Q2 2021 Humana Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to Humana second.
And there are 2021 earnings call at this time, all that and visa and a listen only mode. After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star 1 and your telephone keypad.
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Quadrant.
Now I would like to welcome Ms. Amy Smith, Vice President of Investor Relations Ma'am. Please go ahead.
Thank you and good morning, and our momentum Bruce Broussard, Humana's, President and Chief Executive Officer, and Skus and Diamond Chief Financial Officer will discuss our.
Our second quarter 2021 results and our updated financial outlook for 2021.
Following these prepared remarks, we will open up the lines for a question and answer session with industry analysts Joe Ventura, Our Chief legal officer will also be joining Bruce and Susan and for the Q&A session. We encourage the investing public and media.
Thank you listen to us and management's prepared remarks, and the related Q&A with analysts.
This call is being recorded for replay purposes that replay will be available on the Investor Relations page of Humana's website Humana Dot com later today.
Before we begin our discussion and need to advise call participants of our cautionary.
And so statement.
Certain of the matters discussed in this conference call are forward looking and involve a number of risks and uncertainties.
Results could differ materially investor.
Investors are advised to read the detailed risk factors discussed in our latest form 10-K, our other filings with the Securities and Exchange Commission and our second.
And here into 2021 earnings press release as they relate to forward looking statements and to note in particular that these forward looking statements could be impacted by risks related to the spread of and response to the COVID-19 pandemic. Our forward looking statements should therefore be considered in light of these additional.
Quarter DS and risks along with other risks discussed and our SEC filings, we undertake no obligation to publicly address or update any forward looking statements and future filings or communications regarding our business or results.
Today's press release, our historical financial news releases and our filings.
With the SEC are all also available on our Investor Relations site.
Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP and.
Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP.
And certain mutual measures are included in today's press release.
And finally any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share with that ill turn the call over to Bruce Broussard.
Amy. Thank you good morning, everyone and thank you for joining us.
Today, we reported adjusted earnings per share of $6.89 for the second quarter of 'twenty to 'twenty, 1 and inline with our previous expectations. We continue to focus on delivering strong operating results, while navigating a dynamic environment due to the ongoing COVID-19 pandemic.
All while staying true to our commitment to delivering the highest quality health care experience for our members and patients.
Well, we are maintaining our full year 2021 and adjusted EPS guidance of approximately $21.25 to.
To $21.7.
5.
At the midpoint, representing full year, adjusted EPS growth of 16% or above the 'twenty to 'twenty baseline of $18.50.
In excess of our long term growth target, while acknowledging the continued uncertainty driven by Covid.
And with 19 hospitalization trends and the rates at which non COVID-19 cost normalize.
As Susan will describe in more detail our full year adjusted EPS guidance now assumes a $600 million COVID-19 related headwinds that is expected to be long.
74 day offset by favorable operating items and.
In addition, this guidance assumes no COVID-19 cost will run non COVID-19 cost will run approximately 2.5% below baseline and the back half of the year, including the assumption of minimal Covid testing.
Thing and treatment cost for the remaining of the year.
I'd like to reiterate that our core fundamentals are performing well in 2020, 1 as a year of COVID-19 transition with various pandemic related financial impacts, including reduced Medicare advantage revenue, resulting.
And a significant temporary deferral of utilization in 2020 as well as the lingering long near term uncertainties regarding the pace and level of the return of utilization for the balance of the year.
We also acknowledge that we are seeing increase and COVID-19 utilization.
Nation in recent weeks, which we will continue to watch closely.
While we continue to navigate this pandemic related uncertainties and 2021 as Susan will lay out in detail, we expect 'twenty to 'twenty 2 to be and more normal year.
The health care system has been open for several.
And from the months and we have seen vaccination rates and that seniors reached approximately 80% nationally.
Accordingly, our members continue to engage and more routine interactions with their providers, which we anticipate will result in more normalized Medicare advantage revenue next share as providers are.
Several of them ensure that our members are receiving appropriate care and that their conditions are being fully documented.
I would reiterate our remarks from the last quarter regarding our Medicare advantage bids for 2020, 2 which reflected the continued uncertainty associated with COVID-19.
And our premium and claims assumption with a focus on maintaining benefits stability in 2020.3.
While it is still too early to provide 2022 guidance, we believe our operating discipline and in 2020, 1 combined with the depth of our planning for 2020.2 Medicare.
And we're able to manage AEP puts us and a strong position for financial growth in 2020.2.
I will now turn to and operational and strategic update and.
Importantly, our underlying core businesses continued to deliver strong results and solid fundamentals with individuals.
The care of their advantage membership growth outpacing the industry.
As we highlighted at our recent Investor day. This growth is balanced across various product lines, including HMO and PPO and dual special needs plans or D. Snips.
Our Medicaid business continues to.
Medicare well in 2020, 1 and our South Carolina plant is now operational.
We are diligently preparing for the Ohio contract and go live date, and early 2020, 2 and are continuing to improve our operating model building off of our core Medicare advantage capabilities.
And also experienced slightly better than expected results and our home and provider businesses and increased mail order rates and our pharmacy business.
Finally, as announced last quarter, we entered into an agreement to acquire the remaining 60% interest and kindred at home and we expect the transaction to close.
Mid August which we've included in our revised estimates for the year.
