Shares of WellCare Health Plans and Centene surged Tuesday on speculation that one of the two Medicaid insurance providers could be acquired by Ascension Health.
Ascension, the nation's largest nonprofit hospital and health system, has expanded in recent years through acquisitions of health-care systems, and a move into insurance would mark a major departure for the company.
"At an investor conference last week, the CEO of Ascension Health, a not-for-profit hospital and health system, referred to being in talks on a possible deal with an unnamed 18-state health insurer," wrote Leerink Partners analyst Ana Gupte in a note to clients, citing an article from the trade news site Modern Healthcare.
A spokeswoman for Ascension confirmed CEO Robert Henkel made the comments, but would not discuss whether the hospital system was in talks to acquire an insurer.
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"The information included online in Modern Healthcare... was taken from a larger strategic discussion about Ascension's future plans, including the organization's ability to take on risk," said Shari Shane, the Ascension Health spokeswoman. "Any work in this area is protected under a confidentiality agreement. As such, we have nothing additional to share at this time."
WellCare vs. Centene
Leerink's Gupte said she expects WellCare and Centene are the most likely candidates for a takeover by Ascension, which operates more than 100 hospitals in nearly two dozen states and caters to low-income patients. WellCare, specifically, fits the bill of an insurer that operates Medicaid and Medicare Advantage plans in 18 states, Gupte observed.
"We believe that it is the most likely takeout target in our publicly covered Medicaid companies in light of the substantial recent turnover in senior management," Gupte wrote.
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WellCare has been operating under interim leadership, since the board dismissed CEO Alex Cunningham in November. In February, CFO Tom Tran said he would leave the company, but remain on until a successor could be found.
Centene operates Medicaid plans in 20 states, but the insurer is headquartered in Ascension's hometown of St. Louis, Missouri. Centene did not respond to a request for comment on the acquisition report.
A spokeswoman for WellCare told CNBC that the company does not comment on rumors and speculation. The insurer holds its annual shareholder meeting in Tampa, Florida, on Wednesday.
A Centene deal would make for a more expensive acquisition; its market capitalization is $4.27 billion, after its shares rose 4.25 percent, to close at $74.02. Earlier, the stock hit a historic high of $74.10.
WellCare's market cap is $3.37 billion, after closing up 2.9 percent, at $74.91 per share, its highest level in more than a year.
Hospitals taking on insurers
With the launch of Obamacare, more hospital systems have begun to explore the insurance business. Part of the reason is that new Medicare and private insurance reimbursement rules are shifting away from paying fees for individual services, and toward rewarding hospitals that focus on achieving better patient-health outcomes.
North Shore-Long Island Jewish Health System launched its own insurance program last fall, with the rollout of the Affordable Care Act marketplaces. Yet, like well-established integrated health organizations, such as the Kaiser Permanente in California and the Geisinger Health System in Pennsylvania, North Shore-Long Island Jewish is a regional provider.
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A large multi-state hospital system acquiring a publicly traded insurer could be a gamechanger.
"Such a transaction, if it materialized, has broader implications for health care and could potentially catalyze a new wave of vertical consolidation across hospitals and publicly traded health plans," said Leerink's Gupte.
—By CNBC's Bertha Coombs