Q4 2020 Centene Corp Earnings Call
Good day and welcome to the Centene Corporation fourth quarter and full year 2020 earnings conference call.
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I would now like to turn the conference over to Jennifer Gilligan Senior Vice President Finance and Investor Relations. Please go ahead Matt.
Thank you Rocco and good morning, everyone. Thank you for joining us on our fourth quarter and full year 'twenty and 'twenty earnings results Conference call.
Michael and my doors, Chairman, President and Chief Executive Officer, and Jeff <unk>, Executive Vice President and Chief Financial Officer of Centene.
And well host this morning's call, which also can be accessed through our website at Centene com.
Any remarks that Centene 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 and <unk>. Most recent form 10-Q.
Filed in October and form 10-K and and.
And our previously filed form 10-K, and other public SEC filings, including the risks and uncertainties described with respect to the potential impact of COVID-19 on our business and results of operations.
Centene anticipates that subsequent events and developments may cause the estimates to change while the company may elect to update these forward looking statements at some point and 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 fourth quarter 2020 press release, which is available on the company's website at Centene Dot com under the investors section.
Additionally, please mark your calendars for our upcoming first quarter 2021 earnings results call on April 27 2021.
With that I would like to turn the call over and by our Chairman President and CEO, Michael Michael Michael. Thank you Jennifer Thank you.
Good morning, and thank you for joining us.
Personally and on behalf of the Corporation and I'm very pleased with the results we delivered in 2020.
Early in 'twenty and 'twenty, we stated that for you would be choppy and it was.
We also told you that centene would manage through the crisis, we face.
And for our stakeholders and emerge stronger for it.
And we did.
And in 'twenty and 'twenty, we added over 10 million members representing growth of 67% when the deal.
And full year revenue of $111 billion, representing 49% growth.
And adjusted diluted earnings per share of price salaries.
13%.
Over the prior year.
Importantly, we continue to invest and the foundational strengths and the.
And price and create long term pathway for.
The growth.
Turning now to 2021, while we continue to operate and the pandemic environment, we intend to demonstrate the same transparency and agility. We did during this past year.
And last night, we filed an 8-K announcing that the board has authorized up to $1 billion of stock repurchase. This includes the unspent portion of the previous authorizations.
Our capital deployment priorities include providing new services and.
New subsidiaries, such as Oklahoma with risk based capital.
Do see debt to further enhance our bond ratings.
And facilitating value creation to M&A the.
The repurchase will be done under a <unk> five was the accretion being the key criteria.
Our 2020 financial guidance now includes and two alright.
One month into the first quarter, our view of 'twenty 'twenty, one remains largely consistent with what we shared at our December Investor Day.
And we are reiterating our adjusted EPS guidance of $5 to $5 and 36.
We are not changing our EPS guidance at this time, but in the spirit of our continued commitment to transparency, we wanted to provide the head and tailwind impacting our operational landscape.
Among the key potential headwinds and <unk>.
Additional state wage actions due to COVID-19 related reductions and utilization.
Beyond the $400 million, we've already incorporated.
We will remind you the C M. Yet CMS has not approved the previously submitted rate actions. However, as we have said we have built them into our guidance and cash flows.
And CMS maintains the great actions must be Actuarially sound.
The potential for higher than anticipated overall COVID-19 related costs.
The second takeaway and <unk>.
And third a Medicare physician fee schedule update.
Continued membership growth talking about the tailwind continued membership growth as the result of the extension of the Medicaid.
Read the termination suspension I will note that CMS has indicated they will likely extend the public health emergency through the end of the year.
Lower utilization trends and the first half of the year beyond our current projection is another tale.
So is there the potential for a meaningful increase to the ask Matt which is unlikely to be in the COVID-19 bill, but it will be part of subsequent reconciliation bills.
And the marketplace special enrollment period, beginning next week.
We anticipate the impact of the fee schedule to be approximately $200 million, which is expected to be largely offset by the read the termination tailwind.
The other head and tailwind of difficult to quantify with certainty at this point and time, but.
But taken together, we expect they will tend to trend to the positive.
And with a new administration of and place the government's approach to additional pandemic measures may change.
And we may see a more supportive environment for the expansion of care.
It was one month under our belt much remains emotion and.
And the attempt to update guidance with lack of precision, we anticipate being and a better position.
And then it would be more appropriate position the updated guidance and our first quarter earnings call.
During 2021, we intend to further and leverage the foundation, we have established in recent years and they set the stage for our next decade of growth and value creation.
Which will be measured by increasing margins.
We will continue to drive growth from our position as a leader and government sponsored health care to product and geographic expansion.
We are pleased to have been selected for two statewide managed care contracts of the Oklahoma, including a sole source contract and foster and care both of which the state of expects the stock in October.
In addition, we expect continued growth and our Medicare as we leverage our national scale. We are established in the spaces over the long term.
And short to medium term.
We expect to deliver above market growth with significant additional opportunities for value creation.
To meet our margin expectations and expansion of objectives and ensure organizational efficiency. We are also focused on leveraging our size and scale to unlock the value and her and across our broader whole health platform.
To that and we have today announced an organizational restructuring and initiatives that will include a reduction of workforce of approximately 3000 employees and the elimination of 1500 open positions overall.
All of this represents a workforce reduction of breath.
For the 6%.