Our strong operating performance this year as and part attributed to our strong partnerships with providers, who are delivering high quality care to our members. We are currently seeing 87% of our provider partners and value.
And based arrangements and surplus.
Further our relentless focus on consumer Centricity has led to an all time high net promoter scores for a retail organization contributing to Medicare advantage membership growth and resulted in an external recognition of humana as an industry leader.
Customer satisfaction and.
Including the announcement this morning that we received the highest ranking and mail order pharmacy customer satisfaction for the fourth year in a row and the J D power 2021 U S pharmacy study.
And the public policy front as Paula.
Peter and bakers explored changes to Medicare, including adding dental vision and hearing as part of the Medicare benefit we stand ready to both innovate for the more than $12 million of our members who already have these benefits, including 7 million and dental and vision policies.
And met it and our and made great.
As well as offer ideas of public private collaboration and to leverage our deep capabilities and Medicare and specialty markets. So that beneficiaries could quickly see benefits go from a proposed law to a tangible benefit.
Before.
Before turning the call over to our new Chief Financial Officer, Susan Diamond.
Like to take a moment to speak about Susan's experience at Humana over the last 15 years. She has served in various leadership roles across the company during their tenures spending 8 years as part of the Medicare and leadership team.
Serious financial and operational and line of business responsibilities. She also spent 2 years on the finance team, leading enterprise planning and forecasting and overseeing and the company's line of business Cfos and controllers. Most recently she led our home business.
And with growing it to the largest offering of its kind and.
Her strong financial background and extensive knowledge of our business made her uniquely position to step into the CFO role.
The board and I have great confidence and our abilities and the contribution show make and the next chapter for Humana and.
We execute on our strategic plan and deliver shareholder value.
In addition, given the strategic nature of the CFO role and Susan will continue to contribute and a meaningful way to our home health business with that I'll turn the call over to Susan.
Thank you Bree and good morning, everyone.
Today, we reported adjusted EPS of $6 and 89 for the second quarter in line with our previous expectations are.
Our underlying core business fundamentals remained strong and we experienced a positive start to the year across our segments with the first quarter coming in modestly ahead of our previous expectations.
Patients.
Our results moderated back to expected levels, and the second quarter, albeit with variation and the way specific underlying assumptions and merged with Covid treatment cost coming in lower than expected offset by non inpatient utilization continuing to bounce back faster than originally anticipated.
And I will describe in further detail in a moment uncertainty remains for the balance of the year due to the pandemic specifically as it respects COVID-19 hospitalization and the rate at which non COVID-19 cost normalized inclusive of both volume and unit cost.
Recognizing the majority.
This call will focus on our emerging experience and our 2021 guidance I want to quickly touch on operating performance across our segments before diving into that detail.
Our Medicare advantage growth remains on track and consistent with our previous expectations with individual MAA growing solidly above.
We are today day, and unexpected 11, 4% at the midpoint.
Our Medicaid business results are exceeding our initial expectations given membership increases largely attributable to the extension of the public health emergency as well as higher than expected favorable prior period development.
And our.
The more specialty segment consistent with our commentary on our last earnings call and medical membership declines are lower than we expected coming into the year.
Our specialty business results are exceeding expectations and utilization, particularly for dental services has been slower to bounce back than initially expected.
Finally within our health care services operations Pharmacy continues to see increased mail order penetration and the resolve customer experience improvements and additional marketing initiatives.
The home business Center.
And <unk> senior primary care and can Veeva are performing slightly ahead of expectations.
Group and and we remain on track to open 20, new clinics this year with Welsh Carson.
In addition, as Bruce indicated in his remarks, we now expect the kindred at home acquisition to close in mid August subject to customary state and federal regulatory approvals.
Before I go into more detail on.
'twenty, 1 guide I want to reiterate that the uncertainty, we're seeing and 2021 relates solely to the difficulty estimating the impact of the pandemic and is not expected to carry forward into 2022 and we remain.
Comfortable with how we approach 2022 pricing, which I will expand on later in my remarks.
2000, and turning to full year 2021 guidance I would remind you our adjusted EPS guidance represents growth at or above the top end of our long term target of 11% to 15%.
Our philosophy regarding 2021 guidance has been to provide transparency and to the uncertainty caused by Covid.
<unk> 19, and the ability to deliver our targeted earnings growth with solid underlying core business performance and largely offsetting COVID-19 related headwinds and tailwind we have been consistent and and remain committed to this philosophy.
And there was a reasonable path to achieving adjusted EPS within our.
Guidance range and accordingly today, we are maintaining our full year adjusted EPS guidance of $21.25 to.
And to $21.75.
Acknowledging the continued uncertainty as it respects COVID-19 hospitalization trends as well as the pace at which non Covid cost downs.
Initial and at what level they ultimately normalize. Additionally.
Additionally, we expect our third quarter adjusted EPS to reflect day low twenties percentage of our full year adjusted EPS.
As Bruce indicated given our experience to date together with our current estimates for the back half of 2021.
Back we have effectively recognized a $600 million COVID-19 related headwind from Medicare advantage, and our full year guidance offset by favorable operating items.
These favorable items include among others higher than initially expected prior period development.
And the previously discussed better than expected spur.
