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A Different Kind of Animal
BNH interviews Gus Gamache, president & CEO of ConnectiCare, about the upcoming changes to the corporate structure of ConnectiCare, and what they mean to its customers.
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Business New Haven
9/7/1998
By: BNH
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What structural changes are in the works at ConnectiCare?
We are a not-for-profit company and because of that, we have limitations on our ability to raise capital. In order for us to remain independent so that we can compete against the giant managed-care companies and to continue our growth plans, we need a certain amount of capital. We want to keep the franchise in Connecticut, so we decided to create a foundation and set up a for-profit stock company that will do all the things that ConnectiCare has done over the past years. The foundation will own all of the stock in the for-profit company so that we can remain independent.
Will you raise capital through a public offering or a private placement?
A private placement. We feel that is the right thing to do. We have an investment banker that we have brought in to help us: Shaddock Hammond of New York, which specializes in health care. Even if we have a joint venture come in to get the amount of money we need, the foundation will still have majority-stockholder position.
Did you post a profit for the last fiscal year?
On a traditional accounting basis, we had a small profit, but in the way we had to report it to the insurance department which has different accounting rules, we had a small loss.
Have profit pressures on HMOs impacted this need to raise outside capital?
The need to continue to improve our programs and facilities requires more capital than we can raise through growing profits. The only capital we have is what we have earned ourselves. Being profitable will help the cause, but will not give us what we need to compete.
Has the concept of foundation ownership of a for-profit been done elsewhere?
It is unique to Connecticut, but there are other not-for-profit organizations that have done it, such as Wellpoint in California, Healthnet and Empire Blue Cross & Blue Shield in New York, I have heard, is considering it.
Were there any other options, other than the private placement, such as merging with another non-profit?
We have looked at some things but we have rejected them because those arrangements would not have given us the capital we would need or the ability to maintain control in the way that we want to.
For business owners with health insurance, how do you think this will affect the basic operations of the HMO?
Initially, it will be seamless to people outside the building. This is a legal restructuring; we won't be changing the way we do things in terms of the way people relate to us. Over time, the infusion of capital will allow us to be more competitive and let us expand and improve our product line.
Do you think the need to satisfy outside investors will impact the not-for-profit culture?
We compete with the jumbo companies such as UTC and SNET and no one looks at our for-profit or not-for-profit status - they look at the rates we are charging, the products we offer and our reputation in providing service. What people want is a local health plan that is focused on Connecticut and is involved in the community, not a jumbo company that is unreachable when they have a problem.
Is this merely step one in a long-term sale situation?
We have no plans to sell to another company. The point for us is to be successful in Connecticut. We feel that in the foreseeable future, if we can operate the manner we have, then we can be successful. We believe in our franchise and we intend to keep it alive as long as we can. If I thought we would have to sell, we would not be approaching it this way.
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