Vanguard Health Systems Inc VHS.N, which lost the bidding for a new Medicaid contract in Arizona recently, said late on Monday that it will be able to continue providing healthcare services to a restricted number of customers there for three years.
Vanguard, whose shares fell 11 percent on March 25 when it failed to win a new Arizona Medicaid contract, said Maricopa County had agreed that starting October 1, 2013 Vanguard could operate with capped enrollment. It had 98,300 members in Maricopa County as of December 31. The county includes Phoenix, the state capital.
In return, Vanguard agreed it would not file a protest related to losing the contract. Medicaid provides healthcare services to the poor.
The terms mean that Vanguard can lose members and will not have more than 98,000 members, but the alternative would have meant losing most of the $40 million of operating earnings from the business, an analyst said on Tuesday.
The continued expansion of Medicaid in other states in 2014 and 2015 is likely a bigger positive for the company than the reduction of earnings in Arizona, analyst Sheryl Skolnick at CRT Capital Group said in a research note.
"We therefore expect VHS' thinly-trade shares to recover from recent pressures rather strongly," Skolnick wrote.
Vanguard shares closed at $14.56 on Monday on the New York Stock Exchange.
(Reporting by Caroline Humer; Editing by Nick Zieminski)