Centene’s Specialty Services Strategy Portfolio: Backbone or Achilles Heel?

Centene Corporation (CNC) has developed a specialty services portfolio that reduces the company’s over-reliance on Medicaid and other state-sponsored businesses. Additionally, the inclusion of specialty services in its portfolio has helped Centene provide high-quality health services to its members in a cost-effective manner.

The above diagram shows the entire suite of specialty services offered by Centene in 2015. Since 2011, based on the broad portfolio of services, Centene has managed to increase specialty service revenues by seven times—much higher than the revenue growth rate for the overall company. The segment earns about one-third of its total revenues from approximately 880 external customers.

Centene expects that the acquisition of Health Net (HNT) will enable the company to leverage the experience, insights, and best practices of both companies in the areas of behavioral health, pharmacy management, and correctional health.

Centene can also offer dental, nurse triage, vision, wellness, and disease management services to Health Net’s members as the latter currently outsources these services to external vendors. The Health Net acquisition would also offer a growth platform to Centene to expand the footprint of its specialty services in federal government and commercial segments.

Centene is currently involved in rebranding its specialty services under the name Envolve. The company is realigning its specialty services and has categorized them into three groups based on the following three capabilities:

• Envolve pharmacy solutions
• Envolve people care
• Envolve benefit options

Envolve Pharmacy will offer pharmacy benefit management and specialty pharmacy services, similar to those offered by UnitedHealth Group’s (UNH) OptumRx and Humana’s (HUM) HumanaOne. Envolve People care will offer services to increase consumer engagement. Envolve benefit options will offer vision and dental benefits.

If Centene succeeds to effectively deploy and market its integrated capability platform under the Envolve brand, this would mean solid revenue performance for the company in future years. It would also boost share prices in the iShares S&P Mid-Cap 400 Growth ETF (IJK). Centene currently makes up about 1.0% of IJK’s total portfolio holdings.

Now let’s discuss how Centene is capitalizing on growth opportunities in existing markets.