Three years ago, Long Beach-based managed care provider Molina Healthcare Inc. was reeling. The company had lost a series of state Medicaid contracts, first in Florida, then New Mexico and Texas, forcing its total Medicaid enrollment to less than 300,000 for the first time in nearly a decade. Investors sent the stock price back below $120 a share from about $150 a share a few months earlier.
Chief Executive Joseph Zubretsky, then only a couple of years on the job, acknowledged at an investor conference a general skepticism about the company’s ability to compete for contracts.
A couple of months later, Zubretsky hired two industry veterans who were to report directly to him and gave them the task of helping the company retain its existing Medicaid contracts and win new ones.
Last month, that strategic decision paid off in spades. Molina Healthcare scored its largest Medicaid win ever as the California Department of Health Care Services on August 25 announced it intends to award the company new or additional contracts in Los Angeles, Sacramento and San Diego counties. The biggest single contract is in its own backyard, in Los Angeles County; as of Jan. 1, 2024, Molina is poised to take on just over 1 million enrollees who are currently with Woodland Hills-based HealthNet, a subsidiary of St. Louis-based Centene Corp.
In all, Molina is poised to gain nearly 1.4 million California Medi-Cal enrollees in January 2024 – mostly at the expense of Centene. That’s roughly 27% of its nationwide total of 5.2 million Medicaid enrollees that it held at the end of last year.
“The awards represent pretty close to a worst-case outcome for CNC (Centene), with the crown jewel of the CA Medicaid program – Los Angeles County – set to transition from CNC to MOH (Molina),” Wells Fargo Research Equity Analyst Stephen Baxter wrote in a research note just hours after the state decision was announced.
“Conversely, for MOH the awards represent a best-case outcome and are actually more meaningful for MOH than CNC given the significant difference in revenue,” he added.
New contracts
Molina posted nearly $28 billion in revenue last year, while Centene reported $126 billion, meaning Molina is poised to beat out a company four times its size for the lucrative L.A. County contract.
But that wasn’t all. Just six days later, on Aug. 31, the Iowa Department of Health and Human Services announced that it intends to add Molina Healthcare to the slate of managed health care companies awarded contracts to provide coverage to nearly 800,000 residents eligible for Medicaid.
The department did not address how the nearly 800,000 enrollees would be divvied up among Molina and the other two incumbent firms poised to get contracts. Those details will be released in the coming weeks when the department makes its final award announcement.
These award announcements sent Molina’s stock briefly into record territory, topping $360 per share in intra-day trading on Aug. 26. The share price since settled back a bit, closing at $338.22 on Sept. 2.
But Molina does not yet have a lock on these awards. The finalized contracts are expected to be announced in coming weeks, though almost always the final awards are consistent with the intended award announcements.
And there’s another hurdle: Centene announced on August 26 that it is considering appealing the California agency Medi-Cal awards. As Molina itself knows, appeals can sometimes be successful: Molina on appeal managed to claw back some of those earlier contract losses in Texas.
Nonetheless, the awards are a major coup for the company.
“Molina has been showing demonstrable progress in its ability to win and retain managed Medicaid business through competitive RFP processes over the past couple of years,” said Scott Fidel, an analyst with Little Rock, Arkansas-based Stephens Inc.
Handling growth
The question going forward is whether Molina can handle such substantial growth in Medicaid enrollees all at once.
“Execution risk on implementing the new Medi-Cal contracts will be larger than normal for Molina,” analyst Fidel said.
He did note that Molina has 16 months to prepare – assuming the awards are finalized as announced and that Molina succeeds in fending off any appeals.
And Molina in its recent past spent considerable time and energy preparing for robust growth. When Zubretsky took over as chief executive of Molina, in 2017, the company was going through one of its roughest periods since its founding in 1980.
Zubretsky spent 2018 and 2019 focused on improving Molina’s operating margins, taking steps to bring costs more in line with its reduced enrollments and to improve billing operations.
Since that time, Molina has added hundreds of thousands of Medicaid enrollees, through state contract wins and through acquisitions.
But the Medi-Cal contracts Molina will likely onboard in 2024 involve several times more enrollees than any of Molina’s prior acquisitions or contract wins.
Molina did not respond to emails seeking comment on how it intends to manage these huge new contracts.
But Fidel said that in the past other Medi-Cal contract winners have looked to diffuse some of their operating and financial risks by subcontracting with other managed care providers to help deal with particularly large blocks of enrollees.
