The combined company will haveabout $30 billion in drug spending, making it a major player in thepharmacy-benefit management market.

Health insurer Centene Corp. agreed to buy managed-care providerWellCare Health Plans Inc. for more than $15 billion, expanding inthe market for government insurance plans just as politicians inWashington appear to be gearing up for another health-policy clash.

Centene, based in St. Louis, offered $305.39 per share in cashand stock for Tampa, Florida-based WellCare, the companies said ina statement Wednesday. The boards of both companies backed thetransaction, which has an enterprise value of $17.3 billion. Dealtalks between Centene and WellCare were first reported by Bloombergon Tuesday.

Both insurers have erected significant businesses aroundgovernment health programs. Centene is focused on Medicaid andAffordable Care Act markets. WellCare also offers Medicaid andObamacare coverage and has a large Medicare business catering tothe elderly. A combined insurer would have 22 million members ingovernment-sponsored health programs across 50 states, thecompanies said.

Related: By 2027, government programs will make up nearlyhalf of health care spending

Centene Chief Executive Officer Michael Neidorff's ambitionsdon't end there.

“You don't achieve a number and say, I don't need to growfurther,” Neidorff said on a conference call Wednesday. “The morewe can add, the more we can grow in this area, the better therecipients are, the better for the investors.”

Such grand goals have presented obstacles for other insurers. In2017, the courts blocked mergers between Aetna Inc. and CignaCorp., and Anthem Inc. and Humana Inc. Aetna eventually merged withpharmacy chain CVS Health Corp., and Cigna bough drug-benefitsmanager Express Scripts.

Neidorff said that he expected the deal with WellCare to getthrough an antitrust review, despite prior deals gettingblocked.

“There is not all the same issues, all the same issue from acompetitive standpoint,” he said. “While there is some overlap insome of the states, we believe it's all very manageable.”

Investors, however, are signaling doubts — WellCare's shareswere trading more than $35 below the value of Centene's offer afterthe market opened on Wednesday, a sign traders aren't certain thedeal will close. The companies said they plan to complete the dealin the first half of 2020.

WellCare shares were up 9.4 percent to $253.01 at 10:10 a.m. inNew York. Centene was down 8.4 percent to $50.24.

Drug spending

The combined company will have about $30 billion in drugspending, making it a major player in the pharmacy-benefitmanagement market. That industry is dominated by Cigna, CVS andUnitedHealth Group Inc.

Centene has said it plans to move its pharmacy-benefit contractaway from CVS. WellCare CEO Kenneth Burdick said his company, whichalso contracts with CVS, would also evaluate other options.“There'll be some attractive opportunity for us to improve ourcurrent position,” Burdick said.

The companies projected about $500 million in savings in thesecond year after the deal closes. That includes possibledivestitures to appease antitrust authorities.

Executives from WellCare are expected to join Centene, thoughthe companies declined to describe the precise roles of they wouldtake in the newly combined management team.

Deals and politics

The first quarter has been the biggest of the past 12 years forhealth-industry mergers and acquisitions globally, according todata compiled by Bloomberg. Bristol-Myers Squibb Co.'s $89 billionpurchase of Celgene Corp., including debt, accounted for much ofthe $173 billion total for 591 deals announced in the quarter sofar.

The Centene-WellCare deal arrives just as President Donald Trumpand Democrats in Congress are renewing a long-running feud over theAffordable Care Act. The law survived a 2017 repeal effort byRepublicans, but 20 conservative-leaning states sued last year tohave it repealed on the grounds that changes in tax law invalidatedit. Trump's Justice Department this week backed that effort, to theire of Democrats.

On Tuesday, Trump tweeted that Republicans would be the “partyof healthcare,” while Democratic leaders vowed to protect the ACA.House Democrats are also preparing to unveil legislation that wouldtarget high-cost drugs and protect people with pre-existingconditions.

What Bloomberg Intelligence says

“Centene can boost its long-term revenue and EPS growth with its$17.3 billion proposed purchase of WellCare, but it likely faces atough road to get antitrust approval, given overlap in multiplestates. WellCare has been winning more new Medicaid contracts, andwould provide greater scale in the high-single-digit growthMedicare market.”

–Jason McGorman, Health-care analyst

The Affordable Care Act, now nine years old, has led to sweepingchanges in the American health-care system that have spawned newbusinesses and reinvented old ones. Overturning the law entirelywould mean undoing key planks including its Medicaid expansion,which has increased access to health coverage for millions oflower-income Americans.

An enlarged Centene could be threatened if higher courts upholdthe request by the Republican-leaning states and the Trumpadministration to wipe out the entire Obamacare law, though legalexperts have said that outcome is unlikely. The matter is currentlybefore the Fifth Circuit Court of Appeals.

Allen & Co., Barclays Plc, Evercore Inc. and JPMorgan Chase& Co. are providing financial advice to Centene with SkaddenArps Slate Meagher & Flom LLP as legal counsel. Goldman SachsGroup Inc. is advising WellCare and Kirkland & Ellis LLP islegal adviser.

— With assistance by Nabila Ahmed, Davide Scigliuzzo, andCristin Flanagan

Read more: 

• Oscar Health gets buy-in from Google for MedicareAdvantage launch
• Suddenly, everyone wants a piece of the ACAmarket
• Moving Medicaid to managed care could save $63B innext decade