The announcement earlier this week that Centene Corp. intends to purchase Health Net in a $6.8 billion deal is far from over.
Oregon’s Insurance Commissioner Laura Cali expects to weigh in, and has asked Centene officials to share their financial statements dating back five years and to tell her where the money is coming from to acquire Health Net.
Centene has a reputation as a Medicaid managed care organization and just received approval from Cali to acquire Agate Resources, the parent company of Trillium Commnity Health Plan, which has over 100,000 Oregon Health Plan members in Lane County for $80 million.
With $22 billion in revenue and 4.4 million members in 23 states, Centene is one of three publicly traded stand-alone Medicaid-focused insurers. Its CEO and Chairman, Michael Neidorff earned $19.3 million in 2014, including $13.9 million of stock. Over the past 30 years, Centene has grown from a single health plan in Wisconsin to become a $10 billion Fortune 500 company trading on the New York Stock Exchange.
One unknown question about this pending transaction is whether Health Net – under Centene’s umbrella – will attempt to corral Medicaid members throughout Oregon and become, itself, a coordinated care organization in competition with the locally grown health plans. When reached for comment, Stephanie Tripp, spokeswoman for the Oregon Health Authority, which oversees such contracts, could not find any definitive information, telling The Lund Report that RFP and contract information on CCO.Oregon.gov and on the Transformation Center Website was “somewhat outdated.”
Meanwhile, rumors are surfacing that the Oregon Health Authority may decide to choose a single insurer, such as Centene to run the entire Medicaid program in the next year or two.
The Lund Report attempted to reach Centene Corp. for comment, however our calls were not returned by press time.
No benefit for consumers
But consumers are not likely to be the winners when insurers consolidate, according to Leemore Dafny, a professor at the Kellogg School of Management at Northwestern University, who has studied the effects of mergers in healthcare and serves on the Panel of Health Advisers for the Congressional Budget Office.
“If past is prologue, and if you look at the averages, premiums go up,” Dafny said in an article appearing in The Hartford Courant.
Health Net stayed away
Health Net has stayed away from the Medicaid marketplace in Oregon, but does have 1.7 million Medicaid members in California and Arizona.
In Oregon, Health Net had 79,986 members on March 30, up 9 percent, while it also reported a $4.5 million net loss in the first quarter, according to NAIC filings – which was an improvement over its $26.2 million first-quarter loss last year. About 61 percent of Health Net’s members were enrolled in traditional comprehensive health plans, and the company also had 23,206 people enrolled in Medicare plans, with smaller numbers in dental and vision plans.
Centene expects to pay $28.25 and 0.622 shares of Centene stock per Health Net share of common stock for an implied price of $78.57 per share, which was 21 percent more than Health Net’s closing price last week. If approved by regulators, the deal would also add Health Net's $500 million in debt to Centene's balance sheet. Combined, Centene and Health Net would end 2015 with $37 billion in estimated pro forma premium and service revenue, according to a news release announcing the deal. A merger would also create one of the largest Medicaid managed-care companies, with six million Medicaid enrollees.
Based in Woodland Hills, California, Health Net has about six million members in health plans and government programs. It had revenue of $14 billion in 2014.
In a press release, Neidorff, Centene's president and CEO, said the deal would expand the company's scale and diversify its operations. “This transaction ensures that we extend our competitive position as one of the largest plans covering government-sponsored programs in the country. Health Net's presence in California and other key Western states is complementary to our offerings, allowing us to bring additional innovative solutions to the healthcare market,” he said. “With Health Net, we see opportunities to leverage our local approach more broadly to enhance our members’ access to higher quality healthcare services on a cost-effective basis and ensure measurable quality outcomes.
“We have tremendous respect for Health Net’s management team and employees, and for all that they have accomplished. Given our scalable model and record of successfully integrating acquisitions, we expect to achieve a smooth transition. Together, we will build on both companies’ shared commitment to working with providers and key community stakeholders to achieve better results for members and drive shareholder value.”
Jay Gellert, Health Net’s president and chief executive officer, said, “Centene has an impressive record of serving populations that have been traditionally underserved in a high-quality and consumer-centered manner. Our successes complement Centene very well and will lead to better offerings in line with new consumer and payer demands. After closing, we will be a leading provider of managed health care services very much aligned with the future. We expect that Health Net associates will play a critical role in the future of the combined company.”
Diane can be reached at [email protected].
