A Big Deal in Medicaid Following One in Medicare

Right on the heels of the CIGNA/HealthSpring deal, AmeriGroup announced it’s acquiring Health Plus, a large Medicaid plan in New York City with around 320,000 members owned by safety net hospital sponsor Lutheran Healthcare in Brooklyn,  for $85 million.   The price reflects just 0.09x of Health Plus’ $1 billion in revenue, a big discount to public Medicaid MCO market valuations of 0.3x to 0.4x revenue, indicative of a company that was struggling.  Amerigroup is significantly expanding on its current base in NY, which stands at about 100,000 members. The company’s Medicaid market share in NY will increase from 3% to 11% when the deal closes next year.

The New York Medicaid market is an attractive one to target, given its large enrollment, plans to expand managed care state-wide by April 2012, and the potential expansion under health reform in 2014.  With approximately five million Medicaid recipients, New York has the second largest number of Medicaid enrollees in the nation.  Texas currently accounts for 30% of AmeriGroup’s Medicaid enrollment so this is a nice “triple-down” bet on another of its large markets.

As we’ve noted in these pages recently, consolidation is intensifying in the managed care industry over the coming 12-18 months. The Cigna/HealthSpring acquisition could be just the beginning as the Medicare and Medicaid markets appear particularly ripe for consolidation due to their tremendous growth prospects while the commercial market continues to dwindle.