Brothers’ Ouster Prompts Speculation Molina Healthcare Will Be Sold

Chief executive J. Mario Molina, pictured here, and his brother, finance chief John Molina, were fired Tuesday from their positions at Molina Healthcare, a company their father, an emergency room physician, started in 1980. (Courtesy of Molina Healthcare)

Following the ouster of executives from its founding family, Molina Healthcare could become a target for rival insurers on the prowl for a deal.

The abrupt firing of chief executive J. Mario Molina and his brother, finance chief John Molina, on Tuesday stunned industry analysts and stoked speculation that Aetna, Anthem or other insurers would make a play for the company’s sizable business in Medicaid managed care and across the Affordable Care Act’s online insurance marketplaces.

The Long Beach, Calif.-based company has 4.2 million customers in 12 states and Puerto Rico. It posted $17.8 billion in annual revenue last year.

Dale Wolf, a board member who was named Molina’s chairman as part of Tuesday’s shake-up, said the company’s “disappointing financial performance” led to the change in management. The Molina brothers couldn’t be reached for comment.

On a conference call with analysts, Wolf downplayed the possibility of a merger. Instead, he said that the company is focused on hiring a new CEO in the coming months and that he saw no reason why Molina can’t be a successful, stand-alone company.

“I haven’t seen anything to suggest we aren’t big enough or not diverse enough to perform better than we have,” Wolf said. “It’s a great franchise and it has great assets. We just need to improve the results.”

But shares of Molina shot up nearly 18 percent in Tuesday trading on news of the management changes and speculation about a potential deal.

Ana Gupte, an analyst at Leerink Partners, said Aetna and WellCare Health Plans would be the most likely buyers — although she added that UnitedHealth, Anthem and Centene could all be interested if antitrust concerns can be addressed.

Two mega-mergers, Anthem-Cigna and Aetna-Humana, recently fell apart after federal officials challenged those acquisitions as anti-competitive. Now those companies and others could be back in the market for an acquisition. Last year, Centene acquired another California-based insurer, Health Net, for $6.3 billion.

David Molina, an emergency room physician, started his namesake company in 1980 in California. He saw a need among poor patients who had been turned away by doctors elsewhere who refused to accept Medi-Cal, the state’s Medicaid program. It grew into a handful of primary-care clinics and eventually became an insurer as well.

The entire Molina family pitched in during those early years at the first clinic in Long Beach. J. Mario Molina, the former CEO, his brother and their three sisters filed medical records, washed windows and mowed the grass. Their father died in 1996 and J. Mario Molina, a doctor who specialized in diabetes research, took the helm. The company went public in 2003.

The company grew more prominent during the rollout of the Affordable Care Act — with the expansion of Medicaid and creation of insurance exchanges. J. Mario Molina became an outspoken critic of Republican efforts to repeal and replace the landmark health law while many other industry officials held their fire publicly.

Just last week, Molina wrote a letter to House Speaker Paul Ryan (R-Wis.) warning that the company might withdraw from the exchanges if the federal government fails to pay the ACA’s cost-sharing subsidies to help some low-income consumers afford copayments and deductibles.

Molina serves more than 1 million people through exchanges across several states. It has nearly 69,000 enrollees in the Covered California exchange, or about 5 percent of the market.

On the conference call Tuesday, the company’s interim CEO, Joseph White, provided an upbeat outlook about the exchange business despite talk of disappointing results overall. The company posted 2016 net income of $52 million, down from $143 million a year earlier.

“The marketplace in general seems to be going better than it has in the past operationally and financially,” said White, chief accounting officer before being named acting CEO. “So far so good in the marketplace for 2017.”

But he reiterated that the company might have to rethink its participation in the exchanges if the Trump administration and Congress don’t commit to funding the cost-sharing subsidies. House Republicans have argued that the health law does not provide authority for the administration to fund those subsidies and went to court to stop them.

The company said the two ousted executives, J. Mario and John Molina, will continue to serve as board members.

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Capitol Desk Health Industry Medi-Cal The Health Law