Please note that the elimination of the 1500 positions was accounted for it and R&D.
December Investor Day.
And the reductions are primarily in the areas, where we have significant overlap and the acquisitions and where are we.
We have opportunities to leverage out of size and scale for increased efficiency.
Importantly, we remain focused on innovation growth and agility and without.
Continuing to invest and people and systems that are aligned with key areas of growth for the company.
And we look out over the next decade, we will continue to lead the industry with variety and the highest level of care at the lowest cost to meet the evolving needs of our members, especially those with the complex care requirements.
We are of transforming health care model, and making material advancements and our tech net of the technology capabilities.
Behavioral health is one of the most underserved areas and the population of today and two.
And the planned addition of Magellan, we are investing and our specialty care of capabilities, while also focusing and unimproved integration of behavioral and physical health.
The only and better patient outcomes and lower costs.
I'm pleased to note the we're making strong progress on the regulatory process for the Magellan acquisition and proud of all of the required for amaze within days of announcing the deal. We are also proud necessary papers for Hart Scott Rodino approval.
And of the Justice.
Another area of focus is pharmacy, which represents the largest the really good market opportunity.
Our growing specialty pharmacy platform will provide enhanced insight into the specialty store on the pipeline.
Clinical requirements and cost management opportunities and.
Importantly, the will also drive additional opportunities and for.
Patient engagement.
Better adherence rates and ultimately improved outcomes.
We will also so many of the organizational structure of a health care enterprise platform, which is creating an environment to foster the revolutionary change that is overdue and other health care system.
For example of pigs.
And the interpreter.
Collaborating on a comprehensive predictive infrastructure that will serve as the foundation for future innovation.
All of this combined with the outperformance in 'twenty and 'twenty, the strength and scale of our diversified healthcare enterprise and our strong execution provides me and should provide you with great confidence and our outlook and the ability to deliver on the opportunities.
I also want to thank our employees, who continue to move this company forward well always remaining focused on serving our members and will.
For two welcome them back into our offices with that I'll, let I'll turn it over to Jeff.
Thank you Michael and good morning, everyone. This morning, we reported fourth quarter and full year 2020 results that were in line with our expectations at Investor day, reflecting solid execution during the extraordinary here.
Fourth quarter revenues were $28 3 billion and increase of 50 per set over the fourth quarter of 2019 and adjusted diluted earnings per share was 46 cents compared to <unk> 73 last year.
And I will start my comments this morning by providing a more in depth review of the fourth quarter results. Then I will offer an update around our financial outlook for 2021, our updated guidance now includes Panther Rx, which closed at the end of 'twenty and 'twenty.
Now from fourth quarter details total revenues grew by $9 4 billion over the fourth quarter of 2019 due to the acquisition of Wellcare and growth and the Medicaid and health insurance marketplace business.
This growth also includes the impact from the suspension of Medicaid eligibility redetermination and the reinstatement of the health insurer fee in 2020, partially offset by the divestiture of our Illinois Health plan and retroactive state premium rate adjustments and risk sharing mechanisms.
Total membership increased to $25 5 million and the quarter up 67 per cent compared to a year ago. Since the pandemic began in March we have added a total of $1 7 million Medicaid members slightly higher than the $1 6 million members anticipated at our Investor day in December.
Our <unk>, our health benefits ratio was 88, 4% and the fourth quarter consistent with last year's fourth quarter.
Compared to the fourth quarter of 2019, the HBO of benefitted from lower medical utilization trends due to the Covid pandemic and the reinstatement of the health insurer fee offset by retroactive state premium rate adjustments and risk sharing mechanisms and higher testing and treatment costs associated with COVID-19, particularly in the marketplace business.
Within the marketplace business, we experienced an increase and testing and treatment costs related to COVID-19, specifically in regions, where infection rates sharply increased during December as.
As a result of the increased COVID-19 costs of our marketplace business performed slightly below our targeted pretax margin range of 5% to 10 per cent for the full year, we expect our marketplace business to return to the target of margins in 2021, reflecting our continued pricing discipline.
Through year end 2020, we eat of paid approximately $3 $6 billion associated with Covid claims this.
This compares to the 2 billion and we discussed on our third quarter call all for our full year figure of plus consistent methodology and includes all of the Covid related claims codes consistent with CDC guidelines.
Our adjusted selling general and administrative expense ratio was nine 7% and the fourth quarter. This year compared to nine 5% last year and eight 9% and the third quarter of 2020 the.
The year over year increase was due to enhanced growth and profitability initiatives for our Medicare and health insurance marketplace business as we reinvested the risk corridor of pain that we received and the third quarter.
This was partially offset by the leveraging of expenses over higher revenues as a result of the Wellcare transaction.
Cash flow provided by operations was approximately 3 billion and the fourth quarter impacted by the timing of certain state payments and an increase of payables related to the risk sharing mechanisms.
We continue to maintain a strong liquidity position of $1 billion of unregulated cash and our balance sheet at quarter end.
Unregulated cash included approximately $500 million of items that are expected to reverse and early 2021.
Debt at quarter end was $16 8 billion, which includes $97 million of borrowings on our revolving credit facility.
Our debt to capital ratio was 39%, excluding our non recourse debt compared to 39, 1% and the third quarter of 2020.