And Medicaid results and the expected contribution from kindred at home given the transaction is expected to close in the coming weeks.
Now, let me provide and update on the underlying changes since our initial detailed guide and February articulate key assumptions regarding utilization and the back half of 'twenty 'twenty 1.
And expand on the continued pandemic related uncertainties I described.
I will begin with Medicare advantage revenue and.
As discussed last quarter, given our significant exposure to Medicare advantage, we are disproportionately affected by COVID-19 impact on Medicare risk adjustment or MRA Ricky.
Recall our risk.
Risk adjusted revenue for 2020..1 is this are determined by 2020 data service medical utilization and resulting documentation, which as previously discussed was materially depressed in 2020.
As we have indicated since the beginning of the year. The MRA headwind, we are facing in 2020.
And it's significant and we have closely monitored it over the course of the year.
Our April guide recognized we had $300 million of additional pressure from MRA relative to our initial expectations for the full year, which was offset by the net benefit of the extension of sequester relief.
In July.
And 1 we received the midyear MRA payment and it came in modestly lower than expected.
We are however, taking operational steps now to be able to recover some of the MRI revenue and a final payment for 2021.
Accordingly, our M. A premium estimates net of capitation remained largely in line.
And with our initial expectations when factoring in the net sequestration benefit.
Now turning to benefit expense.
At the beginning of the year, we indicated that we expected non COVID-19 cost for our Medicare business to run 3.6 to $5, 5% below baseline.
We define.
Find baseline is 2019 experience trended Ford based on a normalized trend factor, excluding the effects of Covid.
And the first quarter, we acknowledged that non inpatient cost we're bouncing back faster than initially expected. However that was offset by Covid utilization day.
Celebrating faster than expected. We also recognize however visibility into non inpatient claims with significantly less than inpatient and therefore, we acknowledged that there was more uncertainty around non inpatient service categories in terms of exactly where we stood how.
However at that time.
<unk>, we can still tolerate overall utilization returning to baseline late in the year, if the non inpatient and acceleration we were seeing was due to pent up demand and leveled off and the second and third quarters.
And the first and second quarters, non Covid cost ran approximately 7% and 3% below baseline.
With respect and way with the bounce back outpacing expectations and the second quarter.
Non inpatient utilization did not level off and instead and continue to increase and the second quarter and was offset by lower than expected COVID-19 cost and other business outperformance.
As the health care system has been open for several.
Several months and a high rate of the senior population had been vaccinated. Our current guidance now assumes that non COVID-19 cost level off and run approximately 2.5% below baseline levels and the back half of the year.
Consistent with our original forecast our current guidance assumes minimal COVID-19 testing.
Volume and cost and the back half of the year.
That said, we do acknowledge that we are seeing increases and COVID-19 admissions and recent weeks, although it's too early to determine if there will be offsetting declines and non COVID-19 utilization and we will continue to monitor this recent development.
Finally, as it respects our 2000.
And treatment guide for our commercial business, we expect all and utilization for Covid and non COVID-19 to continue to run above baseline as anticipated.
In summary, I want to emphasize that 2021 is a COVID-19 transition year, there is a reasonable path to deliver against our guidance expectations.
However, if non COVID-19 with utilization or COVID-19 treatment cost increase beyond our expectations and the back half of the year. It will present, a headwind to our guide absent offsetting tailwind.
I also want to reiterate that the $21.50 midpoint of our original guide continues to be the right jumping.
And being off point for 2020, 2 adjusted EPS growth.
Our members continue to engage and routine interactions with their providers, which we anticipate will result, and more normalized Medicare advantage revenue next year as providers are able to ensure that our members are receiving appropriate care and other conditions are fully documented.
And the first half of 2021 provider interactions and documentation of clinical diagnoses that will impact 2020.2 revenue outpaced those experienced in the first half of 2020 and are approximately 80% complete in line with the estimated completion rate for the same time period in 2019.
Lastly, I would remind you that our Medicare advantage bids for 2020.2 reflected the continued uncertainty associated with COVID-19, as it relates to our premiums and baseline non COVID-19 claims trend assumptions with a focus on maintaining benefit stability into 2020.3.
Before we open up the line.
And for questions and I'm excited to announce 2 finance leadership changes that will promote the growth and versatility of our finance leadership team first with the expected integration of kindred at home our home business is growing significantly and Amy has accepted the role of Vice President and CFO of home solutions.
She will be a key member of the home solutions leadership team responsible for the financial oversight and planning and forecasting for the segment.
Lisa Stoner will succeed Amy accepting the role of Vice President Investor Relations. Lisa has worked with Amy over the last 4 years and is well known and respected by our investors were.
And about the opportunity this affords both Amy and Lisa and leases continuity and Investor Relations will allow for a seamless transition.
With that we will open up the lines for your questions and fairness to those waiting in the queue. We ask that you limit yourself to 1 question operator, please introduce the first caller.
Yes.
Thank you and your first question is from the line of Justin Lake from Wolfe Research. Your line is now open.
Thanks, Good morning.
Obviously, a lot to cover I'll try to keep it for 1 question here, but I'm, hoping you could give us a few numbers 1 is the MRI.
Excite you can you tell us what the full year.
As of the negative MRI and I think theres a lot of confusion around 2 things 1 it is.
