Q3 2020 Centene Corp Earnings Call
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Good morning.
Welcome to Centene Corporation third quarter 2020 financial results Conference call all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero after.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is.
I would now like to turn the conference over to Jennifer Gil Yang. Please go ahead.
Thank you Kate and good morning, everyone. Thank you for joining us on our third quarter 2020 earnings results Conference call.
Michael Neidorff, Chairman, President and Chief Executive Officer, and Jeff Schwaneke, <unk> Executive Vice President and Chief Financial Officer of Centene will host this morning's call, which also can be accessed through our website at 17 Dot com.
Any remarks that Centene may make about future expectations plans.
Constitute forward looking statements for the purpose of the Safe Harbor provision under the private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those indicated by those forward looking statements as a result of various important factors, including those discussed in 17. Its most recent form 10-Q filed today October 27th and form 10-K dated February 18th 2020, and other public SEC filings.
Including the risks and uncertainties described with respect to the potential impacts of COVID-19 on our business and results of operations.
Centene anticipates that subsequent events and developments may causes estimates to change while the company may elect to update these forward looking statements at some point in the future, we specifically disclaim any obligation to do so.
The call will.
Also refer to certain non-GAAP measures a reconciliation of these measures with the most directly comparable GAAP measures can be found in our third quarter 2020 press release, which is available on the company's website at 17 dotcom under the investors section.
Additionally, please mark your calendars for upcoming for our upcoming virtual Investor day, which will take place on December 18th 2020.
Finally in connection with this mornings earnings release, we have shared some illustrative exhibit these slides are available on our website under the Investor section.
With that I would like to turn the call over to our chairman President and CEO, Michael Neidorff Michael.
Thank you Jennifer good.
Good morning, Thank you for joining Centene third quarter earnings call.
We all hope you and your families are safe and well.
On today's call I will review, our strong third quarter performance and discuss the operating environment as we see it today.
I will also provide perspective on how centene is positioned for continued growth.
Yes.
Including some thoughts on 2021 and an update on the walk here Peter Grace.
I'm pleased with our third quarter results, which demonstrates the strength of our underlying business and diversified platform as well as our teams solid execution.
We reported third quarter revenues of $2 29, sorry, $29.1 billion, an increase of 53% from the third quarter 2019.
Adjusted diluted earnings per share was $1.26 cents or 97 cents when accounting for the one time items referenced in our press release.
This is consistent with previous guidance I remind you that on our second quarter earnings call. We shared that in this call bid environment, we expect six.
68% of our income to be received in the first half of the year.
We also advise at the third quarter would amount to roughly 20% of the usone, which happens to be 97 cents.
We delivered strong organic membership growth driven by new programs being introduced across many of our sales as well as some cobot related membership.
Membership was approximately 25.2 million at the quarterly.
He said see sequential growth of 2% a year over year growth of 65 for sure.
She driven by the addition of world.
Excuse me.
<unk> remains in line with the guidance provided in July and we continue expect 2020 membership to peak in November with 1.4 million new members.
Our earnings benefited from a number of one time items, which will be reinvested back into the business.
As you all know Centene is now $810 billion in it.
Okay.
At our size and scale, we expect to be impacts short range on a quarter to quarter basis.
We are utilizing this quarter settlement to reinvest in growth initiatives.
In addition, we have allocated a portion of the sentiment towards making a significant one time contribution due to Centene charitable foundation.
Theories of which will be used towards public programs and medical research that supports the humidity we sure.
In this environment, we continue to lead the rule accelerating our approach its community care with programs that address social determinants of health sector.
Such as improved access to books, who care. He supports the new btwos experiencing food can secure.
Turning now to the operating environment, how we view the basket.
[noise] if you exclude the 12 cents increase to reflect the favorable tax settlement in the third quarter.
Earnings guidance for 2020 remains consistent with what we provided at our June Investor Day.
Business is strong and we remain confident in our ability to lead today's hockley landscape.
[noise] stay partnership.
Continue to present opportunities for constructive relationships.
The discussions that have taken place without a seat counterparts. This year underscore the strength of our partnerships as well as the value we could rise to our Si partners.
The typical lake city inclusive has continued to out the 40.
35.3% rate increase in Texas.
That does it tend to one and approximately 1.5% increase in Florida effective October one.
We continue to hold discussions what kind of street partners related to weight city and risk adjustment mechanism.
[noise], we also have certain states and outside the normal process has put additional the sharing mechanism in place related to over 19 easily.
These are specific to the pandemic and we expect them to be short term in nature.
Overall, we continue to navigate the evolving landscape together with our state partners as we work to provide our members with access to critical care.
Other key factors include membership growth and medical utilization continues to track in line with our expectations.
Wow, there and while there is continued uncertainty sleazy intensity and duration of the pandemic and the outcome of next week's election, we believe we have the scale and size and good news. So I see it environment continues to evolve.
We managed the business based on the facts as we see them today, and we are well positioned to continue to grow and execute against our strategy.
We also continue to provide you with transparent update and give you our best estimates as to how we see things at a particular point in time.
With that in mind, Jeff will provide you with some factors to consider when thinking about a 2021 earnings power.
As is our practice, we provide details at our December Investor Day, However, and these unusual times, we want to make sure that were the factors. You know you are considering them for your models.
Oh highlight here, we continue to see attractive opportunities for glu, both organically driven by an uptick in RFP pipeline.
And to delivering on the walk to deal accretion in.
In addition, we see potential opportunities for investment.
So without a disciplined M&A process.
The walk here integration remains on track and it's progressing well our finance it HR systems are integrated seamlessly and in New York friend integration, which completed timely lie with the state to expectations.
Routine integration activities will continue throughout 2021.
And our upcoming virtual Investor day.