Our debt to capital ratio was 37, 5% when netting our unregulated cash with our debt at quarter end, which represents a 140 basis point decrease since March.
As Michael mentioned earlier, our capital allocation priorities remain unchanged with focus on funding of organic growth and value creation through M&A and leverage reduction we will be opportunistic with share repurchases with the accretion being the key criteria.
Our medical claims liability totaled $12 $4 billion at quarter end and represents 51 days and claims payable compared to 52 days and the third quarter of 2020 DCP was impacted by the timing of state directed payments the well.
<unk> integration continues to be on track and we remain comfortable with our synergy capture efforts in 2021, while it is still early we are making excellent progress towards the closure of Magellan as Michael noted earlier, we have filed all of the applicable regulatory approval documents and we continue to have constructive dialogue around the integration planning.
Turning now to our 2021 expectations.
As I mentioned at the beginning of my prepared remarks, we are updating guidance to include the acquisition of Panther Rx, which closed at the end of December 2020.
And this adjusted two of our guidance metrics for 2021 as follows.
First our total revenues increased at the mid point by $2 billion, which is consistent with what we communicated at our Investor day, and second our SG&A ratio decreases by 20 basis points at the midpoint, reflecting Panthers low administrative cost ratio.
Additionally, while not part of our formal guidance metrics the <unk>.
Cost of service ratio is expected to increase by approximately 200 basis points driven by Panther Rx being included and service revenue and cost of services.
At this point, we have not included the impact of winning the two Oklahoma contracts into our guidance. The two contracts are estimated to begin October one, which would potentially add $250 million to our 2021 total revenue for the.
The full year, we now expect our revenue to be within the range of $116, one and a $118 $1 billion.
We continue to expect mid teens percentage Medicare advantage enrollment in 2021.
The strong growth underscores the rationale for the Wellcare transaction as well as the effect of integration efforts that have taken place over the last 12 months and the pandemic conditions.
Marketplace enrollment results were slightly better than our previous projections.
As both retention and affection ratio of the fluctuation rates were higher than anticipated. We continue to view marketplaces of long term growth opportunity for Centene, which will drive our product development and positioning with the experience we have gained as the industry leader.
Additionally, we continue to expect typical utilization to remain below the historical baseline during the first half of 2021, returning to normalized levels and the second half of the year.
Covid utilization is expected to be elevated during the early part of the year, particularly offsetting the impact of lower traditional utilization.
The duration and intensity of higher COVID-19 costs will be impacted by the trajectory of the pandemic and vaccination rates.
Finally, we have lowered our GAAP EPS guidance range by <unk> 14 cents at the midpoint.
This is due to the inclusion of the estimated intangible amortization of Panther Rx and an additional charge related to the work force reduction Michael previously mentioned we.
And we intend to invest the savings in two important growth and strategic initiatives, including investment for the upcoming special enrollment period, as well as the automation and technology development and incremental startup costs associated with the Oklahoma contract.
All of these factors into account our adjusted diluted earnings per share guidance remains unchanged at $5 to $5 30.
As Michael highlighted there are various potential headwinds and <unk> for 2021, and we have not included in our guidance today as many of the items remain uncertain and difficult to quantify it.
Utilization and Covid expenses in particular are highly dependent on the trajectory of the pandemic and we will continue to provide investors with timely updates.
I'll close by reiterating our confidence and the strength of our business. We're pleased with the significant growth. We achieved in 2020, our balance sheet remains strong and we believe we have ample liquidity to meet our operational and strategic needs and we remain focused on executing against our strategic plans and are committed to delivering shareholder value.
With that I'll now turn it back to Michael.
And the wisdom of deviate a little bit today from the standard call but.
We have John guidance and available and last night, the ways and means committee.
Provided information on things, you're thinking about relative to strengthening the uninsured and bringing them into tomorrow for someone to ask John to take a minute and just highlight the.
The key factors and they go out of the John heads up our Washington Office and is the very respected.
The government relations individual and Washington, Jon If you would.
Thank you Michael as you mentioned yesterday, the house ways and means committee released their Covid relief package.
Pleased to see that they included substantial increases in premiums for those and need for 2021 and 2022. It provides for the hand advanced premium tax credit for those making between 133 to 400 per cent of the federal poverty level and.
Another key provision relates to those that are unemployed.
They will be eligible to receive advanced premium tax credit and will be treated like they are at the 133% federal poverty level for the remainder of 2021.
Will be important to get greater detail as the Covid package moves forward.
We are pleased to see them wanting to leverage the HCA for those most impacted by the pandemic.
And Michael with that I will kick it back to you.
Thank you John.
Peter we can now open it up for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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Would you all of your question. Please press Star then two.
Today's first question from comes from Josh Raskin Nephron Research. Please go ahead.
Hi, Thanks, and good morning. Good morning, So good morning, Michael So if I look at the numbers you finish to 2020 with an adjusted net margin of a little bit under 3% and I think you actually mentioned in your prepared comments about margin expansion and the future. So I was wondering if you could give us sort of longer term goals and sort of as you think about your mix.
The business.
With the addition of Panther and some of the other acquisitions and the health care services side that tends to run a little bit higher I'm, just curious where you think that that net margin ultimately can go to and.
And not thinking about 2021, but more of a sort of two to three years out.
