The conversion of Blue Cross & Blue Shield United of Wisconsin from a nonprofit insurer into a for-profit entity could boost biomedical research and stimulate development of biotech businesses in the state.
The sale of Cobalt Corp., which owned Blue Cross & Blue Shield United of Wisconsin, will provide about $608 million for the Medical College of Wisconsin in Wauwatosa and the University of Wisconsin Medical School in Madison.
The two schools could use two thirds of that money, about $395 million, for research projects and education.
Blue Cross & Blue Shield United of Wisconsin was converted into a for-profit entity in 1999 with the formation of Cobalt Corp. The Wisconsin Office of the Commissioner of Insurance, as part of the conversion, ordered the creation of the Wisconsin United for Health Foundation to receive the entire value of Blue Cross & Blue Shield United of Wisconsin.
The state is requiring proceeds from the sale of Cobalt Corp. to be divided equally by the foundation between the Medical College of Wisconsin and the University of Wisconsin Medical School. The medical schools are receiving the funds to compensate for the years when Blue Cross & Blue Shield, as a nonprofit entity, did not have to pay taxes.
In June 2003, WellPoint Health Networks Inc. announced it was buying Cobalt Corp. for $906 million. Then in October, Indianapolis-based Anthem Inc. announced it was buying WellPoint Health Networks for $16.4 billion.
The two transactions mean both the Medical College of Wisconsin and the University of Wisconsin Medical School will each receive about $304 million, or $608 million total, once their plans for the money have been approved by the Wisconsin United for Health Foundation Board.
Last spring, both the University of Wisconsin Medical School and the Medical College of Wisconsin submitted their plans to the board.
"(The foundation board) has been reviewing the proposals ever since then," said Richard Katschke, spokesmna for the Medical College of Wisconsin. "All of the money is sitting in their hands. Nothing can happen until approval is received from the board."
Officials with the two schools are anxious for the board to approve their plans and disperse the money. Foundation board president Ben Brancel said he was not sure when the plans will be approved.
The two schools each plan to use about $10 million of the money for startup costs and invest the rest of it, spending only the interest.
"That way, the money will be there for perpetuity," Katschke said. "You’re living off the interest."
Those investments could generate about $16 million to $17 million each year for each school, Katschke said.
The money will come to the schools with some strings attached. It must be spent to benefit public health in the state. It cannot be used for programs that already have funds budgeted for them and it cannot be used for building projects or for direct patient care.
"It’s got to be for new initiatives," Katschke said.
The schools are required to spend 35% of the money for partnerships with community public health organizations in the state.
"We anticipate there are going to be a lot of proposals submitted (for those funds)," Katschke said.
The remaining 65% of the money must be used to fund research or educational outreach activities in the state. Those funds could also be used as seed money to attract more federal research dollars, Katschke said. The two schools already rank high for federal research funding. The National Institutes of Health ranks the University of Wisconsin Medical School at 27th and the Medical College of Wisconsin at 44th, out of 126 medical schools in the United States, for federal research funding.
"It’s going to expand the research base at both medical schools," Katschke said.
Biomedical research supported by the money from the Blue Cross & Blue Shield conversion could help spawn the creation of more biotech companies in southeastern Wisconsin.
Leaders in the public and private sectors are trying to grow the state’s fledgling biotech sector in an attempt to create the high-skilled high-paying jobs necessary to improve the state’s economy. Some of those leaders say funds from the Blue Cross & Blue Shield conversion should be used to help achieve that goal.
Gov. Jim Doyle, in his Grow Wisconsin initiative, is calling for at least $100 million from the Blue Cross & Blue Shield conversion to be used for biomedical and life science research.
"The biotech research saves lives and builds jobs," said Thomas Hefty, former Cobalt Corp. chairman and chief executive officer and a co-chairman of Doyle’s Economic Growth Council.
Wisconsin is growing in the biotech sector of the economy, said Tom Still, president of the Wisconsin Technology Council. There are almost 250 life science companies in the state, most in the Madison and Milwaukee areas, with annual sales of about $4.75 billion and about 19,000 employees.
"We’re not among the big (biotech) players yet," Still said, citing San Diego, Boston and Washington, D.C. as the nation’s major biotech regions. "But we’re among the faster growing regions in life sciences. It’s a significant part of the Wisconsin economy and it is on the rise."
The foundation board will make sure the schools follow the guidelines for how the money is used, but the schools will decide specifically how it is spent, Brancel said.
"It’s a shot in the arm for the research community to take on challenges they might not have had funding for and to do research that will have long-term health benefits for the citizens of Wisconsin," Brancel said.
"To have a portion of that money go into research, whatever that is, I think is going to be a huge boon," Still said.
To stimulate the development of biotech companies, Wisconsin needs to capitalize on its strengths, including the two nationally ranked medical research schools, GE Medical Systems (now GE Healthcare) and the money from the Blue Cross & Blue Shield conversion, Hefty said.
"In biotechnology, we have the opportunity to have a national leadership role," he said.
The primary goal for the money from the Blue Cross & Blue Shield conversion is to improve public health in Wisconsin. However, the economic impact created by biomedical research could be a side benefit, Katschke said.
"That isn’t the main intent, but I think that is one of the side products that could come of this," he said. "This has truly been a tremendous, significant gift to the people of Wisconsin. Generations to come are going to benefit from this."
Feb. 20, 2004 Small Business Times, Milwaukee