We look forward to sharing more detail regarding outlook as well as our strategy to transform centene into a health care technology.
In summary, we're pleased with our third quarter results, which demonstrate the strength of our underlying business and diversified platform.
We intend to demonstrate solid growth 2021, she doesn't buy wellcare deal accretion and organic growth, we could see you see significant opportunities for growth longer term.
Additional things look to managed care has a solution to that helps you.
Well, some uncertainty remains and our size and scale and without a pet capabilities Centene is well positioned both in PBC sales.
Before I hand over to Mike to Jeff.
I again want to thank and recognize the continued commitment and dedication of our employees.
Because of their relentless focus that we have been able to continue to serve our members do any Scott well.
I hope so.
Celebrating programs that support I can do that.
Value other systems and people.
Right, that's going to continue to prove themselves.
They say well your mask and say well with that let me turn it over to Jeff.
Thank you.
Cool.
Oh that sounds good one away.
Welcome.
Hi, there. This is Jennifer Gilligan, we're going to ask folks on the line to just hold one moment, while we make some sound checks.
With the webcast link back to you and Tim.
Hi. This is John we'll have Jeff go ahead and start his remarks, there was trouble with the webcast link what we will do is following the call. We will post the transcript of Michael's comments in the event that there were folks on the webcast who missed any portion with that I think Jeff you can take it away.
Okay, great. Thank you Jan Thank you Michael and good morning, everyone.
Everyone. This morning, I will start off with the review of the quarterly results and I'll offer some details around our updated 2020 financial outlook and finally I'll walk through some factors to consider when thinking about our 2021 earnings trajectory.
Overall, we delivered strong third quarter results with revenues of 21 29.1 billion, an increase of 53% over the third quarter of 2019, and adjusted diluted earnings per share of $1.26 compared to 96 cents last year or.
Our adjusted diluted earnings per share included a net favorable impact of 29 cents from the three non operational items that are outlined in our press release.
When excluding these items, specifically receipt of the risk corridor settlement, a charitable contribution committed to our foundation and an unrelated tax benefit adjusted diluted earnings per share totals would have been 97 cents.
Total revenues grew by approximately 10.1 billion over the third quarter of 2019, primarily as a result of the acquisition of Wellcare membership growth in Medicaid in the health insurance marketplace businesses.
And expansions and new programs in many of our states toll.
Total membership increased to $25.2 million in the quarter up 65% compared to Q3 last year.
Since the pandemic began in March we have added a total of 1.3 million Medicaid and health insurance marketplace members consistent with our expectations. When we issue guidance in July largely attributable to COVID-19.
Our hbr or health benefits ratio was 86.4% in the third quarter compared to 88.2 in last year's third quarter and 82.1 in the second quarter of 2020.
The hbr for the quarter was impacted by the receipt of the risk corridor settlement.
When adjusting the Hbr ratio for this revenue of approximately $400 million, our hbr in the quarter was 87.8%.
The Hbr was also aided by lower traditional utilization largely offset by the higher costs associated with testing and treatment of covance as well as retroactive state premium adjustments and risk sharing programs.
Realization in the third quarter trended toward normalized levels in most geographies. This rebound included a combination of traditional utilization and coated related medical costs.
Cash flow used in operations was approximately $950 million in the third quarter the.
The cash used in operating activities in the third quarter of 2020 was due to a $1.6 billion health insurer fee payment and a $1.2 billion risk adjustment payment associated with the health insurance marketplace business, which both occurred in the third quarter. This year.
With cash flow from operations of $2.5 billion through the first nine months of 2020, we expect 2020 cash flow from operations of between one and one and a half times net earnings.
We continue to maintain a strong liquidity position of $1.1 billion in unregulated cash on our balance sheet at quarter end debt.
Debt at quarter end was $16.8 billion, which includes $93 million of borrowings on our revolving credit facility borrowings on the revolver are denominated in euros to hedge our international investments.
Our debt to capital ratio was 39.1%, excluding our non recourse debt compared to 39.7% in the second quarter of 2020.
Our debt to capital ratio was 37.4% when netting our unregulated cash with our debt at quarter end, which represents a 150 basis point decrease since March.
Our medical claims liability totaled 12.9 billion at quarter end and represents 52 days in claims payable compared to 51 days in the second quarter of 2020.
DCP was impacted by the cobot pandemic pass through payments received at the end of the quarter, which were paid out in early October membership growth and the timing of payments.
On Wellcare as Michael mentioned earlier, we continue to make significant progress with the integration. The integration continues to be on track and we remain comfortable with our synergy capture efforts.
Turning now to our 2020 expectations for the full year, we now expect revenue to be in within a range of $109.8 billion and 111.4 billion. This is $400 million higher than our previous guidance midpoint predominantly reflecting the risk quarter settlement recorded this quarter.
Our revised adjusted diluted earnings per share guidance of $4.90 and $5.06 up from a range of 476 to 496 represents a 12% increase at the midpoint driven by the tax benefit that we recognized during the third quarter.
A reconciliation of our changes to guidance is provided in our press release issued this morning.
Our 2020 financial guidance reflects the strong year to date performance from our major business lines as well as the impact of the non operating items previously mentioned that occurred during the third quarter.
We previously outlined a number of coated related factors that influenced our full year guidance. These remain unchanged. We continue to expect peak membership growth of 1.4 million by November of this year.
In terms of utilization trends.
We continue to expect trends to gradually increase during the fourth quarter, depending on regional infection spikes and local government responses.
Through the end of September we have paid approximately $2 billion associated with Cobra claims. This compares to $550 million, we discussed on our second quarter call. Our third quarter figure applies consistent methodology and includes all of the cobot related claim codes consistent with CDC guidelines.
