Premier Takes $50M+ Charge on Third-Party Administration Unit

Premier Inc. executives have written down by $54.4 million the value of their investments in Contigo Health, the company’s direct-to-employer unit that markets third-party administrator and health-benefit program management services, but say they remain confident about the growth possibilities for the business with about 900,000 provider contracts.

The goodwill impairment charge is a setback for Charlotte-based Premier, whose leaders said Contigo grew solidly in the company’s just-concluded fiscal year but added that “the ramp, particularly in profitability, is lagging our original expectations as we continue to scale and stand up the program.” President and CEO Mike Alkire and his team last October paid TRPN Direct Pay Inc. nearly $180 million (about $61 million of which was accounted for as goodwill) for a block of contracts and other assets, aiming to give Contigo a jumpstart by rolling those relationships into an out-of-network wrap product.

The Premier leadership team still sees strong potential in that idea and other initiatives to grow Contigo, one of what they call Premier’s adjacent markets businesses, CFO Craig McKasson told analysts Aug. 22.

“To be clear, we remain very excited about Contigo Health and its long-term growth prospects. In the years and months ahead, we will continue to expand our center of excellence programs with large employers and provide transparent out-of-network claims pricing management,” McKasson said. “We believe this will allow us to deliver growth in each functional area while also providing comprehensive employee benefit management.”

Contigo is part of Premier’s performance services division, which in the company’s fiscal 2023 booked adjusted EBITDA of $124 million on net sales of $436 million compared to $127 million and $401 million, respectively, in the previous fiscal year. TRPN and organic Contigo growth accounted for $18.2 million of that roughly $35 million in net top-line increase, executives noted in Premier’s annual report with the U.S. Securities and Exchange Commission.

Alkire and McKasson discussed Contigo’s slower-than-expected progress as part of reporting their second-quarter results, which were headlined by net income of $18.9 million on net revenue of $340 million versus $30.7 million and $341 million, respectively, in 2022’s Q2. They also told investors and analysts that they have finalized the $800 million cash sale of Premier’s non-healthcare group purchasing businesses to Omnia Partners and are, with board members, continuing to study Premier’s strategic alternatives.

Shares of Premier (Ticker: PINC) were changing hands Aug. 28 at $21.75, up slightly on the day. Over the past six months, they have lost about a third of their value, clipping the company’s market capitalization to about $2.6 billion.