Q2 2021 Centene Corp Earnings Call
Good day and welcome to the Centene Corporation second quarter 2021.
[music] conference call.
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Now I'd like to turn the conference over to Michael <unk>, Chairman CEO and President. Please go ahead, Sir John you know Michael.
This is jen.
Thank you Rocco and good morning, everyone. Thank you for joining us on our second quarter 'twenty 'twenty 1 earnings results conference call.
Michael Neindorf, Chairman, President and Chief Executive Officer, and drew Asher Executive Vice President and Chief Financial Officer of Centene will host this morning's call, which also can be accessed through our website at Centene Dot com.
Any remarks that Centene may make about future expectations plans.
Lance 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.
Centene is the most recent form 10-Q filed today and the form 10-K dated February 22nd 2021 and other public SEC filings, including the risks and uncertainties described with respect to the potential impacts of COVID-19 on our business and results of operation.
Centene anticipates that subsequent events and developments may cause its estimates to change while the company may elect to update these forward looking statements at some point in the future, we specifically disclaim any obligation to do so.
The call will also refer to certain non-GAAP measures a reconciliation of these measures with the most directly.
Terrible GAAP measures can be found in our second quarter 2021 press release, which is available on the company's website under the investors section.
Additionally, please mark your calendars for our third quarter earnings conference call to be held on Tuesday October 26th.
With that I would like to turn the call.
Compared to our chairman President and CEO, Michael Neindorf. Thank you Jennifer.
Good morning, and thank you for joining Centene second quarter earnings call.
You've heard me say, we make decisions based on the facts as they are today.
And today with the continued.
All over in a highly virulent delta swing of COVID-19, I must open our call with similar comments to those made this time last year.
The environment has changed again and just the last week or so and the Delta variant is causing a new wave of pandemic.
It's a pandemic of the non vaccinated.
According to a leading epidemiologist our team has been working with for the past 18 plus months.
The Delta Varian has 1200.60 times greater concentration in respiratory material than the original.
Very good.
In individuals infected with adult this thing can spread the virus to an average of 5 to 8 individuals up from an average of 2.4 individuals from the original straight.
83 per cent of the Covid cases today in the U.
U S or delta up from 10% just a month ago.
[noise] hospitalizations per.
<unk> 57 per cent and the last month.
The deaths have increased by 19% in the last week alone.
And importantly, 90.
<unk> 97 per cent of people currently hospitalized with COVID-19 and vaccinated.
And 95.5.99.5 per cent of the Covid related deaths among the unvaccinated.
Our additional concern because of the high concentration and respiratory drive.
This variance seems to be trends miserable.
<unk> physical among children and is more dangerous than the original virus.
It is clear that 1 of the issues. We must address is vaccine hesitancy to stop the transmission of this virus and to protect.
Those who cannot safely received inoculation, including our young children.
The burn is real and we're taking it very seriously.
You've seen us execute strongly throughout the pandemic and that will not change.
Especially as it remains clear that the pandemic.
<unk> is not over and the environment could remain choppy for the balance of the year.
Turning to our second quarter performance results met our expectations and were consistent with the update we provided in mid June.
We generated we generated revenue.
A $31 billion, an increase of 12 per cent compared to the year ago quarter.
Adjusted diluted earnings per share was a dollar and 25 cents versus $2.40 last year.
As a reminder, last year's utilization rate in the second quarter.
Were significantly lower as a result of the pandemic.
We ended the quarter with membership of $25.4 million and several tailwind we have previously discussed remain in place.
These include the suspension of Redetermination, which we expect will continue into.
'twenty 'twenty 2.
We are aware of recessions extending beyond that into 'twenty 'twenty 3.
We continue to participate in an active RFP pipeline.
Additionally, we were pleased that the Missouri Supreme Court unanimously upheld the will of the people.
And that Medicaid will be expanded in Missouri.
We have been preparing for expansion per months in a fully prepared to bring health care access to hundreds of thousands of citizens here in our home state of Missouri.
Additionally, yesterday, North Carolina announced the winners of the.
Health Plan Awards, we were pleased that our provider led entity Carolina complete health with the North Carolina Medical Society was just silly.
<unk> to work with 2 of the <unk> and our health plan won't here in North Carolina was selected to work with 3 of.
Tyler and Medicare we delivered another quarter of healthy growth with membership growing approximately 25 per cent since the beginning of the year. In addition preparations are well underway for open enrollment beginning this fall.
