Not unexpectedly, Molina Healthcare is not going to pay the original purchase price for Bright Health’s California plans in Q1 2024. In July, Bright Health trumpeted a $600 million salvage deal with Molina, one of the few ‘pure’ health plan companies left. For Molina, they would pay $510 million plus a $90 million tax benefit for Bright’s two California Medicare Advantage (MA) plans–Brand New Day and Central Health Plan. One of the caveats of the deal was the ability to reduce the payment due in Q1 2024 based on the purchased plans’ financials and Star ratings. Unfortunately for Bright Health, neither financials nor ratings are good. Molina is reducing their payment accordingly to $425 million, unceremoniously, paying less for more membership in MA. Release
Why Bright is dimming rapidly. Bright’s health plans have failed or closed shop in multiple states [TTA 20 Apr] after disastrous 2022 performances. Most recently, their Texas plans were seized for liquidation. In these plans, the Center for Medicare & Medicaid Services (CMS) assesses risk adjustment payments that Bright owed to other plans in states where they did business [TTA 5 Dec]. That has been calculated as $380 million–$89.6 million alone in Texas. The bottom line: Bright owes money everywhere–not only to other payers for where they operated in 2022 but also to JP Morgan–$380 million to pay off its credit facility due in February.
Ari Gottlieb of A2 Strategies on LinkedIn plus interviewed in Becker’s and MedCityNews, has been following this closely as this Editor has noted in his earlier coverage of insurtechs. His over/under is that Bright will pay off JP Morgan first, perhaps kick some over to their lender New Enterprise Associates (NEA), and leave CMS and payers owed in multiple states holding a bag of stale or soggy chips. He explains the escrow setup with Molina plus other factors such as management bonuses (!!!) for completing the transaction. A smart move in his eyes is that the Texas Department of Insurance, by liquidating the TX plans and blocking actions by Bright, may be able to claw back over $125 million out of NeueHealth, a Bright subsidiary.
Absent another Loaves-and-Fishes miracle, reserved for our Redeemer, this Editor cannot see how Bright doesn’t go dark in 2024. One possibility to this Editor: NEA ponies up more investment on top of their $60 million credit facility engineered in August. Given the coal scuttle that is the current state of M&A, they may see this as their only alternative with their investment cash, to push for a recovered and small Bright. Absent a Chapter 7 breakup, what company would buy the liabilities to payers and lenders for what is left–NeueHealth? Then have DOJ and FTC turning a microscope on them? Perhaps in June 2024, but not now.
You have to hand it to Bright Health. They have done a masterful job of tying states, CMS, other health plans, and even Molina into Gordian knots that buy time against what seems to be the inevitable.