The operator introduces the Centene Corporation Third Quarter Earnings Release conference call and advises participants to listen only and to ask questions after the presentation. Jennifer Gilligan, Senior Vice President, Finance and Investor Relations, introduces the hosts, Sarah London, Chief Executive Officer, and Drew Asher, Executive Vice President and Chief Financial Officer. Ken Fasola, Centene's President, will also be available during Q&A. The hosts will make forward-looking statements and refer to non-GAAP measures, with a reconciliation available on the company's website.

The company is unable to provide a reconciliation of certain 2024 measures to the corresponding GAAP measures due to the difficulty of predicting various items. The company reported strong third quarter results and expects continued growth in 2023. The CEO highlighted key focus areas, including Medicaid redeterminations, upcoming RFPs, marketplace performance, and Medicare Advantage Stars results. The company has made operational progress and is closely monitoring Medicaid membership transitions. The CEO also mentioned consistent rejoining rates in the mid 20% range for April through August cohorts.

The 90-day grace period in most states ensures that there is no break in coverage for Medicaid members as they return to the program. CMS has been monitoring the redeterminations process and has intervened in certain states to pause redeterminations and reinstate individuals who were incorrectly dropped from coverage. The impact of these changes will be seen in the coming months. The expected impact of redeterminations is still 2.3 to 2.4 million members, with the majority expected to be completed by May 2024. 200,000 to 300,000 members are expected to move from Medicaid to the marketplace as a result of redeterminations. The company is working with states to make auto enrollment a seamless process for Medicaid members losing eligibility. Rate discussions have been constructive, with the trend seen in previous cohorts continuing for the first wave of 1/1/24 draft rates. There are ongoing discussions about an incomplete 401 retro rate.

The article discusses the successful collaboration between Centene and state partners in maintaining the strength and effectiveness of Medicaid programs. It also mentions North Carolina's upcoming Medicaid expansion and the company's response to a Florida ITN. There is an increase in RFP activity and Centene is confident in their ability to defend and grow their Medicaid footprint. Additionally, Wade Rakes has been appointed as Centene's Chief Growth Officer.

In addition to his role as CEO of Peach State Health Plan, Wade will also lead Centene's Georgia teams through their procurement process. Ambetter, Centene's individual market franchise, has exceeded growth expectations and is expected to continue performing well in the future. The Medicare Advantage business is also in a pivotal stage as they reposition their offerings to better serve low income and complex lives. Centene received their final Star rating results two weeks ago.

The final Stars results for this cycle were consistent with previous expectations, with a 73% improvement in raw scores and 87% of contracts rated 3 stars or higher. The organization is still working to improve quality scores and restore earnings power in Medicare Advantage. Operating metrics, such as first call resolution and customer satisfaction, have improved, and the network has been expanded. Medicare Advantage is seen as a key part of the company's portfolio, and efforts are being made to improve overall performance and quality for members. The company is also focused on initiatives to support long-term growth.

The company is shifting its focus to optimizing and automating workflows to improve efficiency and service for members and providers. They are implementing new features in their telephony system and using AI technology to streamline authorization processes. The company is also investing in data work to build an integrated data fabric and leverage modern technology for traditional and generative AI. This will improve administration, provider collaboration, and clinical insights for members. The company has already seen success in increasing the number of digital clinical sources flowing into their Clinical Data Hub, which will ultimately reduce costs and improve accuracy and timeliness of information for care management interventions.

Centene has several operational and digital initiatives in progress that are expected to generate positive results by 2024. The company recently reached a deal to divest Circle Health and is evaluating other assets for potential repositioning. The PBM migration is also progressing well and is expected to bring value to customers and members. A recent successful transition of one health plan to a new platform is a positive sign for the project's success. Overall, Centene is experiencing positive momentum.

The company has made significant progress in strengthening its operations and focusing on its core business lines. This, along with their strong performance in the third quarter, gives them confidence that they will exceed their 2024 earnings goal. The company reported 35 billion in revenue and adjusted earnings per share of $2, which beat their internal forecast. Their consolidated HBR was 87%, with Medicaid at 90.7%. However, one state's incomplete rate update affected the HBR by 40 basis points. Despite this, the company remains on track in Medicaid and has seen a decrease of 1.1 million members, including a reshuffling of members in Iowa.

