Interesting article in the Healthcare Payer News this week.
WellPoint to acquire managed care specialist Amerigroup for $4.9 billion
In a bid that will nearly double the number of members it serves in the Medicaid market, WellPoint Inc. announced July 9 it will acquire managed care company Amerigroup for $92 per share or roughly $4.9 billion.
The acquisition comes as more states are looking to transition Medicaid to manage care programs and also as more focus is being placed on managing the dual eligible population – the older population that is eligible for both Medicare and Medicaid – who often suffer from multiple chronic conditions and are the most costly patients to care for in this country’s health system.
While the offer price for Amerigroup represents a premium of roughly 43 percent over its closing price last Friday, WellPoint management feels the price is fair given the market opportunity.
“We recognize that the pure-play Medicaid managed care companies, including Amerigroup, are currently trading at a premium valuation relative to historical levels which reflects the potential growth in the markets that they serve and the new markets that are emerging, “ said Angela F. Braly, chair, president and CEO of WellPoint in a conference call announcing the deal.
“Many state governments are facing significant budget challenges as they strive to provide access to healthcare for their most underserved residents. We expect states to take varying approaches to address these challenges which will lead to more managed care solutions and innovative programs to serve those that are eligible for both Medicare and Medicaid.”
WellPoint also sees opportunity in serving the seniors and persons with disabilities (SPD) and long-term services and support markets (LTSS) as other areas where it can also provide value to state Medicaid programs. Specifically, executives of both companies said the experience of Amerigroup in serving LTSS populations, combined with WellPoint’s CareMore subsidiary’s services and care management model designed specifically for those who are chronically ill, will allow it to enhance the care of members while holding down costs.
When the deal is closed, expected in the first quarter of 2013, WellPoint will have the largest book of Medicaid business among private insurers – roughly 4.5 million members. The combined company will have Medicaid business operations in 19 states, which will also include 13 states where, officials noted, there are immediate opportunities to serve the dual-eligible population.
“Today’s healthcare arena is more transformative than ever and companies must have broad capabilities to succeed,” said James G. Carlson, Amerigroup’s chairman and CEO. “In 14 states, WellPoint has the most powerful brand in the healthcare industry and we are looking forward to adding our experience and reputation to their capabilities.”
But, in addition to the Medicaid market, the Amerigroup acquisition will also play a part in WellPoint’s strategy as it looks to compete in the retail market that will expand as a result of the Affordable Care Act and the advent of states’ health insurance exchanges.
Once the exchanges are up and running, it is widely expected there will be a significant number of people who, based on employment, will move between a state’s Medicaid program and the subsidized private insurance offered on the exchanges. In short, in states where WellPoint has private plans as well as Medicaid plans, the purchase will allow for an easier transition for members moving from one program to the other.
“As members’ incomes fluctuate across eligibility thresholds, we will be there to help them move between any product – public, private or subsidized,” said Braly. “This helps members with health security, improves quality of care and reduces administrative costs across all the product lines.”