Q3 2019 Earnings Call
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Triple S management.
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Thank you all translate into the conference calling out in the conference is being recorded.
Thank you.
Adjusted net income of 51 cents per diluted share compared to an adjusted net loss of 97 cents per share a year ago.
Overall, it was another solid quarter and all three of our business segments. As we stayed focused on executing our strategy and delivering operational results.
Third quarter marked the second anniversary of Hurricane Maria's devastating pass through Puerto Rico. So I'd like to begin my prepared comments, where the status of hurricane related claims at our PNC segment.
As is our norm, we conducted a thorough review of case reserves as of quarter that.
This review included the evaluation of developments involving outstanding claims such as new information submitted by policyholders order gestures and the status of settlement discussions.
The company also evaluated as is customary the status of discovery and court proceedings and lawsuits that our PNC subsidiary Triple that's probably that is litigating.
This quarter. The company also search the public record to identify lawsuits that had been filed against Triple S probably that but not sure.
Conducted additional analysis of case reserves for the claims underlying those losses.
Based on this review we report the following as of September Thirtyth 2019, with respect to Hurricane Maria.
Estimated gross losses remain unchanged from the previous quarter at $967 million.
Triple S. Probably that has paid a total of $692 million in claims.
It received only 10, new claims during the third quarter, increasing the total number of Maria related claims to 17746.
It is close approximately 96% of these claims 709 remain open.
Triple S property that has been served with process and 218 lawsuits related to these 709 claims.
The company conducted a search of the Puerto Rico core systems electronic docket to identify lawsuits filed against Triple S. Probably that that have not yet been served.
The stock at search identified an additional 178 lawsuits filed but not serve.
All of them relate to claims previously registered with and evaluated by the company.
The total number of lawsuits filed against Triple S, probably that related to hurricane Maria including those that had been served and those identified in the public record that have not is 396.
This total represents only 2% of all Maria related claims filed by Triple S property policyholders.
These almost half involve personal claims which tend to be much smaller and dollar amount that commercial plans into our knowledge only 31 involve an assignment of benefits.
While we adjusted our loss adjustment expense somewhat to include litigation costs of the new lawsuits filed during the third quarter. This additional expense was offset by the release of reserves. During the same period that resulted from the settlement of claims below their reserved a mouse.
The company performed additional analysis of case reserves for the claims underlying the unserved lawsuits.
Based on this analysis as well as the customary review I described earlier for all claims outstanding the company determined there is no need to increase its estimate of gross losses, nor adjust reserves related to hurricane Maria.
As in the case for all claim liabilities the gross losses related to Maria are based on our best estimate of the ultimate expected cost of claims with the information currently on hand and are subject to change.
The company will continue to closely monitor all claims made as well as lawsuits were process is properly served I will adjust reserves, if and when any new material information emerges.
Moving to our core managed care segment, we were pleased with continued topline growth and overall consistency during the third quarter.
Managed care premiums earned were $746.5 million.
Up 9.7% year over year.
Medicare advantage accounted for most of that growth with premiums increasing 29.4% from the prior year period to $367.1 million driven largely by an additional 52000.
Member months and higher average premium rates.
Heightened competition marks the 2020 open enrollment season.
Since this is the first ATP, where new CMS supplemental benefit guidelines are playing an important role in Medicare advantage.
In our case, we're offering quarterly visits penetration this on all products without prior diagnosis home support assistance after hospitalization tweak targeted population and more transportation services for health related needs among others.
Given the regulatory change it is still too early to tell how the open enrollment season will play out.
Since we are seeing eligible consumers take more time than in the past to evaluate their options.
We are confident however that are of that our products will compete well in the market. Since we have maintained consistency in product design, while enhancing many of the benefits we offered into 2019 season.
In our commercial business, we've started to see an inflection in fully insured membership generating a second consecutive quarter of membership growth.
This reflects a more competitive product offering any more strategic approach to market.
Finally with respect to Medicaid.
I'd like to highlight five main points as we enter the second year of the Newbuild program.
First this quarter, our retail membership drop sequentially by approximately 10000 from 364000 to 354000 members, reflecting an overall reduction in the eligible population.