And marketplace, we added a net 110000 lives since.
At the beginning of the year, while typically we would have lost members during the spirit. This represents 6% growth.
To this point Medicaid and Medicare are performing very well and are continuing to normalize in line with our expectations, we talked last month about the dynamic.
Nymex in the marketplace. This is where we are witnessing continually COVID-19 related costs and increased non COVID-19 utilization.
Which we believe is still largely driven by some pent up demand.
Drew will provide additional details on non COVID-19 utilization.
Although this is impacting our margins in the short term we continue to view this environment as transitory driven by the various dynamics of the pandemic importantly, where possible. These trends have been factored into our pricing and strategy for 2022.
Overall, we remain confident in the long term opportunity of our marketplace business. We expect to continue to offer a competitive product and they'll be in a strong position as the leading provider and as you look at the healthy growth across our portfolio. The day you can see we have the size scale and strength.
Strength to continue to execute on our objectives.
With the first half of the year behind US we are maintaining our full year 2021. Adjusted EPS. This reflects the underlying strength of our business and our demonstrated ability to manage through a dynamic environment. We will continue to provide you.
Its parent updates as the second half of the year unfolds.
We remain focused on our business and we continue to make progress against our margin expansion goals. We outlined last month, while we are at the beginning of this process I'm encouraged to see strong alignment.
Transfer of enterprise and initial transit.
Traction choices schools is true will discuss.
We are also making progress on our Magellan acquisition and remain on track to close on the deal in the second half of 2020, 1 having received Justice Department approval.
A quick approval and all but 1 state.
Before I hand, the call over to true to discuss our results in more detail I'd like to reiterate a few points that I touched on today.
First the Delta with the COVID-19, pandemic is creating a new set of dynamics, particularly.
And I put the unvaccinated, we're taking this very seriously and watching the short term impact on our business.
As a health care company, our absolute priority is to ensure our members employees and communities are healthy and we are making every effort to.
Our members and workforce with opportunities to receive the COVID-19 vaccines.
We have made outreach phone calls to nearly 9 and a half million members to support them in accessing the vaccine.
Created P. S A's that will air on 160 T V.
Across the country and directly participated in over 80 vaccination events.
In addition, our teams have formed innovative partnerships with organizations, including NASCAR. The pro football Hall of Fame, Walmart lift and the White house to increase awareness and accessibility.
The vaccine.
We also continue to evaluate when we can safely return to in person work and are ensuring that our office returned to work timeline gives employees sufficient time to receive the COVID-19 vaccine.
To make you aware that there's still may not be enough and if we do not effectively manage the strain. The next 1 could be even worse.
And there may need it may be a need for vaccination requirement implementation by government and industry.
Okay.
As we have done.
1 of the past year and a half we will continue to manage through the dynamic landscape excuse me and will provide you with transparent updates based on the information as we see and know it.
Our size and scale enable us to navigate an evolving environment as we pursue growth and most.
Importantly margin expansion.
Together with our margin expansion goals, our capital allocation priorities discussed at all.
Our June Investor then remain in place.
Thank you for your continued interest and support of Centene and I will now hand, the call over to drew.
Done.
Thank you Michael.
This morning, we reported second quarter 2021 results of $31 billion in revenue an increase of 12% compared to the second quarter of 2020, and adjusted diluted earnings per share of $1.25.
Before I get into the Q2 earnings drivers and insight.
Let's start with revenue.
Total revenue grew by $3.3 billion compared to the second quarter 2020.
Due to Medicaid membership growth, resulting from the ongoing suspension of eligibility re determinations strong membership growth in the Medicare business and our late 2020 acquisition.
Panther.
Total membership increased to $25.4 million up 3% compared to a year ago.
While I will touch on all of our major business lines. The primary topic to cover for the quarter and the full year outlook is the marketplace business.
Recall, we gave.
Update at our June Investor Day regarding a few of the negative drivers in April and May for this line of business.
Our Q2 consolidated H B R was 88, 3%, which was higher than our expectation driven by the marketplace business.
We provide an update on the 3 marketplace.
This pressure points recovered at Investor day.
1.
As a reminder, we incurred a $175 million or 22 cent headwind compared to our prior expectations in the second quarter related to the 2020 and risk adjustment here.
For the <unk> 'twenty 'twenty 1 risk.
