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Humana snaps up 64,000-member Medicare Advantage plan

Some expect to see more Medicare Advantage plans merge as the health reform law calls for a decrease in payments to such plans.

By Emily Berry — Posted Sept. 14, 2011

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Humana, a large player in the Medicare Advantage market, has agreed to buy Arcadian Management Services, a smaller plan with 64,000 enrollees in 15 states.

Arcadian, based in Oakland, Calif., focuses on underserved populations in small towns or rural areas. Most of its plans are sold under the name Community Care; for example, Southeast Community Care or Desert Canyon Community Care.

Louisville, Ky.-based Humana claimed 1.6 million Medicare Advantage members as of June 30. Humana did not disclose the purchase price, though one published estimate put it at around $150 million.

Arcadian recently was subject to sanctions by the Centers for Medicare & Medicaid Services after CMS identified marketing rules violations. The company was barred from marketing or enrolling new members from Dec. 5, 2010, until July 11, 2011. Arcadian did not specifically admit wrongdoing, but in a July 12 release announcing its approval to restart Medicare sales, the company said it undertook efforts to improve its marketing and compliance efforts.

Like many areas of health care, Medicare Advantage plans are in the midst of a wave of consolidation. That's due to the combination of health system reform and reductions in payments, said Jon Henderson, an attorney specializing in health care mergers and acquisitions at the Dallas office of the law firm Polsinelli Shughart.

"These reform trends and payment trends are causing a consolidation trend I've not experienced before," he said.

As in other areas of health care, Henderson said, larger health plans have an edge when regulations require investments in technology or call for lower overhead costs, and that has produced an uptick in large health plans buying up small plans.

WellPoint, which operates for-profit BlueCross BlueShield-affiliated plans in 14 states, in June bought CareMore, a Cerritos, Calif.-based Medicare Advantage plan, for a reported $800 million. Meanwhile, on Aug. 23, shareholders of Boca Raton, Fla.-based Metropolitan Health Networks approved a $416 million purchase of Miami-based Continucare. Both companies run clinics that treat Medicare Advantage members.

The Patient Protection and Affordable Care Act calls for a gradual decrease in Medicare Advantage payments to more closely align them with what Medicare spends on enrollees in the traditional fee-for-service plan. The reform law also establishes a quality bonus program for high-performing Medicare Advantage plans, however, giving plans the potential to make up for the lower payment rates.

The plans also will have to hit a minimum 85% medical-loss ratio beginning in 2014, meaning they may only spend 15% of premiums on administrative costs and profit.

According to the Kaiser Family Foundation, 11.1 million beneficiaries were enrolled in Medicare Advantage plans in 2010, or about 24% of those eligible for Medicare.

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