Q2 2020 Centene Corp Earnings Call
The two corporation second quarter 2020 earnings call.
[music] plastic, especially because he was Turkey followed by zero.
After today's presentation, there will be an opportunity to ask questions. Please.
That is being recorded I would now like to turn the conference over to Jennifer Gilligan head of Investor Relations. Please go ahead.
Thank you Jason and good morning, everyone. Thank you for joining us on our second quarter 2020 earnings results Conference call.
Michael Neidorff, Chairman, President and Chief Executive Officer.
She want to key executive Vice President and Chief Financial Officer of Centene, well, who this morning's call, which also can be accessed through our website at 17 dotcom.
Any remarks that says he may make about future expectations plans and prospects 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 Saturday's. Most recent form 10-Q filed today July 28.
Okay dated February 18th 2020.
The other public FCC filings, including the risks and uncertainties described with respect to the potential impact of cold and 19 on our business results of operation.
Centene anticipates that subsequent events and developments will called 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 second quarter 2020 press release, which is available on the company's website at 17 dotcom under the Investor section.
Additionally, please mark your calendars for our third quarter earnings release, which is expected to take place on October 27 2020.
With that I would like to turn call over to our chairman President and CEO, Michael night or Michael.
Thank you Jennifer good morning, Thank you for drawing since the second quarter's earnings call.
We hope all viewing your families are staying safe and well.
Good luck to discuss today.
Personally I see environment around that continues to rapidly Paul.
Oh, sorry by reiterating our confidence in the strength of our business.
Sure Dan was built to endorse managed through times of uncertainty.
We have a strong balance sheet with ample liquidity.
Spirit, we have experience was crises.
We have emerged from prior recessions with strong growth, we see opportunities for continued growth good night.
[noise] without scale diversity, our systems and our impact.
We are confident and the strength of our pieces and our ability to continues to lead to this crisis.
You have heard me say, we make decisions based on the facts as they are today.
And never as it's been more true where appropriate as we manage our business units and Denmark and dynamic.
I see that several months ago. So we expect the environment and our financial results can be choppy from quarter to quarter.
I want to reemphasize, nothing can be true or not today.
It is increasingly clear.
We are going to be living with this paring down there for some time [noise].
And probably weren't there next year.
We are planning our business with that in mind.
I'll remind you about your assumptions we made in June about what to expect in the development of this virus [laughter] at that time, we expected. The initial spring peak, we'd be followed by smaller spikes doing this summer and any potential second wave in the fall.
However, the current trajectory shows they couldn't collection rates are rising sea differently across a number of PC.
In case counts continue to go up which differs from what we expected only a few weeks ago.
Well this trend in mind, we will continue to provide you with transparent up the and give you our best estimate.
As to how we see things.
He put to Ocwen car.
First utilization.
They should return to more normalized levels towards the end of the second quarter.
Bar you began to be turned in May and June was virtually a normal monk relative to prior years.
Well the recent search into virus, we were seeing some decline in utilization in July.
Note that this data is criminally and includes cool great related costs.
Well, we believe hospitals are better prepare to manage cobot cases [laughter] after learning from the experience of the initial outbreak there are indications. It. Some hospitals are these learnings back to delay you'd like to procedures, if necessary based on a regional infection rate.
Next school that related costs Sensient has the capability embedded with the navigate ongoing colgate related expenses.
Based on the boxes, we see them today, we are seeing co good related expenses increasing.
Which is offsetting decreased utilization.
But again as I see that these are not normal times. When we continue we're expecting a bomb went to remain dynamic.
Case in point is on membership and revenue expectations.
You will recall in April we raised 2020 revenue guidance by $6 billion, including 4 billion in Qubec related membership growth.
Which included the expectation that new membership with peak at all.
Based on recent Cobra related membership trends, we now expect new membership Pete.
[music] peak in November he's already at EUR 500 million dollar reduction weapon against what we had forecasted only short time ago.
Membership is coming in at lower rates than initially anticipated and grow one was expected basin unemployment trends. This is driven by an assumption that unemployment they'd be temporary and by enhanced unemployment benefits can hurdle rates, which you all contributing to launch.
Application wage.
The trajectory of our membership growth for the remainder you will continue to be informed fibers.
So factories, which may shift out revenue expectations.
Or down.
However.
To put the impact of membership growth in context.
We still expect it had a total of $3.5 billion in cold weather driven revenue grew 20 twice as compared to the original guidance we provided in March.
Our earnings guidance would 2020 remains consistent with what we provided at our Investor day.
And our scale the earnings impact of $500 million is reduced and reduced whether you could be offset.
We recognize and are prepared to continue.
With the uncertainty based on what we know today.
Earnings guidance continues to be most reliable baseline remained our best estimate based on our revenues as well as utilization and coal big related costs among other factors.
We remain comfortable with her current wage.
With that as a backdrop, let me turn to our second quarter results.
Results were in line with our guidance.
Underscores the fact of the shoulder and glaze policies I don't know diversified membership platform.
As long as our teams solid execution and a challenging operating environment.
We reported second quarter revenue of $27.7 billion increase up 51% over the second quarter 2090.
Adjusted diluted earnings per share was $2, some 40 cents compared to $1.34 last year.
Represents growth of 79%.
Our membership was approximately 25 million.
The quarter that this represents sequential woke up 3% and year over year growth 64%.
Due to the uniqueness of today's environment, we expect 2020 earnings per share.
To be front half loaded.
A prime the midpoint of our guidance first half earnings per share of $3, a 31 cents would represent approximately 68%.
Our full year TPS.
Overall these results were solid.
Looking ahead at the remainder you intensity and duration they've had then they remain the primary driver of uncertainty.
Well, we are built for uncertainty and believe we are in a short position to continue to execute against our strategy and grow our business.
