In its first-ever deal to own behavioral health organizations, Molina Healthcare, Inc. said on Sept. 3 it agreed to acquire two behavioral health (BH) units of The Providence Service Corp. (PSC) for about $200 million. And President and CEO J. Mario Molina, M.D., told AIS that the company has been eyeing BH for years looking “for a suitable entry,” partly as a means for better managing care of Medicare-Medicaid dual eligibles.

Molina Healthcare is probably far from the only Medicaid managed care organization looking in this direction, industry observers say. Among the spurs that they cite are ongoing moves by several states aimed at “carving in” behavioral health rather than continuing to run it as a carve-out. Texas, for example, which is a state where Molina operates, has decided to terminate its NorthSTAR Medicaid BH carve-out with ValueOptions at the end of 2016 in favor of a carved-in approach.

But the big issue leading Molina to want to make the PSC acquisition is simply that it can yield a BH provider network further enabling the company to integrate care and make coverage “available and affordable” for beneficiaries with BH conditions, Dr. Molina stressed in an interview with AIS.

He explained that the company’s medical directors, among others, rated BH capabilities the No. 1 tool they needed for populations such as duals. Molina’s board of directors in a recent meeting retreat, he recalled, decided that having a BH provider group should be the “next step” in its corporate strategy of improving care and lowering costs. “We know people with chronic mental illness have short life spans since they’re not getting” the medications and care they need, he asserted.

Asked why Molina was taking the BH plunge now and not earlier or later, he responded that it was just a matter of getting together “a willing buyer and willing seller” with the right deal. PSC, which like Molina is a publicly owned company, fit the bill since its Providence Human Services, LLC (PHS) unit is a large provider of what it calls outcomes-based behavioral and mental services, with revenues of about $346 million in 2014.

PHS operates in the District of Columbia and 23 states, “many of which we are not in,” according to Molina. The two companies both have operations in California, Florida, Idaho, Illinois, Louisiana, Maine, Ohio, Texas, Virginia, Washington state and West Virginia. PHS also operates in Arizona, Colorado, Delaware, Florida, Georgia, Indiana, Massachusetts, Nevada, North Carolina, Oklahoma, Pennsylvania and Tennessee. Once the deal is completed, and the target for that is the fourth quarter, subject to regulatory approvals, Molina will be in 30 states, Dr. Molina added. His company now operates in 11 states and Puerto Rico, serving about 3.4 million members. Adding the PSC units will furnish “a platform for us” that, among other things, could be used for “small, tuck-in” acquisitions in the future, he said.

Even if the trend toward carving in BH rather than carving it out wasn’t a direct factor in the Molina-PSC deal, it certainly seemed to be an indirect contributor. “We have long believed that behavioral health should not be a carve-out,” Dr. Molina said, and “we believe this is where the industry is going.”

While the carve-in trend is real and “no surprise,” there are many other reasons why the planned acquisitions make sense for Molina, says Brian Wheelan, executive vice president and chief strategy officer of Beacon Health Strategies, a large privately held managed behavioral health organization (MBHO) firm. Partly because of Molina’s origins running clinics in California, for instance, he told AIS, “they can think like a provider.”

According to Whelan, two of Molina’s biggest markets, California and Texas, don’t have community or county-based mental health systems for Medicaid. Therefore, he said, acquisition of providers there does not mean competing with existing services, as might be the case in other states such as New York and Massachusetts. And organizations may well be able to get better outcomes on some “diversionary services” by owning providers.

Whelan said the timing of Molina’s move also makes sense because conditions have changed substantially from two or three years ago, when the focus was still on figuring out what the Affordable Care Act (ACA) changes would mean and when most big Medicaid contract procurements were still for women and children. Now, largely because of the ACA, the focus has shifted to long-term care and the aged, blind and disabled (ABD) — partly a reflection of initiatives to integrate care for duals — and states are looking more at actual social conditions. But Whelan also stressed that duals are “not the tail wagging the dog” in bringing about acquisitions of providers.

On the other hand, overall “long-term care, in my view, remains the Wild West,” making Molina’s “big” and “bold” move to acquire capabilities for that market appropriate, he added, especially since providers are so important for these services.

Whelan cautioned, however, that PSC is not an MBHO itself, so it’s not a “single-point solution” for services such as long-term care. Thus Molina will have to look elsewhere on some aspects such as social services that are “not in the PSC wheelhouse.”

Excerpted from the 9/17/15 issue of AIS’s Medicare Advantage News

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