$6.8 Billion Health Insurance Merger Clears First State Hurdle

The California Department of Managed Health Care gave a green light Tuesday to the $6.8 billion acquisition of Health Net Inc. by St. Louis, Missouri-based Centene.

It’s the first of two California regulatory approvals needed before the deal can be finalized.

The department imposed conditions on the sale. Among them: The headquarters of Health Net, a Woodland Hills-based company, must remain in California, and the combined company must make several improvements in quality of care and access.

The conditions “will improve both plan performance and care for California’s members,” Shelley Rouillard, director of the department, said in an interview.

“I feel good about the investments we have obtained and the quality improvement plans they are committed to,” Rouillard added. “We will be monitoring this over the coming years to ensure they carry out their commitments.”

The Department of Insurance, California’s other health insurance regulator, also needs to sign off on the deal. That department did not reveal a timetable for its decision.

Approval in California is the last step needed to close the deal.

Centene said in a prepared statement it expects to close the transaction shortly after insurance department signs off on it.

Ana Gupte, a health care analyst at Leerink Partners in New York, said she expected that the managed health care department’s signoff would pressure the Department of Insurance to approve the transaction as well.

Merger conditions, according to the Department of Managed Health Care, are:

  • The construction by Centene of a new $200 million service center in an “economically distressed” area of California that will create at least 300 jobs.
  • A requirement that Health Net’s key functions and operations remain in California, including its headquarters.
  • Improvement of quality of care measures and oversight.
  • Establishment of a $65 million program to improve the health outcomes of enrollees, and another $75 million commitment to the state’s health care infrastructure for under-served groups.

The Department of Insurance is scheduled to hold a public hearing on another pending health insurance merger — the $54 billion deal between Anthem and Cigna — on March 29.

Chad Terhune contributed to this report.

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