The company has updated its statistics on the inclusion of acuity adjustments in their rates for Medicaid and Medicare. They have also seen strong growth and performance in their commercial HBR and have achieved their goal of growing marketplace revenue by $3 billion in 2024. Their adjusted SG&A expense ratio remained consistent and they have a large amount of cash on hand. They also repurchased a significant amount of their common stock in the third quarter.

In the third quarter of the year, the company repurchased 22.9 million shares for $1.58 billion and reduced its debt to adjusted EBITDA ratio. They also announced the divestiture of their UK hospital company and adjusted the carrying value of their UK physician business. The company is pleased with their performance and has increased their outlook for adjusted EPS to at least $6.60 for 2023. The press release also includes other guidance elements for 2023. The company continues to have confidence in their 2024 adjusted EPS floor of greater than $6.60. They are also focused on growth opportunities, such as Medicaid expansion in North Carolina and winning contracts in Oklahoma and Georgia.

The company's Marketplace franchise has been successful and is currently generating more revenue than its Medicare Advantage business. The company expects this trend to continue in 2024, with potential growth in its PDP business. Despite divestitures and redeterminations, the company is confident in its ability to improve and become a better company by 2024. The long-term adjusted EPS CAGR is expected to be 12-15%. During the earnings call, a question was asked about the company's exchange performance, which saw a 75% increase in membership. The company attributes this outperformance to various factors and is confident in its ability to manage MLR pressure despite faster membership growth.

The speaker discusses the growth of their business and attributes it to their established franchise, brand recognition, differentiated distribution network, and experience executing. They also mention the sustained performance of their business despite significant growth in SEP membership. Factors contributing to this performance include underlying growth, lack of pent-up demand in SEP membership, and a healthier overall risk pool due to market growth.

The speaker discusses the success of the team's execution and pricing discipline in the current year, as well as their expertise in the field. They also mention adjustments made based on data from Wakely and an increase in risk adjustment payable. The speaker also addresses the impact of procedural disenrollment on acuity and the utilization of the rejoiner population. They also mention an unusual item on the rate side and how it may affect the path to the Medicaid MLR target for 2024.

The speaker discusses the rejoiner rate for Centene plans, stating that it has picked up in the last month or six weeks to an average of 25%. They attribute this increase to CMS interventions and note that the rejoiners have a similar health benefits ratio (HBR) as the stayers. They also mention that they are on track for their metrics, including a 90.1% target for 2024, and have received draft rates for 1/1 that include acuity adjustments. A clarification is then made that 20% of redeterminations are now going to 25%, and these are Centene lives returning to Centene plans.

The speaker clarifies that about 10-15% of members are recaptured and the company is pulling share from other players. They also mention the growth in PDP and explain that the strategy is focused on managing pharmacy spend and serving as a feeder for MAPD. They note that the change in cost structure occurred at a good time with rule changes impacting PDP.

The company's cost structure has allowed them to make their services affordable for members, while also increasing their direct subsidy from the government. This has helped to align opportunities and leverage their business to support other areas, such as pharmacy costs. The company saw exceptional growth in their exchange business in the third quarter, which is expected to continue into 2024. The company's guidance for next year assumes margins towards the higher end of their target range. The company also addressed a retro issue, stating that it was incomplete and expressing confidence that it will be reversed in the future.

The speaker discusses the company's current position in relation to their target range and their expectations for future growth. They mention the impact of a recent negotiation on their HBR and potential future outcomes. In regards to the marketplace, the speaker mentions potential utilization upticks in the fourth quarter and the potential margin tailwind from this population in the future. They also touch on churn rates in this population.

The speakers discuss the retention of SEP membership in the insurance industry, which has been aided by enhanced APTCs and increased affordability. They expect a healthy increase in HBR in Q4 due to the wear-off of deductibles and planned SG&A expenses. There is no change in their expectations for MA enrollment and revenue, and they confirm a $200 million PDR in 4Q.

