Reprinted from MEDICARE ADVANTAGE NEWS, biweekly news and business strategies about Medicare Advantage plans, product design, marketing, enrollment, market expansions, CMS audits, and countless federal initiatives in MA and Medicaid managed care.
August 18, 2011Volume 17Issue 16
When the Texas Medicaid program on Aug. 1 unveiled tentative contract awards for a huge Medicaid managed care expansion, three “pure play” Medicaid MCOs came out on top: Amerigroup Corp., Centene Corp. and Molina Healthcare, Inc.
Securities analysts estimate the multibillion-dollar expansion, set to start in March 2012, will add a significant number of new members and premium revenues to all three companies’ business. Other MCOs also gained ground (see table, below). In all, state officials awarded tentative contracts to 19 HMOs for Medicaid and Children’s Health Insurance Program (CHIP) services. And the state anticipates achieving $367 million in savings over the next two years from the heightened emphasis on managed care.
Texas’ ambitious, wide-ranging request for proposals, which was issued in April (MAN 5/5/11, p. 5), includes the re-procurement of STAR, STAR+PLUS and CHIP MCOs in most existing service areas. It also includes expansion of STAR and STAR+PLUS to new areas within the state; the transition of about 880,000 Medicaid recipients now getting services through Primary Care Case Management (PCCM) into managed care; and the delivery of prescription drug benefits, now administered through the Texas Health & Human Services Commission’s (HHSC) Vendor Drug Program, via Medicaid and CHIP HMOs.
HHSC, in naming the Medicaid RFP winners, said the awards are contingent upon successful execution of contracts. But HHSC spokesperson Stephanie Goodman told MAN Aug. 15 the ongoing effort to finalize contracts by March 2012 “is not so much negotiations with health plans, but making sure the documents incorporate everything the [Texas state] legislature intended.”
Texas Moved Quickly to Accelerate Savings
“Our real goal was to make sure we could announce awards shortly after the legislative session” ended in late May, Goodman explains. That is “because you really don’t achieve the savings [envisioned by lawmakers for the two-year budget cycle] if you wait until the session is over to start the procurement process,” she says.
Amerigroup says that, with the new procurement, it expects to remain the largest Medicaid plan in Texas. The company reports 593,000 members in Texas as of June 30.
Under the new contract award, Amerigroup will keep its existing products in Austin, Dallas/Fort Worth, Houston and San Antonio, company executives said, although Amerigroup will no longer participate in Corpus Christi, where it now serves about 10,000 members. Amerigroup said it was awarded the following new business: STAR and STAR+PLUS products in Lubbock; STAR+PLUS in El Paso; CHIP in Austin; and the STAR product in all three designated rural service areas, including 164 counties previously served by PCCM. The company said it will begin providing prescription drug benefits for all products and, pending final approval of Texas’ CMS waiver, will provide inpatient hospital services for STAR+PLUS.
Molina Healthcare of Texas retained all of its existing service areas, company executives said, while adding the Hidalgo and El Paso service areas for STAR and STAR+PLUS, and the Dallas service area for STAR and CHIP. As of June 30, Molina covered about 11,000 STAR, 52,000 STAR+PLUS and 66,000 CHIP members in Texas.
Centene said its Superior HealthPlan, Inc. subsidiary in Texas retained the following existing business: STAR and CHIP in Austin, El Paso and Lubbock; and STAR, STAR+PLUS and CHIP in Corpus Christi and San Antonio. Superior’s total membership in Texas was 470,400 as of June 30, the company said, including its continuing CHIP rural service area products and the Dallas STAR+PLUS program awarded as part of earlier bid processes. Centene said the new contract award in Texas will expand Superior’s offering to STAR and STAR+PLUS in the new 10-county Hidalgo service area; STAR+PLUS in Lubbock; and Medicaid rural service areas in west, central and northeast Texas.
