Humana continued its trend of scooping up regional provider-owned health plans last week with the planned acquisition of Cariten Healthcare, and reaffirmed its strong commitment to the Medicare Advantage market.
Humana said on Aug. 4 that it had entered into a definitive agreement with Knoxville, Tenn.-based Covenant Health to buy PHP Cos., which is doing business as Cariten Healthcare, also in Knoxville, for $245 million in cash.
With the sale, Humana, Louisville, Ky., will add about 110,000 members, including 46,000 in Medicare Advantage plans and 64,000 commercial members. Another 99,000 Cariten members are part of TennCare, Tennessees Medicaid managed-care program, and that contract will end Dec. 31 and wont be renewed, Humana said in a written statement.
The purchase of Cariten, subject to federal and Tennessee regulatory approval and expected to close by year-end, expands Humanas presence in eastern Tennessee. The seller, not-for-profit Covenant Health, is one of the largest health systems in the region, with five acute-care hospitals and $1.6 billion in assets. Cariten has a provider network of more than 6,000 physicians and 67 hospitals, and offers PPOs, HMOs, third-party administrator services and government-sponsored plans.
The proposed sale is the latest in a series of sell-offs of provider-owned health plans. On May 23, Humana completed its purchase of OSF Health Plans in Peoria, Ill., a 78,000-member health plan founded by the Sisters of the Third Order of St. Francis, who own Catholic not-for-profit OSF Health System. Medical Mutual of Ohio, Cleveland, acquired Premier Health Systems, a statewide PPO for-profit subsidiary of Sisters of Charity Providence Hospitals and Palmetto Health, both in Columbia, S.C., for an undisclosed sum in April.
Tony Spezia, Covenant Health president and chief executive officer, said Covenant Health needed to focus on upcoming capital-improvement projects. We were really at a point where we would need to provide more services and infrastructure into the business, he said. Theres been a lot of significant payer consolidation and scale is very, very important to success.
This is Humanas fourth planned acquisition in recent months. On June 30, Humana said it would buy Metcare Health Plans, a Medicare Advantage subsidiary in West Palm Beach, Fla., with about 7,000 members, and it completed its purchase of SecureHorizons Medicare Advantage HMO in Las Vegas.
Carl McDonald, executive director and analyst with investment consulting firm Oppenheimer, said in an investor note that he didnt think the Cariten deal would add much to Humanas bottom line.
Spezia said Cariten has been profitable for the past seven years. The organization has done well, he said. PHP Cos. posted income of $31.2 million in 2006 with $255.4 million in assets, according to Internal Revenue Service filings.
The deal reaffirms Humanas commitment to its growing Medicare Advantage business, despite a law enacted last month that will curtail federal subsidies to such plans (July 21, p. 6).