Adjustments here, we received wakely data in June and it was largely consistent with our expectations are shifting from being in a large payable position for 'twenty 'twenty, 2 a slight receivable position for 2020.1.
Number 2 COVID-19 costs, we previously provided inside that.
Covid costs were falling from Q1, they were still higher on an absolute basis from what we had forecasted in April and Matt.
We saw the Covid costs continued to decline in June consistent with our expectation, but we will be watching net watching external trends closely as COVID-19 costs could reverse.
Pat walkers and increase based upon macro COVID-19 trends as Michael indicated.
Number 3 pent up demand.
As previously disclosed March and April marketplace results were impacted by a broad return to the doctor's office and the outpatient setting.
After which we saw a slight utilization downtick and Matt.
We had expected a continued downdraft in June and the remainder of the year instead June marketplace medical costs trended higher compared to Matt.
We now expect pent up demand or subside at a slower rate.
<unk> Corp half of 2021.
The activity is in the area of outpatient services for continuing members as well as members who are new to us in 2021 with a higher cost per claim due to mix of services as these member cohorts access health care.
And though our SCP.
And the bearers only represent 20% of our membership we are also seeing higher and non COVID-19 related inpatient utilization for this cohort who now has access to health care due to the expanded S. U P rules.
We expect these recently added S. U P members to returned to expected levels of utilization.
<unk> after initially accessing services.
Our team has isolated the heavier utilizing cohorts through a real time data and is taking action where possible, including a slate of clinical initiatives designed to improve quality and curb trend. However, we do expect a higher H B R.
In marketplace to drive the consolidated 2021, H B R. As we will cover in a minute since some of the deferred demand. We will just have to work its way through the system during 2021.
The remainder of our business as a whole performed consistent with our expectations in Q2.
And.
In Medicaid, we're seeing strong performance in a steady march towards normalized utilization with this benefit largely offset by state rate actions and risk corridors.
In Q1, we disclosed $550 million of such actions for 2021. This annual view increased in Q2.
$2 million to $675 million.
In Medicare advantage, we continue to grow during the year and we see a similar trend towards normal utilization, we have grown membership organically, 25% since 12.31 2020.
Moving to other P&L and balance sheet items.
Our adjusted SG&A expense ratio was 7.7% in the second quarter compared to 8.5% last year and 8.1% in the first quarter of 2021.
The adjusted SG&A expense ratio benefited from lower short term variable variable compensation costs.
And.
Items bridging of expenses over higher revenues due to increased Medicaid membership and recent acquisitions.
This was partially offset by increased sales and marketing cost as a result of the marketplace S E P.
And growth in Medicare.
Let me go deeper into the first item since it's important for you to understand.
11 drivers.
Think of the H BR pressure caused by our marketplace business and our short term variable compensation is somewhat offsetting toggles Youll also see this in our full year guidance elements.
If the deferred demand bubble in marketplace causes us to land toward the high.
Standard of our consolidated H B, our guidance range, we would be toward the low end of our SG&A range because of a reduction in our short term incentive plan for 2021.
Think of this as a potential 35 basis points swing in those metrics.
On the other hand, if pent up demand and high new member utilization settled.
<unk> quickly and we come in towards the bottom of our H B R. A range, we would incur typical short term incentives, which would have a corresponding effect of putting us towards the top of our SG&A range and the outcome could be in between those bookend scenarios.
While we recognize the current challenges and marketplace we are.
Implemented a slate of mitigating initiatives, including operational clinical and available pricing actions.
Current performance does not change our perspective, as we look out to our long term margin goals.
Continuing on highlights of the quarter cash.
Cash flow provided by operations was.
Was $1.7 billion in the second quarter, primarily driven by net earnings before the legal settlement reserve, which is expected to be paid in future periods.
We continue to maintain a strong liquidity position of $1.1 billion of unregulated cash on our balance sheet at quarter end.
Approximately 700.
Under a million of that was deployed on July 1st as we completed the acquisition of the remainder of circle health.
Recall, we acquired 40% of circle in 2019, and 2020 with the intention to subsequently acquire the remaining portion.
Circle is a very well positioned and leaning ambulatory surgery center business.
U K and it comes with a strong management team.
We expect circle to be above our company targeted adjusted net income margin by 2023.
Debt at quarter end was $16.8 billion, our debt to cap ratio was 38, 9%, excluding our non recourse debt.
