St. Louis, Missouri-based insurer Centene is acquiring WellCare Health Plans in a deal meant to boost the company’s scale and business opportunities in the face of increasing industry consolidation.
Centene will pay around $15.3 billion in cash-and-stock for the Tampa-based insurer. The total deal value is estimated at $17.3 billion, including WellCare’s debt load.
The combined company will have around 22.3 million members across all 50 states, ranking it as the fourth largest insurer in the country.
One particularly strong business line would be the government payer segment, where the company would have around 12 million Medicaid and 5 million Medicare members.
Centene also said it plans to use the increased scale and geographic footprint to expand its activity in the ACA health insurance marketplaces. Centene has a leadership position within this segment, with a roughly 20 percent marketshare in the Obamacare marketplaces.
However, that position may be under threat with the recent moves by the Trump Administration to undermine the 2010 legislation which created the marketplaces.
The WellCare acquisition would position the Centene more strongly in the more politically stable Medicaid and Medicare markets, where it would rank first and fourth respectively, by membership. Centene touted its market opportunity in Managed Medicare and its improved ability to handle dual-eligible patients.
The companies said the combination will generate around $500 million of annual cost savings by the second year.
Joshua Mark, a healthcare analyst with CB Insights, said the two companies -which were themselves the product of acquisitions – are combining in a time of renewed industry consolidation.
“The combined company will have a presence in all 50 states, increased leverage in negotiations with providers and other industry players, and, importantly, will have a more diversified set of offerings,” Mark said.
“Wellcare’s large Medicaid and Medicare presence provide geographic diversification and offset Centene’s reliance on the individual exchanges at a time of uncertainty.”
The WellCare acquisition is happening against the backdrop of mega-deals and mergers within healthcare like CVS Health’s $69 billion acquisition of Aetna and Cigna’s $52 billion purchase of Express Scripts.
Rita Numerof, president of healthcare consultancy Numerof & Associates, framed the consolidation within the payer industry as a way to guard against potential disruption and new entrants in healthcare.
“Centene’s decision to acquire WellCare reflects a common belief among horizontally merging healthcare organizations that size is protective,” she said. “However, payers must realize this is not the case. Consumers should likewise be skeptical as such unions reduce competition and therefore mitigate innovation – often at their expense.”
One potential loser in the deal, according to Mark, could be venture-backed startups. WellCare was known in the industry for being a enthusiastic partner for upstart companies looking to bend the cost curve like Iora Health, Fit4D, VillageMD and Oak Street Health. Centene has taken a much more measured approach, mainly collaborating with government or academic institutions.
Centene CEO Michael Neidorff will take over leadership of the combined company as its chairman and CEO. WellCare CEO Ken Burdick and WellCare CFO Drew Asher are expected to join the senior management team of Centene in newly created positions.
“With the addition of WellCare, we expect to bolster and diversify our product offerings, increase our scale and have access to new markets, which will in turn, enable us to continue investing in technology and better serve members with innovative programs designed to meet their need,” Neidorff said in a statement.
The deal is expected to close by the first half of 2020, according to the two companies.
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