It sounds like the first half or the second quarter I should say was worse than expected.
And yet and still kind of came in line from an MLR perspective.
Youre, telling us the back half.
Cost is needs to be more optimistic.
So what happened and the second quarter beyond that allowed you to make the MLR, but still have higher medical costs and EBITDA, and then I guess and it'd be around that.
The 600 million specifically.
Can you flush that out and as.
Can you tell US you can because is that comparable to the old Covid estimate.
Or is that a new COVID-19 headwind that you've kind of thrown in there for the back half of the year for us to think about it.
Sure. So I'll take these 1 at a time.
I'll start with your last question around the $600 million. So just to clarify the 600 million represents.
Presents our full year estimate of the Medicare advantage, only net headwinds and tailwind related to the Covid pandemic and if you recall back to our initial guidance earlier. This year, we provided a schedule that laid out the specific line items that were considered in that and a range of estimates at the time, so this and $600 million.
And our current view and what is contemplated in our guide related to those items on a net basis. So the net of all the various headwinds and tailwind based on our current expectations.
As it respects the first half and second half as we described and the call. What we continue to see throughout the first half of the year was COVID-19.
Covid cost coming down faster than initially expected, but non COVID-19 outpatient and particular rebounding faster than expected and that continued through the second quarter as it was and we anticipate that that will extend some into the third quarter before it levels off and the first half of the year. The benefits we saw from Covid related.
Represent cost as well as some lower inpatient non COVID-19 inpatient cost we do not expect to continue at the same rate because our expectation is all I had always been that those cost on the COVID-19 side would come down as a result of the rollout of vaccinations and net utilization would rebound to more normal levels such that there is less positive upside that can offset.
Weighted those cost in the second half of the year, which is why we are now estimating a net 2.5% decline and non COVID-19 utilization and the back half of the year to meet our guide.
As it respects MRA I think we provided the net detail in terms of what our current estimates relate art I know, we've provided the line item and the.
The initial guide in terms of the beginning of the year and what we're saying is on a net basis net of capitation theres about a $300 million additional headwind and in the context of the overall guide that is largely offset or fully offset by the net impact of the positive sequestration and benefit.
Okay, and then Jim.
Quick follow up on the.
Offset that Vermillion and that was all really helpful. The $600 million can you just tell us what that compares to specifically because you have like a $400 million to $700 million Covid number.
Thrown into the original schedule is that the comparable now and then have you said that thats all eaten away and the first day after the year, so effectively that updated.
And 600 as comparable to before the 7 and it's completely gone effectively. So you don't have any known and Thats assumed in the back half.
Yes, and just the way the later Mr. Smith.
And for your estimates and inclusive of first half and back half.
And I also want to clarify it is not meant to be specific to the line item, that's labeled COVID-19 testing and treatment.
<unk> on that initial schedule that was 1 line items when we refer to this 600 million is the net impact of all of the line items that were represented on the schedule and the other thing I would add as well in terms of your question about how did you offset that and there was a lower COVID-19 and and other inpatient cost, but also recall, we had other business outperformance that.
And we mentioned and that the discussion around the prior period development commercial and Medicaid that also offset some of that headwind we experienced in the first half of the year as well.
Alright. Thank you. The next question please.
Your next question is from the line of Kevin Fischbeck.
From Bank of America. Your line is now open.
Great. Thanks.
Wanted to I guess follow up on the assumption for trend and the back half of the year and I guess you are saying.
<unk> utilization.
2.5% below I guess, if you could maybe provide a little more color on that.
Do you get there or something.
Things above average something's below average and if I understood. What you were saying I think you said that when you include Covid cost total trend and above that we just want to make sure I.
Heard that but just color on and how you get to the -2 and a half.
And the back half of the year and why.
There isn't more of an assumption of.
Quote unquote core back to normal by the end of the year.
Sure So just to from Ireland or detail so as we mentioned.
Second quarter ran about 3% below baseline for that non COVID-19 utilization, our third and fourth quarter third and fourth quarter now on average are estimated to run 2.5% below baseline.
And recall that that's inclusive of both utilization as well as unit cost. So as I mentioned, we do expect given that the country has been largely open our population and largely vaccinated that we will see those non term and utilization start to normalize and so we've allowed for some additional return to baseline relative to what we've experienced and the second.
Sir.
I would also say that and we see that utilization come back. We also see that the average cost per hospitalization will come down because of lower severity and cases are reintroduced and so the combination of leveling off and the utilization and continued reductions and the unit cost contribute to that 2.5% below baseline.
Kurt I think you suggested net overall utilization might be above baseline I think you might be referring to my comments about commercial where we had planned to see in total COVID-19 non term and to run slightly above baseline as we were beginning to see that at the end of 2020, but for our Medicare business, because we're including limited.
Funding cost and our forecast and the back half of the year, it's not contributing significantly so that would not take it over baseline.
Okay, and when you say below baseline inpatient and outpatient physician drug and get those 4 categories are they all kind of there or some above some below.
So we are seeing variation and some of the service categories as you can imagine.
And Covid.
1 of the reasons, we believe that some of the pent up demand has been worked through the system and as things like surgical procedures colonoscopy and things like that we did for a period of time.
Go slightly above baseline, but other traditional normal course, edr and observations and other activities continue below baseline.
