INDIANAPOLIS - Even as some governors vow to bow out of expanding their Medicaid programs in the wake of the Supreme Court upholding the Affordable Care Act, WellPoint Inc. announced July 9 it will acquire managed care company Amerigroup for $92 per share or roughly $4.9 billion.
When the deal is closed, expected in the first quarter of 2013, WellPoint will have the largest book of Medicaid business among private insurers - approximately 4.5 million members. The combined company will have Medicaid business operations in 19 states.
It also comes as more states are looking to transition Medicaid to manage care programs and also as more focus is being placed on managing the dual eligible population - the older population that is eligible for both Medicare and Medicaid - who often suffer from multiple chronic conditions and are the most costly patients to care for in this country's health system.
"The dual-eligible expansion opportunity is tremendous and was a driving force for this transaction," said Angela Braly, chair, president and CEO of WellPoint, in a conference call announcing the deal.
Company officials noted that there is an immediate opportunity in 13 of the states served by the two companies to grab a significant share of the dual eligible population.
While the offer price for Amerigroup represents a premium of roughly 43 percent over the closing price the day before the deal was announced, WellPoint management feels the price is fair given the market opportunity.
"We recognize that the pure-play Medicaid managed care companies, including Amerigroup, are currently trading at a premium valuation relative to historical levels, which reflects the potential growth in the markets that they serve and the new markets that are emerging," added Braly.
"Many state governments are facing significant budget challenges as they strive to provide access to healthcare for their most underserved residents. We expect states to take varying approaches to address these challenges, which will lead to more managed care solutions and innovative programs to serve those that are eligible for both Medicare and Medicaid."
WellPoint also sees opportunity in serving the seniors and persons with disabilities (SPD) and long-term services and support markets (LTSS) as other areas where it can provide value to state Medicaid programs.
Specifically, executives of both companies said the experience of Amerigroup in serving LTSS populations, combined with WellPoint's CareMore subsidiary's services and care management model designed for those who are chronically ill, will allow it to enhance the care of members while holding down costs.
"Today's healthcare arena is more transformative than ever and companies must have broad capabilities to succeed," said James G. Carlson, Amerigroup's chairman and CEO. "In 14 states, WellPoint has the most powerful brand in the healthcare industry and we are looking forward to adding our experience and reputation to their capabilities."
But, in addition to the Medicaid market, the Amerigroup acquisition will also play a part in WellPoint's strategy as it looks to compete in the retail market that will expand as a result of the Affordable Care Act and the advent of states' health insurance exchanges.
"As members' incomes fluctuate across eligibility thresholds, we will be there to help them move between any product - public, private or subsidized," said Braly. "This helps members with health security, improves quality of care and reduces administrative costs across all the product lines."
The investment community was generally bullish on the deal and indicated that it may not heat up the acquisition market for insurers looking to gain entree to the anticipated growth in the Medicaid market.
Leerink Swan analyst Jason Gurda said that although the price WellPoint paid may have been steep, "fundamentally, we believe the deal makes sense as it diversifies WLP's revenue away from its commercial business while expanding the company's participation in the substantial Medicaid growth opportunity."