Yeah, we've talked about it we said pretax we'd like to be and the 3% to 5% range. We also said we wanted to see are increases be very sustainable so I'm not looking for big swings.
Up to five and a half and then back down and prior period adjustments and all the things that occur in that environment and so we're looking at three to five on a very sustainable basis.
Equally important is our.
<unk> diversification of our business, which really analyze of.
A lot like individuals' that invest in our company have diversified portfolios.
And the government services area, but as we diversify with and move more and more into the pharmaceutical and others somewhat of yours, maybe let some greater but on balance Josh three to five to go on a very sustainable basis, and I think we'll see.
Margins increase and again this year.
Perfect. Thanks.
Yeah.
And our next question today comes from Kevin Fischbeck with BLA. Please go ahead.
Great. Thanks, just wanted to go back to the the headwinds and the tailwind there wasn't 100% clear to me whether these were things that you guys explicitly included in your guidance or the thing that they were kind of.
Actual.
And what to the.
And things that have nothing like the.
The open at all major accounts.
And you're breaking up a little bit from Kevin.
For a couple of them, but I think I heard you say you want to understand what the headwinds and tailwind when and where they included in our guidance and what.
What we said is that what I've said and so those we commented a couple of more but on balance and that we have not adjusted our guidance for and it's just too early of one month of the experience and as you've just heard the environment is changing and to the pilots and so that's why I said that we see that the when you take the headwinds and the tailwind and the 10.
Tendency of the trend is to the positive.
But until we have more definition and it's difficult for products from one point you can't.
So we've said and we are one month and are about.
These of where this is where it stands.
Here are the headwind.
But there's a lot of tailwind to the offset.
And the strong tailwind.
So we're very encouraged by that we're encouraged by what ways and means put out now that may not be the final for them, but it shows the direction of the leading.
While they're not and the guidance the one of the clear on that.
We felt it important for transparency for people, who understand these of the things we should be evaluated.
Okay, Great and maybe just one clarification on the F map relief that you guys got more F map would that potentially improve your rates or is that just give you better visibility into rates, the actuarially sound and well.
Well I think both in other words.
Was the of map the.
What's the states can do on and they're looking at expansion as you just heard out of the things of that nature.
And he will give the state some relief and I think it will minimize the the need to try and pull back right.
And so on balance it's a good thing for us, but I want to emphasize that when we hear the state of adjusting this quarters of the.
They are trying to pull money back because they see the utilizations down.
And so they see that as a reason to do it and to offset it. So there's a balance of F. Matt will just give them more comfort and then and help them cover the additional employees.
And then is there anything you'd add to that.
Okay. Thank you.
And our next question today comes from a J Rice of credit Suisse. Please go ahead.
Oh, hi, everybody. Thanks for the question.
Just to maybe go to talk a little bit about the marketplace and some of the developments there for.
First of all make sure I understand I think Jeff's, saying that you ended up a little below your target market margin range of about 10% and 2020 and.
And attributed most of that and the Covid situation did you see materially different.
Realizations, Patters club and non Covid and the marketplace versus your traditional Medicaid population and.
And the Medicare population.
And then maybe just ask you to comment a little bit about the open enrollment dynamic.
By the administration is putting in place.
Do we see that as a.
Garnering significant incremental enrollment is there any risk of adverse selection because of their reopening it just your thoughts on how that's going to play out it sounds like youre doing the positive about it.
I'll take the second part of the question and then let Jeff picks up on the and the differences and the U.
The utilization.
We see it as a positive I mean, there's 9 million people the estimate of uninsured ER and we wanted to remind you that it's not all marketplace. A lot of these individuals will qualify for Medicaid.
And as we saw last year that was a positive the half map gives the states the funding they need to cover those employees, which is the additional positive as well as adding additional ssi and out of the coverages who've seen states doing so we see that as a essentially a potentially significant positive for us.
And as it relates to the marketplace, we will see some we see increases and people coming in there I'm not going to I don't have any basis of say, we'll see adverse selection on it.
I think.
We've oh.
We have programs in place to attract a balanced, but we're not flying and just a quiet and attract us the.
The well and the young which for where we're in the business to attract a good mix of combination, which states and the federal government recognizes us for so I think on balance it's going to be of very good thing for us, but Jeff you want to talk about the difference and the yeah sure. Thanks, a J on the first part of the question, Yes. It was more acute in the March.
The place business, specifically and the inpatient side with the Covid authorizations and.
And it was it was a little bit different I think some of that's driven by the demographics you have to remember.
In the marketplace business over 90% of that population of adults, whereas in the Medicaid side.
There's a lot of kids and there. So it was more acute in the marketplace and it you know.
All of this down right below our 5% to 10% range.
At the end of the year.
Okay, maybe just kind of ask on the the comment was made about the package their pads and Covid relief.
Is that going to cover our people and the coverage gap and the non expansion states is that part of what they're going after I know that's a couple of million people or is it too early to tell whether they will address that and this relief package.
I think you know I think they we know that the administration wants to bring uninsured and.
And they're very committed to it.
And good.
And I ask John to speak only of suddenly this is fresh off the press and we haven't had a chance of study it to the depths we like to the.
I guess and Jay will then of weight.
And give you more of definition as it unfolds.
But the essence of it is positive.
Okay, alright, great. Thanks, a lot.
And our next question today comes from Justin Lake with Wolfe Research. Please go ahead.