Jim. Thank you next question please.
Your next question is from the line of Matthew Borsch from BMO capital markets. Your line is now open.
And.
Yes. Thank you I'll, maybe I could just continue on this theme Mike.
I understand with the medical team.
Fly.
Your line through the end of the year do you do you think that.
What is sort of thought of as deferred care or health care that didn't happen, but what has happened.
I guess really over the last 5 quarters.
And is a lot of that just not going to.
And that isn't something that is going to flow through as pent up demand.
Hi.
Sort of embedded in there is is that assumption.
And that and seniors I guess, so going to <unk>.
You'll still have some avoidance of the health care system, even in the back half of this year just trying to just.
EBIT standby.
Yes, I would say that our view would be that given the pace at which the non inpatient utilization and particular bounce back which was faster than we anticipated that we are seeing and a lot of that youll see they are re engaging with their physicians and specialists more to normal right and so I think we do believe that some of the pent up demand.
And as a result, and the deferred care in 2020 has been reflected and our first half of the year results and that again because of the length of time and the country has largely been open that that pent up demand is worked through and therefore, while we will.
And we're expecting a little bit more return to baseline relative to our second quarter performance that that will stabilize.
Through the back half of the year.
Okay. Thank you.
Okay. Thank you next question please.
Your next question is from the line of a J Rice from credit Suisse. Your line is now open.
Hi, everybody just to put a fine point on that.
Some.
And discussion and then 2 other data points.
The 2.5% for the back half I think and the beginning guidance you said that the other utilization for the full year would be 3.6% to 5.5% deferred.
Relative to baseline.
If you got it and updated number how much are you at.
Some of it.
Lower and of that are you EBIT.
The overall range and you think about that original number and then I would also ask you about the operating expense obviously, you've updated that is that mainly related to kindred are you expecting more investments.
And the back.
And other areas and then if I could squeeze and 1 more.
And your comment about the offset of sequestration versus the MRA headwinds. This year does that in your mind reverse next year. So if we lose sequestration U.
The MLR a catch up by having.
Yes.
Coated all other people from last year and this year offsets is that the way to think about it.
Sure. So I think there's 1 other time to the first to your question based on our experience.
First half of the year and our 2.5% expectation and the back half of the year. If you do all that math and.
Net for the full year, our non Covid and utilization will end up at about 375% below baseline so effectively at the low end of the range, we and giving you at the start and a year.
On Opex as you said Youre exactly right.
And from the change in the guide and increase that is directly attributable to incorporating the.
Jim performance into our guidance and.
And so that is largely the reason for that increase we do however, I would day in terms of our core business and even within Kinder and anticipate some investment and like you would and normal course kindred as you can imagine by integrating it and there are some investments we might want to make their and their respective valuation operating model that we've described.
And you have an investor day, and so that is contemplated in there as well.
On your second question on sequestration, we do expect that to reverse in 2022 and that would have been contemplated in our bids and pricing and our MRA assumptions as we think about 2022 would not be impacted by that explicitly they are independently.
<unk> and what we believe the Rev and risk adjustment will be based on the diagnosis admissions that we would expect any more normal environment.
Okay.
Next question please.
Your next question is from the line of Ricky Goldwasser from Morgan Stanley Your line.
<unk>.
Good morning, So 1 clarification utilization and then and then another question. So just to clarify so is it is basically what you're saying is that the 2 and 5% baseline.
Really encompasses the fact that care is happening outside the 4 walls of the hospital I think you mentioned.
Lower ER visits.
Also mentioning that you don't expect 2022 risk adjusters to be impacted by this lower utilization. So is it just youre seeing a shift and where care is being provided.
Telehealth and primary care and Thats whats impacting.
And the below baseline and that's a dollar number and then my second question. If you can give us just some color and context around the announcement that we saw last week on the investment that you're making with anthem on and to a new P. P. M.
Okay. So to your first question on the 2 and 5%.
And so again that that is related to non term and utilization and all inclusive of inpatient and non inpatient and again, both rate and volume and so I wouldn't say that we're necessarily seeing shifts in the site of service or the site of care, but rather just.
And as utilization returns to normal there is some level.
And what utilization that Hasnt, just haven't come back on an absolute basis, but really we are seeing with the exception of some of those specific service categories I mentioned like surgical and other categories are largely still running below baseline across the board.
As far as MRI impact as we said what we are seeing in terms of and normal.
Interactions with our providers are in home assessment activity and other annual wellness programs and those are all trending exactly as we would expect to see in order to deliver against our 2020.2 revenue estimates contemplated and pricing and so we feel really good about our trajectory there should we see.
Yes.
Elevation and the back half of the year given the way you know risk adjustment works generally speaking we feel good that so long as there's not sort of a full shut down like we saw in 2020, which is not what we anticipate currently.
We feel confident that we should be on pace to deliver against what we need for MRA again based on what we're currently seeing and and ovaries.
<unk> and do you like to address the anthem share partnership.
Similar to what we've done in the past and other.
More utility oriented areas I think avail, and it would be an example of that where we've tried to find partners within the industry that can help builder and <unk>.
Longer term utility and we look at the.
That particular partnership with anthem as the opportunities are to uptake and really give them more both increased productivity and at the same time increase the experience for members and the area of the Pbms side.
