AMERIGROUP Corporation History

4425 Corporation Lane
Virginia Beach, Virginia 23461

Telephone: (757) 490-6900
Toll Free: 800-600-4441
Fax: (757) 490-7152

Public Company
Incorporated: 1994 as AMERICAID Community Care
Employees: 2,100
Sales: $1.62 billion (2003)
Stock Exchanges: New York
Ticker Symbol: AGP
NAIC: 515120 Health and Welfare Funds

Company Perspectives:

Caring today for a healthy Tomorrow.

Key Dates:

The company is incorporated as AMERICAID Community Care.
The first operations are launched.
The name is changed to AMERIGROUP Corporation.
An initial public offering of stock is made.
The company is listed on the New York Stock Exchange.

Company History:

With its headquarters in Virginia Beach, Virginia, AMERIGROUP Corporation (Amerigroup) is a managed healthcare company serving people enrolled in government-sponsored programs such as Medicaid (providing medical treatment to the poor), State Children's Health Insurance, and FamilyCare. The publicly traded company operates in Texas, Florida, Maryland, New Jersey, Illinois, and the District of Columbia. An October 2004 acquisition of a New York City health plan also positioned Amerigroup to enter New York state, home to the second largest Medicaid population in the United States. Amerigroup has realized strong profits by focusing on young people, who tend to be healthier than the general population and require fewer drugs. Unlike other health maintenance organizations (HMOs), however, Amerigroup extends its mission beyond mere healthcare, in some cases stepping in to provide other social services to benefit younger patients. For example, if indigent parents cannot afford to pay electric bills and, therefore, are unable to keep medicine refrigerated, Amerigroup has on occasion stepped in to restore service. Aside from being compassionate, such decisions save money in the long run, helping to make sure that patients receive the care they need and avoid more serious, and expensive to treat, illnesses. The company's principal product is Americaid, geared toward low-income mothers and children. The Amerikids product serves uninsured children not eligible for Medicaid, Ameriplus is an HMO for Supplemental Security Income recipients, and Amerifam is a family care HMO for families of Medicaid children and participants in the State Children's Health Insurance Program. All told, Amerigroup serves more than 850,000 members.

Founder Entering the Healthcare Field in the Late 1970s

Born in Paducah, Kentucky, Amerigroup's founder, Jeffrey L. McWaters, became familiar with the challenges of the healthcare industry at an early age because his mother was employed by a group of physicians. He attended Paducah Community College before transferring to the University of Kentucky. After giving some thought to becoming a doctor, he earned a degree in accounting in 1978, then found work at Ernst & Young's Nashville branch before launching his career in the medical field. He joined Hospital Affiliates, owned by Insurance Co. of North America (now Cigna), just as it began acquiring and managing health maintenance organizations (HMOs). In the right place at the right time, McWaters was able to gain valuable experience at a young age about the inner workings of an emerging industry. He learned how an entrepreneur set about securing venture capital, and when he was sent to Dallas to help open an office for Hospital Affiliates, he learned how to build a business. He told Managed Healthcare Executive in 2002, "We didn't even have a checkbook to balance when we started. We had no policies or procedures, no infrastructure, no computer system, nothing. We did it all from scratch."

Everything McWaters learned at Hospital Affiliates would prove useful in his next venture in 1986 when he helped psychiatrist Ronald I. Dozoretz to found Options Mental Health, one of the first managed behavioral care companies in the country. McWaters became the chief executive officer of the Norfolk, Virginia-based company that developed customized mental health and substance abuse programs for federal, state, and local Medicaid populations. As he explained to Managed Healthcare Executive, "It became clear to me that the Medicaid and uninsured populations were both very large and growing. It was still being managed by a 1960s-era healthcare system. Patients couldn't be seen, and doctors weren't getting paid enough." When in the early 1990s a number of states began turning over their Medicaid populations to HMOs, McWaters sensed an opportunity. He struck out on his own in 1994 to start a new HMO dedicated to serving Medicaid recipients, primarily children and expectant mothers, literally working out the business plan on his kitchen table.

The approach McWaters took was similar to disease management, although the needs of the Medicaid population were not as constant. The HMO would concentrate on a few core disease states (perinatal, asthma, diabetes, and sickle cell anemia), but the essential thrust was to provide education and guidance, for instance, steering patients to a primary care physician with whom they could develop a beneficial relationship rather than relying on a hospital emergency room for routine healthcare. Moreover, Americaid would tackle other obstacles that stood in the way of patients receiving effective healthcare, relieving doctors of burdens normally shouldered by social workers, such as taking care of transportation and helping patients to find better housing. While McWaters was targeting a high-maintenance population, it was one that offered a higher margin than the general population, as well as being more cooperative, because it was younger, responded well to treatment, and recovered more quickly. It was also a market neglected by major HMOs, presenting McWaters with a significant niche opportunity.