With respect to rates as Michael has already touched on we continue to have active dialogue with our state partners and the risk sharing mechanisms and rate adjustments received continued to be in line with our 2020 expectations.
A quick note on quarterly versus full year modeling.
As a result of the Wellcare acquisition closing in the first quarter. The full year weighted average share count is substantially lower than the second through fourth quarters. This will impact modeling of fourth quarter EPS with respect to full year adjusted earnings per share guidance in short the quarterly results will not some to the full year guidance range.
And last a few comments on our 2021 earnings trajectory.
As we have done historically, we will provide our 2021 full year guidance at our December Investor Day.
However in light of the significant uncertainty in this environment, we want to provide as much visibility as we can and give you a few items to consider as you begin to model 2021.
In order to facilitate the discussion we have included a slide on our website at 17 Dot com.
We are still in the early stages of our planning process and going forward, we intend to return to our typical practice.
First you may recall that on March 3rd 2020, we provided initial guidance for 2020 with a midpoint of $4.66 from an adjusted diluted earnings per share basis.
There have been a lot of moving parts. This year include.
Including higher membership and revenues the significant reduction in medical utilization in April and May.
The continuing incremental costs for coated testing and treatment.
And the effective risk sharing programs implemented by our states just to name a few.
If you exclude the 20 cents net benefit from the pandemic and the 12 cent tax benefit recorded this quarter our guidance for 2020 adjusted diluted earnings per share reflects where we began in March $4.66. So.
Second as we look forward to 2021, we expect to continue our long history of top and bottom line growth from here there were a lot of moving parts and I will highlight a few that are included in the supplemental slide we are sharing today.
As we commented earlier, the Wellcare integration and the underlying operations remain on track and we are confident in our ability to generate the mid to upper single digit accretion from the transaction as we have previously indicated.
Third we anticipate solid year over year organic growth generated through new programs and the expansions of existing programs such as Medicare marketplace that will contribute to our earnings trajectory.
Fourth we expect some of the Medicaid rate adjustments and risk sharing mechanisms to carry over into next year, and finally coven and traditional utilization represents a number of unknowns dependent on the trajectory of the pandemic.
We'll be better positioned to provide more clarity around these factors during our December investor day.
I'll conclude my remarks by reiterating our confidence in the strength of our business. We're pleased with the significant growth. We've achieved this year our balance sheet remains strong and we believe we have ample liquidity to meet our operational and strategic needs. We remain focused on executing against our strategic plans and are committed to delivering shareholder value and we look forward to providing a comprehensive.
As of outlook for the next year when we virtually meet in December that concludes my remarks, and operator, you may now open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchstone sound, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
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Our first question is from Kevin Kevin Fischbeck from Bank of America go ahead.
Okay, great. Thanks.
Just wanted to follow up on the on the Medicaid rate commentary I think.
Yes, first could you quantify maybe what.
You've got built into your guidance so far for this year as far as the.
Rate pressures and then Michael I think in your in your comments you mentioned that you thought that some of these risk corridors and things.
Might be temporary in nature. So just wanted to understand got it.
If if we should be thinking about these as kind of onetime type issues or are these kind of the way that you would expect states rebuilding rates prospectively. Thanks, No I think.
It's some of both.
Depending on the state and negotiations we've had.
Senate vote in contemporary these corridors and that we've negotiated the wieland.
Are those as Youve seen have given us a lead increases at a comfortable where we are and.
It is really just a give and take losses right now Kevin and Jeff can give you some more specific numbers and.
So I'll turn it over to him and he can give you a sense of what was what we've dealt with and how we've been able to deal with it because there's two factors to our rate that is also the could the cove it expense and that we've had in these and reduce utilizations movies generally yes. Kevin. This is Jeff I think a couple things the traditional brake rate setting.
Process, where we use in counters and develop the rates and move forward on.
That process has I would say continued as it as it always has what's been in addition to that of these risk sharing mechanisms.
And risk corridors that states have considered.
So for our full year, we expect that number to be around $500 million is what we've got in our guidance and I think so far this year, you've heard us say in my comments that.
It's really been in line with our expectations. So weve had had that estimate in there for some time on the quarter.
That number was roughly 265 million so that definitely impacted the hbr from that perspective.
And then again as we look forward to next year, we expect that to be lower than the $500 million as we head into next year because some of these programs do.
Do expire I think the reason why they carry forward to next year is a lot of them are driven by the state fiscal years, which as you are aware.
Our not January through December so, it's not a calendar year and I might I might just indicate that where we've seen the unitization. We do is we will include the sales and if it hasn't reduce than the states recognised surveys have to be actuarially sound. So it's a case of it and a lot of give and take and is there very constructive.
Obviously with us maintaining the guidance we.
We're pleased with where it worked out.
Okay, and then second question being around the guidance you have.
I appreciate the color about that its setting the stage for what the base EPS. It but I guess you guys also had some guidance around the time you did the Wellcare transaction I don't know if there's.
Any way to maybe.
Kind of headwinds and Tailwinds to maybe the guidance we provided at the time of the Wellcare transaction I don't know of anything else.
You had highlighted obviously positive or negative as we said that it is consistent with the guidance we gave a debt yes, yes.
Kevin are you specifically, referring to the guidance that we provided kind of right. After we close the deal in March.
Yeah, exactly so you guys talked about the accretion and from that I guess, you're saying that if it means that all size, but wonder if there's anything else around the core business plus or minus that you highlighted headwinds or tailwinds to kind of how you would have thought about the business back in March.
Yeah, I think I'll start off and shifting to add to that is proven to be very consistent the integration has gone on schedule has been seamless the.
Some of that was delayed as we highlighted in the past that.
Georgia, and Florida, not because anything we had because of their issues delayed the combination of plan until 2021, and Thats with XR work now or will we still recognize the accretion from it.
