Vanguard Health Systems, Inc. (NYSE: VHS) (the “Company”) today announced that its Phoenix, Arizona health plan subsidiary, VHS Phoenix Health Plan, LLC (“PHP”), received a letter from the Arizona Health Care Cost Containment System (“AHCCCS”) on Friday March 22, 2013, informing PHP that it was not awarded an acute care program contract for the program year commencing October 1, 2013. Under its current contract with AHCCCS, which expires on September 30, 2013, PHP covers members in nine Arizona counties: Apache, Coconino, Gila, Maricopa, Mohave, Navajo, Pima, Pinal and Yavapai. PHP has served Arizona residents since 1983.
Pursuant to the terms of AHCCCS’s request for proposal, pursuant to which PHP submitted its bid (the “RFP”), PHP, as an unsuccessful incumbent acute care contractor in Maricopa and Pima counties, filed a formal request on March 23, 2013, to receive a capped contract in those two counties. If AHCCCS exercises its discretion to grant PHP’s request with respect to either or both of those counties, PHP would continue to provide services to its existing members in those counties under the terms and conditions of the RFP, but would not receive any new members as long as enrollment remains capped. PHP anticipates a response to its formal request by March 31, 2013.
PHP also has the right to protest AHCCCS’s decision. PHP is evaluating the scoring of its bid as well as other relevant information to determine whether to file a protest. AHCCCS scored all bids submitted under the RFP based on four weighted criteria: capitation (33%); program (33%); access of care/network (17%); and organization (17%). If it chooses to do so, PHP must file its protest no later than April 1, 2013.
PHP represented approximately 80% of the segment revenues, and substantially all of the segment EBITDA and income from continuing operations before income taxes associated with the Health Plans segment as reported in the Company’s Form 10-Q for the six months ended December 31, 2012. As of December 31, 2012, PHP’s membership was 186,200, which represented 79% of the Company’s total health plan membership. Approximately 116,200 of the PHP members resided in Maricopa and Pima counties as of December 31, 2012. As of December 31, 2012, the Company had goodwill and net intangible assets of approximately $85 million related to PHP on its balance sheet.
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