Thanks, Good morning.
Wanted to ask about the fourth quarter utilization and I know, it's early into January but anything you could share with us on utilization and.
All of those retro rates and rebates kind of look.
In the fourth quarter versus what you expect it'll look like your MLR was a little higher and then specifically was there something and New York One of your peers had mentioned the New York Pretzel crop that at the very late in the fourth quarter and anything you could tell us on that one that might affect the two for would be helpful as well.
I'll start out and just and then I'll, let Jeff picks up and the others, but I think it was really important and you give and Thanksgiving and the chance to say this.
When you look at the kind of year, it's been.
With the Covid and the peaks and how strong the pizza and the geographic diversity of it we wish.
I think it's very difficult to evaluate.
Very my new changes and MLR.
Product line chronic business by business and so I just want to encourage everyone, including yourself the looked at the the the.
The most broad thing and said you know.
And they came in within a more than acceptable range for the.
The environment of which we're in and I consider I, just said it really well done, but I'll, let Jeff speak to your specific.
Yes, real quick on that just and.
So it's really been the same phenomenon for the year that we've seen so and the fourth quarter I would say total utilization is below the historical trend line.
So obviously higher COVID-19 cost of lower traditional utilization and in the fourth quarter.
And you remember at our Investor Day, we estimated the full year state risk sharing mechanisms would be $790 million. We ended the year roughly the $1 billion.
And effectively that was offset by lower utilization during during the quarter now I'll just give you. Some some details on that $1 billion of piece of that was in New York, We had an estimate and for New York, but we didn't have any details on it we got those details and January.
And then there were some other smaller states, but half of the difference. So you went from 792 1 billion.
And that difference is really related to I would say true up of of estimates and normal performance of existing.
Corridor of programs that were already in place.
Okay, and then does that educate us of all into 'twenty before versus the $400 million.
So you say that against expected does that educate us at all into that $400 million given that there was another 200 million higher than you thought.
For the end of the year.
Again, I think the what Michael had said earlier you know the the risk corridor. The the 400 million, it's going to change anyway, just based on utilization.
That's what I would point to and we haven't even finished closing the books for January so at this point, what we've done is effectively take december's guidance for the December 18th Guide and adjusted for Panther Rx and we'll provide more information at the end of our first quarter call.
And on a lot of other headwinds until ones that Michael mentioned.
Got it.
Thank you. Our next question today comes from Matt Borsch with BMO capital markets. Please go ahead.
Yeah, sorry, thank you.
Maybe you could talk about the guy.
Guidance relative to re determinations, and the Oklahoma I guess, what I'm getting at.
And my Corruptible.
Guidance was based on.
The notes earlier sort of spur.
The spring.
The date for re determinations to resume and that was pushed out to the MPR.
Wanted to understand the thought was something that was absolutely I think for your guidance or not and then Oklahoma.
And I think Matt the state has set October one for both plants.
And I've never put my hand on starting dates.
That stays here for you.
And so I think.
And if it did songs and Jeff and his remarks, there's about $250 million and revenue for all of a lot of the margin will startup costs and other things and there sure.
And we'll give more definition of <unk>.
Q1 call on that so I think that's the that's part of it and.
And in terms of re determination.
Yeah.
Right now they've issued a letter saying that day they expect to.
Continuing the until the end of the year.
And the emergency, but you know I wanted to confirm before I start building and the guidance and giving you numbers and.
And that's why I said one month.
Does that and you make and so I'm.
Kind of bear with us recognize that that's a strong upside for us.
It happens and we've seen it historically, but until they till they confirm it and that's why we've said it makes sense to give you all of this information and especially can and our Q1 call I, just but I did want to be transparent and say these are of a tailwind seas of the headwind and you can see that the unbalanced.
The very strong tailwind yes.
Yes, Michael Thanks.
Thank you.
And our next question today comes from Ricky Goldwasser with Morgan Stanley. Please go ahead.
Yeah, Hi, good morning, Michael.
And Michael you talked in the prepared remarks, Matt.
Growing the unregulated businesses as part of one of the drivers for margin expansion.
Talk a little bit about sort of how you're thinking of building of the pharmacy offering whether it's through additional M&A or organic growth and there.
And you know you still outsourcing part of your your pharmacy PBA business.
Can you maybe update us on the kind of like the timing of the ear and the opportunities.
So with that.
I'm glad to I think of Panther of Rx, while we've said, we'll be breakeven this year and nasty billions of dollars of revenue.
It's important and it adds to the especially the pharma, which we have a leadership position and growing.
And it adds the orphan drugs, which are a critical part and we can help and we're committed to the pricing COVID-19 affordable for everybody to the extent, we can and we don't control of that that we get whereas the distributor of it but it gives us great insights into it so that's what that's the.
The specialty side and that's why we did that to add to it.
As it relates to the total platform, we're gonna be adding significant assets through the.
Magellan.
Acquisitions, we have various platforms out there and I've asked the drew Asher who I think we all recognize is a very competent executive.
And working on and the pharmacy side.
To put together his full recommendations for us and how best to approach it which is the final platform, we should use but it would be premature to give a whole lot of guidance until we have approval.
On the Magellan acquisition, but it's.
And we see it as very positive we have I know, we're purchasing prior to this <unk> 30.