This and our medical claims liability totaled $12.8 billion at quarter end and represents 48 days in claims payable compared to 49 in Q1 D. C. P was mechanically impacted by the timing of state directed payments.
We updated a few of the 'twenty 'twenty 1 guidance elements based upon what we've seen through the.
Quarter and for the items, we just discussed.
While we are maintaining the same wide adjusted EPS range of $505 to $5.35, you will notice some changes in the underlying metrics, including.
Higher revenue from continued growth in Medicare and marketplace delayed state <unk>.
The second carve outs higher state pass throughs of approximately $1 billion and the continued suspension of Redetermination.
A higher H b our range as we just discussed solely due to our marketplace business.
A lower SG&A range due to the potential reduction of the short term incentive plan.
Pharmacy, depending on how marketplace pent up demand plays out but in addition, we're also getting some leverage on the higher revenue base.
Overall this continues to be a relatively wide range as we referenced at Investor day, given the choppiness in our marketplace product, we still have 6 months of the year to play out, especially.
Plans are with varying scenarios around the subsidence of pent up demand and the unknowns with Covid.
The guidance continues to exclude Magellan it excludes our recent Magellan financing and circle health.
We are determined to execute on our multi year value creation plan laid.
Especially since Investor day, and achieve our long term adjusted net income margin target of at least 3.3%.
We have launched a formal program internally and content encompassing all aspects of the organization marching in unison towards pulling the necessary levers to achieve the value creation plan.
We have developed some of these muscles over the past couple of years, such as the Centene forward program for discrete initiatives, our HB, our office for clinical quality and cost initiatives and the integration skills from past large acquisitions.
As I said in Investor Day, this journey won't be a straight.
Out of the room and the fruits of our labor are expected to show up more so in 2023 and 2024, then in 2022, but we know how to do this and we are committed on taking the actions to deliver value creation to shareholders.
What matters most is pulling the levers in the next 12 to 18 months.
<unk> bear fruit in 2023, and 2024, our balance sheet remains strong and we expect it to strengthen even further as we improve margins and generate cash flow.
Thank you for your interest operator, you May now open the line for questions.
Thank you we will now begin the question and answer session.
So if you'd like to ask a question. Please press Star then 1 of your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then 2.
First question comes from Justin Lake Wolfe Research. Please go ahead.
Thanks, Good morning, appreciate all the detail.
I wanted to.
Wanted to touch on 2.2 questions..1 drew at the Investor Day, you talked about EPS, probably seem to indicate you expected EPS would be closer to the low end of the range.
Can you.
From.
But net 5 oclock.
135 can you can you reconfirm, whether that's the kind of the expectation of the second quarter and then could you talk to where the exchange margin profitability I remember you take it down to the target there, but where's the profitability coming out this year and do you expect to get back to normalized profitability next year. Thanks.
Yeah. Thanks, Justin.
So.
At Investor Day, you are right, we revised our long term pre tax margin to 5 to 7.5% for the marketplace business and that is unchanged, even with a little bit of choppiness in the near term.
Can't give you an exact date when we're going to get there.
And stay there but.
But we're below that now obviously with the pressure that we outlined in Q2 and some of the pent up demand.
And then with respect to the guidance range I would say my comments are the same.
From Investor Day, we kept the range wide for a reason.
And there is clearly.
And to get into that guidance range.
So we maintain that despite some of the pressure that we outlined for Q2.
And I might just add that's net.
My focus upfront as we're going through what could be another real surge in a pandemic.
And so to try and call it low.
Recognizing that which way to go.
Will have an impact and we'll see how it plays out but it's something we have to be very cognizant of.
Understood. Thanks.
Okay.
And our next question.
Most of it comes from Josh Raskin.
Upon research. Please go ahead.
Thanks, Good morning, So I know we spoke a little about this at the Investor day, but what gives you the confidence that these hix costs or just pent up demand issues right than not.
Not new members coming through the C P or even old members that are using higher levels of services now that they.
The benefits and maybe you could help us what types of services, we're running above expectations types of procedures etcetera, and then lastly, I think last quarter you talked about this before the investor you talked about.
This could potentially positively impact the risk adjustments, so I wonder if there's any offset there.
I'll ask drew to Florida and.
I understand that you might add to it.
Let's start with risk adjustment.