Our market share however remains stable at around 31%.
Second we experienced a decrease in PMPM payments compared to last quarter, resulting from a timing differences and the recognition of member acuity by the Puerto Rico Health insurance administration or assess.
Juan Jose will address this point in more detail.
Third Beatles 2020 open enrollment began on November Onest and will run through December 15th.
We expect that the quality of our service the breadth of our network our brand recognition and many years of experience in this program across the entire island will again service well to retain and grow our membership in this business.
Or just yesterday, we issued an 8-K disclosing there are managed care subsidiary Triple S. Salute extended its agreement with the Puerto Rico Health Insurance administration for 15 days until November 15th.
To allow the parties additional time to complete their ongoing revision of the per member per month payments for the second rating period, which runs from November Onest to June Thirtyth 2020.
The agreement provides for a periodic review of these rates and the initial rating period expired on October 30 Onest.
2019.
Was the parties agree on the new rates. These rates will apply retroactively to November onest of this year.
Yes, I'd like to provide a brief update regarding Medicaid funding for Puerto Rico.
We are cautiously optimistic with the latest news coming out of Congress as there is now a set of proposal that would provide $9.8 billion and funding over four years for the islands Medicaid program.
Earlier in the quarter US House of Representatives Committee on energy and Commerce approval to build that would provide provide approximately $12 billion in funding.
Conversations between the house in the set regarding the Medicaid spending cliff our ongoing.
And our expectation is that a final agreement will be included in an extenders package likely to be enacted in the first quarter of 2020.
This is not the permanent solution the Puerto Rico is seeking yet it provides that program was greater state stability over the next four years.
Meanwhile, the continuing resolution approved by Congress that included an extension of temporary funding for Medicaid in Puerto Rico is to expire on November 20 Onest.
A continuing resolution extending funding for an additional term is expected to be approved in the following weeks, which would allow additional time for Congress to reach a final agreement on federal funding.
Government spending generally including for Medicaid in Puerto Rico.
Terms of our 2019 full year guidance.
We are maintaining our expectations for full year operating revenue to be between three point $29 billion and $3.33 billion, which includes managed care premiums earned net between two point 95 billion and two point $99 billion.
We are maintaining expectations for our consolidated claims incurred ratio to be between 81.3, and 83.3% and EMR to be between 84 and 86%.
We now expect our operating expenses as a percentage of total premiums earned and administrative fees.
To be between 16 point 75, and a 17 point, 25% an improvement from the previous range of 17% to 17.5%.
We're maintaining our effective tax rate expectations of between 29 and 33%.
And on the bottom line, we are raising 2019, adjusted net income per diluted share guidance and now expect to be between $2.50 and $2.70.
As a reminder, adjusted net income per diluted share excludes realized and unrealized investment gains and losses as well as any private equity investment income.
Accounts for the most for the recently issued share dividend and does not account for any potential share repurchase activity during 2019.
Importantly, given the disconnect between our recent stock performance and the company's consistent execution of its strategic and operational objectives. Our board has authorized expansion of our share repurchase programs availability the $25 million.
We remain confident in our business to deliver shareholder value over the long term and expect to be active in repurchasing shares either through a tenbfive one program or in the open market.
Let me close by saying once again this was a solid quarter.
Results across the company validate the hard work consumer focus and strategic intent of the entire triple S team I.
Im proud of each and every employee and thank them for recognizing the company as one of Puerto Ricos 20, best employers earlier this week.
Auto sales will now provide you with a more specific financials by business segment Jose.
Thank you OEE and good morning to everyone on this call.
We reported in our press release earlier today, we continue to show strong operating results during this third quarter.
We reported GAAP diluted net income per share of 58 cents and adjusted diluted net income per share of 51 cents compared to GAAP net loss per share of 77 cents and adjusted net loss per share of 97 cents in the prior year period.
As a reminder, last year third quarter results were impacted by the 86 million after tax on favorable prior Peter Reserve development related to the Houston Galleria experienced by our BNC segment.
Let me know disclose the managed care results in detail.