For a number of years of and using.
And see us.
Bruce with vendor to help.
And the with the existing technology, but now I've been able to take it and really and the handset through this partnership with anthem and assessment and say.
Thank you next question please.
Your next question is from.
Steven Baxter from Wells Fargo. Your line is now open.
Hi.
And I was hoping that you could talk and a little bit greater detail about why the risk adjusted revenue ended up coming in below where you expected it for this year.
And I guess, you had a lot of visibility and to certain inputs and not others yet to the extent you could flesh those out I.
The lines and give us a better sense of sales.
Comfortable we can be around next year's assumptions. Thank you.
Sure so as it respects the $300 million that we referenced that was contemplated in our April guide. So just for context and that our January payment and 2021 would reflect claims that were submitted through the September submission.
I think it would help mine and and that requires us to estimate and submissions that will come in organically as well as a result of our activities around short review and.
And prospective programs for the remainder of the year.
And that time, we were not anticipating and a significant surge that we saw across the country and the fourth quarter.
Mission to Covid, and the resulting reduction and non COVID-19 utilization what that led to was lower what we refer to as organic diagnosis submission. So those are not related to the campaigns that we initiate but rather organic submissions across the provider community based on the utilization and that's happening and those ultimately proved.
Due to me and lower than we had anticipated and generally speaking I think we've mentioned before that those organics emissions are and more difficult to estimate obviously than the initiatives that we are executing.
That was reflected in our April guide at the time in terms of the midyear adjustment as we've said on previous calls.
The adjusted.
Adjustment there was solely related to new members or members, who were only enrolled for a personal year and 2020, where we don't have full visibility to their claims and so while we made an estimate of what we thought the impact would be based on what we were seeing within our concurrent population. Ultimately is that mean your payment came in and it reflected a lower.
And level of contribution for those new members and our estimates had originally anticipated.
I would say that going into 2022, because those impacts were directly related to the COVID-19 pandemic and impact to utilization I would not expect to see that continued and.
Uncertainty carry into 2022 based on what we're seeing so far this year.
Thank you next question.
Your next question is from the line of Josh Raskin from me from a research. Your line is now open.
Good morning, So I understand we're coming out of the second quarter with non COVID-19 utilization running 3% below baseline, but how do you.
See that continuing to run 2.5% baseline for the second half of the year. If you're also assuming that you are not going to see any COVID-19 direct COVID-19 cost for testing and treatment.
Think of those as related and then would arise indirect COVID-19 cost. So if we did see this.
You increase that you guys mentioned that Youre seeing and last couple of weeks. If that did continue with that ended up being a net negative now because you've got all the direct cost, but you already assuming lower utilization.
Sure. So I would say that our view of non Covid is not influenced by what the recent activity and uptick we've seen and COVID-19.
Case and that is not why we're assuming that it runs below baseline. Our view is again just based on the trajectory we've seen that given the level of utilization increase we've seen that we were at a point, where it will begin to plateau and level off and sort of just a new baseline for the back half of the year and.
And it respects COVID-19 as we mentioned.
Got it.
And is very early in terms of the increase we've seen is literally just and the last couple of weeks. It is still a bit too early to determine whether or not we will see offsetting non COVID-19 utilization impacts like we have seen and all previous searches and I will say just this last week, we just began to see some level of reduction in inpatient and non.
And from an inpatient and.
The Covid cases increase it's simply just too early to really assess the duration that we might see in terms of an uptick and the offsetting utilization, but should we see offsetting utilization and the non COVID-19 space and order for that not to present, a headwind it would be incremental to the 2.5% that we're currently forecasting.
Yeah.
Got it thanks.
Next question please.
Your next question is from the line of Lance Wilkes from Bernstein. Your line is now open.
Yes.
My primary question is on the price.
And environment.
Called out a little bit of pricing environment and.
Pink and group and they could you talk a little bit about the pricing environments and bags and magnitude and 'twenty 1 outlook for 'twenty, 2 and and then in general for pricing, both individual and group.
How does this work towards your return to kind of target margins.
And then on the on the utilization the 1 extra thing I'd just ask on that 2.5% below baseline and just if youre getting any indications on impacts of Delta variant on.
Utilization and any of your owned clinics.
Sure.
<unk> and detainees and thank you.
And the risk based pricing you asked and assume at the group and May and I think as we said before the group and a space and particularly for larger group accounts continues to be highly competitive and we would expect that to continue and to the margins that we would see on those accounts to continue to be competitive and pressure.
Sure I think though and we think about group M&A. There are a lot of other benefits to winning those large accounts in terms of the impact they can have and a local geography on the network and our ability and work with provider partnerships et cetera, and let me.
We expect that to be continue to be competitive on the individual side.
It is always a process we go through every.
Year to understand sort of the rate environment.
And the competitive environment other business performance, we always strive to maintain benefits to annuity knowing how important that is to our members as well as our our sales and distribution channel. So that's always our goal and Theres always a number of puts and takes that we will.
Consider including the broader enterprise performance as it respects first and foremost delivering against our overall growth target of 11% to 15% and after considering sort of strategic investments other business performance and then understanding what's required of our Medicare business and what we're trying to achieve balancing both growth.
And margin and the long term all of those are taken into accounts.
