Baltimore-based Bravo Health to be bought for $545 million

Impact unclear for 650 employees at Brewers Hill headquarters

August 27, 2010|By Scott Calvert, The Baltimore Sun

Bravo Health Inc., a fast-growing yet little-known Baltimore insurance company that operates Medicare Advantage health plans, will be acquired by Tennessee-based HealthSpring Inc. for $545 million, the two companies announced Friday.

Privately held Bravo employs about 650 people at its Brewers Hill headquarters, ranking it No. 32 in terms of staff size among private city employers, based on a list compiled by Baltimore's economic development arm.

"This is a good news-bad news story," said Richard Clinch, director of economic research at the University of Baltimore's Jacob France Institute. "Maryland continues to be a good place for entrepreneurs. The bad news is we often lose our companies."

Clinch said local job losses at Bravo could be "minimal" since the two companies do not operate in the same geographic areas. But, he said, "inevitably when companies get acquired, some of the function goes away — typically your back-office types of functions."

CEOs of the two companies offered scant insight into employment plans during a conference call with Wall Street analysts. A Bravo spokesman said it was "really premature" to predict staffing levels at the combined company.

"We've got a lot of work ahead of us in transition planning," said the spokesman, Scott Ptacek. The deal is expected to close by year's end, and Bravo will spend "a significant amount of time discussing with the folks at HealthSpring about how we can bring the two companies together."

Bravo, founded in 1996 as Elder Health, has grown rapidly in recent years, nearly doubling the number of jobs at its Baltimore headquarters since 2006.

"It's a nicely run little company," said Stephen Zaharuk, senior vice president of Moody's Investor Service in New York. "Management is very focused and very conservative."

Its profile is so low that Clinch said he had never even heard of Bravo. "And I'm supposed to know all these things," he said.

Bravo provides Medicare Advantage to about 100,000 people in Maryland and four other states, as well as the District of Columbia. Medicare Advantage is a government-sponsored, privately run program for the elderly that offers comprehensive coverage.

Unlike with traditional Medicare, seniors who choose Medicare Advantage have limited choice in the doctors they see but often pay no deductible and enjoy low co-payments, Zaharuk said. Medicare Advantage plans provide a wider range of benefits, including eyeglasses and hearing aids, he said.

Bravo also offers Medicare Part D prescription drug plans to 290,000 people in 43 states. Nationally, the company has more than 1,000 employees and had total revenue of $835 million the first half of 2010.

HealthSpring, which is financing the purchase with a mix of cash and debt, is about twice the size of Bravo and philosophically similar, Ptacek said.

Bravo is based in a renovated complex where the National Brewery and Gunther Brewery both operated at O'Donnell and South Conkling streets. Atop one building is a 27-foot neon "Mr. Boh" sign, the distinctive one-eyed emblem of the National Bohemian beer that was once made there.

Just last summer, city officials were hailing Bravo's decision to expand its headquarters presence. At the time, M. Jay Brodie, president of Baltimore Development Corp., called it a "great outcome to ensure that one of the area's fastest-growing health care companies will continue to call Baltimore home."

Zaharuk of Moody's said that while duplicative jobs could be cut, he expected HealthSpring to move cautiously with any staff reductions.

"You'd think a lot of the personnel that interact to bring the product to the street and interact with patients and members are key to the success of these plans," he said. And he added that the merger could give managers an incentive to keep staff: "Maybe some overhead is necessary to oversee a more complicated and bigger plan."

Ptacek said: "Materially, HealthSpring needs our infrastructure and manpower to run the business. We'll continue to do exactly what we've been doing."

In the conference call, HealthSpring CEO Herbert Fritch called the Bravo acquisition "a vote of confidence in the long-term viability of the Medicare Advantage program."

"Bravo Health shares in our core [belief] that health care is best delivered by engaging providers who are rewarded for providing high-quality care and efficiently managing medical costs," Fritch said.

Bravo chief Jeff Folick said the two companies are "a natural fit," adding, "we feel that aligning incentives with our primary care partners is the foundation toward a sustainable delivery model."

Under the federal health care reform legislation, Medicare Advantage providers will see their reimbursement rates drop. As Zaharuk put it, the program will "take it on the chin."

The reductions will be phased in, though, starting in 2012. The legislation also requires 85 percent of premiums to be spent on medical care. In that sense, Zaharuk said HealthSpring and Bravo might be better off joining forces.

"It's all about economies of scale," he said.

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