We continue to Ohio talented and diverse individuals who contribute to our focus on improving the member and provide to experience through technology.
Over the past few years I've spoken about ambition to transform centene into a technology company that does healthcare.
Recognizing the critical role of technology, and providing extraordinarily member and provider experiences to 25 million at the individuals that's nearly one in 15 Americans.
We have made significant investments in modernizing our systems and early last month, we announced an investment and I knew east coast headquarters, which will be our hub for technology talent.
Today I'm pleased to yet another step forward and achieving our technology aspiration to the hiring of additional talent to that already present and our utilization.
Add into current management, we were pleased to walk them sell in London and dry answer that.
Through our technology team.
Share. Most recently served as part of the Optum ventures, working closely with portfolio companies on product strategy and expansion.
Ryan Most recently served as managing director for Kaiser Permanente ventures, where he led the investments in health care focused organizations and transformative.
[noise], both share and Brian will help accelerate innovation modernization and digitalization across the enterprise.
In addition, since March we have hired over 3800 individuals and we'll continue to invest in our talent to enhance the value we delivered to our members in communities.
The same time, we continue to operate in a remote works environment, but I'm very pleased with the levels of productivity and engagement across our business.
We have made the required investments.
Arpus environments to ensure the safety of our people when there is appropriate for then be too for example, we always salt plexiglass between Q temperatures scanners and automatic door.
We also continue to have courageous conversations with an uncomfortable about racial and social justice.
Centene has a diverse workforce at every level as a company, including our board of directors and we continue to recruit ended though diverse talent.
No, but knowing that it we want higher incentive it's hard because they're the right person for the job.
Let me now comment on its done discussions, we're having with our state.
They face moved to reopen.
We are working closely with our state and federal partners sort of bulk solutions that address the cost dynamics states are facing [laughter] excuse me.
With state budgets, and then constrain the role of managed care companies like ours, which maximizes member outcomes and cost savings has never been more important [noise].
Well, we do expect some short term pressure on rates these rates have to be actually already so.
Oh 2020 guidance incorporates what we know at this time and the majority of our conversations with states have been highly constructive.
In addition, we have encouraged we are arlon encouraged by ongoing budget discussions he Congress and the review of expanded after maps [laughter] longer term, we continue to believe that additional states well consider managed care as a solution to that I hope you have any age for example in Oklahoma.
The state as announced its intent to release and RFP in the fall twice each way.
[laughter] excuse me.
We are in active discussions with our state partners to ensure we are taking a holistic view a race beyond 2020.
Taking into consideration it'd be Turner normalize utilization and koby cost as well as appropriate this sharing mechanisms.
In summary.
Centene has risen to the occasion by delivering a mission of providing high quality low cost okay to the most vulnerable populations.
During this time.
We are confident in the strength of our business [laughter], what I said, our balance sheet is strong we have ample liquidity and we continue to see significant opportunities for future growth as we were brio <unk> or products all market strategy.
The RFP process flow.
During the pen damage, but it's now picking up in our Medicaid.
And our Medicare advantage business remains in strong untapped opportunity.
As we have mentioned before we have emerged out of recession with strong growth in membership.
New state contracts the class and we continue to believe they were well positioned to execute on both her short and long term growth strategy. [laughter]. Finally, I again want to thank and recognize I'm, probably [laughter], usually put a commitment and dedication I could not be more proud of how.
Are we work together to serve our members.
Before I.
Turning the call over to Jeff, Let me apologize for my allergies taxi up at my voice and with that let me turn it over to Jeff who provide our financial details.
Thank you Michael and good morning, everyone first I will provide comments around the quarterly results then I will offer more detail around the key variables that Michael just discussed.
And finally, I'll walk through our updated full year guidance.
This morning, we reported second quarter revenues at 27.7 billion, an increase of 51% over the second quarter of 2019, and adjusted diluted earnings per share was $2.40 this quarter compared to $1.34 last year.
These numbers were in line with the guidance that we provided at Investor day in mid June.
As expected our earnings for the second quarter 2020 were uniquely impacted by the cobot 19 pandemic through muted medical utilization and increased membership.
Total revenues grew by approximately 9.4 billion over the second quarter of 2019, primarily as a result of the acquisition of Wellcare membership growth in Medicaid and the health insurance marketplace business and expansions and new programs and many of our states.
Our hbr or health benefits ratio was 82.1% in the second quarter compared to 86.7% in last year's second quarter and 88% in the first quarter of 2020.
As anticipated and highlighted at our Investor day, the H.B.R. with low by historical measures and that it could decline was primarily driven by a reduction of medical utilization as a result of the cobot 19 pandemic, partially offset by increased costs associated with Covance 19 claims.
Utilization was down across all of our business lines.
The majority of the reduction in volume was driven by your claims and other non inpatient costs, including fewer elective procedures PCP visits and specialists visits.
Utilization declines were partially offset by covert related medical costs, including inpatient and ice you admissions testing and treatment.
In terms of monthly trends utilization deferrals experienced during April and May largely reversed in the month of June June claims activity was near the historical norm.
Cash flow provided by operations was 3.7 billion and the second quarter or 3.1 times earnings the cash provided by operating activities in the second quarter of 2020 increased due to the net earnings growth.
1.4 billion in collections of previously delayed capitation payments.
And an increase in another long term liabilities driven by the recognition of the risk adjustment payable for health insurance marketplace in 2020.
We continue to maintain a strong liquidity position of 1.1 billion, an unregulated cash on our balance sheet at quarter end.
During the quarter, we utilize $500 million of our unregulated cash to pay down our revolving credit facility.
Debt at quarter end was 16.8 billion, which includes $89 million of borrowings our revolving credit facility our debt to capital ratio was 39.7%, excluding our non recourse debt compared to 41.9% in the first quarter of 2020.
