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Merger Between Agate Resources and Centene Could Reap Millions More in Coming Years

Details about the merger were released to The Lund Report by a confidential source
June 22, 2016

The $109 million paid to the 215 owners of Agate Resources and two independent consultants only represents a portion of what these shareholders will earn during the next three years, according to the confidential un-redacted merger agreement obtained by The Lund Report from a confidential source.

Agate Resources is the holding company for Trillium Community Health Plan, which has more than 100,000 Medicaid members in Lane County. Confidential discussions began in January 2013 with the deal closing in January 2015.

Depending on the profitability of Trillium, those 215 shareholders and two consultants could reap millions in the next three years, according to the confidential merger agreement. And, that could mean fewer healthcare services would be delivered to its members -- people on Medicaid – who are often the most vulnerable when services are denied. Unless the Oregon Health Authority and other policymakers pay attention, the dollars intended for medical care could wind up in the hands of those who own the for-profit company.

Specifically, the agreement shows that the 180 physicians, two consultants and 35 Agate employees stand to receive up to $115 million over three years from the sale of the company to Centene, based on goals of doubling the profitability of the plan. Individual shareholders could receive up to $2,224 per share for the 51,701 shares. For that to happen, the underwriting margin must nearly double in 2014, 2015, and 2016 to reach the full payments. Several variables could be at work -- lower overhead, higher premiums, more members, or maybe less care?

Here’s a few more details from the merger agreement:

Each stockholder will also receive an equal share of $20,000,000 deferred purchase price, divided in three installments of 1/3 per year, depending on achieving profitability targets for 2015, 2016, and 2017. The deferred value that may be paid per share is $387 over three years.

Each stockholder is also eligible for an equal share of $5,000,000 bonus for 2015, 2016, and 2017, if profitability significantly exceeds past performance. That amount would be $290 per share over three years. (To achieve this higher profitability it is very likely that fewer health care services will have to be delivered per member in those years.)

Therefore, the total of potential initial purchase price, plus deferred purchase price, plus bonus on average for most of the shareholder physician providers is: $1,547 (initial purchase) + $387 (deferred purchase) + $290 (bonus) = $2,224 X 291 shares = $647,184. This income is presumably taxable at the lower federal and state capital gains rates.

In other words, for the average physician who stands to get $647,184 for their 291 shares, $194,155 of that depends on the plan being much more profitable than previous years.

The merger document also includes a section called "Bonus Target Schedule,” which shows s 2013 total revenues of $244 million and total hospital and medical payments of $210 million. That leaves what’s called an "underwriting margin" of $34 million, or 14 percent, with 86 percent spent on healthcare services. This 14 percent goes toward non-medical overhead expenses and profit. Centene has set a goal for the years 2015, 2016, and 2017 to increase the underwriting margin to $62 million, $65 million, and $68 million respectively for shareholders to earn the bonus amount. Therefore, those margin percentages could now be as high as 25 percent, 27 percent and 28 percent respectively, which in the for-profit world is more often the norm. Another question arises about what happens if there’s only a slight growth in premiums or Medicaid membership in this bonus agreement. One has to question whether these huge financial incentives to shareholders would reduce the amount of healthcare services to such a vulnerable population. Big Winners – Agate Employees

  • David Cole, CFO with 1,098 shares @ $2,224 = $2,441,952
  • Terry Coplin, CEO with 518 shares = $1,152,032
  • John Sattenspiel, CMO with 308 shares $684,992
  • Shannon Conley, CAO with 110 shares $244,640
  • John Sattenspiel, CMO with 308 shares $684,992
  • Shannon Conley, CAO with 110 shares $244,640

There were some physicians with larger numbers of shares, either because they made investments in Agate, or this may have been in the form of deferred income for services in exchange for shares of stock to be taxed at a lower capital gains rate versus taking regular income. Capital gains would be taxed around 34 percent by Oregon and federal compared to about 55 percent for regular income.

The Top Physician Shareholders

  • Richard Finkelstein, M.D., Anesthesiologist with 2,927 shares = $6,509,648
  • Leo Cytrynbaum, M.D., Hospitalist and Hospice specialist with 2,183 shares = $4,854,992
  • Christopher Miller, M.D., Neurosurgeon with 1,164 shares = $2,266,256
  • Robert Velarde, M.D., Pediatrician with 873 shares = $1,941,552
  • Tod Hayes, M.D., Emergency Physician with 758 shares = $1,685,792
  • Stanley Ruff, M.D., General Surgery with 582 shares = $1,294,368
  • Robert Tearse, M.D., Neurology and Sleep Medicine with 582 shares = $1,294,368
  • Richard Hoffman, M.D., Opthalmologist with 488 shares = $1,085,312
  • Craig Chamberlain, M.D., Gastroenterologist with 391 shares = $869,584
  • Daniel Hagengruber, M.D., Anesthesiologist with 338 shares = $862,912
  • Peter Kosek, M.D., Pain Specialist with 388 shares = $862,912
  • Patrick Golden, M.D., Neurosurgeon with 331 shares = $736,144

Independent Consultants Gain as Well

In the shareholder agreement, two other names appear who are also benefiting from the sale who are neither employees nor physicians. Stephen Wendell will receive\d $1 million, having 450 shares. He is an independent investment management professional in Eugene who undoubtedly helped provided consultation, and Randall Jordan Pape, treasurer of Pape’ D.W., Inc., a privately held company in Woodinville, Wash., will receive $1.7 million, representing 750 shares.

Diane can be reached at [email protected].