So the billion dollars of year in pharmaceuticals, and working with various.
Platforms and pull it all together so it's a long winded answer, but it's a day to give you as much transparency and it's a great opportunity and Joe is working to and will determine how best to capitalize on it and they said is proud of experience I think people and have confidence it will be well done.
And then one follow up and yesterday, you announced an increase and your share repurchase program, two and right up until.
Billions of dollars.
What is your assumption for share repo in 'twenty and 'twenty, one guidance and as we think about sort of what the cadence should we soccer and kind of models.
I I have not.
And then any guidance on that we gave you the order of priority.
I mean, obviously with the Oklahoma and other plans as they grow the RPC has to be increase and that's the first one we.
We do want to retire debt bonds and credit ratings continue to improve and we want to continue that pressure were approaching the investment grade. We have won one waiting there now and so that's it that's the second one.
We do have some small acquisitions, we are looking at and so we would use some capital for that.
The but we want investors to understand that.
Based on what the stock prices and the accretion and I have a pocket piece of it says and exercise he was the anticipated accretion.
We will be back in the market pilot on the <unk> five.
And let me just take 30 seconds on net debt because we are of a company that does a lot of acquisitions and we have inside knowledge, we have to cloud and no different than we have to personally when does it open window and file it can be five it says here's the criteria for buying the stock if it did this increase and per ask it this way and there'll be a bank.
That has those instructions and.
Has the authority to do it on that basis.
So it's a combination.
Of.
Those kinds of things and it's but none of them.
The stock continues to move up and it'll be less.
The purchase, but it's there and obviously people want us to repurchase when it makes the accretive sense.
Thank you.
And our next question today comes from Lance Wilkes with Bernstein. Please go ahead.
Yeah. Good morning could you just amplify a little bit on the restructuring program with the 3000 employees and in particular could you put that in the context of your long term target. So I was just interested to kind of get a refresh on.
What do you think long term revenue.
Revenue guidance would be and.
And then with margins long term how much of that is going be driven by improvements and operating expenses as opposed to anything else. Thanks, a lot okay sure.
The revenue we tend to give you that when you are at the time and we said we're gonna be we are of a growth company and.
I don't want to get too far ahead of myself on that but I mean, when you look at the year of we came off of them.
The floor is at 59% of some significant number of.
I don't think I'll have you will see that next year, but.
Who knows.
And I say that tongue and cheek, but the restructuring.
It's been a hobby horses of the powers for some time and we've done these acquisitions.
And they're very effective and the other.
But I don't believe we've really leveraged.
Our scale and size and it's something we've been talking about of senior staff about we've been making met and the children of investments and systems that really help improve the efficiency.
And right now very candidate as the demand for health care of employees and workers, so and considering the taken.
Taking this action with Glenn and at a time and when.
We believe the individuals will be able to find and they're getting lots of support the $69 million of severance we built in and for everybody. So whether that'd be very supportive of that but this is just the case of saying it's time now.
So every time, we bought something and people would come in and say Oh, We decided this I need 510 and 15 more employees.
And Oh, we've cut back.
As we looked at it and legal and other areas. We have found that as we've gotten to a scale and size and we've hired more confident and people we've been able to reduce the number. So this is something we wanted to do for some time.
And it reflects and <unk> in combination with cancer positions of about 6% of our workforce, which we think is material.
And.
A lot of and it's gonna be improved technology.
And they're gonna give as I gave an example, and I don't I'm getting long winded, but I wanted to give you an example.
We talked about how.
We just tested and Florida.
That.
When some when something is pretty optimized and.
And then the claim comes in the nurses has to look at it and make sure of is justified.
Well, we know of artificial intelligence.
What used to take them 18 minutes to look at the claims.
Can now be done and three and a half seconds.
And if let's say no it's not qualified and we want we still want a individually reviewing you don't say no.
The severity as we get experience with the AI, but that's the kind of thing that improves the efficiency and service and that the claim the speed faster et cetera, that's where we're headed and that's why the reduction in force wrong with it and so I hope that answers it for me.
Yeah. That's helpful. Thanks, and and does that have any impact on 'twenty and 'twenty. One guidance is there a positive impact from the restructuring and 'twenty, one or is it b b.
And that.
It's all built into what you've seen.
Yeah, Yeah, no. It's a what we talked about was what Michael just mentioned is at where we're investing the savings effectively right and it's and the technology and the special.
And the period et cetera et cetera.
Got it thanks.
Yes.
And our next question today comes from Robert Jones with Goldman Sachs. Please go ahead.
Great. Thanks for the questions I guess, Michael not to go back and just but just wanted to really understand what is contemplated in the unchanged range and it obviously it sounds like we're going to get a more detailed update with <unk>.
When you get the <unk> results, but if I think about those headwinds and <unk> that you highlighted you know I guess, what if any.
Think about the state rate actions of the Redetermination and like what what is today contemplated.
And the range and then I know at the Analyst day, you talked about thinking about this year earnings weighting being kind of 65% and the first half and any updated thoughts on cadence and no not a lot of time has passed but just curious as we think about how the year could play out from an EPS weighting standpoint, I wanted to get your latest thoughts there.
Right now as I said with one month of experience, we're not changing it now.
And.
Yeah, it's difficult to trend and from one from one point you can't trend from one point and so we said look rather than put something out there that we then have to change and Q1, let's let's give you. The factors. So that you understand why we see it as a positive trend I mean, the the redetermination depending.