For funding, McWaters turned to the San Francisco-based venture capital firm of New Enterprise Associates (NEA), which made the first financial commitment. NEA also helped to bring in other venture capital firms, Acadia Venture Partners and Sutter Hill Ventures, and lent its expertise to help McWaters flesh out his business model. In December 1994, McWaters incorporated the company, naming it Americaid Community Care. He decided to house his new company in Virginia Beach, Virginia, despite having no desire to serve the Virginia market. Rather, he chose the city because of its central location, quality of life, and educated workforce. McWaters then spent the next year applying for licenses in the states in which he wanted to operate, developing the products and necessary healthcare systems, and recruiting and training personnel.

Launch of the First Operations in 1996

The first Americaid operation was launched in New Jersey in February 1996. By the end of the year the subsidiary enrolled 10,000 members. Americaid Illinois followed in April 1996 and signed up 2,000 members in Chicago. Then in September 1996 Americaid Texas got started in Fort Worth and by the end of the year had 21,000 members. The company developed a consistent approach to entering a new market, starting out by inviting community leaders to focus groups and hiring some to serve as consultants to provide insights to the community and to act as outreach workers. The company also sought out the people to whom Medicaid recipients were likely to turn for advice, educating clergy and area social service workers about how the Americaid plan worked. Because most states did not permit Americaid to market itself directly to Medicaid markets, the company placed information where potential members were likely to frequent, such as churches, Head Start programs, day-care centers, and supermarkets. After the company achieved a toehold in the community it relied on word of mouth to build membership. During a partial year of doing business in 1996, Americaid generated nearly $23 million in revenues from premiums, losing $10.9 million, but the company was firmly established and poised for strong growth.

In 1997 Americaid completed another round of equity financing, raising $16.2 million and adding a new investor to the mix, Greenwich, Connecticut-based Health Care Capital Partners. Americaid won a bid to enroll Medicaid members in Fort Worth, Texas, signing up 2,000 by the end of the year. The company also began to branch out beyond the Medicaid population. According to federal law at least 25 percent of its membership had to be commercial enrollees. In addition, the company launched a Medicare HMO and another for "dual-eligibles," people covered by both Medicaid and Medicare. Because of this product expansion, the company decided to change its name to something more inclusive, becoming Amerigroup Corporation. By the end of the year, it had 41,000 members and revenues increased to $64.9 million. The company lost $8.9 million but was on the verge of profitability.

Amerigroup enjoyed strong growth in 1998, as membership topped the 100,000 mark, reaching 113,000 by the end of the year. Membership in Illinois doubled to 10,000 while the New Jersey plan grew from 10,000 to 38,000, mostly the result of the company acquiring Oxford Health Plan's Medicaid business in the state. The greatest increases, however, were achieved in Houston, when in the first full year of the plan's operation 40,000 members were enrolled. As a result of these significant gains, Amerigroup all but tripled its premiums over the previous year to $186.8 million. The company also turned its first profit, nearly $3.5 million, albeit almost all of that amount resulted from investment income earned from cash on hand. Nevertheless, it was an impressive showing for a young company and, more important, just a taste of what was in store for 1999.

Amerigroup more than doubled in size in 1999, the result of acquisitions as well as entering markets from scratch. Early in the year, the company acquired the Prudential HealthCare's Medicaid business in Maryland followed by the Washington, D.C. operation. Amerigroup picked up 75,000 Medicaid recipients in Maryland and added another 8,000 by the end of the year. In the District of Columbia, Amerigroup acquired another 11,000 members and enrolled 1,000 over the next several months. Amerigroup also opened its Dallas Health Plan in July 1999 and by the end of the year signed up 34,000 members. Existing operations also saw gains: 10,000 in Fort Worth, 8,000 in New Jersey, and 10,000 in Illinois. Tallied together, Amerigroup's membership reached 268,000 by the end of 1999, while premiums for the year grew to $392.3 million and net income increased to $11.3 million. To keep up with its rapid growth, Amerigroup also opened a new service center in Virginia Beach in 1999, followed a year later by a technology center.