Medicare premiums earned for the quarter Rose 66 million or 10% over the same beaded last year, primarily reflecting increased membership where Medicare and at the risk commercial businesses.
On higher average premium rate in the Medicare line of business.
The higher average premium rates in the Medicare business, primarily to reflect an increase in the average membership reached the score.
These bring that increases were partially offset by name back over these years hate feet moratorium and a decrease of approximately 126000 member month in our Medicaid membership year over year, resulting from the changing that but were not as model and anyone but until that program effective Noah.
Our first delineating unveiled at a reduction in the legible population.
Also this quarter mitigate premiums were negatively impacted by assets a reconciliation of proportion of the heico's high need population into lower premium theaters. We have raised this easily dresses and the agency has acknowledged citadel challenges.
In how eightys and recognizing on vein for the Heico's high need members.
As a result.
Says has extended that reconciliation process for all aimed fios on February 22.
We expect the premiums to align with their relative activity of our membership one once this process thesis stable.
Managed care claims were up 79 million year over year, while the and while our of 86.4 person was 320 basis point higher than last year.
The higher annual are largely reflects being but those benefits in our 2018 may be care for our offering.
The lack of if any 19 hafey moratorium.
Higher target and target AMR of began in may indicate come through and do that challenges. Our fifth is experiencing would recognition of member on Khalidi that I guess explain a timing difference in the recognition of mitigate premium.
The resulting AMR for this business 99.6 person is approximately 14000 basis point higher than the prior year period, reflecting lower premiums the MPN Anil at the higher than expected BMP in medical costs.
Was that rates are aligned with member activity, we expect MSR to approximate target.
Moving on to managed care segment quarterly operating expenses.
Segment operating expenses declined 7 million from a year ago, reflecting a 13 million decrease in the heat fee due to happening, making moratorium that was partially offset by higher personnel costs and commission expense.
While we do not provide specific quarterly guidance, we expect operating expenses in the fourth quarter, two we hired dental others.
Other quarters in Guinea, 19, due mainly to enrollment season for the Medicare and Medicaid businesses as well as putting the visual small groups and for that implies EBITDA with them into commercial business.
Let me comment briefly on our life on property and casualty segments.
Life, putting his earn were approximately 8% from the prior year period, primarily reflecting premium growth in the segments individually and cancer lines of business.
This segment operating income increased by 1 million to 6.6 maintenance.
Property and casualty premiums redone were up 7 million during the third quarter of any 19, mostly reflecting.
Multi resulting from increased sales and higher premium rates, particularly in commercial accounts. This segment's operating income this quarter was 7 million compared to an operating loss of 47 million. During the same quarter last year, which was caused by the 52 million on federal but we therapy.
Domain related to hear again Marianne planes.
Turning to order results consolidated income tax expense was 6 million compared to the benefit of 3 million into prior year period.
The income tax benefit in 2018, mainly reflects the loss before taxes reported in that period by the property and casualty said.
Total cash and investments other budding company level was 85 million as of September dating Tony 19.
As Bobby noted our board of directors authorize the expansion of the availability of our share repurchase but owed on $25 million and we'll be able to repurchase these shares through it and be five one but over time or through open market purchases.
We are pleased we are aware stone operating result, those far into any 19 and continued focus on our long term growth strategy further for raising our key initiative and positioning the company for the future.
We will now proceed to award Couponing section operator, please open the call for questions. Thank you.
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One moment, please while we pull for questions.
The first question is from Peter Costa Wells Fargo. Please go ahead Sir.
Good morning, everyone.
Question on the Medicaid EMR, you had talked about the claim tapes coming through.
In particular, I should say coming through with with.
Variation from before it seems like it was worse this quarter.
And then you saw before.
Is this some kind of a catch up going back to some of the prior quarters, where there was variation or was this all in this quarter and then.
Beyond that you talked about the extended time.
To renegotiate the contract here for the next.
My month of November for yourselves is that looking at sort of the variation of the contract or is all that taking place by February 2020.
Hi, Peter This is Juan Jose so regarding the extension wearing them either of reviewing the race for next year. He will be retroactive to November 1st.
