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Vanguard Health Declines After Losing Medicaid Contract

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

Vanguard fell 6.4 percent to $15.55 at the close in New York, its biggest single-day decline since Oct. 31. The company’s shares have gained 52 percent in the past 12 months.

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. and Health Net Inc. 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 state’s largest. If approved, Vanguard couldn’t add new customers to the plan.

UnitedHealth, the biggest U.S. health insurance company, will expand its Arizona operations to six regions from three, with nine counties covered. Two of those counties were formerly administered by Vanguard, according to Tyler Mason, a spokesman for Minnetonka, Minnesota-based UnitedHealth.

“UnitedHealthcare has been serving individuals with Medicaid in Arizona for 30 years and look forward to our ongoing partnership with AHCCCS in nine expansion counties with innovative ways to make high quality health care more accessible and affordable,” Mason said in an e-mail.

The company also won a statewide contract for children’s rehabilitative services, according to a statement from Arizona’s Medicaid agency.

Health Net 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.

UnitedHealth rose less than 1 percent to $54.86, while Health Net fell less than 1 percent to $28.31.

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