The conference call for Centene's fourth quarter and full year 2023 earnings results is about to begin. Participants will be in listen-only mode and can ask questions by pressing star then one on their phone. The call will be recorded and hosted by Jenn Gilligan, with CEO Sarah London and CFO Drew Asher as speakers. Forward-looking statements will be made, and non-GAAP measures will be referenced.

The company's CEO, Sarah London, reported strong fourth quarter results and full year earnings for 2023. The company is focused on positioning its lines of business for long term growth and fortifying its platform for the future. They are also working on redeterminations and expect to resume organic enrollment growth in Medicaid and pursue new program opportunities. The company's Medicare Advantage footprint is solidifying and they have increased revenue guidance. The management team is approaching their bottom line work with focus and disciplined execution.

In 2024, Centene successfully completed a large pharmacy platform migration and divested their international assets, allowing them to focus solely on their domestic core businesses. They have also made progress in streamlining their enterprise and driving operating efficiency. Annual enrollment periods for marketplace and Medicare have contributed to their confidence in their positioning for 2024, with marketplace growth exceeding expectations and planned margin expansion expected.

The company is well positioned to achieve their 2024 earnings per share guidance. They have had success in their Medicaid business, winning contracts and retaining members. Redeterminations have been going as expected and they are working with state partners to monitor any potential risks. The Medicare annual enrollment period went as expected and their financial projections for Medicare are unchanged.

In 2023, the organization saw an increase in Duals or DSNP members in their Medicare Advantage program. They have made progress in initiatives to improve member outreach, digital data and provider connectivity, and customer experience. They plan to continue investing in these areas to improve their star ratings and drive benefits across all lines of business. The organization's 2024 bids incorporate a level of elevated medical trend, but their pricing posture is adequate to support their 2024 Medicare outlook. Preliminary rates for 2025 have also been released.

The preliminary rates for Medicare Advantage in 2025 are viewed as insufficient and final rates will be received in April. The marketplace presents an opportunity for revenue growth and margin expansion in 2024, with Centene capturing a larger market share and seeing strong enrollment results. Membership mix is skewing younger and silver plans are the most popular. Medicaid redeterminations have also contributed to marketplace growth and Centene is excited about the potential for their offerings in the individual commercial market.

In 2023, Centene saw success in their government-sponsored healthcare platform and is optimistic about future opportunities. They thanked their team for their hard work and handed the call over to Drew for financial details. For the fourth quarter, they reported $35.3 billion in revenue and $0.45 in adjusted EPS. For the full year, they reported $6.68 of adjusted EPS, a 15% increase from 2022. Their HBR was in line with expectations, with Medicaid slightly higher than expected due to open retro rate adjustments. Overall, Centene is pleased with their performance and is confident in their original forecasts for membership, acuity, and rates.

The membership tables show that Medicaid membership has decreased by 1.9 million due to redeterminations, in line with the forecasted reduction. The company's 2024 guidance remains unchanged, with a projected low point of 13.2 million Medicaid members and year-end membership of 13.6 million. Medicare full year HBR was 87.1%, including a $250 million premium deficiency reserve that was previously discussed. Outpatient trend and COVID costs remain steady but elevated. The $250 million reserve increased fourth quarter Medicare segment HBR by 475 basis points and full year HBR by 110 basis points. Commercial HBR for the full year was strong at 79.8%. The company also saw growth in marketplace members due to redeterminations and the special enrollment period, resulting in strong premium growth in the fourth quarter.

The company saw significant growth in membership and HBR performance in January 2024. Adjusted SG&A expense ratio remained consistent and cash flow from operations was $8.1 billion. The company repurchased shares and reduced debt to adjusted EBITDA of 2.9 times. Medical claims liability was $18.0 billion and the company completed 10 divestitures. The PBM conversion was successfully executed on January 1, 2024. Overall, 2023 was a successful year of execution for the company.

The company has improved its pharmacy cost structure and doubled its marketplace membership since 2022. They have gained clarity on Medicare enrollment and are expecting meaningful margin expansion in the future. The company is preparing feedback on the 2025 advance notice and is concerned about the negative effect on vulnerable populations. Their marketplace offerings are well-positioned for growth and they have raised their revenue guidance by $2.5 billion. The company's marketplace products are popular due to their affordability and accessibility.

The company is reaffirming its 2024 adjusted EPS guidance and is confident in its ability to provide affordable healthcare for its members in the future. The first question during the earnings call was about the Medicare outlook and the potential impact on costs. However, the company remains confident in its Medicare assumptions and did not make any changes to its 2024 guidance. The company saw consistent inpatient utilization throughout 2023, with minimal variation quarter over quarter.

The company saw a step up in outpatient services in Q2, driven by orthopedics, DME, and cardiac and cardiovascular care. In Q4, there was a $250 million PDR, a COVID step-up, and an increase in Medicare-only ILI. The company also saw a boost in RSV vaccine utilization and made intentional investments in quality to prepare for 2024. There were Medicare Advantage membership losses, but the geographic mix and balance of new sales and gross losses were in line with expectations. Retention was also consistent with expectations.

