Managed Medicaid

Featured HBD Story February 20, 2008

2008 Outlook for Medicaid Managed Care Is Positive

Reprinted from MEDICARE ADVANTAGE NEWS, biweekly news and analysis on the Medicare (and Medicaid) managed care programs.

As Medicaid managed care firms continue to report fourth-quarter 2007 earnings, some stock analysts recently reiterated what they describe as their "positive bias" toward the industry in 2008. Citing health care reform, expansion of the State Children's Health Insurance Program (SCHIP) and rate stability as the basic components of their thesis, equity analysts at Credit Suisse in a recent briefing also cited the following factors as lending a positive outlook:

• A full pipeline of Medicaid managed care requests for proposals (RFPs) in 2008. "Among the states with RFPs already out or on their way shortly are Arizona, Connecticut, New Mexico, Tennessee and Washington, D.C. In aggregate, the number of lives covered under these Medicaid programs that are out to bid is roughly 2.35 million," the Credit Suisse analysis states. "We would characterize AMERIGROUP Corp. as best positioned to capitalize on business that will be awarded this year."
• A growth opportunity from Medicare Advantage (MA) Special Needs Plans (SNPs) that complements the capabilities of Medicaid managed care organizations. Credit Suisse analysts said they view AMERIGROUP as being the best positioned to capitalize on the SNP opportunity in 2010 and beyond - after the 2009 SNP moratorium is lifted. The analysts described Molina Healthcare, Inc. as "also developing into a SNP market leader."

AMERIGROUP and Molina show a similar presence in the SNP marketplace, CMS's latest SNP enrollment data show. As of January 2008, AMERIGROUP had 5,130 members in SNPs for people dually eligible for Medicare and Medicaid in Florida, Maryland, New Jersey, New Mexico, New York, Tennessee and Texas, according to CMS, while Molina had 5,222 members in dual SNPs in California, Michigan, Nevada, New Mexico, Texas, Utah and Washington.

Analyst Gregory Nersessian of Credit Suisse said a slowing economy also could put more people into the Medicaid program and encourage states to look to managed care plans to achieve cost savings. He said his firm's top pick in the Medicaid space is AMERIGROUP, which is scheduled to report its fourth-quarter 2007 earnings Feb. 13. In addition to capitalizing on state RFPs in 2008, AMERIGROUP will benefit from margin improvement in Georgia and Tennessee, and will expand the breadth of its SNP products, he stated.

Stock analyst Thomas Carroll of Stifel Nicolaus said in a Jan. 23 note to investors that Molina's 2008 guidance, announced Jan. 22, should not disappoint investors. Driving the upside are Ohio medical loss ratio reductions and the potential of adding up to 35,000 new enrollees from the announced intention of WellPoint, Inc.'s Anthem Blue Cross and Blue Shield in Ohio to leave that state's central region. Anthem recently notified the state that it intends to exit the bulk of its business in Ohio Medicaid's barely-year-old statewide mandatory managed care program as of April 1 due to declining pay rates for 2008. Carroll also cited potential expansion opportunity for Molina in Missouri. On the downside, he cited continuing operational challenges for Molina in Michigan's Medicaid program, and California provider fee levels and contracting challenges.

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