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UnitedHealth to acquire Medicare insurer XLHealth

November 22, 2011

UnitedHealth Group Inc. said it will acquire XLHealth Corp., a provider of managed care for chronically ill Medicare members.

Indianapolis-based WellPoint Inc. had been considering a possible acquisition of the company, Bloomberg News reported Nov. 14.

Financial details for the all-cash transaction were not disclosed, but sources familiar with the deal said the company could be valued at $1.5 billion to $2 billion.

The purchase will be completed in the first half of 2012, and is expected to be accretive to UnitedHealth earnings per share, Minnetonka, Minn.-based UnitedHealth said Tuesday in a statement. XLHealth, owned by MatlinPatterson Global Advisers and based in Baltimore, estimates its 2012 sales will exceed $2 billion, the statement said.

Revenue from managed-care plans for Medicare, the U.S. health plan for the elderly and disabled, may rise by $10 billion by 2015 as baby boomers retire, analysts have said. The purchase of XLHealth, with 111,000 members, is the seventh since Jan. 1 involving companies that manage Medicare coverage.

“XLHealth represents an attractive acquisition opportunity for the large health insurance companies because of its focus on Medicare Advantage, which is poised for strong growth,” said Jason Gurda, an analyst at Leerink Swann in New York, prior to the deal being announced. Medicare Advantage managed care plans cover medical services, physician fees and hospitalizations.

Begun in 1997, XLHealth provides Medicare members with managed care for diabetes, heart disease and other chronic illnesses. UnitedHealth serves the most Medicare customers, with more than 7 million as of Sept. 30, company filings show. Humana, based in Louisville, is second with 4.3 million.

The purchase follows an agreement by Cigna Corp., the fifth-largest health insurer, to buy Healthspring Inc., another Medicare managed-care company, for $3.8 billion on Oct. 24.

Similar purchases in the area of managing the chronically ill include the takeover of CareMore Health Group by WellPoint in June and Nashville, Tenn.-based Inspiris by UnitedHealth Group Inc. at the beginning of the year.

The first baby boomers — people born from 1946 to 1964 — are turning 65 this year, a factor that’s likely to boost revenue for insurers who manage such plans by $10 billion in the next five years, Sarah James, an analyst at Wedbush Securities Inc. in Los Angeles, wrote in an Oct. 24 report.

James estimated as many as half of Medicare’s enrollees will sign up for managed care within five years as the ranks swell with a generation more familiar with preferred provider networks and health maintenance organizations.

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