Dive Brief:

  • Molina has signed a deal to acquire some of Kentucky-based Passport Health’s assets including its Medicaid business, the California-based insurer said Friday. Molina will pay $20 million in cash on hand to finance the deal.  
  • The deal will substantially boost Molina’s footprint in the state. Passport commands about 21% of Kentucky’s Medicaid market, making it the second-largest plan there, according to enrollment figures. Molina recently won a contract award in Kentucky
  • The deal is expected to close by the end of 2020. Molina will acquire the Passport name, which is well known in Kentucky, and about 500 Passport employees.

Dive Insight:

Molina is continuing its slow march of acquiring plans that fit neatly into its core business of government-sponsored health plans. 

Earlier this month, Molina completed an acquisition of a smaller New York Medicaid plan, doubling its footprint there. The insurer has been clear about its strategy this year, noting earlier it would strictly focus on bolt-on acquisitions and would not deviate from its core operations and buy companies to pursue new avenues. Analysts are generally bullish on Molina’s direction.

“We view this deal as yet another example of the attractive opportunity to generate accretion from tuck-in Medicaid deals that [Molina] is uniquely well-positioned to capitalize on,” SVB Leerink analysts wrote in a Friday note on the buy.

CEO Joseph Zubretsky said Friday the latest move positions the company to compete “even more effectively in the market.” In a big win for the company earlier this year, Molina was awarded a contract to serve as one of five Medicaid managed care plans in the state of Kentucky, beating out other incumbents such as Anthem and Passport.

“While we are disappointed that Passport was not awarded a new MCO contract, we firmly believe that this agreement provides the best path forward for Passport members, providers, employees and our community,” Passport Health CEO Scott Bowers said in a statement. Passport has contracted with the state since 1997 to provide Medicaid benefits.

Acquiring Passport will help Molina avoid the typical costs associated with launching in a new state as Passport already has employees and existing infrastructure on the ground, SVB Leerink analysts said.

“This will help MOH to avoid typical, year one losses on new Medicaid market entries, which tend to feature start-up costs incurred in advance of any revenue and a 12-24 month path to breakeven,” they added. 

Molina currently has about 3.4 million members across the country.

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Molina to acquire Kentucky’s 2nd-largest Medicaid plan for $20M – Healthcare Dive