A recent Managed Care deal may portend more troubling news for the struggling industry. Lately, mergers and acquisitions in the sector have been driven by firms exiting the market due to rising costs. Even a network as large as Tenet Healthcare Corporation (NYSE: THC) cited rising costs and unanticipated losses as reasons for shedding its Health Plan Business.
On June 1, 2017, Tenet Healthcare Corporation announced it was selling the Medicare Advantage and commercial group membership assets of its subsidiary, Allegian Health Plan, to Blue Cross and Blue Shield of Texas. The transaction includes nearly 20,000 members, enrolled through small, medium and large employer groups, as well as Medicare Advantage plans. Terms were not disclosed.
The deal is a part of Tenet’s plan to drop its health plan business in 2017, a strategy that the company announced back in October 2016. At that time, it operated health plans in Arizona, California, Illinois, Michigan, and Texas that insured about 139,000 people. Texans accounted for about 18 percent of its customers via its Allegian Health Plan.
Chief Financial Offier, Daniel Cancelmi, dubbed the insurance company “subscale” and unprofitable, following approximately $20 million in unanticipated losses. After concluding that the business required capital and was non-core to Tenet’s overall future business strategy, the company proceeded to file to exit Exchange markets in Arizona, Michigan and Texas, and its Medicare Advantage business in Arizona.
About a month later, Tenet announced the sale of certain assets of its Phoenix Health Plan to WellCare Health Plans, Inc. (NYSE: WCG), for an undisclosed amount. The assets included Medicaid membership and certain provider contracts. It provides health benefits to more than 50,000 Medicaid beneficiaries in Maricopa County, Arizona. The deal was WellCare’s second acquisition in the state, following its purchase of Care1st Arizona from Blue Shield of California in October 2016.
Then, In March 2017, it announced the sale of its Michigan-based Harbor Health Plan Inc., a health maintenance organization (HMO) that provides medical, hospital and prescription drug coverage to Medicare beneficiaries. The buyer, Trusted Health Plan Inc., a portfolio company of Juggernaut Capital Partners, is a managed care organization that provides managed healthcare services for more than 35,000 Medicaid and alliance members in Washington, D.C. Trusted Health announced plans to expand Harbor in 2017. Terms were not disclosed.