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The state of Ohio is shaking up its Medicaid health-plan ranks in a surprising move that opens new business for Aetna Inc. (AET) in 2013 but marks a sharp loss for incumbent Medicaid insurers Molina Healthcare Inc. (MOH) and Centene Corp. (CNC).
Fellow incumbents Amerigroup Corp. (AGP) and WellCare Health Plans Inc. (WCG) are also losing business in Ohio, but to a lesser degree, analysts said. The loss is "most problematic for Molina," which gets about 20% of its revenue from Ohio, according to Citigroup analyst Carl McDonald.
Shares of Molina plunged Monday, recently falling 25% to $26.12. Centene's shares dropped 14% to $43.59.
The Ohio Department of Job and Family Services said Friday that five managed-care organizations--Aetna and UnitedHealth Group Inc. (UNH), plus nonprofits CareSource, Paramount Advantage and Meridian Health Plan--would serve Ohio Medicaid recipients starting Jan. 1 of next year. The state's Medicaid program represents a new market for Aetna and Meridian.
The state also simplified the way it breaks up coverage for its Medicaid recipients by moving to three service regions rather than eight.
"The managed care plans selected stood out among the applications and are committed to improving health outcomes, ensuring access to care, and providing intensive case management services, especially to those individuals with the most complex medical and social conditions," Ohio Medicaid Director John McCarthy said.
The change came as a surprise as "most expected the large incumbents to be heavily favored to win the new awards," Wells Fargo analyst Peter Costa said.
Molina acknowledged that it wasn't selected for the Ohio Medicaid program starting next year. Centene, which said the announcement was expected to be "immaterial" to 2012 earnings, is planning to file a formal protest with the state.
"We believe there were fundamental flaws in the procurement process, and we plan to pursue all available remedies," Jesse Hunter, executive vice president of operations at Centene, said in a release.
Amerigroup said it was "disappointed" with the results and is reviewing the state's scoring of the submissions. The company "will evaluate our options once the analysis has been completed," a spokeswoman said.
Susquehanna analyst Chris Rigg downgraded both Molina and Centene to neutral from positive on the contract losses. Both Medicaid insurers have seen their stock prices climb significantly this year because of high expectations they will capture business as states move to cover "dual-eligible" patients who qualify for both Medicaid and Medicare.
Dual patients are seen as a potential $300 billion opportunity for managed-care firms. Medicare is the federal government health plan for the elderly, and Medicaid is the plan--also paid for by states--for the poor.
Ohio is among the states pushing to start coordinating care for dual-eligible patients next year. But the pure-play Medicaid insurers dropped in Ohio could now be at a disadvantage in that process, Goldman Sachs analyst Matthew Borsch said.
Meanwhile, the Ohio selection "should be viewed positively" for Aetna, the analyst said. This "marks the company's first major Medicaid contract win following a poor showing during 2011," he said.
Still, Aetna shares fell Monday, recently off 1.5% to $48.86 as the broader market slumped. Shares of WellCare slid 6.7% to $69.24, while those of Amerigroup declined 5% to $64.11.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728; firstname.lastname@example.org