Like I said in the prepared remarks, the wakely data that's a third party actuarial firm that aggregates for most carriers data came in that's day date of service through April that was consistent with our expectations.
And that largely represents Josh the members that rolled into this year and in incurred claims.
Claims during the first 4 months, so that's consistent with our expectations.
On the pent up demand.
Certainly it's the nature of the services the outpatient nature.
You've seen orthopedics joined degeneration.
And.
Unfortunately, some psychiatry and chemical dependency drivers in marketplace and really the outpatient pressure coming into a little bit in March and then April and May and then popped in June.
The SCP members I think I mentioned this in my script as well.
Sure.
We're seeing them access inpatient services and then quickly.
Quickly a wall. It's early quickly returning to a more normalized utilization it's.
It's early so we're tracking that and we're sort of managing this and those 4 cohorts.
Gotcha.
You know drew if these members.
He came from other plans or if these were coming from different segments, Medicaid or uninsured et cetera, and I'm. Just curious if that was you know per.
Previously insured versus previously uninsured or acting differently.
Josh This is Brent Layton and the new members that we're seeing are the vast majority have been uninsured.
There's been very few quote switchers. So this has been uninsured and I'll Echo what drew said because that is what we're seeing in the separation and.
And really at the utilization that he talked about.
Okay.
Yeah.
Okay.
Thank you. Our next question today comes from.
Kevin Fischbeck with Bank of America. Please go ahead.
Okay, great. Thanks, maybe just to follow up on this concept of pent up demand I mean, it's interesting because in general it seems like the commercial utilization was less impacted during COVID-19 and the other cohorts are you at all worried that.
It'll be a similar yet potentially delayed type of pent up demand in Medicaid and Medicare.
Over the next 12 to 18 months and if so I guess, how are you treating that from a pricing perspective.
Thank God true referred to as low as well.
Where possible we build it in the pricing, but particularly in Medicaid we have a.
Younger population there, it's mostly children and to day, they were not as affected low to wait and see what this new COVID-19 does the delta, but they have not been affected so we don't see a lot of pent up demand there Medicare once again, they've been a little more sensitive to getting to their position.
You know the health factories, so we don't see as much pent up demand there as we have in the mid day in the marketplace, which had new members in it.
Okay, and I guess as far as the medical day as you mentioned that the 675 of rate cuts is that something that's temporary does that does that reverse next year.
So we've been taking measures and you can get to normalized margins, even with this new lower rate outlook right.
Well I think Oh.
It's true said, we we anticipate.
Returning to a normalized rate structure.
Okay.
I just want to add.
Zero.
Has a.
An overlay of what happens with this new.
Delta, which is so much more contagious.
And vaccinated population, particularly so I mean, that's why I put the emphasis upfront this could go.
This could change how the whole dynamics of it.
We saw a year ago, so well.
We're going to continue to watch and monitor manage soon as we have historically.
Yeah.
Alright, Thanks Mhm.
Thank you.
And the next question today comes from a J Rice of credit Suisse. Please go ahead.
Thanks, Hi, everybody.
I guess 2 things.
1 I think in the prepared remarks, you mentioned that theres a possibility that redetermination.
Uh huh.
Holiday it extended into 2022 I know at the Investor Day, you gave a guidance range for on revenues for 2020.
Your current expectations would have with the delay in re determinations materially.
Impact net revenue outlook, if indeed that happened and then the other thing I was going to just ask about is is you're talking about this variation.
And because of the Delta are varied.
On your risk.
2 words on the Medicaid side are you well into those now so that if there's a little variation in utilization, it's not going to really matter, because you're sort of already at a point, where you're giving back to the state or are those risk corridors.
Not really likely to provide much protection in the back half of the year.
I think there's.
First let me let me do it.
The Redetermination, we just gave you some insight as to what some discussions that are taking place and I think the time to talk about the revenue and how it may or may not be impacted will be the.
At the end of the year, when we see where they are.
And I'm just trying to give people an insight that these are things that.
It could be a tailwind, but we have to wait and see.
On the.
Risk adjusted some of them are starting to drop off in a true can probably give you more detail on that.
Sure a J yeah, you're right in some.
Here, we are into the risk corridors, even the standard ones or the minimum MBR depending.
Depending on state by state, which Youre right, then would give us a cover for increased costs, but not not not everywhere, it's sort of a mixed bag across our portfolio.
Okay. Thanks.
Yeah.