We just started the negotiation.
Later in the month last month, so has been taking a little more time dynasty like that but we are waiting to the annualization as well as how our older. Ensco's are we do expect to complete this by meat of this month and we'll have a new rates for the next 12 months.
Okay, and then regarding the prior rate and I know that has been noisy with the members moving back and forth between higher acuity and lower acuity, where this variation the rates did this quarter have some catch up from prior quarters of the the way the members were moving back and forth or was this all tied to the.
This quarter.
These wasn't tied to this quarter. So what we know is ease a reduction in Q3 of the classification of certain high cost needs that happened during Q3, what we do expect east to catch up in their mothers day premium on Q4 or before the end of February two anytime.
And when you say catch up do you mean, they'll go back and look at the Q3 were clearly these member seem like they were.
In the wrong bucket, where you're getting lower paid for them or will they just adjust them going forward.
I'll be retroactive, that's why and let me clarify when I when I mentioned that data constellation process, we'd assets will be extended through February ease the time. They extended the time in order to provide us time to reconcile we'd assets a retroactive to the pine, where we believe that reduction or debt.
Reclassification.
It was wrongly them.
Got it.
All right.
Then moving onto the to the PNC.
Claims.
We spend a little time there.
Back in September you had had 745 claims that were outstanding now you down to 709. So you resolve 36 in this time period.
Or any of those claims claims that were litigated or claims that were say over a million dollars in terms of what the the members were claiming relative to what you settled for.
Of the 709, Peter you're asking how many of them. We're in litigation actually of the 36 that you resolve all of the 36 that we resolved.
We don't have that number.
With us I can tell you that.
We have looked at the.
Cases at the claims.
That were.
Close and overall, we've been able to.
Close about one in five cases that were already and litigation historically, but I don't have a precise number 36.
Okay.
When when we look to the court cases and.
Some of the big damages that the some of these case or alleging relative to the relatively smaller amount of money that you have left.
The pay these claims within the loss reserve.
What gives you the confidence that that you are lower number is the right number relative to.
For what the case or legend against you.
Peter will first of all we need to take into consideration that for many of those be big cases, we actually have put a lie at cash advances.
So what leasing their researcher ebay these trends between our estimate of the incurred loss miners that bounces. So for some of the especially biggest cases.
We have provided cash balances so that reviews, our reserve right. So even those many of those that are in mediation now they do have at Bath has already provided.
In the past two years, so that anything adding port and critical data point to understand is that not every case that you see or how did we have been sue Ortiz outstanding or in process et cetera.
We not necessarily over them the whole among because of that bounces.
We're very confident again, what we evaluate ease they claim big data that we receive from that claim and the work performed by our what adjusters. So at this point the men's majority of these cases, we havent done an extensive work as to what they will assess our that's what for Leidos.
The coffee lens of our reserve.
As we've always said as we go we have been able to close cases on their reserve and we are located that two other cases, so as of September as has been the last year.
We are confident with our research because of the extensive work that has been done with each of the most important claims of the biggest value of of claims and when we look back.
In average we have to enable when we looked at full last two years in for the case reserve in the average we have been closing cases on their day initial estimate that reserve.
If I if I may add appear.
We don't really focus on what the stated amount is in the lawsuit.
Just like we don't necessarily focus on what the stated amount is in the underlying claim.
And thats been the case.
From from day one.
And Thats why we have not in response to questions from from your investors.
Stated what is the total some have claimed the mouse because that could be misleading.
Some people claimed very reasonable amounts and we settle very close to what has claimed other people claim.
What we consider.
Saturated.
Mounts, some could even be consider fraudulent.
So that said, we don't look at it in the aggregate, but we go one by one.
And we look at at the underlying claim if the lawsuit brings in any new information we need to consider we will do that.
Focusing on this on cases served because that's what really triggers the beginning of of litigation as washer.
Formally notified under law, so again, we don't.
Look at it is as there are these cases out there according to the public record them out to X millions of dollars. Therefore, you divide that into 709 or into.
396, and you come up with an amount.
You compare that to reserves, that's not the way we look at.
Got it.
