(By Mani) Florida Governor Rick Scott announced his support for the expansion of the state's Medicaid program under healthcare reform, after gaining Federal approval to shift the program to Medicaid managed care.
The approval comes after nearly two years of negotiations, and is contingent upon the state providing tangible quality measurements using real-time data, holding regular meetings with health advocates/patients/providers and hiring an ombudsman to oversee the long-term care portion.
The support came as a surprise as Florida was one of the states that sued to try to block Obamacare. The Supreme Court ruled last year that though the law was constitutional, states could choose not to expand their Medicaid programs.
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The privatization of the program is expected to move about 3 million individuals to Medicaid managed care, and expansion of Medicaid will increase enrollment by about 900,000.
As one of the largest Medicaid populated GOP states, Florida's announcement marks a significant win for healthcare reform and would positively benefit the state's hospitals.
"We believe the agreement will have a significant impact on the state's hospitals, which will likely see a decline in uncompensated care, as well as on Medicaid managed care companies, which are presented with a significant business opportunity," Oppenheimer analyst Michael Wiederhorn wrote in a note to clients.
The companies expected to benefit from the latest development include Health Management Associates, Inc.(NYSE: HMA), HCA Holdings, Inc. (NYSE: HCA), and Centene Corp. (NYSE: CNC). These companies stand to benefit dramatically from expansion of Medicaid program due to their outsized exposure to the state.
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"Specifically, HCA (26% of beds), HMA (29%), THC (26%) and UHS (10%) should all see a sharp decline in uncompensated care as a result of the expansion," Wiederhorn noted.
In addition, Medicaid managed care companies are poised for a windfall as the agreement provides a significant new business opportunity. Per 2011 SNL data, the leading Florida Medicaid players are WellCare Health Plans, Inc. (NYSE: WCG) with 30 percent market share, Centene with 17 percent share, WellPoint, Inc. (NYSE: WLP) with 15 percent share and UnitedHealth Group, Inc. (NYSE: UNH) with 11 percent share.
Notably, Centene is likely to see the biggest impact, as Florida Medicaid accounts for about 10 percent of premiums, and so as WellCare with 14 percent of premiums coming from the state.
Overall, the agreement to expand Florida's Medicaid program and the waiver to move the population to managed care is a boon to both hospitals and managed care companies in the state.
Investors could benefit by adding positions in HCA, Health Management and Centene stocks as they are poised for upside r due to the current Medicaid deal.