Our debt to capital ratio would have been 38.1%, one netting our unregulated cash with our debt at quarter. It.
Our medical claims liability totaled 11.4 billion at quarter end and represents 51 days in claims payable compared to 47 days in the first quarter of 2020.
DCP was impacted by the timing of medical expense during the quarter was lower medical cost primarily in April contributing to the metrics increase.
A quick update on the Wellcare integration in July we successfully integrated the Wellcare business to the Centene financial and HR systems integration continues to be on track and we remain comfortable with our synergy capture efforts.
Turning now to our 2020 expectations and our updated assumptions regarding the key dynamics of variables. We continue to monitor closely which aren't form by additional data since our investor day and month end.
The midpoint of our year end unemployment expectation continues to be 10.3%, which is consistent with what we provided at our Investor day.
We now expect peak membership growth of 1.4 million members to occur during the fourth quarter. This represents a change from the projection of 1.9 million New members provided at our Investor day, which was forecasted to incur in August.
As Michael mentioned earlier, new membership has enrolled more slowly than previously expected.
We believe the temporary nature of some of the unemployment enhanced unemployment benefits and employers furloughing rather than terminating employees has all contributed to lower application rates than what is implied by overall unemployment levels. For example, in California, we have not seen significant membership growth since the onset of a pandemic.
In terms of utilization trends in the back half we continue to expect normalization as the economy recovers and our members go back to visiting doctors' offices and receiving treatment.
Our early look into our July claims shows a slight step down and utilization compared to June as a result of the regional infection spikes occurring across the nation.
This trend may or may not last depending on the spread of the virus in various states and again the numbers. We are seeing from our July claims are very preliminary.
Through the end of June we have paid approximately $550 million associated with Cove and claims. This compares to $221 million, we discussed at our Investor Day, one thing to highlight the cost we have categorized as Kobe costs include all the claim codes consistent with CDC guidelines. This includes costs.
That are not associated with confirmed positive cases, and they include costs that are not related to coven at all.
Finally, I'll translate these factors into our updated 2020 financial guidance.
We now expect revenue to be within a range of 109 am $111.4 billion. This is $500 million lower at the midpoint than our previous guidance driven by the previously mentioned membership expectations.
As Michael mentioned earlier, we are providing our estimates based on where we are today.
Ultimately how membership continues to increase for the remainder of the year will affect our revenues.
However, just to add some perspective, our revenue guidance continues to be $5 billion higher than our original March guidance at the beginning of this year. This is a higher baseline from which we can continue to grow into the future.
We are maintaining our adjusted diluted earnings per share guidance of $4.76 and $4, a 96 cents driven by our overall updated projections of medical costs and revenues.
With respect to rates, we continue to work with our state partners on various risk sharing mechanisms and advocate for actuarial soundness. We have included a reasonable amount of rate actions in our guidance. Today. However, there continued to be a lot of unknowns and the majority of our state partners are focused on 2020.
It is our understanding that a majority of the proposals received to date have not been approved by CMS. Additionally, there continues to be discussions in Congress of additional support that would provide relief to state budgets and affect any potential changes being contemplated by the states.
As we think about earnings progression for the balance of the year, we expect third quarter adjusted diluted earnings per share to be approximately 20% of the full year 2020 S.
A quick note on quarterly versus full year modeling.
As a result of the welfare acquisition closing in the first quarter. The full year weighted average share count is substantially lower than the second through fourth quarters.
We anticipate continued choppiness as a result of the unpredictable nature of utilization trends at this time, the scope duration and intensity of additional covert 19 infection spikes could have a material impact on the results for the rest of the year.
I'll conclude my remarks by reiterating our confidence in the strength of our business our balance sheet remains strong and 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 that concludes my remarks, and operator, you may now open the lines for questions.
We'll now begin the question answer session. Tuscan question any press Star then one on your to assume from using Speakerphone. Please pick up and said before pressing the keys to withdraw. Your question. Please press Star then too please limit yourself to one question and one follow up if you have further questions you may recall.
The question Q.
Your first question comes from Josh Raskin from Nephron. Please go ahead.
Hi, Thanks. Good morning, Good morning, Josh first question morning, Michael first question just around the rate proposal conversation that Jeff was mentioning I think you said that some of the rate proposals at the state level have not yet been approved by CMS and you continue talking about advocating for actuarial soundness I just want to understand our these proposals you know what you're seeing in this.
Is that what's incorporated into guidance as you sort of mentioned that you're including a lot of this guidance or is there a risk that those state proposals are actually approved and that so and that is not consistent with actuarial soundness or something like that that would change your guidance and then I'm sorry, but the second question would just be on the vaccine potential are you assuming.
Stage will cover the cost of a vaccine whether that's later this year hopefully or it's not into next year and maybe how would you like to see the vaccine reimbursement work.
Okay, Let me.
Then any sort of first went away since you have skin in add to that but.
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Yes States Ken.
Adjusted one of the supervised by one of the half a cent subject to programmatic changes approved by CMS.
CMS has been very consistent with the need to actuarial soundness, there have been some states earlier in the year, they tried to get him to wave it.
And they said no.
So well continue to work with them. The guidance does include those things we know that makes sense to do have agreed to with the states.
And.
Maintain actual sound so well continue to keep you informed but there's no drag KONI in things taking place that out and we see at this point in time. We also the F. map a that Congress is now talking about extending the existing sixtym sent one and.
There's some talk about expanding yet you maybe hard on confluence.
Investment conference where are the prior out Medicaid do active from Arizona talks about the need to set a date well we've been talking to congressional representatives about the need to put a date certain states have a better pay surpassed the a better bases to plan for the two.
We continue to work through it and it's something we've done ever since we've been in dismisses Jeff anything you want to add on that.
