WellCare Health Plans has acquired Advicare Corp., a Medicaid managed-care company based in South Carolina, marking WellCare's first acquisition in almost two years.
The deal comes just two weeks after executives at WellCare, a for-profit insurer headquartered in Tampa, Fla., made it clear they are actively hunting for health plans. WellCare has about $1.25 billion to spend on transactions.
Consolidation in the health insurance industry has progressed at breakneck speed over the past year. Aetna is attempting to buy Humana, and Anthem wants to acquire Cigna Corp. Assuming state and federal regulators give clearance, those deals would join UnitedHealth Group in creating a powerful triumvirate among for-profit insurers. Medicaid insurer Molina Healthcare has pursued a few smaller, local acquisitions.
WellCare's purchase of Advicare will add 32,500 South Carolina Medicaid beneficiaries, giving WellCare more than 92,000 Medicaid members in the state that has been at the center of the Republican and Democratic presidential campaigns for the past two weeks.
Financial details of the deal, expected to close in the second quarter of this year, were not disclosed. However, it could add up to $120 million of annual revenue, Chris Rigg, an analyst at Susquehanna Financial Group, wrote Tuesday. WellCare's revenue in 2015 totaled $13.9 billion.
Medicaid represents about two-thirds of WellCare's revenue. Medicare Advantage and Part D prescription drug plans make up the rest, and the Medicare line of business received a dose of good news last week from the CMS.
Medicare Advantage rates are increasing next year, and the CMS proposed instituting new policies that would boost payments to health plans that enroll a lot of patients who are eligible for Medicare and Medicaid coverage, known as dual-eligibles. Those patients, who often have many complex health conditions, are a target audience for WellCare.
Despite those changes, WellCare faces trouble related to some low-quality Medicare plans. The CMS has the authority to ax Medicare Advantage contracts with health plans that have fewer than three stars for three consecutive years. WellCare has two poor-performing contracts with more than 50,000 combined members. Those contracts are eligible for termination by Dec. 31, 2016, and the CMS will send nonrenewal letters by the end of this month.
However, WellCare is optimistic it won't lose any membership. It hopes to sidestep that hurdle by pushing members into plans that conceivably have higher quality scores by next January, the insurer said in a recent regulatory disclosure.