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Analysis

With $17.3B Plan to Buy WellCare, Centene Doubles Down on Growth Goals in ACA Markets

By Jack O'Brien  
   March 27, 2019

Following a vigorous showing in 2018, the St. Louis-based insurer is purchasing its Tampa-based competitor.

Centene Corp. announced a deal Wednesday morning to purchase WellCare Health Plans for $17.3 billion, doubling down on plans to continue its growth in the ACA marketplace.

The purchase, unanimously approved by the boards of both health plans, primarily focuses on maximizing opportunities in the government business sphere, according to a joint press release.

Centene-WellCare aims to "create a premier healthcare enterprise" that will lead in Medicaid, Medicare, ACA markets, building on Centene's substantial Medicaid offerings and WellCare's recent entrance into North Carolina.

Related: WellCare Wins 'Unprecedented' Medicaid Contracts in NC

Pending approval by regulators and stockholders of both insurers, the merged company will be based in St. Louis and encompass 22 million members, $97 billion in revenues, and $5 billion in EBITDA for 2019. 

Michael F. Neidorff, CEO of Centene, will lead the merged company, overseeing an 11-member board comprised of nine members from Centene and two from WellCare.

The transaction, the latest in an increasingly consolidated healthcare market, is expected to close in the first half of 2020.

C-suite perspective:

"This transformational combination creates a leading healthcare enterprise that is committed to helping people live healthier lives through a localized approach and provides access to high-quality healthcare through a wide range of affordable health solutions," Neidorff said in a statement.

"We are enthusiastic about the opportunity to create a high-performing combined business focused on government-sponsored managed care that will bring benefits to all of our stakeholders," Ken Burdick, CEO of WellCare, said in a statement.

The deal is another example of Centene continuing to build on its recent successes, including double-digit growth among its membership during Q4 2018 along with expanding its business operations to the state of New York, which is expected to gross $11 billion for the insurer.

S&P Global Ratings affirmed Centene's ratings following Wednesday's announcement, indicating a potential ratings increase of "one notch" in the future, while placing WellCare on CreditWatch Positive.

Sharon Wang, an affiliate at Kotter, a leadership and strategy acceleration firm, told HealthLeaders that the acquisition makes sense as a traditional M&A business move, but also as a way for both insurers to be more adaptable in a changing healthcare environment.

And despite this week's news out of Washington regarding the future of the ACA, Wang said that both health plans are well-positioned strategically to compete in the government business space.

"The new combined entity will have a special influence over a segment that is targeted based on government health plans like Medicare and Medicaid," Wang said. "No other competitor can really compete in this particular segment, which is not a small population. [Insurers] all play in it, but to compete would be difficult."

Through this purchase, Centene will operate in all 50 states and oversee WellCare's recently acquired Medicare Part D business, which was sold to the company as a result of the still-pending CVS-Aetna megamerger

Related: Adjusted EPS Rose 40% for Centene, Revenues Top $60B

Government business opportunities serve as the basis point for this acquisition, as both companies derive much of their financial standing from Medicaid, Medicare, and ACA membership pools.

By the end of 2018, WellCare had just under 4 million Medicaid members, an increase of more than a 1 million compared to the end of 2017, while Centene benefitted from growth among dual-eligible enrollees, those on the health insurance marketplace, and Medicaid expansion enrollees.

It should be noted that while Centene's Medicaid and Medicare revenues each grew by at least 27% year-over-year in Q4, its commercial revenues actually fared the best, growing 47% compared to Q4 2017.

Editor's note: This article has been updated to include commentary from Sharon Wang and a credit statement by S&P.

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.

Photo credit: Photo credit: Milan, Italy - August 10, 2017: Centene logo on the website homepage. - Image / Editorial credit: Casimiro PT / Shutterstock.com


KEY TAKEAWAYS

The merged company will be based in St. Louis and oversee 22 million members in all 50 states.

Centene CEO Michael F. Neidorff is slated to lead the company.

The transaction is subject to approval from stockholders in both companies along with state and federal regulators.

Centene and WellCare expect the deal to close in the first half of 2020.


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