Securities analyst Carl McDonald of Citigroup Global Markets estimated in a research note Aug. 2 that Amerigroup’s membership will grow by around 225,000 lives, with revenue up about $1 billion and earnings increasing by 70 cents a share on an annualized basis, assuming a 3.5% after-tax profit margin. Centene’s membership will grow by roughly 320,000 lives, with revenue up $1.1 billion and earnings rising 55 cents a share on an annualized basis, assuming a 2.5% after-tax margin, he estimated. And he projected that Molina’s membership will grow by about 150,000 lives, with revenue up $625 million and earnings increasing 25 cents a share on an annualized basis, assuming a 2% after-tax margin.
McDonald noted that diversified plans did not fare as well as the “pure plays” under Texas Medicaid’s new contract awards. He said UnitedHealth Group “did okay, generating an estimated $500 million in incremental revenue. Otherwise, it was not a strong showing, as Aetna added under $30 million in incremental revenue, while WellPoint was the only plan in Texas to lose business on a net basis.”
Estimated Revenue Results by Plan From Texas Medicaid RFP Awards
Estimated Revenue Results by Plan From Texas Medicaid RFP Awards | |||||||
Organization | Current Revenue | Revenue Retained | Revenue Lost | New-County Revenue | Existing-County Expansion | Total Incremental Revenue | Total Texas Revenue |
Centene | $872,420,798 | $872,420,798 | $0 | $876,762,860 | $261,876,437 | $1,138,639,297 | $2,011,060,095 |
AMERIGROUP | $1,317,746,829 | $1,289,521,977 | $28,224,852 | $648,241,738 | $348,000,929 | $996,242,667 | $2,285,764,644 |
Molina | $139,604,533 | $139,604,533 | $0 | $560,260,223 | $64,742,061 | $625,002,284 | $764,606,817 |
United | $443,100,119 | $443,100,119 | $0 | $269,829,980 | $219,515,715 | $489,345,695 | $932,445,814 |
Driscoll | $144,792,198 | $144,792,198 | $0 | $215,773,980 | $25,483,427 | $241,257,407 | $386,049,605 |
HealthSpring | $0 | $0 | $0 | $147,880,840 | $0 | $147,880,840 | $147,880,840 |
Scott & White | $0 | $0 | $0 | $134,165,840 | $0 | $134,165,840 | $134,165,840 |
Community Health | $462,898,663 | $462,898,663 | $0 | $0 | $97,106,165 | $97,106,165 | $560,004,828 |
Texas Children’s | $476,286,497 | $476,286,497 | $0 | $2,460,000 | $83,826,423 | $86,286,423 | $562,572,920 |
Parkland Community | $440,264,049 | $440,264,049 | $0 | $0 | $77,486,473 | $77,486,473 | $517,750,522 |
Community First | $238,052,160 | $238,052,160 | $0 | $0 | $41,659,128 | $41,659,128 | $279,711,288 |
Christus | $0 | $0 | $0 | $28,224,713 | $0 | $28,224,713 | $28,224,713 |
Cook Children’s | $159,732,031 | $159,732,031 | $0 | $0 | $28,112,837 | $28,112,837 | $187,844,869 |
Aetna | $159,498,945 | $159,498,945 | $0 | $0 | $28,071,814 | $28,071,814 | $187,570,759 |
El Paso First | $108,611,698 | $108,611,698 | $0 | $0 | $19,115,659 | $19,115,659 | $127,727,357 |
FirstCare | $70,251,955 | $70,251,955 | $0 | $0 | $11,577,455 | $11,577,455 | $81,829,410 |
Seton | $20,306,046 | $20,306,046 | $0 | $0 | $3,573,864 | $3,573,864 | $23,879,910 |
WellPoint | $65,626,913 | $0 | $65,626,913 | $0 | $0 | ($65,626,913) | $0 |
Total | $5,119,193,433 | $5,025,341,669 | $93,851,765 | $2,883,600,174 | $1,310,148,387 | $4,128,121,649 | $9,219,090,230 |
Source: Carl McDonald, Citi Investment Research and Analysis, using Texas Health and Human Services Commission data, Aug. 2, 2011 | |||||||
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