No I think as Michael mentioned, they did extend the math enhancement to 90 days and I think you know the biggest point here that we keep advocating was states. It. There's just a lot of variables to go on between now and the ended the year right. You have the covert costs you have utilization you have potential.
Drill stimulus and so.
I would you say if you package all that up its very fluid at this moment.
In the second question I've. Thanks vaccine I did actually [laughter], we haven't had a lot of discussions Oh, we don't know what the cost is gonna be you haven't got to do it and [laughter], we still have to see the vaccine. So as this on both divided by approach. They said that now there's I say they have more car histories, Josh really but his.
Sorry, I play.
That would be a requirement once again to keep things that sounds so when things like Hep C came out we had no trouble, which were very expensive so I've ever heard some talk where.
Governments will probably policy reasons or political reasons is talking about making vaccines are available for nothing so.
Well, we'll let Alan play out little bit.
Understood understood. Thanks, Thank you.
The next question comes from Ralph Jia Tubs from Citi. Please go ahead.
Thanks morning, I'm, just kind of morning rates again more just I'm. Just wondering again you Didnt know some near I get near term or short term pressure and it sounded like you embedded some of that in guidance. So I guess is hoping to get a little sense of magnitude.
The short term nature like what does that duration and then if the revenue reduction at all relates to any of these pressures.
Yeah. Thanks, Ralph This is Jeff I mean again as Michael mentioned you know we're currently in active discussions with our states and the starting point is rarely the ending point are ending result, and it just it really isn't constructive for us to publicly discuss our individual state Rick expectations or aggregate number you know that being said we continue to believe that were.
On a path in many states towards finding Actuarially sound solutions to the budgetary strain and we would like to also point out that at this point again, just remind or the federal potential for federal stimulus. So I guess, what I'd say as.
We've we've included I think a reasonable assumption of rate adjustments from now to the end of this year and that if the out of bounds I would say that's what we're pushing to make sure. It doesn't happen is that we find rates that are actuarially sound and I think thats, what Michael just talked about me [noise].
Let me help with one another week or two.
The face initially when they saw the we don't reduce utilization rate was all you're saving all this money.
Well they now they now understand that utilization will come back in the second half. The ahead to follow that back and they also see as we do is reported in July while utilization may be down elective procedures, that's being offset by corporate costs. So there are no understanding that there's no windfall over the course.
The full year and so Ah Hey, we've told them that you really have to look at these things on a rolling four quarter basis was 600 basis, because we're experiencing things nobody's experience and then starting to understand that.
Okay. That's all that's helpful and if I could just follow up on that point that Tony utilization I think in the release you talked about it being sort of regionally driven can you help in terms of the patterns. Maybe you saw an area that we're early hot spots like New York, and where utilization is there now versus some of the more recent hospice.
Lots in the south down and where that utilization. Thanks, I can I can tell you what we saw last size.
No when we.
Eventually went to sleep after getting out of scripts that Glenn.
And and Florida was higher utilization to Kobe, and then it more E R floor or I see you did in New York.
But.
We have to be so careful about how we say this because as somebody opens up.
We see it jumped the majority they just announced they're going to roll back some of the things. They open up restaurants can now back to 25% bars in closing at 10 o'clock I mean, they're talking about virtual schools. So honestly it's shifty.
I mean, Arizona was very low four hours high Texas was incredibly high it's starting to back off a little bit. So it's a variable from day to day. So it's very hard to give you any kind of beauty specific.
Well grounded sake.
I Hope you understand that's what we're talking about the do the dynamic of this thing and making decisions based on how things are right now at this moment.
Okay fair enough. Thank you.
Our next question comes from Charles re from Cowen. Please go ahead.
Yes, Thanks for taking question I'm, sorry, just one follow up on the rate is there any deadline in terms of when do you see as.
When CMS has to make a.
Decision on approving the state's proposals.
And could you just kind of stretch into next year and just be retroactive.
[noise] I'm not aware of any any deadline I think it's just more process oriented than anything just it takes time to get the information to the government and obviously there is there could be some back and forth. If they have question. So I don't think theres any hard and fast deadline, but sometimes that process just takes a while and you know I guess, what I would say is.
It's not like every state has come and said what we need to make rate adjustments. There's a lot of states that we operate in that are just taking a wait and see approach well get some rate increases yes. So so I guess, what I would say is I.
I think it's just going to depend on how this plays out the rest of this year on utilization and koby costs and so it's it's just a handful of states that are thinking about some risk sharing mechanisms a lot of our states already had risk sharing mechanisms in place and they're good with those so I think there's just more to come as they also there was the case.
Some cases that they're taking me what their providers are paid down and pass that through I think a new Mexico is about yeah that was not a name will they yesterday, where it was a fee schedule change effectively so which is primarily neutral for us.
But you know another wait another option that obviously states have.
Hi, good if I just follow up I mean, you've got touched on in terms of where we're starting to still see things pick up in like Florida, Texas.
You know how are you thinking about whether you've seen this as a second peak in instructions or part of the first peak and that's the keys are you still assuming maybe then a third one as we go into the fall winter again.
I think Oh, sorry, guys.
The epidemiologist I'm speaking with I'll be very honest Sunbury cans I told them that we were told employees will give them 30 days' notice before we'd be open and I said to them I think maybe I don't see us reopening for every well open up so as you know because right now but until after January one.
And he said to me one of them said I don't think Youre regret that.
So what we're saying is it so fluid and so dynamic.
That is just moving wrong about one of the being let some of what I'm concerned about none of this effects. The performance of this company. It's just recognizing these things are there. So you deal with it at a time and they treat to I'd expectations, but if we have a bad flu season that combined with coal that could be a very serious.
Combination.
And so yeah, we're working very hard now.
I wonder it gets I want to get this commercial and we're doing a P. I say that help people understand.
