Elder Health buying a Medicare HMO in Pa.

January 03, 2007|By M. William Salganik | M. William Salganik,Sun reporter

Baltimore-based Elder Health Inc. announced yesterday the acquisition of another Medicare HMO that will roughly double its size, adding a likely 75 jobs to its 300-person work force here.

Elder Health is buying Senior Partners, the Medicare HMO in Philadelphia that is part of Health Partners, an insurer owned by seven teaching hospitals.

The deal will bring 21,000 new Medicare members in the Philadelphia area, added to the 14,000 Elder Health already has there. Terms were not disclosed.

The acquisition is the first for the 11-year-old company, which over the past year has brought in a new chief and other top executives to develop a more expansive business plan. The company has traditionally focused on low-income Medicare beneficiaries who are also eligible for Medicaid. The so-called "dual eligibles" represent about half of Elder Health's 26,000 current members and about half of Senior Partners' members as well.

The consolidation also marks the increasing attractiveness of the Medicare market.

Medicare HMOs collect monthly fees for each person they enroll, and make a profit when they hold the cost of care below premiums. Medicare pays more for dual eligibles, who as a group tend to be in poorer health.

New Medicare rules, which went into effect last year, not only created private prescription insurance for seniors, but increased reimbursements to private HMOs and other health plans that enroll seniors.

In Jeffrey M. Folick, who joined in March, Elder Health got "a superstar Medicare CEO," said Thomas A. Carroll, a health analyst at Stifel, Nicolaus & Co. Inc. in Baltimore. Carroll said Folick built the Medicare business of California-based PacifiCare, which has since been acquired by UnitedHealthcare, the country's largest health insurer.

"We've had a fair amount of growth over the past four years, but didn't seem to be meeting our financial performance goals," Folick said. He replaced Michael Steele (not the lieutenant governor), who founded the company in the mid-1990s. Steele remains a major investor, but holds no current executive position or board seat.

Folick, in turn, recruited half a dozen or so other top managers, including Scott Tabakin, brought in this past July as chief financial officer. He previously held a similar position at Amerigroup Corp., a publicly traded operator of Medicaid health plans.

By bringing in "two seasoned public [company] guys," Carroll said, it looks as if Elder Health is moving toward an initial public offering of stock, which could reward initial investors, including New Enterprise Associates, a Baltimore venture capital firm.

"The handwriting is more than on the wall," Carroll commented.

Folick didn't discount the possibility of going public at some point, but said the company had work to do first.

`We'll build'

"We're a ways from that," Folick said. "We're not large enough yet. We don't have the financial performance yet. We don't have the predictability yet. We'll build those over the next two or three years and see where we are."

Folick said it is hard to grow by launching Medicare HMOs from scratch because members are reluctant to switch health plans. Therefore, he said, the company would look to future acquisitions to enter attractive new markets or, as in Philadelphia, grow in markets where it already has a presence.

In addition to acquisitions, Folick said, Elder Health is looking for members beyond dual eligibles, who constitute only about 18 percent of Medicare beneficiaries. So Elder Health is expanding the edges of its urban markets in Baltimore, Philadelphia, Pittsburgh and four cities in Texas, seeking to enroll higher-income seniors in the suburbs in regular HMOs.

Folick said Elder Health is entering the rapidly growing private fee-for-service phase of the Medicare market as well. And it is offering prescription-only Medicare insurance, making itself a one-stop-shop for a variety of Medicare products.

Seeking to broaden its appeal, Elder Health is branding its products "Bravo by Elder Health." Over the next year or so, Folick said, the "Bravo" name will become more prominent, and the "Elder" less so.

Surveys of current and potential members found the Elder Health name "was a little narrow in how it made people view the company," Folick said, adding, "I'll be 60 this year, so I'll be signing up for Medicare in five years, and I don't think of myself as `elder.'"

Folick said the jobs added in Baltimore by the acquisition would include claims processing and enrollment, as well as nurses who review medical treatment. He said the company recently secured additional space across O'Donnell Street from its Canton headquarters.

Benefits unchanged

The deal, which needs to gain approval from Medicare, is likely to close at the end of this quarter, according to Folick, and will be financed one-fourth by additional equity from current investors and three-fourths by bank debt.

Members of Elder Care and Senior Partners will retain their same benefit and premium structure this year, but will have access to doctors and hospitals in each other's network.


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