We were pleased with their support and what their capabilities are into Medicare program. So I mean, it sounds at every level, it's not the expectations and were comfortable cone awareness yeah, Yeah, Kevin I agree with Michael I think the transaction is exactly in line with what we expected I think the variables are the other things.
The variables are covis stay rates Redeterminations, all those things I think from the transaction perspective, it's exactly in line with what we anticipated.
All right great. Thanks.
Our next question is from Justin Lake from Wells. Please Sir go ahead.
Thanks, Good morning.
Just wanted to first follow up on the 2021 discussion here specifically.
So.
Once you give it up the horse.
Before six these kids starting point.
Yeah. The only thing we all have to kind of go back in part to the S. Four and that's like think hard about 11% earnings growth on a standalone basis and plus the equation.
So we're just starting point the airplane is it reasonable just to assume that about exceed the level of EPS growth that was in the US war, but thats still 11% plus the accretion gets me to about five feet.
Would that be a reasonable ballpark, maybe starting out or you have to do anything you want me to think about beyond.
That will enable spend number.
I'm going to let Jeff respond to it but keep in mind, we're trying to give you some sense, but.
Guidance for the full with the real number we'll give you the bridge and everything on December 18 cents and so I mean, there is a balance of trying to strike here not many people get ahead of themselves with us by that we're not finding we're not trying to find what the guidance is at this point that Jeff you want to yeah, Yeah, Michael I think I think you're right I mean, what we're.
Trying to do here is just give you some key factors to consider to think about as you bridge from.
2020 ended 2021, yeah, I think the challenges with the S. Four I certainly appreciate that people could go back and try to use that number the challenges that was pre cove. It and it was also pretty New York rate changes and built over a year and a half ago. So I think from our perspective, we believe bridging from this year is a more appropriate place to start.
Okay and again.
They're good guys you know plant but.
The full number will have the full numbers for you in our December Investor Day.
Is it fair to say that maybe the consensus number around 570 575 might be optimistic relative to the starting point we'd like.
No but were not.
I appreciate what you're really trying to get to but we're in the early stages of our Asap.
And I'm not the way, we we have a cake when we but we did say we because of this year. We try to give you more we're not trying to tell you what the range of <unk> the.
The guidance is that.
As long as we've been probably have done that in December test and so that's a that's wetlands we have given you as a starting point.
Uh huh.
Can come December you'll you'll have the full week.
Thank you very much thank you.
Our next question is from Ross cannot cope some Citi go ahead.
Thanks. Good morning, just wanted to go back to just make sure I got the numbers or any way to split out sort of the the third quarter impact of the higher corporate cost versus the premium rate adjustment and then the risk sharing that you cited if you could.
Break out those three buckets.
Yeah. When you mean, the premium <unk> the risk corridor, we quantified is 400 million the state premium and risk adjustment changes. The number I gave was to 65, so that had an impact on the hbr and I guess the way I would think about it is you have to take all these items into account in a lower investment income.
The state take backs lower overall I would say utilization was slightly below historical perspective really driven by.
You know the covert pandemic do you have to take all those into account when you. When you look at the quarter. So hopefully that gives you what you need.
Okay, All right fair enough and then just a quick follow up but you noted sort of investments you're making in the fourth quarter around M&A and Hicks. Just if you can give us a sense of how you're thinking about sort of enrollment growth for both maybe both those segments and 2021 I know the the landscape flowers was just recently out for for essentially bowls in exchange I think just yesterday. Thanks.
Well, we have a expanded geographic footprint that we've highlighted and it's the early stages of in woven and I.
I think its incentive plan I'm not going to speculate.
Based on a few points, we had to this point in time, but as we've said we're comfortable with the.
The capabilities of Wellcare in this area and.
I'm looking forward to the results.
Okay.
Our next question is from AJ Rice from Credit Suisse go ahead.
Hi, everybody learning not to beat a dead sea or but I.
I have two two errors two quick questions, but first of all relates to.
The 2021 outlook I sort of end up at about the same places I think Justin was saying and started 466, you add about 38 cents, where the midpoint of the.
The welfare accretion incremental accretion for next year, you can get a five five.
Five Obi Brady and then you add 10% to 11% organic growth 555.
Relative to your slide then you've dealt with that so what's the welfare accretion in the organic growth.
I guess the open questions or you would you're highlighting you state rates risk sharing and potential return of Redeterminations on the Redeterminations is it still your thought that that's about a billion dollar revenue headwind on an annualized basis and that we can figure out how that might come in over the course of the.
Sure and then is there any way to put your arms around your comment around stay rates and risk sharing I guess, that's annualizing some of the stuff you've seen next year, plus anticipating any incremental pressure on any way to.
Right. Let me let her know me then they give you one more variable.
That.
Influences everything you just said and that's any continuing stimulus they do that affects f. map.
Hey, freezes Redetermination is there's still some and find things out there and recognizing that those things we hope to have a better view on come December Investor day is actually will be behind us hopefully it will understand.
What some of the policies are so having said I can understand what you're saying, but there are other factors that affect redetermination at best way to pick a lot of things so.
We tried to give you enough that you don't get ahead of yourselves enough, but we we also said we'll have a clearer view come December 18.
Okay.
On the yeah. My other question relates to what you're seeing in enrollment. So I think second quarter call. You guys had said you thought you'd get to about 1.4 million incremental lives versus where you were in Q1 and that you'd see that peak in November and I just want to confirm that you still know you'll see that.
Peak in November and the Ultimate peak is going to be the incremental 1.4. It sounds like you think you are on track and we also a dependency and there was a dip in the exchange enrollment is that consistent with what you thought you would see at this point [noise] yeah.
Yes, yeah, yeah. It is we're still saying 1.4 by November and yes. The exchange attrition is that consistent with our expectations.
