Centene Plans to Acquire Major Behavioral Healthcare Platform

Centene has signed an agreement to acquire Magellan Health in order to better integrate its behavioral healthcare and physical healthcare services, the major payer announced.

“There is a critical need for a fundamentally better approach to supporting people with complex, chronic conditions through better integration of physical and mental health care. This has become even more evident in light of the pandemic which has driven a dramatic rise in behavioral health needs,” said Michael F. Neidorff, chairman, president, and chief executive officer of Centene.

“This acquisition accelerates our diversification strategy and enhances our ability to build next generation capabilities in our specialty care business by leveraging our scale and investments in technology. Furthermore, we are very familiar with the range of Magellan Health's healthcare solutions as we have been one of their customers over many years, and our shared commitment to taking care of the most vulnerable populations makes this transaction a natural step.”

Centene will acquire the managed behavioral healthcare company for $2.2 billion, leveraging a bridge financing commitment with JP Morgan.

The deal would have considerable implications for Centene’s membership size.

Once the transaction is complete, it would leave Centene with one of the nation’s largest behavioral healthcare platforms. The platform will serve 41 million members.

Additionally, the acquisition would bolster Centene’s public payer health plan membership by adding 5.5 million new members in Medicaid or Medicare.

Magellan Health also provides pharmacy services. For example, the company’s Magellan Rx Management has served as the pharmacy benefit manager for the state of Michigan. Thus, the acquisition would also increase Centene’s pharmacy benefit manager members by 2 million and its number of medical pharmacy members by 16 million.

Moreover, Magellan Health would add 18 million third-party customers to Centene’s membership.

In addition to boosting enrollment numbers, the acquisition promises healthcare spending advantages. Since Magellan Health offers solutions for specialty, high-complexity, and high-cost population health management, Centene may be able to address its high spending patient groups more effectively.

Not only does the payer expect its healthcare spending to decline, but its administrative and operational costs may also diminish due to this acquisition.

The press release projected that the deal would slowly increase Centene’s share price and would also result in $50 million in operational cost savings—or net cost synergies—by the second full year on top of another $75 million in cost reductions.

Magellan Health would complement existing platforms within Centene, the press release shared, such as the Health Care Enterprises platforms. There is precedent for this in Centene’s recent announcement that it would acquire Apixio and operate that company independently under Centene’s Health Care Enterprises group.

“As part of Centene's Health Care Enterprises, Magellan Health will continue to independently support its existing customers and pursue growth opportunities,” said the press release. “In addition, the transaction will create attractive shareholder returns through enhanced service capabilities, cross-sell opportunities and increased engagement with third-party customers.”

While the Magellan and Centene boards of directors have unanimously approved the deal, the acquisition has yet to obtain state regulatory approvals as well as Magellan Health stockholders' approvals along with other closing conditions. The companies expect that the transaction will be complete in the second half of 2021.

“Ken Fasola, CEO of Magellan Health, and other members of Magellan Health's leadership team have agreed to join Centene to provide continuity to Magellan Health's strategy and leadership,” the press release added.

Magellan has previously partnered with and sold to other major payers. In April 2020, Magellan Health announced that Molina Healthcare would be acquiring Magellan’s Medicaid and Medicare plans. That acquisition was finalized the same day that Centene made this announcement.