We remain committed to achieving long term in our targeted individual margin of 4 and after a 5% and that will vary each year based on those things and I mentioned, but what are you significantly and continue to progress towards that goal.
On utilization I would say.
And really it's too early I think for us to really see anything specific at the clinic level and that information is not as real time available to us and our health plan information and so to date I have not seen anything that would provide us any visibility I will say you know there are some concentrations geographically as you've seen.
And probably in the press you know, Florida, the state and is being higher rates given we have a concentration of some of our clinics, there and I imagine that they would see some but we actually don't have detailed information on that just yet.
Okay great.
Next question please.
Your next question is from the line.
And of Ralph Giacobbe from CV flow lines Milwaukee.
Thanks, Good morning.
I guess going back to the 2.5% if your assumption is about 2.5% below baseline I think your original guidance was to run above baseline towards the end of the year, So why wouldn't that represent upside.
Side, or where is the offset there and.
And then can you give us how much COVID-19 cost.
<unk> seen sort of through the first half against that 600 million full year estimate thanks.
Okay.
Okay is it restricted to you and 5% as you mentioned and I think and.
Earlier calls during the first quarter, we did mentioned and our original forecast did contemplate over the course of and the second half of the year and we may begin to approach.
And potentially for a short period of time.
See above baseline utilization related to pent up demand do we just projected net that occurred later in the year.
Our view is.
Is that given the rate of which we have seen it bounce back more quickly that we have seen that and the first half of the year instead and so at the time and I think we've given specifics on sort of the monthly trajectory, but in general our original forecast going into the year did anticipate a slower return to baseline and could tolerate it getting to baseline by the end.
But as I described and my remarks, because we saw the faster bounce back and non inpatient.
And in the first half that was again largely offset by the reductions and Covid and inpatient those trends will not continue at the same level and therefore, we will need to see below baseline utilization on them and.
And of the average side and order achieve that full year estimate of 375% and then could you repeat your second question I'm, sorry about the Covid cost yes.
Yeah, just just trying to get a sense of what it ran and the first half of the year relative to the updated sort of $600 million are you fully through the 600 million at this point is that what you were trying to imply and Theres nothing.
Baked into the back half just trying to get a sense of magnitude there.
No. So again that $600 million into full year estimate it does just to be clear and include and the assumption that the non COVID-19 utilization will runs you and 5% and the back half and a year. So that's contemplated in that but I don't think we had intended to provide any quarterly detail.
And how that's emerging but that is a full year number it would not represent just the first half of the year.
And just too.
Highlight on the $600 million.
That is if you were to go into the first quarter.
During our earnings release.
Release for the fourth quarter, we've put together some.
Lows and highs and for all the way from MRA Covid testing.
Depressed utilization and <unk>.
And since sequestration.
And what the 600 is as if you were to take that and roll that forward now all the ins and outs from that would be the net number the 600.
And <unk>.
The operational aspects of our business as Susan has talked about is offset all of that $600 million, but included in that $600 million net number is an assumption that 2.5% below baseline will be remaining for the for the remainder.
And part of the year.
Okay. Thank you.
Next question please.
Your next question is from the line of Scott Fidel from Stephens. Your line is now open.
Uh huh.
Hi.
Thanks.
Bruce I think you just clarified part of the question.
And then I was going to have which is just confirming that the net headwind and tailwind that had been zero in that <unk> 25, that's now 600 million right and.
And then also just on the MRA piece in that same slide deck, you had called that out at $700 million from $1 billion.
Expected headwind I guess, given the update that you guys have given us around the 300 million incrementally and passed a couple months ago, and then how things came out and the mid year.
Claims review just interested if you have an updated estimate you know that we can compare now against that 700 million to 1 billion number.
And that's sort of I guess, just putting this all together.
Just how that sort of nets out to for 'twenty 'twenty 1.
Putting all the pieces together, what that sort of implies and what youre assuming for your MA pre tax margins. So we can think about sort of the earnings run rate now relative to the long term target margin. Thanks.
So what I would say and we never ended.
And the schedule that we gave you.
<unk> provided a range of $792 million and I think at the time, we ever said exactly where we were in that range in terms of our internal estimates and what we just wanted to clarify was that we had seen $300 million of net pressure incremental to that.
Which is.
Again in terms of the schedule offset then by the sequestration.
And then can you repeat your second question I'm, sorry, I think it was a 'twenty 1 'twenty 1 will be just 1 other question on time.
So is it basically is just try and take all of these different pieces together and what they net out to what sort of the underlying pre tax.
And.
Margin assumption is for 2021, and so we can think about that relative to the long term targets. Yes. So what I would say is as you see and our guidance points or any other target.
Our range and.
It Hasnt really changed because of the offsets and and nature of those assets. They look you know there are many within the retail segment and Medicare in particular, so I would say in.
So there was not material movement and the individual MA margin because the headwind net headwind is largely offset by other positivity and as we mentioned you know the positive prior period development as an example, as well as the sequestration would be attributable to the retail segment.
Okay next question please.
General and our next question is from the line of George Hill from Deutsche Bank. Your line is now open.
Good morning, guys and thanks for taking my question and I'm going to try this.
But in 2 very quick ones, I guess, Bruce and I think about the.
And the JV investment with anthem, that's much more of and infrastructure and back end and investment as opposed.