Thank you. Our next question today comes from Matt Borsch with BMO capital markets. Please go ahead.
Yes, if I could just ask a question.
On the marketplace.
Dynamic so if you look at the medical costs.
Alright, and forgive me if you mentioned it.
If you could give us a breakdown of how much is.
Covid direct COVID-19 care and how much he is alright.
Everything else and maybe how that compares this quarter to what you saw previously.
Yeah.
I'll I'll take that 1 Michael.
So COVID-19 the COVID-19 cost going back to April and May we had we had budgeted and we had forecast some but it was on an absolute basis higher and then with a revised view coming out of Investor day.
The June number continue to fall on an absolute basis and it was sort of right on our forecast show Covid really wasn't.
While that that pushed us.
Based on our Investor day discussion, there's really no major change in our view on that obviously the elephant in the room is what happens.
Going forward with the Delta strain as Michael covered.
That's a much smaller component relative to sort of non COVID-19.
Utilization, whether it's the outpatient utilization.
On the majority of our block or the inpatient utilization on sort of a 20%.
F C P membership.
For now because we thought that that pent up demand really I mean, it could be about COVID-19 guess, depending on how things develop but for now it's not pent up demand correct correct.
And I think I would add 1 thing I think you heard us talk about the cost per click.
<unk> suddenly.
Of that pent up demand is where individuals.
Delayed services, we see that in cancer treatment and diagnosis.
So there's a little higher acuity, but once again these are transitory things and that's something that we see is.
Fundamental and somebody will continue.
Claim for Covid.
Really spikes again and people end up not go into the hospital and doctors as we historically sort of true.
They do the unknowns out there and some of the classroom.
More cautious approach, we're taking until it becomes clearer.
Great. Thank you.
Yeah.
And our next question today comes from Ricky Goldwasser with Morgan Stanley. Please go ahead.
Yeah, Hi, good morning.
With Delta impacting D day, non vaccinated population do you have a sense of what percent of your membership are vaccinated.
Well, it's a I wanted to say.
And that's S. I saw was somewhere around 50%.
Okay. So when we should think about kind of state.
Thank you have 2 per cent of the membership and then as we think about not only remember let me back up a lot of them are children, who are non eligible be vaccinated.
See the Medicaid.
<unk> is women and children.
So I need to clarify that.
So should we think about the 50% is 50 per cent of eligible population and then you'll have the the children.
That's total including the true okay great.
And then I guess, when we think about about sort of the delta Varian from what you've experienced.
Save a lot and you're seeing them any sense of how to compare the hospitalization rates versus what we've seen earlier in COVID-19 and really as we think about kind of like your H B our assumption.
Are you assuming debt members might refrain from going back to core utilization.
Because of that Delta risk, but then the expenses that are related to COVID-19 are lower than what we've seen at the beginning of this year or end of 2020, just trying to understand the dynamic I think I know what I think.
The answer is it's not clear and that's what we're trying to say that those things will continue to monitor it we've damaged.
We can manage true COVID-19 type day issues. So we have that positive feeling in terms of our ability to deal with it but we wanted we want to invest.
Investors should understand that is out there it's not business as usual as everybody had hoped.
We wish everybody was vaccinated.
And we now see that even those who are not as forceful and incursion or now moving to it.
And so I think what all we want people to understand is COVID-19 is not over.
And I think for US I think it's just business as usual I'm here.
It'd be a mistake now.
I'm, not saying, it's going to nestle.
Necessarily impact to the point that our guidance changes, but we just maintained it as I said in my prepared remarks, while we monitor it and keep you informed how it unfolds and the impact it has on our mattresses for everybody I mean, it's just Uh huh.
How how we return to work, we see them, we reinstated mass Ah things of that nature. So.
It's a it's a variable.
Thank you thank.
Thank you.
And our next question today comes from Ethan Bachelor of Wells Fargo. Please go ahead.
Hey, good.
Morning, Thanks for the question.
Just wanted to ask another on exchanges I'm, just hoping you could help a little bit with quantification as we can you kind of think about what that means for your pricing next year I guess, how much higher was core medical costs relative to baseline in Q2 like how does that compare for the special enrollment population and I guess then what is.
Does that mean for the the non S U P membership.
True sure.
As I said at Investor Day, you might recall that with what we saw through April and May we were able to reflect that in pricing. So literally they're you know during those months came.
