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California Picks Counties For Medicaid, Medicare Demonstration Project

04/05/2012 | 01:36pm US/Eastern
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   By Jon Kamp 
   Of  
 

California has picked four counties for a demonstration program to improve coverage for hundreds of thousands of people who qualify for Medicare and Medicaid, and analysts said insurer Health Net Inc. (>> Health Net, Inc.) could benefit significantly from the move.

A potential expansion to six more counties for California's demonstration project for "dual eligible" patients could also carry big benefits for Molina Healthcare Inc. (>> Molina Healthcare, Inc.). Further state and federal authority will be needed to grow beyond the initial four counties, and the federal agency for the government health plans has to sign off on the entire California demonstration project.

California has about 1.1 million dual eligible patients, more than any other state. These patients often have very expensive health needs, yet don't always receive the best care because the government health plans for the elderly and poor work in different ways. This can confuse patients and add costs.

"The goal is to design a seamless system that helps dual eligible beneficiaries get the health care services they need and improve health outcomes in a more fiscally efficient manner," said Toby Douglas, director of the California Department of Health Care Services, in a press release.

California is one of several states that could have pilots for covering dual patients up and running early next year. The push--sparked in part by the U.S. health-care overall law--has become a hot topic in the managed-care sector amid expectations duals could represent a $300 billion revenue opportunity over several years.

The California health department announced late Wednesday that Los Angeles, Orange, San Diego and San Mateo counties would be the initial participants in the three-year demonstration project. The biggest of those counties--Los Angeles--has about 374,000 dual-eligible patients alone.

The health department selected Health Net, which is headquartered in the Los Angeles area, to participate in the duals program for Los Angeles and San Diego counties. Analysts said this could represent a substantial business expansion opportunity for the insurer, which had 1 million Medicaid members in California as of Dec. 31.

The state also picked L.A. Care, which is a public entity, to participate in the Los Angeles County market. Molina and two other health plans were also named for San Diego County. Health Net, Molina and much bigger WellPoint Inc. (WLP) are the only publicly traded companies that can participate in the California duals effort because they are incumbent Medicaid insurers there, Goldman Sachs analyst Matthew Borsch noted.

Citigroup analyst Carl McDonald raised his 2014 revenue projection for Health Net by about $5 billion to more than $17 billion and boosted his per-share earnings forecast by $1.35 to $5.00. He also significantly raised forecasts for Molina while noting the planned expansion to six more counties "will have a meaningful impact" for that company.

Shares of Health Net, up 33% this year amid high expectations for the duals market, rose 1.7% to $40.57 in recent trading. Shares of Molina, which has posted an even steeper 57% gain on the year, were recently up 0.5% to $35.01.

WellPoint recently traded down 11 cents to $72.01.

The California project calls for selected health plans to get a blended, monthly payment from Medicare and the state's Medicaid health program. The health plans are expected to improve care for patients while saving money, since patients with poorly managed health problems can quickly rack up bills in hospitals and nursing homes.

The state estimates its duals plan will trigger about $679 million in general-fund savings in the 2012-2013 fiscal year, and then $1 billion in savings the next year.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

Stocks mentioned in the article : Health Net, Inc., Molina Healthcare, Inc.
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