Right now, they're talking about the plenty of quarter by quarter, but they go to the year and that becomes a.
Significant improvement.
Some of the of some of the weight of adjustments I heard and I haven't been approved yet.
By CMS and and they they're actually the actuaries and looking at the actuarial soundness.
So there's there's so many variables in it.
That.
I just I just don't want to put something out there that we don't have confidence reflects the the facts and had some sense of precision to it at this point in time and I'm not trying to be based upon and that's why we gave you the headwinds and tailwind.
This is all out there and you can see how and the environment and what's the operating it's difficult I mean I was just in the late news last night and they were talking about the new virus and and the intensity of evident and wave and then the variables out there that it changed the things we're living in the area that where things are choppy.
So bear with us and saying, hey, the being transparent and say telling us the things that could eat that and that could change it to give us reasons to understand and why we're believing in what we do.
But to try and quantify it.
Uh huh.
I mean, it's.
It's like before.
Peter I always use the analogy before they were able to kind of tell you ahead of time when you'll have enough for the the obstetrician, one and said well if I say, it's the girl and it turns out to be a good one of the thing I'm really is.
If it turns out to be of boy, you're going to say that you don't know anything so.
So there's a lot here of unknowns with the inability of the predicted.
And so let's.
And that let's let's let's see valuate, it sorry about that and I wish I could be more precise with.
It doesn't lend itself for the Asquith one month's experience.
Understood. Thank you.
And our next question today comes from Charles <unk> with <unk>.
All of them. Please go ahead.
Yeah. Thanks for taking the question.
Michael I think obviously you talked about the potential for.
The re termination of extending out further.
I think of your guidance assumes sequester relief through March 31st any thoughts on if this is also likely to be extended and and how would you think about the impact may be to your guidance if that were the case.
And we see re determination.
And it and we see it and as a positive and guidance, but I'm.
I'm not going to do it month by month quarter by quarter. When we know when we believe we will have more cash.
Clarity.
By the time and go into the fourth quarter and the first quoted by the fourth quarter for sure the first quarter.
Paul.
And it's the part about <unk>.
And so clusters as well.
Yes, the sequestration and certainly population.
Yeah, Yeah, so sort of certainly possible and I think that would be a while not as large as obviously the redetermination that would be that would be of positive as well.
And just curious if you've if the.
That is something that you've heard increasingly discussed at all or any kind of sense there from Washington on that.
We haven't described though.
Okay.
Alright, thank you.
And our next question today comes from Scott Fidel with Stephens, Inc. Please go ahead.
Hi, Thanks, good morning, all.
The first question. The first question just had one of the call back up on the.
The marketplace and and.
The two specific questions one.
Jeff I think you had previously discussed how you expected.
And enrollment to be down around 350000 from peak to peak membership from 'twenty to 'twenty one it sounded like.
You guys are doing a bit better in terms of sort of net net.
And that of enrollment so far so interested if you could update us on on that.
And that number and then also and maybe how that influences. The prior view you had given for the $800 million reduction and the risk adjuster payable for 2021.
Yes, I mean, I think it's positive and we gave you that number of of Jeff can talk a bit of yeah. Yeah. Thanks, Scott for sure Yeah, but you are right. The $3 50 of were coming and more like $2 80, there was a shift to bronze, though more shift of brands, which we kind of highlighted but a higher shifts into the bra and so really no no change on the on the revenue side and the $800 million we.
Closed the year with about 800 million Youll see it when we file the 10-K was about eight of little over $800 million of of risk adjustment payable and our expectation is still that that kind of based on the acuity shift goes down relatively close to zero.
And I think as you look for going forward as you heard of giant guys to talk about there is.
Government support.
Envisioned.
And for those programs, which will.
And make it a little less price sensitive so that Uh huh.
Oh, yes, we see that as a real positive the people just can't and try to buy the business.
Got it and then just one follow up just on the headwinds and tailwind that you have provided and I think you guys captured most of the <unk>.
Most of the things that we're all sort of tracking here of that.
And playing out so far this year.
One thing you didn't mention was just the headwind from lower Medicare racks, and and that's certainly something that some of your peers have been emphasizing recently is that just because you had already anticipated that and and sort of talked about that and assume that the guidance or youre, just not really seeing that as as much of an incremental headwind here.
And for 2021 share.
Yeah, No we talked about this at our December 18th guidance, we mentioned specifically the headwinds on the on the risk adjusted side due to the and ability of members or they didn't get to their doctor before the end of the year. So that was already included in our December 18th number.
Okay. Thanks.
And we tend to get careful and trying to give you a.
Transparency of our notes.
Yeah.
And our next question today comes from Ralph Jacoby with Citi. Please go ahead.
Thanks, Good morning, just one clarification it sounded like the the schedule I think you'd mentioned was the $200 million headwind and I think you said it was offset where you expect it to be offset by Redetermination tailwind and.
Michael say, the Redetermination would be sort of upside. So I just want to make sure I was clear on the <unk>.
And the offset yes.
Yes, you got that right.
Okay. So is it isn't and offset or wood wood redetermination to be and incremental tailwind.
There is an offset and they go to the end of the year it could be incremental.
Quarter by quarter, but we believe there'll be sufficient to offset that.