Help me understand the assignment of benefits a little bit those 31, where there's an assignment of benefits is that all being assigned to a contractor who's doing the work or is that being assigned to some other third party that.
Perhaps is just a financial interest and looking to pursue something against you guys. Yes. This is a very specific case and we provided that that date that data point, which we don't consider necessarily.
Important this scheme of things, but we want it and we wanted to provided because.
There.
We imagine their vessels or look at say experience in Florida, right and that compares affordable. This is very different market and the experience has been very different.
So we know that that was a big issue in Florida will be assignment of benefits to contractors and thats.
Had repercussions there. So we just wanted to point out that that is not really a significant concern here. Those 31 cases are.
Very specific there is not a contractor it's a company here Paul the tenure.
And it describes itself as a as a Puerto Rico company, but we understand based on its website visits.
Funded by an asset management company out in the U.S.
And so.
We just wanted to highlight that out of the total there are only 31 cases to date that is.
Whereas benefits have been assigned and based on a lawsuit against them, which we were able to see in the public record.
They take a cut.
Of any.
Claim adjustment paying upfront amount and they taker.
A portion of.
Of the claim and then they represent Cline.
Got it and does this Puerto Rico have any laws like the recently passed in Puerto in Florida on assignment of benefits.
Not to our knowledge now.
Okay.
Moving away from the claims for a minute.
Before I pass on to others.
You lowered your assumptions for the DNA ratio.
What is behind that.
Did you just the higher revenues or is there something more in terms of cost cutting that you've been doing no high eight mostly is higher revenues.
Okay.
And then you didn't talk pretty much about 2020 in color going into 2020 from headwinds and Tailwinds, perhaps you could go through a little or that for us.
I would say Peter that the the that headwind.
Everyone is of course.
Fairly closely watching is Medicaid funding, which I mentioned.
Of course is also.
A lot of of.
Focus on on what's happening with the recovery.
Post hurricane and the influx of.
Federal reconstruction funds.
And because those will be.
Driving.
The economic growth.
In the short to medium term so thats what everyone is focused on.
Of course, we are closely watching everything happens with with PNC claims.
Very focused on that making sure we get that behind us and.
And as we mentioned Medicare advantage, it's very interesting open enrollment season, given all the changes and.
And non medical benefits.
So those are I think that the main things coming on top of mind for me one as a.
With respect to Tailwinds, we continue.
Really just focused on delivering on our strategy.
And we believe there is a lot of momentum in the company a lot of energy around what we're doing.
And a lot of focus on continuing with our clinical initiatives.
With that longer term goal of.
Transforming healthcare through an integrated delivery model.
We think theres lots of interesting work going on within the company that will support better integration of care and better outcomes for our affiliates.
Great. Thank you very much appreciate it.
The next question is from Austin Hopper, a W.H. capital. Please go ahead.
Hey, guys. Thanks for taking my question.
Good morning.
Good morning.
It's like you mean about $33 million at payments to stand or Hey, Children's Hospital last two years was that all hurricane Maria related.
No actually that that was not.
See the vast majority of that.
Is that basically related to.
Payments for services by the hospital as a provider of our network.
So I'd say all in.
Payments related to PNC claims as a is uninsured of RPC subsidiary is approximately 3 million.
Remaining $30 million.
Was all related to.
Healthcare services, that's under a contract or contracts that are all arm's length and they are disclosed in our proxies.
Great. Thank you.
Sure.
This concludes todays queuing they session.
I'd like to turn the floor back over to Bobby Garcia for closing comments.
Thank you operator, just like to sum up by saying we've had a solid 29 team as we move into the final months of the year showing continued progress in our strategic operational and financial objectives, we continue to gain and retain membership in our core managed care business.
We continue optimizing technology to further improve clinical outcomes medical member experience and our cost structure, we're making progress and building out our clinical network all in a concerted effort to build out and integrated care delivery strategy over the next several years the transforms the healthcare experience in Puerto Rico.
And with that I'd like to thank you all.
Taking your time today and your ongoing support for plus you have any questions. Additionally, please reach out and have great day.
This concludes todays teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a good day.