Mar 31, 2019
You don’t have to tell
Centene Chief Executive Michael Neidorff that the future of American health
care is uncertain.
Centene announced its
$17 billion acquisition of WellCare Health Plans a day after the Justice
Department asked an appeals court to strike down the entire Affordable Care
Act. The government’s stance poses a threat to both the “Obamacare” exchanges,
where Centene is the largest provider, and to the expansion of Medicaid, a core
business for both Centene and WellCare.
“I wake up every
morning scared,” Neidorff said in an interview Friday about the deal. “The
moment you get complacent, it’s going to hurt you.”
He said he expects the
courts to uphold the ACA. A Texas judge ruled in December that the act is
unconstitutional, but if the case gets to the Supreme Court, Neidorff believes
at least six of nine justices would vote to overturn that ruling.
Centene can’t afford
to put its business on hold while the legal drama plays out. “You make
decisions based on the facts as they are today,” Neidorff said. “It (the ACA)
is in place today, and I have to plan on it being here.”
Some analysts have
noted that buying WellCare diversifies Centene away from the controversial
exchanges, but Neidorff says that didn’t enter into his thinking. “There’s
nothing defensive about this deal,” he declared.
What he liked was
WellCare’s strong Medicare Advantage plan, and the scale the acquisition gives
Centene.
Centene is forecasting
$70 billion in revenue this year. With WellCare, it will be close to $100
billion. Size gives the company a louder voice in Washington policy debates,
but it also lets Centene invest in technology that can drive down costs and
improve care.
“If you don’t have the
scale we have, it’s tough to make major investments in systems and technology,”
Neidorff said. Technologies like Centene’s medical management system, which
scans patient files daily and alerts doctors to any troubling patterns, were
appealing to WellCare, he added.
The stock market
knocked Centene shares down 5 percent after Wednesday’s announcement, although
they gained back some ground Thursday and Friday.
That was partly a
response to the price Centene paid, and to Centene’s admission that the deal
may dilute earnings for a year before adding to profits.
“Deals in this space
have typically been accretive right away, so to have first-year dilution is not
as good,” said David Windley, an analyst at Jefferies. “It’s strategically a
very logical deal but financially more challenging just because of the
valuation.”
Chris Meekins, a
health care analyst at Raymond James, sees another reason for the investor
reaction. “There was a decision that had to be made by Centene leadership
whether they were going to be a buyer or a seller,” he said. “Some folks owning
Centene may have been in the stock because they thought the company would be
sold, and that’s not likely now.”
The company has been a
serial acquirer, buying California-based HealthNet in 2016 and New York’s
Fidelis Care last year, and Neidorff hints that the buying may not be over.
When the deal closes in the first half of next year, Centene’s debt will be
about 40 percent of total capital, and it plans to reduce that to around 35
percent within a year.
“We’ll always leave
ourselves in a position where if the right deal comes along, we’re in a position
to do it,” Neidorff said.
Centene’s growth has
been good for the St. Louis area, which is home to about 4,700 of the company’s
47,300 employees.
It’s also been good
for investors, whose shares have risen more than 40-fold since they went public
in 2001.
Policy decisions in
Washington could someday interrupt that trend, but for now, Centene is betting
that it still has plenty of room to grow.
https://www.stltoday.com/business/columns/david-nicklaus/centene-deal-is-a-bet-on-growth-and-on-health/article_8f95192e-8d2e-5c24-b853-f1c9fda70081.html
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