Everybody is telling us until we have a vaccine.
The next FES thing to do is where you a mask.
And encourage others I'm going to take I want to take some four devices.
One of my Epidemiologists tortoise capital.
Okay, and Japan is 127 million people and allow you know the Asian culture is masks for years have gone back need somebody thought they have a cold you amass not to offend somebody.
During the time that we had 100000 deaths they had 832.
In Hong Kong very congested during that same period of time was 7 million people. They had poor people die because they were Matt.
So we can get it depends if people start to realize what they can do to help themselves and choose some good judgment that could impact. It. So we're doing all we can as I am right now trying to help people understand that so I am I am hopeful that we will start to mitigate.
The intensity of the cobot until we have a vaccine I'm also hopeful that we have a treatment.
We'll be very important I was watching on one of the station say, there's there's some talk about that they hope to have some of that so is hey, it's something we've never experienced but uncomfortable that we have the expertise the capabilities to deal with it.
The next question comes from Kevin Fischbeck from Bank of America. Please go ahead.
Great. Thanks.
Just wanted to ask about the the revenue decline you mentioned yellow enrollment is there anything.
Particularly spike out as to what it more Medicaid enrollment or exchange enrollment that was coming along.
Yeah, Yeah, Kevin. Thanks, It's it's on the Medicaid side and I think what's interesting is it's just it's sporadic it's different by state we saw good growth in Florida, but it hardly any growth in California.
And so I think what you're seeing is just the dynamics of the unemployment market FEMA, so, but but in general effectively the memberships coming in slower than we would have to anticipated and and really looking at historical crises financial crises and trying to align membership growth with unemployment is not a it's not.
Spot on at this time, so we effectively lowered lowered the membership expectations and that's what the half a billion score.
So strong growth Kevin I can't emphasize enough it's just.
Timing and again I guess the other question I have it would be on the exchanges you guys mentioned that the margins on exchanges are kind of coming back to normal I just want to understand how you're thinking about that comment with covert putting downward pressure on volumes I would think that margins will be higher.
Then you're also I guess, given some waivers on premium.
How are you, how you're basing that comment and where all the puts and takes in there.
Yeah, Yeah, Kevin Thanks for the question I think what I would say is we've kind of including covert into one line item right. So you're backing it out of all the product performance and then you're looking at okay absent covert what what does it look like.
And I think Thats, what we would would've expected for this year again, an exchange business, we've talked about margins normalizing and so I think thats in line with with what we were thinking but I would say as far as the covert impact the way we looked at it as we tried to do our best to put coven into one line item and then look at a performance.
Hi, Thanks.
The next question comes from Scott Fidel from Stephens. Please go ahead.
Hi, Thanks, good morning.
So just wanted to follow back up on you exchanges topic as well and just interested in terms of what I know, it's still pretty early here about what the enrollment mixes is trending like Oh standout America in terms of what you're seeing in terms of acuity.
And folks coming in.
From a possibly from previously being employed in and that sort of rolling that forward I know, it's a challenge, but but how you're approaching our pricing for the exchange business for 2020.
Yeah, Yeah, I think it's still a little early but I don't think we've seen anything that would indicate the acuity is different than.
The larger book and I guess, what I would say is the majority of the customers had previously had health insurance.
And.
The other thing is we've actually got our proportionate percentage our market share percentage of the growth, but the other thing. That's also happened as we've held on to members longer because of the premium assistance effectively so really you're talking about holding on to members that we've we've already had and then you have the new enrollments. So the mix is I would say more weighted towards a retaining the enrollment that we had.
At the beginning of year.
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Okay, and then just a follow up question just on one of the stats and not for for Medicare advantage. It looked like the PMP Ams were down sequentially by around.
4.5% and just wanted an update on I'm sort of what drove that it wasn't just changing your accruals on things like risk adjustment just given the lower utilization that you've been saying or anything else going on that you can find for us.
Yeah, I can't think of anything unusual that would have impacted the PMPM it could be mix, but I don't have the specific sitting here with me right now.
Okay alright. Thanks.
The next question comes from Ricky Goldwasser from Morgan Stanley. Please go ahead.
Hi, good morning.
Uh huh.
First question is on the common did you made Michael I think you talked about I'm, taking holistic view on rates beyond 2020.
Maybe you can elaborate a limited what was what does a holistic encompass.
I'm sorry, you talked a will you be cool the great. She said I missed part of that Rick.
Yeah, when you talked about.
Stay traits and Medicaid rates, you said, you're taking a more so let's take a views on on rates beyond 2020, as you think about next year.
Yeah, I think it'll continue to work with them and I have no reason because you have to say that something that we'll have to continue to work with room and I'm trying to tell them that they can't look at the rates just in one quarter. The results the utilization, but you need to be thinking about how it rolls forward.
And what what we anticipate is going to be happening going forward basis. So I am I in my comment was in essence, a positive comments that were engaging the state now so they understand the insight as we said well, we haven't announced that assessors Thanksgiving as a rate increases now and we're working through that.
Then my.
My name is finalized will well announce that as well so.
The only the only income was expected to continue the discussions to continue rolling forward and that's in a very positive sense that they wanted to talk about.
And then <unk> shifting away from some call. They covered the I'll see you do have brought in a couple of interesting hires in you highlighted kind of like [laughter] aspect.
Oh the business.
What areas on the digital side do you see represent the most immediate opportunities.
[noise] to implement in any pets costs.
Well I think you know were the Adobe onboard in the next three four weeks and they were talking about Oh, what they can do to help with the provider experience. The member experience and so there will be various things there that for competitive reasons that nothing get too specific but.
There are some things that we think we can do that Ken.
Moving to a real leadership position in that area and are they have the the talent in the capability.
Added to what we haven't really have a lot of great people, who are doing rather that here right now and so but it just recognize as.