The company is focused on narrowing its Medicare business to the lower income complex population and has not changed its view of being down $4 billion in 2024. They are pleased with the results in line with their expectations in Q2 but there is still work to do to reach their goal of having 85% of members in 3.5 star plans. The company will need to continue to improve operational capacity and infrastructure, pull up underperforming contracts, and move contracts and members to reach this goal. They are tracking internal metrics and have a governance structure in place to support this effort.

The organization has aligned incentives from top to bottom and is focused on making incremental improvements. The current guidance allows for PDR in the mid-200s, but the exact number will be determined in December. A question was asked about Medicaid redetermination and the company's view on PDR. The company has real data now and has seen an increase in members with duplicative coverage.

The company's forecast for the future was accurate and they are on track with their estimates for redeterminations and PBM economics. They expect to see profitability and improved outcomes for complex populations, which is a key focus for their long-term strategy. There may be reductions in enrollment for Medicare in 2024 due to changes in OTC, Flex Benefits, and SSBCI, but this will affect both individual MA and D-SNP equally. The company plans to focus on managing complex care next year, and D-SNP has been growing this year.

The speaker is asked about the trend of individual retail MA versus D-SNP and if there will be similar trends. They are also asked about the EPS bridge and an updated figure for Medicare this year, including the PDR. The speaker responds by saying that it is difficult to determine exactly what they did with benefits, but they heavily trimmed their Part B giveback and PPO plans while investing in D-SNP and simplifying supplemental benefits. They maintain their forecast for 2024 and $16 billion of Medicare Advantage revenue. The next question is about medical costs and the speaker is asked for an update on behavioral utilization and how it is factored into rates. They also ask about the new California minimum wage law for healthcare workers and how it will affect unit costs and pricing in the future. The speaker responds by saying they cannot provide specific numbers, but they are comfortable with their forecast and have taken steps to address these issues.

The paragraph discusses how the company is tracking potential pass-through costs from providers in California and the impact of behavioral health utilization on the industry. The integration of medical and behavioral care is a major focus for many states, creating opportunities for the company's Magellan business. The company has had success in Idaho and is working with other states to capitalize on the growing interest in supporting Medicaid members' behavioral health needs.

The company's public sector Magellan business is a strong asset that will be leveraged for future combined offerings. The company's prospects are promising with the recent appointment of a new leader and the team's use of the Magellan asset. The company has seen higher health benefit ratios (HBR) for members who switch plans compared to those who stay, and in 7 out of 21 states, adjustments for acuity have been made to rates. These adjustments vary by state and subpopulation, but overall, the rates match the company's expectations. The company has also identified members who are likely to roll off during the redeterminations process and has seen a lower HBR for these members compared to stayers.

The inputs that went into the model discussed on the Q1 call were used to track rate and acuity across each state and rolled up to the portfolio for 2024. The next question asked about the 386,000 exchange sequential membership growth and how much of it was from best recapture Medicaid redetermination. The analyst also asked about the impact of the star ratings decline disruption in California on MA growth assumptions and the percentage change of lives in downside arrangements, which could potentially help improve overall consumer experience and quality metrics for next year. The speaker was unable to provide a clear breakdown of the 386,000 members in the quarter.

The speaker discusses the impact of the two key cut points that were put in place this year in California, which have resulted in tougher star ratings and trimmed outliers. It is still too early to determine the overall competitive outcomes through the AEP process, but the speaker looks forward to updating everyone at Investor Day. The speaker also mentions that they are still in the high 40% range for value-based care, with a mix of upside-only and upside-downside risk arrangements. As they move members into more downside risk arrangements, there is tighter alignment between the company and providers, leading to better HEDIS outcomes. The company is also focusing on using their provider partnerships to accelerate their Stars improvement journey. The final question from an analyst asks for clarification on the 1/1/2024 rate update and whether acuity adjusters will be included for the rest of the cohort. The analyst also asks if there is still room for the percent of 0 and low utilizers to decrease further.

The speaker responds to a question about redeterminations and explains that, with the exception of one state, they are expecting to see an increase in utilizers. They also mention that they are still in the process of shifting from a pre-redetermination to a post-redetermination environment, and that the number of 0 utilizers for the expansion population has decreased while CHIP and TANF numbers have remained flat. The speaker thanks the company's employees and looks forward to discussing more at the upcoming Investor Day in December.

This summary was generated with AI and may contain some inaccuracies.