Wed 10/27/2021 18:41 PM
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Relevant Document:
DMHC Meeting Presentation

Takeaways

  • Magellan Health CEO Kenneth Fasola, Centene Vice Chair Sarah London and three consumer advocacy groups appeared today before the California Department of Managed Health Care to discuss the potential impacts of Magellan Health and Centene’s proposed combination.

  • The three health advocacy groups supported the recommended conditions and urged the department to impose the measures to mitigate the competition concerns.

  • Interested parties may submit comments to the DMHC until Nov. 3 at 8 p.m. ET. The DMHC’s review is not subject to a statutory time frame.

  • During Centene’s third-quarter earnings call yesterday, Tuesday, Oct. 26, London said that the company awaits the final regulatory approval in California and continues to expect the deal to close by year-end.


Magellan Health CEO Kenneth Fasola, Centene Vice Chair Sarah London and three consumer advocacy groups appeared before the California Department of Managed Health Care to discuss the potential impacts of Magellan and Centene’s proposed combination.

The department had previously determined that the proposed combination is a “major transaction or agreement” requiring a public hearing and comment, as well as independent analysis to evaluate whether the transaction will significantly lessen competition in healthcare plan products or create a monopoly in California.

The independent analysis report, dated Oct. 12, identified that the proposed acquisition is likely to substantially lessen competition among sellers of employee assistance program, or EAP, services to employers across the state. The report recommends the divestiture of Magellan’s EAP business in California, including its contracts with providers for EAPs and its contracts with customers of EAPs.

Additionally, the report suggests the DMHC impose conditions that (1) prohibit the combined entity from entering any contractual arrangements with behavioral care providers that restrict behavioral care providers’ ability to contract with employers and sellers of healthcare financing services; (2) prevent the transfer of competitively sensitive information in healthcare financing services; and (3) ensure Magellan’s customers continued access to services of behavioral care providers for a period of two years at rates that increase by no more than the prior year’s inflation rate.

The three health advocacy groups supported the recommended conditions and urged the department to impose the measures to mitigate the competition concerns. The advocacy groups also requested the department complete additional analysis to evaluate the impact of the proposed acquisition on a county-level basis rather than the state-level data utilized in the report. The advocacy groups also requested analysis that considers the projected demand growth in behavioral health services, including implications of the recently enacted state legislation that expands behavioral healthcare.

California health and safety code permits the DMHC to “disapprove the transaction or agreement if the director finds transaction or agreement would substantially lessen competition in healthcare plan products or create a monopoly in this state, including, but not limited to, health coverage products for a specific line of business.”

In California, Centene and Magellan both provide (1) behavioral-specific healthcare financing services, (2) pharmacy benefit manager, or PBM, services, (3) specialty pharmacy services, and (4) employee assistance programs.

Centene sells a “full set of healthcare financing services,” and Magellan sells behavioral-specific healthcare financing services, PBM services, and specialty pharmacy services to healthcare financing services providers that compete with Centene, according to the independent analysis report.

The DMHC asks interested parties to submit comments by Nov. 3 at 8 p.m. ET. DMHC Director Mary Watanabe noted that the department considers public comment before reaching a decision in its review, which is not subject to a statutory time frame.

During Centene’s third-quarter earnings call yesterday, Tuesday, Oct. 26, London said that the company awaits the final regulatory approval in California and continues to expect the deal to close by the end of the year.

Reorg’s coverage of this transaction can be found HERE.
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