Well, it's moving too and they have the talent to recognize when there are sensing capability and need to be brought in voted on and they'll be working aggressively in that area.
The nicklin helps.
The next question comes from Lance Wilkes from Bernstein. Please go ahead.
Yeah good morning.
Good I just wanted to get a media historical context, obviously this isn't a person session that states have encountered and so you could just give us some perspective on maybe contrasting the factors this situation versus maybe the elite recession, your or assessments have been <unk>.
Did see some rate decreases.
In the Oh wait recession, but in general do more like in aggregate, 1% to 3% kind of declines in premium Tim Anderson and some declines in medical cost you can see.
No was weren't as compressed.
Obviously, that's looking at an aggregate basis. So maybe if you could just kind of puts some context. So we can understand maybe these scope and scale.
Should be considering your.
Yeah, Let me, let me, let Jeff pick up on sellers, but let me just started off.
The difficulty or the issue here and we're dealing with the well I believe is that an economic downturns, there's some historical precedent.
For what would happen so what we're dealing with was this pandemic, it's something I.
I guess the last pandemic. They said was in 19 eighties Spanish.
The so the issue here is weak we project the.
Minor spikes in summary, that's not what happened so as we talk to the states, we're helping them understand that the cold it expenses offsetting the reduction of utilization and so that's that's that's the.
Counterbalance to what they saw savings with Jeff what did yeah, I mean, I think Lance if you again I think back then we were probably and I was here, we're probably having the same conversations around Actuarially sound actuarial soundness and if you go back in time and look at our financial performance I think you'd see it's it was very consistent during that time period and I think the other thing.
To highlight is if you go back.
To the crisis backing away to nine that's when a lot of organic growth accelerated.
For us and it really driven by states moving to managed care in order to help solve their budget problems and so we believe a when states have budget challenges were part of the solution because we can help.
Manage costs and have higher quality outcomes and so obviously that so somebody activity we're seeing here.
And are you still need it's complicated by a lot of politics in the middle of this whole thing too.
The everybody recognizes that I'd, just say on what people were active.
Yeah, certainly there are you seeing any differences I noted that in the expansion population seemed to have a little higher growth.
Quarter over quarter for you or are you seeing differences and behavior as far as got his state level, where are you seeing the growth expansion tuna and and public dishes.
No I think I think the difference that I would call out I think I mentioned this before was really a some states or are growing in some states art.
And that dynamic is really really interesting and I think that just has to do deal with the under the underlying you know unemployment situation and each individual states. We've had we've had certain states or not obviously you guys I know go out and download some of the data from the states on Medicaid enrollment, but we've had certain states that have grown you know 567 per.
Since since March we the others in the 1% to 2% range. So I find that dying dynamic interesting and obviously different than what we have experienced historically if you go back to the o. eight or nine recession.
Thanks.
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The next question comes from Justin Lake from Wolfe Research. Please go ahead.
Thanks, Good morning.
Okay, and you talk to how woke your group is outperforming relative to expectations both the overall.
And then give us an update there and then also maybe talk to some of the specific businesses in terms of Medicare advantage and.
Part D.
Yes, yes, I would say Wellcare is performing in line with expectations obviously.
We have the pandemic here and so.
A little bit harder to to sort through that but from our perspective performing in line.
With expectations in achieving our synergy targets that we've laid out I think I mentioned in my prepared remarks for that we're still comfortable with our synergy plan and being able to hit those targets that we set out there.
As far as Medicare advantage their Medicare advantage continues to grow I think if you look at this year and you look at our overall combined Medicare advantage growth I would say, it's been very strong on the Wellcare side you have to you have to remember back in December on the Centene only side, we had a you know a provider termination and a an egg with contract that we.
We lost and so if you adjust for those we've actually seen pretty strong growth this year and Medicare advantage and obviously looking forward to.
Having to Wellcare team run the Centene side of the business and and looking for good growth next year.
Right and then just a follow up on membership growth can you tell us how much of your you've got this new covered membership breivik of a multimillion or.
How much of that is coming from Wacker churn.
Due to several economic rules and you know, what not allowing disenrollment anymore versus kind of new membership sign ups being greater because the guy still assume the federal emergency ends at the end of September in States can then start this are rolling numbers again.
Yes. So a good good question I would say, we're not when I look at the March quarter end March membership compared to June Thirtyth were up about 812000 members predominantly an at risk members I would say the majority of that from our perspective is due to the suspension of the Redetermination and I think we mentioned.
Got it our June Investor day.
And and so that's why we've kind of delayed our peak membership from August into November on because it appears that there's been a slower take up rate.
For the unemployment side.
Versus the eligibility redeterminations and right now we have assumed that the eligibility redetermination the suspension of that goes through the end of this year.
Because they pushed out the.
They enhance death map for another 90 days.
Well.
So hope that helps again, our new expectations is up 1.4, a in November 1.4 million peak a members in November versus our previous was 1.9 in August.
The next call is from A. J Rice from credit Suisse. Please go ahead.
Oh, hi, everybody.
Oh, it's a.
Two quick wise.
Eric words of questions first on the public exchanges it looks like in the JK. Thank you that you Bob.
94 million dollar adjustment for their risk adjuster payable I just want to a true up or is that inline with what you had originally factored into your guidance earlier in the year and is there any comment about the footprint, a and whether you will expand it for the public exchanges next year and I'm going ask another question, which was about the Pea.
The you know there was some things you were doing this year I know wellcare extended the CBS contract you had some other things you're doing it legacy Centene have those played out as expected and is there anything about the coded crisis that materially impact either what you're seeing in script trends or utilization, especially drew.
Drugs in the higher acuity population.
Well, there's a lot in their AJ. So I may have to you may have to refresh my memory on the first ones, but on the PBM side I think things are playing out as expected in as we anticipated in that both the synergy and the transaction.
