken action in addressing through modifications to plan offerings and legal actions against the federal government.”

Highmark maintains more than $6 billion in investment assets as part of its strategic portfolio, Billger said.

HVHC is attractive because “people can see it is a very successful vision business,” he said.

Still, Stephen Foreman, an associate professor of health care administration at Robert Morris University in Moon, was puzzled by the potential sale.

“It seems strange to me that they would sell a profitable business,” Foreman said. “I was wondering about their cash needs as well.”

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