Is the theory, okay. Thanks, a lot.
Our next question is from Matthew Borsch from B Ammo capital markets go ahead.
I guess, maybe you could just comment on what.
What your how you're thinking about the exchanges for next year I. You know we did there are you you think you can it go in with margins normalized for the back half of this year. Obviously the first half of this year was was was disrupted our and what do you.
If anything do you see in terms of the competitive environment.
Oh for over the last five Uh huh.
We are we like competitive environments, I think I've said that many times it really helps grow the space. When you are the largest than it was a very small loan who you it's become a renewed or really do all the work to grow if we can get competitive environments. It grows and in that environment. The leader it tends to grow very well.
And I mean, I've seen that all my business rising much more competitive barriers consumer package goods. So we're comfortable that we're well positioned competitively for growth and when what is in the planning stages and we we see normalized.
March Yeah, Yeah, I think it's you know obviously, it's hard to compare you know 2021 to 20.
And you know we're still obviously in the early cycle of our annual planning process as far as what we expect utilization to be looking into next year, because obviously, we're still going to be.
With Covidien and have that going into next year. So that's part of why we're just trying to give you directionally today, where we think things are going to land and then we'll have full details for you in December and again as Michael mentioned earlier, we're still in the early stages of the enrollment and so I think once we get better data on that which will have 40 in December we'll have more.
Thomas.
If I could just ask one more on net debt enrollment the outlook for this year. When you talk about the peak enrollment in Medicaid for.
Next month November what do you what gives you that confidence that fit that or or you know why are you. So sure. That's a peak in November Ah why why does would award on leasing.
Yeah, I mean, certainly the extension of the the the enhance that map helps.
So what's happened is it's really been driven by the suspension of the eligibility redeterminations of the bulk of it and so we'll see I mean, I think we're just comfortable holding the 1.4 in November I think we'll we'll get there that's our expectation and could it go higher it's certainly possible if they continue to extend the stimulus, but we'll have to see it.
When you run the numbers. We gave you were tracking on the 1.4 that's right.
Okay. Thank you.
Our next question is some salad James from Piper Sandler go ahead.
Thank you so.
So I've been looking at the year to date fall off in Hicks and if I go back a couple of years. It was about 5% last Q3. This year. It's on this.
Flat and last time, you guys had.
Lower Hicks chairman it compressed margins is it having the same effect this year.
Yeah, I think you know first of all I think the the keeping the members longer. This year was due to an intentional actions that we took in order to extend grace periods as a result of the Pony pandemic.
And so I think you really can't compare year to year.
From an attrition perspective.
And then the other thing I would comment on is again with the covert pandemic, it's hard really to judge profitability of that extension this year versus any other year for just in a unique environment.
Okay, and then thinking about the exchanges overhead leverage and operational structure. There can you guys just announced thing into 401.
Counties in existing states, you're getting pretty dense [noise].
And in the states that you operate and how do you think about that impacting.
It was it had leverage is that density moving the needle sales.
Yeah, I mean, I think we're I mean number one I think we're always focused on overhead leverage and you know that business is scale and so we continue to try to find ways in order to get efficiencies and the exchange platform I think there's still more work that we can do there to to get the efficiencies of the scale of that business and that's what we're focused on heading into 2021.
I think it's fair to say that every budget me I said it on.
We're talking about scale not just there, but every one of our businesses when you look at how our growth.
I mean, my view is finally start to realize the benefits of it.
Thank you.
Our next question is from Josh Raskin from that from research go ahead.
Thanks, Good morning, good morning.
Good morning, Michael taking a step back it seems like Medicaid has obviously been a major growth factor for the company for a long time it feels like the future.
May rest a little bit more on Medicare as a larger part of that growth going forward and I know you've commented on that in the past. So can you talk about your competitive positioning and what you can do to improve your star ratings and what you're seeing from some other competitors in the market.
Well, we were within a a couple of basis points, so getting the.
Hi reason why don't we have a very aggressive program Josh that.
Expect will increases you know if it's measured over a longer period of time. So it takes a little time to get there, but the people responsible for improving clearly understand that Oh, there is no excuse for not achieving it going forward. So that is a continued emphasis in pressure on that.
I.
I've talked in the past about the Medicare that it is a growth driver for us longer term I think well. He has had a had a good record growth in Medicare that's translating well for our business.
Oh, we're moving to a number four position I'm talking on a combined basis will push a million lives and you know that so to give you a critical mass when we see growth. We're doing a lot of re contracting with providers was that they were beneficial. So you know it's a we're in the any open enrollment just started basically so it's too early to come.
But I am cautiously optimistic they will it will finally achieve some of the goals that I've.
Looking forward, we were looking for.
Okay, perfect and I might add that cautiously I wouldn't I might add to that.
I'd also add profitable.
Gotcha and cautiously optimistic was a comment around 2021 in terms of starting to realize some of that gross yes.
Gotcha and then just second question as you're thinking about headwinds Tailwinds for 2021, and I'll stay away from the conversation not consensus, but where do you think medical utilization trends in 2021, do you think and maybe more specifically are the states recommending rate actions that indicate that continued trend below sort of pre pandemic levels were or.
States, assuming a more back to normal environment, well I think I don't know right now that they are assuming either in with what the pandemics doing it's pretty hard to have that discussion, but we really have seen is that when somebody elective procedures have phone off obviously, a pandemic costs have gone up so it tends to one.
Tends to balance out the other the one area is the need for the transparency that has fallen off for obvious reasons and has has not been quick to bounce back is in the emergency room base. I mean, there are some aspects it has dropped off or saying, though they will rebuild over time when the pair them with somebody that single biggest issue and copy the states like.
Now is you know its reaching new oral times high and this and this is going into the winter and I could I could be a smart hours and talk about what it's going to fall off but.