So again, we're using the combination of all the PBM assets to get the most value there.
I think your your other question refresh my memory on your first question that you had.
Yes, the 94 million rescue John Yeah, Yeah.
Yeah Yeah.
Well.
Yeah Yeah.
Yeah, that's usually one of the first topics out of the gate here, but given the unusual circumstances. It sits here at the end I would say if you recall you know roughly 10%, we would've expected 95 million and that would be a net piano benefit after Rad V adjustment et cetera, et cetera, I think if you look at the Q. It came in roughly at 63 sounds.
Thing like that and again, if you go back to our Q1 earnings call. We talked about the fact that because of the crisis hit in March we weren't able to really do a lot of the coating efforts.
We do and so we expected that risk adjustment to be a little bit short and in fact it was.
As far as marketplace I think you talked about expansion, obviously, we're looking to continue to grow into next year.
Yeah.
Ladies and the pharmacy, the one thing I'll end the privacy, you'll recall early in the pandemic, we reauthorize people to get multiple months supply things of that nature to accommodate their peers and concern. So the things that once again, that's it makes a little lumpy and choppy, but it's all.
It all works out over the period of time.
Oh.
Okay. Thanks, a lot.
The next question comes from Steven Valiquette from Barclays. Please go ahead.
Great. Thanks, Good morning, everybody warning voting.
If you guys commented that the a slightly lower utilization in July versus June was primarily related to the a spike.
Of cases in certain key states.
He also mentioned neo some hospitals, where maybe voluntarily cutting back on some of the elective procedures. So no it's hard to get too granular on this and I guess I'm also curious if there's a dynamic that may be June saw a stronger utilization as deferred care was reschedule. They performed maybe July had less of that.
And just on deferred care, specifically I guess I'm curious, how we should think about any remaining deferred Caribbean performed in the back half the year as we've got about overall trends I know, it's a lot in there, but just curious to get extra yeah. If somebody if somebody is the food you can't be certain who is the third one.
Oh. It was obviously you saw that reduce trends in April that things are being delayed we saw in talking about as hospitals larger institutions. They said, they're they're starting to bring it back in.
And there's two elements to that the hospital being prepared to do it and the person being prepared to go to the hospital because this is that.
As it relates the July in Chicago, the hospitals, we some of them we know we're starting to defer to.
The food care now we have to assume that some of those patients who hours because we have we have a big we have a big membership.
But what we said in that.
It's early we don't have the details as we sit here at this point is still to instill July and we want we haven't closed. So we would just as he said you were going to try and be transparent and tell you what we see as we see it.
There was some indication that there was some hospitals done it.
And it's going to vary and that moves from day to day that that's a good problem eight hospitals in Georgia and.
Florida. They may have just decided yesterday afternoon, it's time to defer we hear about it.
How long that safe.
That's a difficult with his pandemic so dynamics in change I wish I could be more more granular for you, but the moment I do that I'm going to mislead you.
Okay, all right appreciate extra color. Thanks.
Next question comes from Gary Taylor from JP Morgan. Please go ahead.
Hi, good morning.
Two questions. The first is I believe Michael in your prepared commentary I.
I think I wrote it down correctly that you you had said RFP activity was picking up if I got that correctly. It was just hoping for.
A little more detail. If you have any is that primarily complex populations with that most likely be you know 2022.
Potential revenue impact and then my second question.
Just looking for some guidance Michael from you and sort of.
Thinking about the heroes Bill you know that bump up to a 14% F math about half a trillion dollars a stay funding and how stingy [laughter] the details to appear to be leaking out of where the Senate is right now in sort of where ultimately you think we may we made land with respect to stay really.
Let me.
Let me sort out from the RFP funds. We told you Oklahoma has said they're going to do it there were several states that have talked to us about who they might consult with what outside consultants quicker looking at expanding their marketplace and they may if they don't have access I or long term care, but I'm not going to disclose who they are.
Because it's not surgeon and and they just actually probably at southern company's inside those who they think the consultants or but it's a clear indication that they are looking to start to save the money by expanding into those areas and and they really understand so I have to leave it there I wish I could be more.
Granular good, but I really don't want to.
I don't want him to sleep somebody and assessing part of the question was.
About where do we in yes heroes here, all yet and I sure absolutely Yep Yep, Okay. We know that the house put out two months ago, a suite trillion dollar bill.
The Senate.
It was really delaying and they have about a trillion.
And I, it's something to be either it's going to be somewhere in the middle.
Now the only I know with any certainty is I don't think that they will get the $600 and that's this is my guess so if if I'm right. He's lets say, how smart I am if I'm wrong. He's in kidney about at the rest of my life, but I don't think they're going to get to 600, because they realize some people were making more.
The unemployed than being employed and that has worked on both sides people a little bit too long way. So we'll see that changed the f. map and state support that's in a matter of negotiations now and I think the F. map has a chance because they recognize that well with what would our accounts who is put a date suit.
As I said earlier.
The two specific stay to poor support.
That's going to be hard it's a it's election year, which really complicated this whole thing and there was a little politics being played out there and.
So I.
I'm from Hussein I expect is gonna be somewhere between one and a half truly into two trillion I think we'll see some f., Matt I'm, hoping to some improvement there.
We're going to see the unemployment to is going to see another check who after people some of those things.
You want to see the.
If somebody has been paid to rent.
Being displaced you're going to see that probably extended.
That type of thing, but I.
I think they're gonna we plan on the edge around the have fringes scary.
Okay. Thank you.
The next question comes from Sarah James from Piper Sandler. Please go ahead.
Thanks, I have a clarification about cheeky MLL R. And then I wanted to talk about technology. So I want to understand the basis of to keep our eye day, you talked about getting claims to day slower.
