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(Reuters) — Health insurer Centene Corp. reported a better-than-expected quarterly profit and said it would consider buying the Medicare Advantage plans its rivals are likely to divest during the current phase of consolidation in the managed care industry.
U.S. health insurers are consolidating in an attempt to cut costs and improve their bargaining power with doctors and hospitals.
Anthem Inc said last week that it would buy Cigna Corp. for about $54.2 billion, creating the largest U.S. health insurer, while Aetna Inc agreed to buy Humana Inc. for $37 billion this month.
Antitrust regulators have said both deals could result in the sale of Medicare Advantage plans in U.S. counties where the combined companies' market share is seen as anti-competitive.
Medicare Advantage plans are offered by private health insurers, which are in turn paid by the government.
Centene is more likely to buy the divested plans if they are in the company's existing markets, Chief Executive Michael Neidorff said on a conference call on Tuesday.
"If it's in a new market, it has to have significant size and scale to make it worthwhile," he said.
Centene currently runs Medicare Advantage plans in nine states, but will expand its footprint once it completes its merger with smaller rival Health Net Inc.
Centene, which agreed to buy Health Net for $6.3 billion this month, said net profit rose to $88 million, or 72 cents per share, in the second quarter ended June 30, from $49 million, or 41 cents per share, a year earlier.
The earnings per share figure includes a 1 cent per share charge associated with the Health Net merger.
Analysts on average were expecting net earnings of 69 cents per share, according to Thomson Reuters I/B/E/S.
The company also said it added 1.3 million members during the quarter compared with a year earlier.
However, Centene's health benefits ratio, or the amount it spends on medical claims compared with its income from premiums, deteriorated to 89.1% from 88.9% a year ago, due to a rise in costs as it entered two new states.
Centene forecast full-year earnings of $2.74 to $2.82 per share. Analysts were expecting $2.79 per share.
Total revenue rose 37% to $5.51 billion, but missed the average estimate of $5.53 billion.
The company's shares were flat in late morning trading on the New York Stock Exchange.
The proposed merger between Aetna Inc. and Humana Inc. all but assures further consolidation within the health insurance industry, experts say.