By James Gutman - November 23, 2011
A funny thing happened on the way to health reform: A law that includes large payment cuts for Medicare Advantage plans is causing a huge increase in the value of those good MA plans available for sale. The latest example of that came Nov. 22, when UnitedHealth Group agreed to acquire XLHealth Corp. Although the all-cash price was not disclosed, Bloomberg reported that a source familiar with the deal placed it at about $2 billion. That equates to a value of more than $16,000 per member, even above the approximately $15,000 per member securities analyst Carl McDonald of Citigroup Global Markets estimates WellPoint, Inc. is paying to acquire CareMore Health Group and the about $10,000 per member Cigna Corp. is spending to buy HealthSpring, Inc. in two deals unveiled during the past six months.
What do all of these deals have in common? Each of the targets is regarded as well run and has experience managing Medicare-Medicaid dual eligibles, which plan sponsors increasingly are seeing as the major opportunity in managed care for explosive growth in the coming years. The payment rates to plans for duals are extremely high, befitting this population's difficulty caused by a combination of chronic illnesses, poverty and behavioral-health issues. And there will be explosive growth in the number of duals as Medicaid expands under the reform law and in a weak economy. States and the federal government seemingly will have to put far more duals in managed care if they are to control this population's costs.
Moreover, for smaller plan sponsors "this is the moment to sell," Gorman Health Group, LLC Executive Vice President Nathan Goldstein says, because "this [MA] industry is consolidating very, very, very quickly." Is he right? If so, did the reform law cause the trend by creating standards and rules that only large plans with major economies of scale can meet? And could this quest for huge revenue growth backfire for some MA sponsors as their consolidations bring them tougher problems than they've ever experienced before?
No comments:
Post a Comment