Why Wel­lpoint wants Ameri­group

Modern Healthcare - - FRONT PAGE - Jaimy Lee

Wel­lpoint’s plan to pay $4.9 bil­lion to ac­quire Ameri­group sig­nals the health in­surer’s am­bi­tion to claim a big­ger piece of the grow­ing busi­ness of Med­i­caid man­aged care.

In­di­anapo­lis-based Wel­lpoint last week an­nounced a de­fin­i­tive agree­ment to ac­quire Ameri­group, a Vir­ginia Beach, Va.-based man­aged-care com­pany. The com­bined com­pany will have a Med­i­caid pres­ence in 19 states and serve about 4.5 mil­lion Med­i­caid ben­e­fi­cia­ries.

The deal, which is expected to nearly dou­ble the in­surer’s Med­i­caid busi­ness, came less than two weeks af­ter the U.S. Supreme Court’s de­ci­sion on the health­care law, which in­tro­duced some un­cer­tainty in the law’s in­tended ex­pan­sion of Med­i­caid el­i­gi­bil­ity (See re­lated story, p. 8).

Wel­lpoint, nev­er­the­less, sees op­por­tu­nity. “We ex­pect Med­i­caid spend­ing un­der man­aged-care pro­grams to in­crease by nearly $100 bil­lion by the end of 2014,” said An­gela Braly, Wel­lpoint’s pres­i­dent and CEO, dur­ing a con­fer­ence call. “These op­por­tu­ni­ties will de­velop or­gan­i­cally in ad­di­tion to the Med­i­caid el­i­gi­bil­ity ex­pan­sion un­der health­care re­form.”

She said the Med­i­caid mar­ket’s growth op­por­tu­ni­ties are not lim­ited to Med­i­caid ex­pan­sion un­der the Pa­tient Pro­tec­tion and Af­ford­able Care Act; they also in­clude eco­nomic, de­mo­graphic and bud­getary fac­tors. “Many state bud­gets are fac­ing sig­nif­i­cant bud­get chal­lenges as they strive to pro­vide ac­cess to health­care for their most un­der­served res­i­dents,” Braly said.

David Wind­ley, a Jef­feries & Co. an­a­lyst, said the deal was un­ex­pected. How­ever, he noted that the in­surer didn’t over­pay for Ameri­group’s as­sets and the ex­pan­sion of Wel­lpoint’s foot­print, in­clud­ing both com­pa­nies’ en­hanced po­si­tions among the dual-el­i­gi­ble pop­u­la­tion, is a key com­po­nent of the trans­ac­tion.

Fitch Rat­ings said in a July 9 note that the ac­qui­si­tion is “strate­gi­cally ben­e­fi­cial” to Wel­lpoint, in part be­cause of the added ex­per­tise and ac­cess to Med­i­caid ben­e­fi­cia­ries that Ameri­group will pro­vide to Wel­lpoint, as well as an im­proved po­si­tion to ben­e­fit from dual-el­i­gi­bles.

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