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Insurers Eye Medicare Advantage Acquisitions

 |  By Margaret@example.com  
   September 02, 2011

In the past 12 months three health insurers, HealthSpring, WellPoint, and Humana, have each acquired a Medicare Advantage HMO. Expect to see even more growth as businesses begin to shift their 65 year-old and older retirees off of employee -sponsored plans and onto Medicare Advantage plans.

Growth in the baby boomer population is among the factors driving interest in Medicare Advantage companies. In past 12 months three health insurers, HealthSpring, WellPoint, and Humana, have each acquired a Medicare Advantage HMO.

 

Since 2005, the number of beneficiaries enrolled in Medicare Advantage managed care plans has more than doubled from 5.3 million to 11.1 million in 2010, according to the Kaiser Family Foundation.

Expect to see even more growth as businesses begin to shift their 65 year-old and older retirees off of employee -sponsored plans and onto Medicare Advantage plans.

"People who are turning 65 years old now have experience with managed care and they are comfortable with it," said Sarah James, an analyst who focuses on health insurance companies for Los Angeles-based Wedbush Securities.

And competition is heating up as well-financed players such as Aetna, Humana, WellPoint and UnitedHealth look to increase their share of the market. James expects to see more acquisitions of smaller Medicare Advantage companies as healthcare reform kicks in and economies of scale become even more important. "The Medicare Advantage market is very fragmented and it's getting more difficult to be a small player."

James explains that certain Affordable Care Act provisions such as the medical loss ratio requirement will be difficult for smaller companies to achieve. Beginning this year the ACA requires health plans to spend 80% to 85% of premium revenue on reimbursements for clinical services and activities that improve health care quality.

Also, the coding changes that will be implemented for hospital reimbursements beginning in 2013 will require costly investments in IT that will be challenging for smaller firms to afford. Almost half (46%) of healthcare leaders surveyed by HealthLeaders Media anticipate revenue loss as a result of implementing the ICD-10 coding directive.

Here's a look at three recent Medicare Advantage acquisitions and what they mean for the healthcare market:

Humana and Arcadian Management Services

Humana announced on August 25 that it will acquire Arcadian Management Services, an Oakland, Calif.-based Medicare Advantage HMO with members in 15 states. James explained that the acquisition will help Humana expand its geographic footprint in states like Arkansas where it has only a small Medicare Advantage presence and strengthen Humana's position in Texas, which has a large Medicare market.

A Bernstein Research report on the acquisition revealed that Humana was one of 10 health plans and private equity firms, including UnitedHealthcare, HealthSpring and Universal American Corp., that made a bid for Arcadia and its 64,000 Medicare Advantage members. Humana already has 1.6 million individual Medicare Advantage members.

No financial details were disclosed, but Bernstein values the deal at $150 million. The transaction is subject to federal and state regulatory approvals and is expected to close late in 2011.

WellPoint and CareMore Health Group

The giant WellPoint gained about 54,000 Medicare Advantage members as well as access to healthcare clinics that cater to that population when it completed on August 22nd its acquisition of CareMore Health Group.

The Cerritos, Calif.-based Medicare Advantage plan has members in Arizona, California and Nevada where it also operates 26 clinics staffed with physicians and other healthcare professionals. Most of CareMore's members have chronic conditions that require the care of several specialists.

The insurer, which has about 550,000 Medicare Advantage members, had been looking for a way to jumpstart its participation in the market. During a February conference call with investors, CEO Angela Braly acknowledged the insurer's struggles and said the company would probably make an acquisition to grow that market segment. "We haven't captured the market share that we could there."

WellPoint estimates that every year until 2030, about one million baby boomers will become eligible for Medicare in the 14 states where it offers insurance plans.

While CareMore adds some members, James said the acquisition of the healthcare clinics that will have the most impact. The addition of CareMore provides WellPoint with a model for delivering care coordination and intensive treatment of chronic conditions. WellPoint plans to expand the clinic model to additional CareMore and WellPoint markets.

Financial terms of the deal were not disclosed. However, the New York Times cited analysts who put the purchase price at around $800 million.

HealthSpring and Bravo Health

Nashville-based HealthSpring completed in November 2011 its acquisition of Baltimore-based Bravo Health for $545 million. James said the acquisition provides HealthSpring with the scale and geographic diversification important in the Medicare Advantage market. Diversification helps minimize vulnerabilities in specific markets.

With the acquisition HealthSpring, which had operated primarily in the South, gained an immediate and sizeable Medicare Advantage presence in the Mid-Atlantic region. The privately held Bravo has about 100,000 Medicare Advantage members in the Mid-Atlantic region and Texas. HealthSpring now has 340,000 Medicare Advantage members in 11 states and the District of Columbia.

Like WellPoint's acquisition of CareMore, the Bravo deal includes a number of care centers that provide treatment options outside of the emergency room or hospital.

In a recent conference call with analysts Herb Fritch, CEO of Health Spring, said to his company will look for additional acquisitions in the Medicare Advantage arena to continue to increase its scale and capabilities.

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
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