And if I, if I knew what was really going to be a whole lot better than we'd give it to you, but and well know more of.
The Q1 call, but the reason that we believe there'll be enough there to offset that $200 million.
Alright fair enough and then just one other quick clarification on the margins on the Hix did you say it was below the 5% range or below the midpoint of that range and then your expectation for 'twenty and 'twenty one it sounds like it's gonna be firmly in the range is that is that correct.
Yeah, that's correct below slightly below the five per cent.
Okay. That's all I had thank you.
Yeah.
And our next question today comes from Dave Windley with Jefferies. Please go ahead.
Hi, Good morning, Thanks for taking my question, Michael I had two on on Magellan and I think you've highlighted that <unk>.
Magellan helps to expand your behavioral network and I was hoping you could comment on kind of the the buy versus build of valuation on that is speed important to get to that expanded network and then secondly second question around defending magellan's existing business there.
We're a kind of a carve out player and and behavioral whereas I think you you focus more on on the the advantages of of integrated and carved in and then they've also kind of held themselves out as the independent partner and as part of Centene will not be that so if you could comment on buy versus build and then defend.
And the Magellan's business. Please yes, I think I went and things of that question because of well.
We like the I wanted to start off and then I'm going to ask Scott share of London, who oversees held for enterprises to amplify the little bit more and give you some more background on it but.
As it relates to five versus one.
With the with the importance of behavioral health is placed and the fact is so underserved right now and recognize.
Having these assets as part of our total patent portfolio, we see as a strong positive and something that over time, it's so different than when we first got involved.
And that especially the farmer, maybe five six years ago I think the per share we had a carry at the $200 million.
And.
Now, we talked and the billions.
And I think because we recognize how especially for hours growth.
I'm, not saying, it's kind of the billions and billions, but the point is I think we were gonna see behavioral health growth.
We're also very sensitive.
And the fact that we want to keep it.
And in other.
Users' mind, the independents of it and.
And we see that as the value because the stronger it is sort of in the other customers and more of the we eventually be and US and so you might talk about health care of enterprises, and how you structure it.
Yeah, absolutely. Thank you Michael and I believe.
Sad and Magellan and.
And the dawn will sit within the upon close and will sit within health care of enterprises, which is a separate operating division within Centene and.
And it is home to a number of wholly owned subsidiary companies that are positioned to continue to operate independently and.
And we take very seriously the ability of these companies to continue to serve third party customers to not have any cross contamination and not have any competitive disadvantage them and our operations, but also to be positioned to be a good partner to centene and so that's exactly what will the Ark I'm Gonna do for Magellan, We've also established and independent board of director.
And for health care enterprises, and Matt can oversee the decisions that are being made and and ensure that we are collectively making decisions that are good for the third party customer base and not the big part of the magellan's growth potential at the Linq flight right.
Thank you Sir.
Great and Michael if I could follow up quickly you mentioned.
And your headwinds additional rate cuts Justin and his question referenced and New York is that the primary one you're thinking about or are there others. Thanks, and that's it for the day that there could be other people very state by state.
And as I said it.
If it's actually the sound and that's one thing that's that's fine and if utilization is down and it will be offset so and that and that's what CMS is looking at and.
And there could be out of this but it's well, it's a headwind and I think there's some offsetting factors that its not as problematic and that can be.
And our next question today comes from George Hill with Deutsche Bank. Please go ahead.
Hey, good morning, guys and thanks for taking the question Michael I had one more follow up on diversification and pharmacy and I guess could you talk about if the company has any aspirations for the P. B and business of the pharmacy business kind of outside of the government payer book.
And maybe would you guys look to expand into commercial businesses and talk about initiatives. There and then I guess does the Cvs partnership help or hinder that thank you.
Well I think Scott the <unk>.
The X partnership does that help of indirect so I'll get that out of the wafers.
Two we.
Uh huh.
We will treat and its fairly independent.
Over the time right now the government services is so big and that's what we're focused on and as we move internationally and do some other things as opportunities.
Has to be evaluated price, but if.
Kevin.
And he came up that was appropriate and would not impact our basic strategy sure we'd looked at it and we're not kind of I'm not sure. If it's if it's corp because.
One of us to think about strategically and.
And the anything you do that increases the amount of pharma and you're buying.
The issue and.
Ongoing benefits to all of the piece of it are uses and so what we're going to be very focused on the strategic impact of everything we do and I think I hope today, we demonstrated some of that so yes, we might.
We might consider some large.
Opportunity there.
But until it presents itself and we looked at it.
For the government services healthcare.
The company.
Thank you and ladies and gentlemen, this concludes our question and answer session about kind of some of them.
Most of it should be the also the photo and worse and I just want to thank everybody and I am actually looking forward to the Q1 call where.
We would of tests of our.
Kind of boring and see I would tell you just very quickly and this is just for the fun of it as we get off the phone and we had a we had a court cases, where it.
It was the class action and many many years ago and it was in the eighth district.
And the federal judge and her.
Comments and her opinion.
Said that the mic.
Michael and write offs cannot be considered to be clairvoyant so of.
Times like this I think about the fact that I cannot clairvoyant and that has been certified by the eighth Federal district courts, So with that I wish you all stay safe and.
And we look forward to talking to you soon thank you.
And thank you Sir This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.