WellCare Health Plans expects to double its revenue by 2021, and the health insurer has made it clear that mergers and acquisitions will help reach that goal.
“After about a couple of years of focusing internally on strengthening our operation, we are absolutely now in pursuit of attractive acquisition targets that are consistent with our strategy,” WellCare CEO Ken Burdick said on an earnings call this week.
Thirty WellCare executives are going through “formal M&A training” this month and will eventually scour the marketplace for promising Medicaid and Medicare Advantage plans. WellCare has been storing surplus cash for several quarters and now has $1.25 billion of “dry powder” to spend on transactions, WellCare Chief Financial Officer Drew Asher said on the call.
Sarah James, an analyst at Wedbush Securities, said in a research note that Universal American “could be an interesting target for WellCare” because it would add well-performing Medicare products and expand the company's presence in Texas and New York. Universal American, which has Medicare Advantage plans and operates Medicare accountable care organizations, has been struggling. WellCare therefore could buy it at a discount. The latest industry multiples put a $465 million price tag on Universal American, although the price range could vary.
WellCare also could be an active shopper if the deal between Aetna and Humana gains approval. Many experts believe Aetna will have to divest some Medicare Advantage plans to move forward, leaving WellCare and other insurers in a position to pick up the scraps.
WellCare has almost 3.8 million members across its Medicaid, Medicare Advantage and Medicare Part D prescription drug plans. It does not sell plans on the Affordable Care Act's exchanges. Burdick and his team have been in damage-control mode to repair the company's image and finances following an executive fraud case that occurred almost a decade ago.
Despite the budding interest in deals, new and existing state Medicaid contracts and fine-tuning its Medicare Advantage policies remain top of mind for WellCare, executives said. The Tampa, Fla.-based company recently lost the bid for Nebraska's managed Medicaid contract, and an even bigger challenge looms in Iowa, which booted WellCare from its new program. WellCare appealed and is awaiting the final decision.
WellCare's profit in the fourth quarter increased 69% to $13 million. Year-end earnings totaled $119 million, up 86% from 2014.
Revenue in 2015 grew 7% to $13.9 billion, which puts WellCare's 2021 revenue target at approximately $28 billion.