2 Medicare Advantage plans to join forces in $545 million deal
■ With profit margins static or down, investment analysts say only the strongest players will survive.
By Emily Berry — Posted Sept. 17, 2010
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The latest in small-scale health plan consolidation came in August with a $545 million deal combining Nashville-based HealthSpring and Baltimore's Bravo Health.
The companies run network-based Medicare Advantage plans, as opposed to private fee-for-service plans. Profit margins for Medicare Advantage plans have remained static or dropped in most cases this year, and investment analysts have said they expect only the strongest players to survive.
The acquisition will add 100,000 Medicare Advantage members to HealthSpring's nearly 200,000, and 290,000 stand-alone drug plan members to HealthSpring's 400,000.
Bravo Health, however, recently has ventured into Medicaid, which is seen as a potentially lucrative opportunity.
Bravo Health recently won a small Medicaid contract in Texas, and executives for both companies said they are interested in more Medicaid business. But for now, their members are almost all Medicare enrollees.
"Bravo Health shares our core belief that health care is best delivered by engaging providers, who are rewarded for providing high-quality care and efficiently managing health care costs," Herb Fritch, chair and CEO of HealthSpring, said Aug. 27 during a conference call with investment analysts.
Fritch said the two companies run pay-for-performance programs that reward physicians for meeting similar goals.
Last year, Bravo Health opened Advanced Care Centers, which are available to members in Philadelphia who need urgent medical care but not hospitalization.
The deal will require state insurance regulators' approval, and the companies will submit a filing to the Federal Trade Commission and U.S. Dept. of Justice, company executives said. They said they expect the acquisition to be complete by year's end.
The same week as the HealthSpring deal, Philadelphia-based health plan Cigna said it would buy Vanbreda International, a health benefit firm in Antwerp, Belgium, that provides benefits for people living abroad. The two companies' combined international membership is about 700,000, according to a Cigna news release. Financial terms were not immediately disclosed.
"Larger-scale" merger and acquisition activity in the health plan industry is expected following the November elections, Chris Carter, investment analyst for Credit Suisse, said in a Sept. 1 note to investors.