More of a <unk> JV, if I understand that right and then just kind of net net of everything am I hearing things right that the $21.25 to 21.75 is the right jumping off point as we think about 'twenty fiscal 'twenty 2 EPS include.
Inclusive of all the moving pieces basically that theyre offsetting.
Yes to answer.
And your first question, you're exactly right it is and infrastructure, our investment and again and so utility for the industry and.
And actually we would enjoy and others to join that joint venture over a period of time.
And regards to your second question and you're exactly right. The midpoint is 21.50 and that is what we would.
Wouldn't base R 22 growth.
Okay. Thank you.
Next question please.
And last question is I'm sorry. Your next question is from the lineup.
We believe from Jefferies. Your line is now open.
Thanks for taking my question.
Touched on this a little bit, but I wanted to try to bring a finer point to it the 2.5% baseline and the second half would you expect that.
Notwithstanding timeframe, but would you expect that to return to baseline or are you seeing some permanent shifts like ER utilization.
<unk> and that would that would cause you to stay below baseline beyond 2021, and then what are you seeing in terms of of member acuity as the bounce back utilization has come or are you seeing higher acuity as patients represent for services. Thanks.
Great question.
And so as you said Jim.
And then present represents an average for the back half of the year I think it remains to be seen.
And at what rate and ultimately settles and that it could come in more depressed and the third quarter and then get closer to baseline. There's obviously a range of scenarios that could emerge some of which could be that by the end of the year. It gets closer to baseline so.
I think that and so we get to the plateau, and and and seed and sustain I think it'll be hard to assess the long term and that the long term new normal or not and we will continue to watch that.
And our acuity I would say so far we are not seeing indicators and then there is a higher acuity and that we're in it.
And there has been impact from the deferred care and 2020, we are continuing.
And watch it but so far we have not seen any sort of systemic indicators of that and in fact some of the things that we were able to initiate along with our provider partners to ensure our members receive maybe needed preventative care through telemedicine and we're quite helpful. During the pandemic and 1 data point as an example was that we saw.
Higher medication adherence through the pandemic and we actually did pre pandemic. So a nice indication that members and we're receiving the needed preventative care receiving their medications and hopefully staying on top of their condition, but so far we are watching it but we're not seeing any indications of higher acuity.
Good thank you.
Okay.
Next question next question I'm Sorry. Your next question is from the lineup.
GAAP Grau from Cleveland Research. Your line is now open.
Hi, Good morning, Thank you wanted to revisit the operating cost.
<unk> and how should we think about that for future years.
And our full year cost of kindred.
And also any potential synergies that could offset that and the 2022 and beyond thanks.
Sure and I said, Kurt your guidance revision was a direct and is directly attributable to incorporate and kindred in the guide did he went out and we're going to need to do some work post closing and integration.
I'm, sorry to revisit our forward probably more in 2020 to you what our guidance point looked like and whether they need to change obviously within kindred day of direct cost of care. Those are all of their costs are included in that Opex ratio.
It's not showing up anywhere else and the guide so that's something we will look at and so we'll need to see whether there's.
And I think we should break out separately and specific to the kindred business.
As it respects synergies you know that the kindred transaction was not really you know it's a traditional synergy play and we obviously don't have a home health business to integrate into the operations will be largely stand alone. We are certainly looking at opportunities to see where we can create from synergies based.
And even though these we have and they have but I would not expect those to be significant the real value is going to be on the new products and models that we intend to introduce particularly the value based model. We shared during investor day that will be the source of value creation as a result of that transaction and just re emphasize we don't see.
And they came that our operating cost going up as a result of a transaction outside of some investments, we're making and the short term as a result of the integration we continue to maintain a long term orientation to <unk>.
And you're into 2 and increase our productivity and you've seen that over the last number of years and that has not changed.
And the investors shouldn't and walk away from that this is an increase in cost for continuous kicked out and the discipline I think what you do see is just sort of them, taking 1 organization and that has a different margin of different operating.
<unk> structure and.
And bringing it into our operating structure and as we bring the 2 together well.
And by that same emphasis of contingent and improve productivity on the organization.
And I think that was our last question. So Bruce if you have any closing comments, yes, and we really appreciate everyone's support we recognize that this quarter as a result of the transition year of Covid is a difficult 1.
Are you know very.
And is it continuing to have the transparency between what is COVID-19 and what's operationally and I Hope you guys can discern.
Discern between those 2 as Jim as we continue to.
And have further questions on the operational performance and that would be.
Me and said I do want to leave the investors with.
And we're sending that we continue to believe that the organization and operational performance and 21 has been very strong as a result of what you see and just some of the offsets operational offsets of some other headwinds from Covid and then secondarily as we used to say 'twenty 'twenty..2 we did take a very conservative view into price.
And our planning for both AEP and and as.
And we start to enter the AEP.
Susan and I think you guys will see that.
Thoughtfulness.
And reflects some of the uncertainties that maybe continue into 2020.2 so as always we appreciate your support and we also appreciate.
Rice and teammates continue to drive to.
Both improve our operating performance and serve our customers and the best we can and thank you.
And with that this concludes today's conference call. Thank you for attending you may now disconnect.
Great.
[music].
Jim.
[music].
Yes.
Okay.