WellCare Health Plans has agreed to acquire Meridian Health Plans in Michigan and Illinois, along with its pharmacy benefit manager, for $2.5 billion in cash.
The acquisition, announced Tuesday afternoon, bolsters WellCare’s already strong presence in government-sponsored plans. Meridian has nearly 1.1 million Medicaid members in Michigan and Illinois, and the transaction will boost WellCare’s membership by 26% to 5.4 million.
The deal also opens up a re-entrance, and possible expansion, into the ACA marketplace. WellCare briefly sponsored a small number of exchange plans in two states in 2015 and 2016 before exiting the exchanges, but the acquisition of Meridian includes 6,000 ACA members in Michigan.
On a call following the announcement, WellCare CEO Ken Burdick said insurer maintains the capabilities to support those plans and added the company could expand that presence in other states.
“We believe the combination of these two companies will result in an enhanced ability to successfully participate in the exchanges beyond Michigan and provide optionality for WellCare should exchanges eventually become more stable,” he said.
The acquisition also adds a critical new capability in Meridian Rx, the company’s proprietary pharmacy benefit manager that has been in operation for seven years, serving all of Meridian’s membership as well as third parties.
“This transaction will provide us with additional insight into changing pharmacy costs and improving quality through the integration of pharmacy and medical care,” Burdick said. “In addition, it will give us more transparency in the pharmacy ecosystem.”
Burdick said the PBM’s “unique integrated capabilities” were a selling point in the transition, but he declined to offer a prediction about how it would impact the insurer's existing contract with CVS Caremark, which ends in 2020.
The acquisition comes as Cigna looks to close a $67 billion deal with Express Scripts, the country’s largest PBM.
The addition of Meridian is expected to add more than $4.3 billion in total revenue in 2018, bringing WellCare’s adjusted revenue for the year to $23 billion.