Vanguard Health Declines After Losing Medicaid Contract

Vanguard Health Systems Inc. (VHS), the hospital operator whose largest shareholder is Blackstone Group LP (BX), fell the most in almost five months after losing a managed- care contract with Arizona’s Medicaid system.

Vanguard fell 8.2 percent to $15.26 at 11:38 a.m. in New York. The shares dropped as much as 15 percent for their biggest intraday decline since Oct. 31.

Vanguard’s Phoenix Health Plan unit, which covers 186,000 low-income people in nine Arizona counties, said its acute care program contract with the state’s Medicaid system won’t be renewed for the next fiscal year, starting Oct. 1. Losing the contract will cost the company “substantially all” of its earnings from that unit, Nashville, Tennessee-based Vanguard said in a statement yesterday without providing a dollar value.

“The contract loss for VHS is disappointing and will have a material impact on earnings as approximately 13 percent of revenue is derived from the” Arizona program, Chris Rigg, an analyst at Susquehanna Financial in New York, said today in a note to clients.

Vanguard was beat out by companies including units of UnitedHealth Group Inc. (UNH) and Health Net Inc. (HNT) Medicaid is the state-run health program for lower-income residents.

“After serving the residents of Arizona for nearly 30 years under the AHCCCS program, we were both surprised and disappointed to receive this news,” Charles N. Martin, Vanguard’s chairman, chief executive officer and president, said in the statement.

Decision Protest

Vanguard said it has until April 1 to protest the decision, and is “evaluating the scoring of its bid.” Vanguard also asked to continue serving 116,000 patients currently enrolled in Phoenix Health in Maricopa and Pima counties, the two largest in the state. If approved, Vanguard couldn’t add new customers to the plan.

UnitedHealth will expand its operations in the state to six counties from four. The company also won a statewide contract for children’s rehabilitative services, according to a statement from Arizona’s Medicaid agency.

A spokesman for the Minnetonka, Minnesota-based company, Tyler Mason, didn’t immediately respond to an e-mail seeking comment.

Health Net also won a contract for patients in Maricopa County, which includes Phoenix, the state’s largest city. The contract may add 15 to 20 cents “over time” to the Woodland Hills, California-based company’s earnings per share, Rigg said in his note.

UnitedHealth rose less than 1 percent to $54.80, while Health Net increased less than 1 percent to $28.42.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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