IPO Delay in 2000-01

Amerigroup launched its Amerikids healthcare product in Dallas and Houston in 2000 as well as Ameriplus in New Jersey. During the year the company achieved significant increases in enrollment in all of its markets, adding 1,000 new members in the District of Columbia, 7,000 in Fort Worth, 8,000 in Dallas, 9,000 in Chicago, 11,000 in New Jersey, 12,000 in Maryland, and 17,000 in Houston. Revenues for the year again showed strong growth, totaling $646.4 million, and net income improved to $26 million. The time seemed ripe for the company's initial investors to earn back their investments through a stock offering. In the spring of 2000 the company filed for an initial public offering (IPO) of stock with Deutsche Banc Alex. Brown serving as underwriter, but the timing proved unfortunate. After a significant bull-market run, the stock market was beginning to falter and IPOs became difficult to pull off. Amerigroup postponed its offering and for the next several months waited in vain for a window of opportunity to open. In the summer of 2001 new underwriters, Banc of America and UBS Warburg, stepped in, and in the first week of September an October date for the offering was set. But in the aftermath of the terrorist attacks of September 11, 2001, the offering again had to be postponed. It was not until November 2001, after submitting ten amendments to its original filing, that Amerigroup was able to complete its offering. In the end, the delays were beneficial to the company, which was able to grow profits and also take advantage of other healthcare companies that went to market before it, most of which performed well and helped Amerigroup to command a hefty premium. All told, the company netted $68.7 million, most of which was earmarked for general corporate needs and acquisitions, such as the $1.5 million purchase of MethodistCare Inc., a Houston Medicaid company, which added another 18,000 members after the deal was completed in 2002. When the year came to a close in 2001, Amerigroup had built its overall membership to 472,000, of which 150,000 were the result of acquisitions. Premiums improved to $889.5 million and net income exceeded $36 million.

In addition to the MethodistCare acquisition, in 2002 Amerigroup bought the District of Columbia Medicaid business of Capital Community Health Plan, the company's sixth acquisition, adding another 24,000 members. Amerigroup enjoyed significant growth in other markets as well, increasing enrollments in Maryland by 7,000, New Jersey by 11,000, Dallas by 20,000, Fort Worth by 23,000, and Houston by 39,000. Total memberships now approached 600,000, and as a result premiums topped the $1 billion mark to $1.15 billion, while net income improved to $47 million.

Amerigroup moved from the NASDAQ to the New York Stock Exchange in early 2003, in keeping with the company's financial status as well as its peers, which were listed already on the New York Stock Exchange. Moreover, the change gave the company greater exposure to a wider range of investors and would likely provide more long-term stability to its pricing. Later in the year, the company took advantage of its new listing to make a secondary offering of stock. What investors could not help but notice was Amerigroup's continued expansion in 2003. At the same time that it announced it was moving to the New York Stock Exchange, the company completed the $121 million purchase of Physicians Healthcare Plans Inc., adding 190,000 members in Florida, and moving into the Tampa, Orlando, and Miami/Fort Lauderdale markets. Later in the year, Amerigroup added another 28,000 Florida members by acquiring St. Augustine Medicaid, an AvMed Inc. division. During 2003 Amerigroup also enjoyed strong enrollment in some of its other markets, adding 5,000 new members in Houston, 9,000 in Dallas, and 33,000 in Fort Worth. Annual revenue from premiums topped $1.6 billion while net income in 2003 reached $67.3 million.

To support its expansion, Amerigroup added a chief operating officer and fresh executive talent, which it showed off to Wall Street analysts in a 2004 meeting. During the year, the company also reached an agreement to acquire a New York City health plan, CarePlus Health Plan, for $125 million, a deal that if approved by the government would give Amerigroup a presence in a potentially lucrative market, home to 1.3 million people eligible for Medicaid. The 114,000 members Amerigroup would pick up in the deal, the company's tenth in ten years, would push the company's membership rolls beyond the million mark and revenues to more than $2 billion. Flush with cash, Amerigroup was eyeing another 20 possible acquisitions. Other than Indiana, where the company had applied for a license, it was unclear what new markets the company planned to enter. There was little doubt, however, that Amerigroup was just beginning to realize its potential and strong growth would likely continue for some time to come.

Principal Subsidiaries: AMERIGROUP Florida, Inc.; AMERIGROUP Illinois, Inc.; AMERIGROUP New Jersey, Inc.; AMERIGROUP Texas, Inc.; AMERIGROUP Maryland, Inc.; AMERIGROUP District of Columbia, Inc.

Principal Competitors: Aetna Inc.; Blue Cross and Blue Shield Association; UnitedHealth Group Incorporated.

Further Reading:

  • Elliott, Alan R., "AMERIGROUP CORP. Virginia Beach, Virginia Low-Cost Health Care Drives Business Here," Investor's Business Daily, April 23, 2002, p. A10.
  • Franklin, Katrice, "Fired-Up Company Hires Away," Virginian Pilot, December 10, 1998, p. D1.
  • Gordon, Debra, "Health-Care Choices for Poor Americaid Community Care Continues to Grow As States Turn Their Medicaid Programs Over to Managed-Care Companies," Virginian Pilot, July 25, 1997, p. D1.
  • Grugal, Robin M., "Patience Pays Off for Medicaid HMO," Investor's Business Daily, November 7, 2001, p. A12.
  • Hennessey, Raymond, "Offerings in the Offing: Survivor Gelt," Barron's, November 5, 2001, p. 35.
  • McCue, Michael T., "Managing America's Toughest Challenges," Managed Healthcare Executive, January 2002, p. 16.
  • Walker, Joe, "Virginia-Based Amerigroup Caters to 472,000 Disadvantaged Patients," Paducah Sun, March 4, 2002.

Source: International Directory of Company Histories, Vol.69. St. James Press, 2005.