UPDATE: Louisiana Recommends Amerigroup, Centene, UnitedHealth For Medicaid

A state of Louisiana department recommended five companies, including Amerigroup Corp. (AGP), Centene Corp. (CNC) and UnitedHealth Group Inc. (UNH), to coordinate service for nearly 900,000 Medicaid recipients, potentially adding up to $2 billion in annual revenue for the managed-care industry.

The state's Department of Health and Hospitals on Monday also recommended contract awards for two private firms: Amerihealth Mercy of Louisiana Inc. and Community Health Solutions of America Inc. The state department said steps remain before the contracts are finalized, such as thorough readiness reviews and approval by Louisiana's Division of Administration.

Amerigroup, Centene's Louisiana Healthcare Connections unit and Amerihealth Mercy of Louisiana were picked for prepaid coordinated care networks, which means they'll get a monthly fee for each enrollee to handle core benefits and services. UnitedHealth and Community Health Solutions were picked for shared-savings programs, which have a managed fee-for-service model.

Medicaid is a government health program for the poor. Louisiana's Medicaid awards follow awards earlier this month for contracts in Kentucky, where Wellcare Health Plans Inc. (WCG), Coventry Health Care Inc. (CVH) Centene were the big winners.

This time around, Wellcare and Coventry were on the list of companies that weren't selected, along with Aetna Inc. (AET). A Medicaid contract announcement from Texas is expected soon.

Deutsche Bank analyst Scott Fidel estimated Louisiana's Medicaid managed-care program could be worth $2 billion when it's fully phased in by 2013. Amerigroup and Centene should generate around $450 million in annual revenue upon final implementation and should also get an earnings boost, he estimated. The impact is likely less meaningful for UnitedHealth due to that company's huge size.

Centene, which owns a 51% interest in Louisiana Healthcare Connections in a joint venture with several non-profit health centers, said its preliminary estimates show it will serve 160,000 to 180,000 members in Louisiana while generating annualized revenue of $330 million to $370 million. The company plans to provide updated guidance on its earnings call Tuesday.

Meanwhile, Louisiana said it expects to save $135 million in the first full year the Medicaid networks are implemented. One of three state service areas will go live on Jan. 1, and the other two will follow in 60-day increments.

Shares of all of the involved companies declined Monday amid a downturn for the broader market. Centene shares were off the most among companies selected for the Louisiana Medicaid program, declining 4.1% to $34.25. Wellcare shares slipped 5.2% to $52.45.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

--John Kell contributed to this article

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