Getting to that assumption is MLS 45 basis points. So when you close the second quarter, what's the assumption that claims are still something in two days slower and is that how you're looking at July so.
Yes. Good question I think I think a couple of things if you see the DCP the danger claims payable in our press release, we've given an explanation down there what is driving some of that days in claims payable the other the other piece, obviously would be any slowdown.
And in claims from data service to the date, we received the claim and so I'd say, there's two components, but the majority is just the actual mathematical calculation, which is what we tried to highlight.
In the press release.
May I ended up to as well because of timing, we're going to take probably two or three more questions around because that's what I've learned a long time ago when the boys waiting for the media if you're not there instead of talking to you they talk about use [laughter].
We try and I know.
Yeah, I tried to be quick with this one then I'm sure you've made some pretty impressive technology hired does that indicate a strategy to enhance channel sales. That's your technology pilots.
Technology, Yeah, the hires and whether or not we're going to sell externally no I think.
That's a be determined I'm not we're not trying to be like some of our peers that have problems that they sell.
Outside.
Well, what we're going to focus on what centers are growing population are growing business first and.
Well, we've had some products historically, we've sold but that decision I'm living up to the senior management as they come onboard and we see how it affects how competitive position.
Thank you.
Thank you.
The next question comes from Dave Styblo from Jefferies. Please go ahead.
Hi, good morning state when like and how does your membership revised membership view most of the peak in timing in the peak in number affect your view of your 2021 revenue.
Let me, let me be consistent always said other years at this point.
And he's saying at the right way, but we will talk about 2021 at our December Investor Day.
And to try and a front runner on meeting. This far ahead, it's something we have always historically avoid it so I'm going to how many refer that question though.
The non we spoke language so to speak Okay. All right I'll ask anyone are easy [laughter] as you saw claims getting back it sounds like got back to normal toward the end of June clearly, we're having some spikes here that the kind of deflect the normal course of that line, but I guess I'm wondering why.
What what you did see or what you anticipate seeing.
In the health health care system in terms of its ability to operate at or even above 100%. If we you know if we're able to get to.
A relatively normal environment or maybe you can you can speak to that from a regional standpoint, where were regions are in a normal environment now.
You know.
What's normal today, I mean, yes shut their doors some regions in the.
I see me <unk> North West that there may be more normal now they settled down but we see the south picking up and are we talking is already in the Midwest was 70 down now we see the jury, Ohio, rather stay starting to pick up again, so it seems to come in weight.
And that's that's the big issue.
It's what I see you have to make a decision is as it is today so dynamic.
And we've never seen they like it.
Oh.
The rest the offsets puts and takes you know you have I expect Arizona should start to come down it taken on the top things they need to do.
Florida.
I think that the governor realize what do you still got some things down into they're trying to do that so.
It's it's.
There's no one place that I can say has it fully under control today.
How it Pops up and were just once he gets a little bit under control. So I'd say, all we can lighten up on another stretching and then it pops up again.
The only place I seem to have I can talk way confidence is some of the European countries, where they had a complete shut down.
Couple of months and they seem to really brought it down.
The next question comes from Matthew Borsch from BMO capital markets. Please go ahead.
Well thanks for squeezing me in so I'll just ask one Jerry a short narrow, possibly dumb question, which is on the risk adjusters that you.
Talked about coming in at a lower level for the exchanges, but.
Yeah, because of disruption to wage or your coding he isn't that something that it would be industry wide and therefore.
A you know given the sort of.
Zero some gain that you have with the funding there that you would possibly do as well as you would is without those issues.
Yeah, Matt This is Jeff good question.
In theory, you would be correct. However, you know based on the data that we have we are an outperformer in a in that area and part of that if you recall a couple investor days ago, maybe a year or two ago. You know it was one of our Centene Ford programs that we put together and so due to the fact that word out.
Outperformer.
To the good of coating efficiency between January and April before you have to send in the data to the edge server, we are disproportionately impacted.
Oh got it okay. Thank you.
Let's take one more than we have to shut it down because we already later.
And anybody they didn't get to question as it relates agenda to know.
We'll try and find a way to get you spot.
[noise] anymore.
Okay.
Last question is from George Hill from Deutsche Bank. Please go ahead.
Hey, guys. Thanks for squeezing me at the end and I'll also had to be please yes.
Enrollment being slower in some states than in others with California being slower I guess, a aside from what we think of it kind of the employment demographic is there anything you seems kind of driving a the difference in the slowdown I guess anything like what are the what are they haven't come I guess, besides the infection rates and then as we think about the peak enrollment later in the year.
Yeah, the expertise to California accelerates, we're kind of Florida continues at a faster pace.
Yeah, I think that's that's a even even some of the states I don't I don't think have the answer for why the members haven't shown out there was an article the other day about California, specifically that I saw where they're trying to figure out the dynamic as well. So I don't think theres been any common denominator is what I would say from our perspective, we havent seen anything that's common.
Crossed the ones that have grown versus the ones that haven't and our assumption is that we continue to see growth and there will be I would say a lagging unemployment.
Application growth and there would be some more in California.
But not to the magnitude that we've seen in other states and so again I I think as I mentioned.
We're just going to have to see how this this plays out but where do you know we're sitting on 800000 number growth today and.
Getting to 1.4 by November.
Doesn't doesn't seem a impossible and I think thats, a reasonable place for us to put the guidance.
Helpful. Thank you.
Yep.
This concludes our question and answer session.
Like to turn the conference back over to Michael night or for any closing remarks.
I want to thank everybody and we look forward to the next stuck to the third quarter conference call and hopefully we'll have a some more clarity on vaccines and other things that will give us little more certainly is where things are but rest assured we're going to continue deal with this as.
As we confronted with it stay well stay healthy and where are you a mask. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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