California's second largest nonprofit insurer is using a strategic acquisition to enter a growing, but challenging sector of government-funded health plans.
Blue Shield of California is acquiring Care1st, a for-profit managed care company founded in 1994 by Los Angeles providers serving almost half a million Medicaid and Medicare beneficiaries in California, Arizona and Texas.
Without mentioning the exact financial terms, Blue Shield officials said the acquisition will be an all-cash transaction and is expected to close the second half of 2015, after approval from authorities in Arizona, California, Texas and the federal government.
Owned by the Pacific Alliance Medical Center and three large physicians groups, Care1st has been serving members of Medi-Cal, California's Medicaid program since 1995, and has since expanded to Medicare Advantage and dual-eligible plans and to Arizona's Medicaid program and Texas' Medicare Advantage market.
Among the company's membership are 473,000 Medicaid beneficiaries, 46,000 seniors on Medicare members and 5,300 individuals dually eligible for both programs. Most of the members, about 320,000, are Californians, primarily in greater Los Angeles and San Diego. In the first three quarters of 2014, the company generated $1.2 billion in total revenues.
For Blue Shield of California, the purchase of Care1st will give it a solid foothold and opportunity for expansion in the country's largest Medicaid managed care program -- in a state where more than a quarter of the population will soon be covered by Medicaid.
"There are more than 11 million Californians in the Medi-Cal system today, and we can fulfill our not-for-profit access and affordability mission by serving this population," said Blue Shield president and CEO Paul Markovich. "Acquiring Care1st, a growing, values-based company with deep Medicaid experience, is the ideal way for us to not only enter a new market, but also to help transform it together."
"Together, we will have the resources to better serve the growing Medicaid and Medicare populations," said said Care1st CEO Anna Tran. "Blue Shield and Care1st have similar mission-driven cultures."
Between 2011 and 2013, Care1st's pre-tax income averaged out to $15 million per year, with results for the three quarters of 2014 doubling that, to $30 million, according to Fitch Ratings.
Once the acquisition is approved and closed, Blue Shield said it plans to bring Care1st under its nonprofit organizational structure, while working on a multi-year transition plan.
The diversification into Medicaid marks a bet on the Affordable Care Act for Blue Shield, which sold 400,000 public exchange plans (second only to Anthem Blue Cross). Blue Shield now has some 3.4 million members and almost $11 billion in annual revenue, with a pledge to limit net income to 2 percent of revenue.
(Photo via Marcy Reiford.)