The company is pleased with the execution of their Medicare team during AEP and they intentionally focused on lower income, complex members, duals, and DSNP populations. They saw success in this strategy and the team went PBP by PBP to invest in the members they wanted to retain. The company also made a conscious effort to improve their distribution system and saw better performance with owned assets. The company raised their revenue guidance but did not change their EPS guidance.

The speaker is asked about any offsets on the EPS line and the PDR. They mention that they are early in the year and that the PDR is for the 2024 calendar year. They also mention that they have the opportunity to adapt their bids accordingly and that any trend considerations are embedded in the PDR. The speaker also mentions that the Medicare Advantage rate is minus-1.3%.

The speaker discusses the impact of the V28 model and fee-for-service normalization on the company's earnings. They mention a negative 3.5% impact for 2025 and compare it to the previous year. They also mention a 1.3% impact on rates before risk score trend is factored in. The company is focused on recovering margin and may adjust bids accordingly. The speaker then pivots to discussing Medicaid, mentioning retro adjustments and a lack of marginal headwind.

The speaker discusses the Medicaid margin for 2024, mentioning that the fourth quarter of 2023 was a heavy member roll-off quarter and there was acuity pressure in the portfolio. However, with solid visibility into the 2024 rate and the 1/1 rates in place, they feel confident about their 90.1 midpoint for the ’24 Medicaid HBR.

The speaker addresses a question about the timing of certain events in 2024 and how they will affect the company's book. They also mention that there was no significant change in inpatient visits or observation days in the fourth quarter. They confirm that they are prepared for the implementation of the two midnight rule for Medicare Advantage in 2024. The speaker then discusses the company's pipeline and upcoming bids for Medicaid and RFP awards.

Sarah London, responding to a question from Lance, discusses the company's recent wins and satisfaction scores in various states. She mentions that they have had positive momentum and are actively competing in RFPs for states like Florida, Georgia, and Texas. London also highlights the company's strong BD team and local teams, who are focused on delivering on promises made to customers. She notes that investments in customer satisfaction and community partnerships have led to improvements in partner satisfaction, provider relationships, and quality scores. These improvements are important for states when considering who to partner with for managed Medicaid.

The speaker discusses two major themes in the healthcare industry: health equity and the emergence of 11/15 waivers. They mention Centene's focus on these themes due to their local approach and strong relationships. The next question asks about the demographics of new marketplace members and the Indiana pilot, to which the speaker responds that the demographics are consistent with expectations and the majority of members are in the silver tier. They do not provide specific numbers for the Indiana pilot but mention that the demographics have not shifted significantly.

The speaker discusses interesting demographic shifts in the healthcare market, including a younger and healthier pool of consumers and an increase in male participation. They believe these factors, along with enhanced affordability and marketing efforts, are driving the overall market growth. The speaker also mentions their company's success in growing their market share within their footprint and their plans to gather data and learn more about the nascent market in Indiana. They have already sold their first customer in January and are confident in their ability to understand and adapt to this market throughout the year.

Gary Taylor asks a question about Centene's negative 1.3% advance notice for 2025 and whether it excludes stars. He also asks about the conflicting views on Medicare Advantage (MA) MLR for the fourth quarter of 2021. Drew Asher clarifies that the star rating change accounts for 0.5% of the 1.3% decrease, and explains that Humana and United have differing views on the impact of the fourth quarter MA MLR spike on 2024. Drew also mentions that they are looking at their outpatient trend, which is steady at an elevated level, and there has been no uptick in inpatient.

The speaker discusses the unique elements of their company, such as their focus on quality initiatives and the increase in office visits and RSV vaccines in Q4. They also address the impact of ILI on Medicare and their forecasts for the next year. The question from an analyst is about the two different narratives surrounding utilization trend, one being the seasonal impact and the other being the impact of COVID, and how it will take a few years to get back to baseline.

The speaker asks Sarah if she has a preferred utilization narrative and if they are working through a short-term backlog or running below a longer-term trend. Sarah responds by saying that she prefers to focus on Centene's population and their ability to manage through the trend they are seeing. The next question is about the second bite at the apple opportunity and whether it applies up to the end of the year or if they can revise their estimate for PDR. The speaker then asks about the progress of head count and real estate rationalization in their plan to cut SG&A costs.

The speaker explains that while they don't enjoy being in the PDR position, they have used it as an opportunity to re-evaluate their 2024 forecast. They will release the PDR in Q4 of 2024 and make any necessary tweaks throughout the year. They also mention ongoing efforts to drive efficiency in the business and see opportunities for future margin expansion.

The speaker responds to a question about the margin progression on exchanges and clarifies that the PDR is based on accounting principles and not target margins. They also mention that they have other important businesses, like marketplace, and expect to see benefits from special enrollment periods and risk adjustment in the following calendar year.

Sarah London notes that there has been an increase in retention of SEP members, which will likely result in a tailwind for 2025. Nathan Rich asks about the Medicaid business and the 50 basis point headwind in the 2024 guidance. Sarah explains that they are pleased with the acuity and rate matching up, but Drew mentions the PBM savings that will help achieve the 90.1 midpoint.

The speaker discusses a question from earlier about the expected performance of the company in 2026. They mention a payback of $1.8 billion for Medicaid risk corridors and minimum MLRs, spread across multiple states. They also mention considering future rate action and matching acuity with rates. The conference call then concludes.

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