That's not the purpose of this call [laughter].
Got it thank you.
Our next question is from Charles Rhyee from Cowen go ahead.
Yeah, Hey, Thanks for taking the question you know Michael of it maybe I can ask a slightly different question here.
As we think about potential for vaccine approvals Keith can you talk about sort of what the logistics means for Centene in terms of you know how how you would think about ensuring that your members get access to it or is that really a function of the state making.
Making decisions and logistics with pharma manufacturers, you give us a sense on timing of that and I was just gonna works I think that is a I think there's a couple of issues one I have some pharmaceutical back there.
400 miles biotech and.
Cool and phase one and two.
You can do some computer modeling that helps to accelerate.
Basically as long term side of things.
And that takes a given amount of time and I think what we're hearing is that the scientists say go look for it in there.
Very late.
Funny, but more likely the first half of 2021, Okay. Now I have had some discussions and very senior political though in Washington <unk>.
Some of them that are talking to the scientists have have made investments that said, we will give you the money to build 100 million doses.
Even before it's cool.
Okay. So when it does prove we have that they see.
Now I believe that it wouldn't that vaccine becomes available and.
I'm anticipating the.
Late Q2, maybe Q3 of next year, when we really had something that people have competency and I'll throw in something parents technically we were doing some p. assays to ensure that parents and others.
So given the normal vaccine sales that has nothing because were would people were starting to have doubts about those.
That would not be good for the child. So we were doing some other things there, but I think with what happened is well have it and we're going to work very hard.
To ensure that people that need it most.
Yet it already the people at higher risk that people that are working in the health care environment.
Okay treating people that type of thing that so there will be an orderly transition to it and I think a lot of our population individuals at risk because the nature of it and we are pushing hard to ensure they have the vaccine when they need.
It's a kind of a work in progress I don't mean to be so long winded, but I wanted to give you says that we've got a lot about this and there is a clear plan working with the scientists.
Responsible scientists on how to get into manufacturers that is how to get it done and they were a huge purchaser now of pharmaceuticals and that gives us an opportunity to talk to you.
Does that help and just yeah. It does and if I could just follow up and should we think about that kind of pathway in terms of.
Oh, you know sort of timelines that you just discussed as we think about 21 is evident when we think about some of the factors that is it fair to assume that you're going to build in that kind of conservatism as we as we think about next year as well because it kind of trying to suggest your thoughts also on coal bid itself right or the pace of the.
Colby that's going to 21.
Yeah, I think I mean, the well I think there's two issues here, there's the pace of.
The vaccine and is the pace of the cobot.
Now what I mean, if I were doing it I would be working very aggressively on the treatments that therapeutic.
They treat the cobot, while we're developing the vaccine I will give you a sense of hard rock worked with epidemiologists just I want to be transparent on this one as I can't say, we've announced to our employees not to expect to come back.
Before the end of spring break which is April.
Next year, Okay, and working very effectively at home when I have all kinds of reports they get regularly on the productivity and people do want to get back to work.
I've also said it's possible it may not happen until June so.
So we are we have spent as you know a lot of money, putting the plexiglas in the offices the temperature monitoring people walk in so we're ready to bring people back on the plan we de spaces that people I was just trying to emulate.
Right.
The.
Development of the of how the pandemic unfolds.
It's still very early on you. So I will I will and I don't want to sound political opened this will sound that way.
Matt make a difference.
And I think that many are epidemiologists has said if you look at Japan was 127 million people in Hong Kong with seven and a half million people and they we know that in the Asian markets. There's always been a mask mentality, who is back to 70 days when I was there somebody had a cold they put one on.
During the time that we lost that first 100000 lives, Japan lost 831, and Hong Kong bore.
It really for that let's say they understated that by 200%. So they lost 12.
The math to make a difference so if we get if we can get that mentality going here and all the time to sustainably the people I'm actually say 100000 lives.
So I think that has a lot to do with what we're doing.
Totally agree with you there.
Yeah, I mean have you you hit a happy if you can't tell you. He is just hit a hot button for it.
The next question is from Ricky.
Slessor Goldwasser from Morgan Stanley go ahead.
Yeah, Hi, good morning.
[laughter], Michael you know in the past feels very confident about the Supreme Court T.C. recently, how do you think about the potential outcomes now.
Well you know I think I'm, so glad that I'm still out because the confidence I think there's two things I said you know if you look at it there is one.
There's one factor that they're considering right now and that's it he can.
It does the one really eliminate everything even.
The Supreme Court exact out good she other one cabin knocking them in some cases has agreed that said mobility is.
It is a factor.
Never built or used to be written into Congress congressional wax, but it's become such a practice now.
That it's more normal.
I suspect it definitely at one point I thought it would be seven to and just as in the news release piece was still around and others, but.
I said it could go to six week sales would be five four.
Now I also want to remind you that depending what happens on the election I'm not.
That if if if they want to make the case I mean, they just have to put one line and it says the pen already put not participating is one dollar.
And it makes the whole case mute.
So I am I'm still I'm sooner he very.
Comfortable with it I think I don't believe when push comes to shove, they really want to put.
All these people doing that high of a.
And then on the street with no insurance.
Thank you for that and then just a follow up on the.
Nicole that caused it sounded like to build any theoretical that caused that's meaningfully higher than in Q2, I think it implies about 1.5 billion Q3 can you talk about.
What drove that increase just in terms of acuity or versus a specialization because we're hearing so much about therapies in about shorter hospital stays and.
Lower acuity didn't before but it seems.
As you have seen a different name passing on your books business, maybe some color on that and then how you think about these costs into Q4, given what we're seeing in terms of increased in cases. Thank you maybe you Wanna. So I wouldn't have said come on and Oh, Yeah. Yeah. I think the first thing is I used to talk about the the number I'm number one that's a that's.
