WellPoint eyes $1.5 billion deal for XLHealth

November 14, 2011

WellPoint Inc., UnitedHealth Group Inc. and Aetna Inc. are weighing bids for XLHealth Corp., a provider of managed care for chronically ill Medicare members, said sources familiar with the matter.

Offers for XLHealth, owned by MatlinPatterson Global Advisers, may value the company at $1.5 billion to $2 billion, said the sources, who declined to be identified because the discussions are private. Jefferies Group Inc. is running the sale process, which has lasted a few months, sources said. A deal may be announced in the coming weeks.

Revenue from managed-care plans for Medicare, the U.S. health program for the elderly and disabled, may rise by $10 billion by 2015 as the so-called baby boom hits retirement age, analysts have said. That has spurred interest in companies invested in the plans, such as Baltimore-based XLHealth and HealthSpring Inc., acquired Oct. 24 by Cigna Corp. for $3.8 billion.

“Everyone’s been expanding their Medicare Advantage business because of the long-term growth prospects,” said Jason Gurda, an analyst at Leerink Swann in New York.

XLHealth, started in 1997, focuses on providing Medicare beneficiaries with managed care for diabetes, heart disease and other chronic conditions. It has 111,000 members in Medicare products, including the Part D drug plan and the so-called Advantage coverage for costs including physician fees and hospital charges.

“It’s our policy not to comment on rumors and speculation,” Jessica Pappas, spokeswoman for XLHealth, said Friday.

UnitedHealth, based in Minnetonka, Minn., serves the most Medicare customers at more than 7 million as of Sept. 30, according to company filings. Humana, in Louisville, is second with 4.3 million, Indianapolis-based WellPoint is third with 2.6 million and Aetna, based in Hartford, Conn., has about 837,000.

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 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.

The HealthSpring takeover by Bloomfield, Conn.-based Cigna is the largest of six insurer acquisitions of companies that manage Medicare coverage since the beginning of the year.

Similar acquisitions in the area of chronically ill coverage include the purchase of CareMore Health Group by WellPoint in June and Nashville-based Inspiris by UnitedHealth at the beginning of the year.


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