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Molina Healthcare fights to keep growing

Molina Healthcare — which serves exclusively as a managed-care plan for government programs such as Medicaid and Medicare — has lost two key state contracts recently, and its stock has tumbled.

April 27, 2012|By Chad Terhune, Los Angeles Times
  • Dr. Juan Pena examines 5-month-old Erick Madrigal at a Molina Healthcare clinic in Wilmington. Erick's mother, Mariana Jemenez, looks on.
Dr. Juan Pena examines 5-month-old Erick Madrigal at a Molina Healthcare… (Bob Chamberlin, Los Angeles…)

Healthcare companies are tripping over themselves to profit from a flood of government contracts for treating the poor and disabled, and a family-run company in Long Beach with nearly $5 billion in revenue is trying to stay ahead of the pack.

Amid the growing competition,Molina Healthcare facing new hurdles. It has lost two key state contracts in Ohio and Missouri and its shares have tumbled 23% in recent weeks.

J. Mario Molina, the company's 53-year-old chief executive, said that these are temporary setbacks and that the company remains in expansion mode. "We are growing like crazy even with the issues in Ohio," Molina said in an interview. "We have been doing this for 32 years, and we take the long view of things. We have to scale up."

Medicaid, the government program for the poor and disabled, has been one of the health insurance industry's fastest-growing businesses in recent years, particularly as enrollment in employer plans levels off. Officials hope managed-care plans can deliver substantial savings by keeping a close eye on patients.

Molina has been at the forefront of this trend for years, and its annual revenue has nearly doubled to $4.8 billion since 2007. It doesn't sell to employers or consumers; rather, it serves exclusively as a managed-care plan for government programs such as Medicaid and Medicare. It covers 1.7 million patients in California and nine other states.

Those numbers could grow even more: The federal healthcare law calls for insuring 16 million more Americans through Medicaid, which could mean $43 billion in additional revenue industrywide starting in 2014, according to a Citigroup industry analyst.

The company was started in 1980 by Molina's father, C. David, an emergency-room physician who treated poor patients who had been turned away by doctors elsewhere who refused to accept Medi-Cal, the state's Medicaid program.

The entire Molina family pitched in during those early years at the first clinic in Long Beach. J. Mario Molina; his brother, John, now chief financial officer; and their three sisters worked at the reception desk, filed medical records, washed windows and mowed the grass. Their father died in 1996, and J. Mario Molina, a physician who specialized in diabetes research, took the helm.

The company went public in 2003, and now it's the largest Latino-owned company in the U.S. in terms of revenue, according to Hispanic Business magazine. Molina has about 660 employees at its Long Beach headquarters and nearly 5,400 companywide. Shares of Molina, which will report first-quarter earnings Monday, were off 10 cents at $27.13 on Thursday. The stock hit a 52-week high of $36.83 on Feb. 16.

The priority for Molina now is trying to hang on to the business it already has. This month, its biggest customer, Ohio, said it wouldn't renew at the end of the year, and Molina lodged a protest. The Ohio contract accounts for 21% of company profits, according to a Barclays Capital analyst.

J. Mario Molina predicted that the state's decision will be overturned because, he said, the scoring of the bids was so seriously flawed. "This is really a clerical scoring error," he said. "The facts are on our side."

Joshua Raskin, a healthcare analyst at Barclays Capital, reviewed the company bids and agreed that Molina and other bidders received poor marks in several areas for no discernible reason. "While contract protests have not historically been successful," Raskin said, "we would not rule that out in this case."

Benjamin Johnson, a spokesman for the Ohio Department of Job and Family Services, said agency lawyers are reviewing Molina's protest.

Molina is also fighting back in Missouri. The state announced in February that it would cut its Medicaid vendors to three companies from five, and Molina sued the state, alleging it was violating competitive bidding laws. A spokeswoman for the Missouri Office of Administration declined to comment, citing the pending litigation.

Some analysts said that the investor sell-off of Molina is overdone and that the company remains a top contender to win new government contracts. But experts caution that Molina is facing heightened competition from larger rivals for these lucrative contracts and that Medicaid remains a risky business overall as cash-strapped states continue to cut reimbursements for healthcare.

Bigger rivals, such as UnitedHealth Group Inc. and WellPoint Inc., are aggressively pursuing more of these government contracts as growth slows in the employer-based market. In Ohio, UnitedHealth snagged one of the new contracts while Molina got nudged out.

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