Pay dollars and so you have to remember at the inception of the pandemic. Obviously, we wouldn't have had a lot of pay dollars because there's usually a 30 to 40 45 day delay between when the you know the inpatient stay happens and when we actually pay that pay the dollars to the provider and so I think that's why you've seen.
I guess in in what you're stating is an acceleration of the dollars. It's really just I think a timing effect from that perspective.
So, but what what Michael has stayed in what we've talked about at our Investor day and in the quarters that we've reported is that we have seen lower traditional utilization higher covert expansion. When you aggregate those two utilization from an expense perspective is just slightly below the historical average and that's certainly what we've seen.
No.
Our next call. Our next question is from Stetson tonnage. Some S V. B <unk> go ahead.
Thanks for the question guys I missed just wanted to clarify on the 2021 initial outlook Slide you guys show state rates are listening programs as a negative but Jeff I think you said in your prepared remarks that you expected less than the 500 million rate headwind impact that's embedded in 20, just wanted to see if you could clarify sort of want to see.
And in the outlook and how that's different from the comment you made on the 500 million dollar item.
Yeah, I think I mean, obviously those are reductions or revenue I think that's that's the point right is that they're still negatives on revenue as you head into next year.
And you're correct, what I said was our expectations were $500 million this year and our expectation sitting here today is that it would be something less than that in 2021, but.
But again I think if you look at you know this year, we've obviously had a multitude of factors, including state rate changes a lower overall medical expense. We had you know utilization that was significantly lower in April and May. So there were a lot of other factors offsetting all these items to effectively get back to our initial guidance back that we gave out back in March.
Yeah got it Okay. That's helpful and then utilization so early in the year you guys had produced a chart that implied threeq human sort of the run above normal on I think it's a data chart. It doesn't sound like that's occurred but I'm wondering how you sort of frame what actually happened in Q3, and then how you're thinking about Q4 do you guys still expect sort of a deferred Karen.
Wallace here does that put you in excess of the normal levels in Q4 and the 21.
Yes, obviously I think what I, what I mentioned, just a little bit ago on a cold and costs is it what we've seen is lower traditional utilization higher covert cost. The net of that is a little bit below not much a little bit below historical utilization and in my case my prepared remarks, what I indicated that we would expect utilization to increase in Q4.
Versus Q3 slightly.
So that's what we continue to expect is utilization continues to trend back towards normal on a total basis right. The mix is different the mix is lower traditional and higher coated but in total.
Again trending back to historical levels in the fourth quarter.
And then if I could sneak one last follow up Dan just said that the whole idea of peak enrollment growth in November I guess I'll. Just ask you how you see enrollment playing out from that peak by line of business and why I'm. So Medicaid hook. So obviously that's on the sales.
Yeah, I mean, obviously, there's and you know an open enrollment for both Medicare and marketplace. So you know that that obviously changes things as you look at the January Onest amount. That's why you know we're early in that cycle and we haven't given any any commentary on that as far as the Medicaid is concerned I think the extension of the F. map enhancement.
Helps but ultimately we're going to have to see how long that it gets extended or you know what happens with that with a second stimulus potential as we head into next year and that's why we said we'll have more information for you to December Investor Day, Yeah, and they do this we're dealing with things that we've not seen the pandemic.
Its reaching new heights for more than March sales, so I mean.
That's why we have to think of things on a very gross basis and it is the more granular we try to get the less.
That's accurate, it's going to be and it's kinda because they're not something that.
Well experience works out and another 100 years, and that's who may have some more background.
Hi, Mike.
Ask me then.
Next question is from Gary Taylor from J.P. Morgan go ahead.
Hi, Good morning, I'm wondering I just wanted to do a couple of things I wanted to revisit your expectation on the fourth quarter and Miller I didn't.
Take the opportunity yet to pull up the slide deck from the summer, but I I think with the implied earnings guidance is Youre. Your estimate now is that for fourth quarter MCR would be higher year over year.
Yeah, well, we number one I don't think we provided a fourth quarter and all our estimate I guess from from just from what Weve given today what would.
I would look at as you know kind of where we thought we were going to be before and then you have to 17 cents right. We talked about the 17 cents benefit that we had this quarter they were going to reinvest in the fourth quarter. So that obviously would be a direct reduction to the previous fourth quarter number.
Yeah I was just thinking about that one line chart you had in your deck that showed your expectation on Cove. It did cause some sort of recovering.
For care I thought they maybe intersected in the fourth quarter, but all I can really I think is that in the call we talked Gary about various peaks and how many peaks. We did have two and of course the area and I tell you. This the sequel getting how is early a little bit earlier and more severe than what I originally thought.
Yep.
My other question just going back to the you know the state rates enrich hearing I guess.
Help me help me with my thinking a little bit when we look at the state rate.
We've seen steep budget performance improved dramatically from where it was in the spring. If we look at some of the state latest state numbers versus their budgets, you know almost back to par versus those those deep holes in the spring.
So that seems to be getting better of course, perhaps the economy could get worse next year, but it seems like that's getting better you mentioned your two of your largest states decent rate increases on a combined.
Basis, so that seems to be relatively stable in on the risk sharing with deferred care starting to normalize and covert costs in the near term moving higher it would seem like you know the risk sharing liability would be sort of diminishing.
So I guess the question maybe is more on the state side is there is there any plausible risk that that some of these state rate updates good.
Get reassessed during their fiscal year or you're just leaving room for what might happen in July for for the back half of 21.
[laughter] they.
They were looking at it in totality. So we're also talking to the state scary about new product.
Expanded they don't have that says I don't wrong DRONCO, the things that say them significant money.
That means there's there's so many different facets that.
I'm counting on having a little more visibility come.
