Centene becomes biggest Medicaid provider after ‘banner’ year

May 29--Centene made a key acquisition in 2015 that transformed it into the nation's largest provider of Medicaid health care plans and doubled the number of people that the Clayton-based company covers.

While juggling the $6.8 billion deal to buy Health Net Inc., Centene also managed to beat Wall Street earnings expectations each quarter last year, recording big gains in both revenue and profit.

Michael Neidorff, CEO of the managed care company, called it a "banner year."

Revenue for 2015 grew 37 percent to $22.8 billion, and profit swelled 30 percent to $355 million, all thanks to the addition of 1 million members across the country.

"Operationally, it was an excellent year," said New York-based analyst Steven Halper with FBR & Co., a brokerage firm.

The strong performance allowed Centene to take the top spot among local publicly traded companies for the third straight year, according to a Post-Dispatch analysis. The newspaper ranking is based on financial performance: return on equity, size of revenue, revenue growth and profit growth.

The Health Net deal didn't close until earlier this year, so Centene can expect to see revenue grow by more than 60 percent in 2016. The company will be in a strong position to take the top spot again in next year's rankings.

Neidorff attributes the performance last year to winning contracts in new states and expanding its existing state contracts. Thanks to the acquisition of Oregon-based Agate Resources in January 2015, Centene now operates in 23 states.

Centene's core business is managing state-run Medicaid programs, which offer health coverage to low-income individuals.

The addition of Woodland Hills, Calif.-based Health Net "gives us that critical mass," Neidorff told the Post-Dispatch.

With Health Net, Centene increases its total members from 5.1 million in 2015 to more than 10 million. Annual revenue is expected to nearly double from $22.8 billion in 2015 to $37 billion, and the deal should push Centene into the Fortune 100.

The acquisition also will boost Centene's presence in California, Texas and Florida, three of the largest Medicaid markets in the country.

"We're not done growing," Neidorff said.

The CEO said there are more specialty companies he wants to add to the company's portfolio, but he declined to say which ones interest him. He did say he's looking to grow health care IT services and wants to expand into more international markets.

Centene already has a presence in Spain as a joint owner in Ribera Salud S.A. Based in Valencia, Ribera operates health care facilities and cares for patients on a capitated payment system, in which the Spanish company gets a fixed payment for each member it covers.

Neidorff said Latin American countries have approached the company to expand there, as well.

"I always tell people we're playing a chess game," Neidorff said of the need to think a few steps ahead.

Last year, rumors were swirling about consolidation among the nation's insurance giants. Centene was even mentioned as a potential acquisition target by some analysts.

But the company made the first move, announcing on July 2 that it was acquiring Health Net. In the following months, the nation's largest insurers announced a series of major mergers among themselves.

Aetna Inc. said it was buying Humana Inc. for $37 billion, and Anthem Inc. announced plans to acquire Cigna Corp. for $48 billion.

BEYOND MEDICAID

While some of the nation's largest insurers have complained about losing money on the health insurance exchanges, Centene has thrived.

The company actually plans to expand its health insurance marketplace plans, or plans offered on HealthCare.gov, a signature piece of President Barack Obama's landmark health care bill.

It's been a profitable line of business, despite complaints from the nation's largest insurers about losing money, some of which have decided to scale back offerings after reporting significant losses due to insuring older and sicker patients.

Centene has found success because instead of offering a broad range of plans, the company is narrowly focused on low-income individuals who have lost their Medicaid eligibility and need to find a private health insurance plan.

The company plays to its strengths by selling to consumers they already know. Plus, Centene offers marketplace plans in the same geographic areas and with the same networks as its Medicaid business.

After two years of significant growth, Halper said he expects a more modest growth.

"We expect 20 percent earnings growth in 2016," he said.

While Centene has been an active acquirer, the magnitude of the Health Net deal could pose challenges, Halper said.

"When you think about integration of pretty large companies, it takes a delicate hand to navigate," he said.

Health Net also could lose a large government contract with the Department of Defense to provide services to 2.8 million beneficiaries. The contract is out to bid, Halper said.

Centene's rapid growth has been a boon to the region. More than 2,500 work for the company in the St. Louis area, up from the more than 900 local employees in 2012.

In 2010, the company built Centene Plaza, 17-story building in downtown Clayton where the company is headquartered.

The company now plans to build 20-story tower nearby that includes offices, a corporate training center, auditorium, corporate lodging and retail space.

This year, the company also opened its $25 million center in Ferguson, which employs about 200. Centene made the commitment to expand there in the aftermath of the unrest in 2014 following the shooting death of Michael Brown.

Samantha Liss --314-340-8017

@samanthann on Twitter

[email protected]

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