December 18th.
And we should just because that's the time that more more experience in love with clear. So I think to try and speculate what's going to happen in the back half of 21 right now.
It's it's it's really I.
I wanted to dive.
The good news is having the benefit of the the A.O. people working on the various markets would 37 states and it takes time to collect that on it won't be the same at all.
So give us so December 18th we'll have more visibility now that that's fair I just in my mind I thought maybe that line was maybe more of a plus minus question Mark and you guys have there's a minus and I just wanted to try to understand that a little bit.
Yeah, I'm trying to understand the cool that and the timing is right right, but you know selling some of it's the politics somewhat opposed to take to it too easy.
Understood. Thank you.
You.
Our next question is from Scott Fidel from Stephens go ahead.
Hi, Thanks. Good morning first question just on the different pieces on enrollment and as it relates to the cobot impacts. So it seems like really the vast majority of the growth that you and others have talked about it's just been from the suspension of the Redetermination and the one he said the parcel that wrong.
It hasn't seemed to play out much as Dan just the impact from the rising unemployment yet so just interested if.
If you guys could give us some thoughts on you know sort of so far during the crisis, how much enrollment you've seen in Medicaid ask just from rising unemployment, obviously, that's been coming down to more recently started how you're thinking about that that piece of the puzzle sort of trending in Fourq you went into 2021, but I I was sorry.
It's it's been bouncing around on because eventually you had people on for long, but they kept some benefits and then sales continue there's more layoffs and we've seen that or whether they're not getting the benefits and then they're moving to a medal.
Medicaid if they had they were with all this going into the marketplace. So it's just such a swinging variable.
It's so many factors, it's it's hard to be too granular I'm not trying to be basis, but it sure I'm just trying to give you. The the things that we look at the end of the day I'm trying to sort it out.
No I get it that death, and that's why I was asking the question to and that I'm. Just a second question as well it just started that get back to the rate discussion.
So you've given us a few pieces the policy you've talked about how Texas and Florida you do have rate increases then you talked about a number of the states that have done this quarter or a imply.
Imply just interested sort of the third piece just in terms of states that have actually implemented cots for F. Y 21, if you could just give us some visibility into that because we have seen a number of your states, where the headlines Reed Reed ads cots hadn't been implemented and I just want to understand whether those are actual you know cost too.
The base rates or is does that reflect more of these risks corn or dynamics that you've discussed.
Yeah, I think we've we've kinda aggregated all of those I guess, what I would say is what I mentioned before is that the traditional rate setting process, where you gather encounter data and and you know trend that board et cetera et cetera. That's a that is still you know that process continues to go on like normal I would say the additional factors some of these.
Risk sharing mechanisms et cetera, et cetera, or the 1.5% rate reductions at some states have done and so in general we've accumulated all that and that's contained in the $500 million.
That I mentioned that we had in our guidance for this year.
Okay, all right got it show up so that the rate cuts are inclusive within that that happened okay yep.
Yep.
Our next question is from Lance Wilkes from Bernstein go ahead.
Yeah I wanted to ask a question kind of focused on the provider contracting side of the situation. If you could just talk to.
A couple of items there one would be a near term what's the contracting opportunity. If there are no rate pressures and risk corridors, given the financial status of providers. It seems like with a lot of the bailout money they should be in a stronger position to make movies Theater American one Q2 Q.
And then secondarily, if you could talk a little more long term on your value based care initiatives as well as instances, where you are perhaps getting into care delivery are dabbling in it to see how that's looking for a longer term aspect of a contract is crazy.
I think on the on the value based though.
Some providers are like it if there is a capitation rates are that way their cash flows strong why aren't we had a couple of Alaska, we have a three month.
Basically said no that's not how it works.
So [laughter] I understand that I think there was some trepidation trying to understand what it all means going forward I feel real good now, but I think as we work through it.
We are having success in introducing value base.
Contract and we also know that as we introduce and they become successful in the provider relations work with them to be successful others will want and so I'm really trying to do it in a very responsible way that we can support but the reports we have real time reports that weakened supported with.
So we see it growing and we see providers starting to.
Valuing.
Relative to I'm getting involved in care delivery is limited to our.
Model in Florida that has some capability we're not into.
A great deal of that if there is a market that has the absence of a ob gyn and he said sales or somebody we do have the capability to put a clinic in there too to help the the population.
Okay.
Get the appropriate access so it's a it's a case by case basis, but we will not have their grossly trying to buy a lot of providers.
Okay, and just on the contracting with providers are kind of in this current environment.
Are you finding that.
You're able to you pushed back on provider rates. So if you're getting rate cuts at a state level or use the financial situation of the providers [laughter]. So tenuous at this point well and you know what we've done is we've.
We've we've we've co pays and things because they.
They may not be able to collect it from their members. So we're doing things to support them, but all of those things. Please do end to what we the calculations we give the sales.
And.
So we havent how results as demonstrated were able to continue down that program support providers and we do want to support him and.
And helping them become more success when we have systems that do that you know we have a system now that can oh, it's it's Intests then well Preauthorization was 18 minutes, we didn't go down three seconds.
So weird thing says artificial intelligence and ER.
Ah did takes mineralization, that's a real focus that's out there to be moving things ahead for the providers streamlining what they can do and how fast they can do it sort of more than one way to help them.
Gotcha. Thanks. Thanks.
Thank you.
This concludes the question and answer session I would now like to turn the conference back over to Michael No doubt.
For closing remarks.
Well I got my we thank you.
We encourage everybody to stay safe <unk>, where are your mask and.
I think you can see that we have as an enterprise the where it was all just continues to do well and.
I'd say well meet reasonable expectations, it's a well that's recognize the environment, we say working and ER.
And we want to do it the right way so.
Hey, well take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.