Made some adjustments to pricing, meaning pushed pricing to reflect what we thought would continue into 2022 recall, we expect a lot of this to sort of settle out during 2021, its just during which month in 2021 is the question.
With what we saw in June.
We did have about half of our market place our bids in pricing open for various reasons and we could make judgments on what we wanted to change if anything and the other half, though are sort of submitted and baked.
Anything that you.
And I'm, just sort of on a relative basis like what Q2 was versus what you might have price for per.
Sent hires at 3% higher or anything or anything like that.
Yes, I mean, given the competitive nature of the marketplace and the fact that none of that is public I think we will we'll keep our pricing decisions close to the vest.
Got it okay. Thanks.
And our next question today comes from Lance Wilkes with Bernstein. Please go ahead.
Yeah, just 2 more delta variance sort of questions persons on.
Redetermination suspension, and just kind of give some color into that.
Can add ons that could cause delay or push out that of the state or federal level and then the second 1 is just any further color on July <unk>.
Utilization in an outpatient and inpatient if you're seeing anything that's reflective of people slowing down to use as a result of a mass mandates or or.
Delta.
Gonna be careful on that when I'm talking about July it's still early.
While we have good data in that way, we don't get ahead of ourselves on that 1 right now as it relates to the.
The Delta in your concern there.
It's real.
Matt can we don't know to what extent people are going to use the.
Good senses and do what they can to protect against it.
And so we have to kind of that's why we that's why we're calling it out to say it's a variable.
And it's a less predictable.
Particularly when you look.
At the intensity of it and it's so much stronger than the original and you're on a day.
And the bad part is it we're trying to tell everybody to listen that if we don't deal with this effectively and get vaccinated in the things that prevent it.
The next 1 is even worse epidemiologist, who told us.
So this is something that continues to progress and it's not just for Centene population. It's it's.
Everyone in total so.
That's that's why we're calling it out we want to want to keep in front of people. So that everybody is aware that we're dealing with it.
We're doing a P S. As we're doing everything we can and get people vaccinated.
Phone calls the ruble the roto calls and everything else. So it's a it's not where you stand, but where are you moving in and we're working hard to be preemptive finish.
And then on the Redetermination is that just a extension of public health emergency that would be yes.
Yeah.
So I was trying to write that that's what will determine where we are with the COVID-19.
Right now it would just be an extension of.
Oh, but.
Thank you. Our next question today comes from Scott.
Got it all with Stephens. Please go ahead.
Hi, I'm not that good.
Good morning, everyone.
First question just wanted to go back to Hex again, and just on the 'twenty 'twenty 2 pricing strategy had couple of interesting dynamics in the <unk> market because it looks like utilization is certainly.
Hot in the market, but there's also some competitors out there, including some of these newer public companies that that are pricing very aggressively and don't seem to have the same type of margin targets at some of the more established companies traditionally have had in the market. So you know what.
Interested if youre going to approach 2022 pricing.
Ken you know really sort of based on actual expected cost trends.
If you're willing to sacrifice membership if necessary to do that with the risk adjustment do you feel that that would be able to protect you against you know potential adverse selection that credit card you know traditionally when we think about our company pricing conservative.
Wow, there's a pricing aggressively there are some concerns around adverse selection just interested if you're comfortable that low risk adjustment could that could help offset that.
That type of traditional rescue Oh, I'll take that 1 I think 1 I'm not going into a great deal of detail on 2022, because that's when we say that for this.
I think what we're true tried to cover was that we did take into consideration the extent, we could and as we always do it positively.
Positive we've took some steps I will say the same thing that I said last year and it proved to be an appropriate way to do it and we're not gonna joining races to the bottom.
Cause you if you're losing I remember you don't make it up on volume and so we're very sensitive to that particular approach and we do believe that the risk adjusted that's what it's there for it.
So somebody somebody rushes in and they get adversely selected against because of it.
Then that that will provide protection for those.
But has a higher acuity patients so.
Oh I think so.
That's about as much as we can say about it for now, but we're going to continue to stay the course, which we think we've demonstrated.
Is the as they see appropriate close.
Yeah.
Okay.
And they just had a follow up Bob I was just interested if you had had any updates just on the Ohio situation and on the.
The contract renewal just stopped post the P. P M. A legal settlement with the state Yeah. We continue to be very optimistic I don't expect a resolution.
And they vary.
Very near future that they wanted some additional data, which we've had on consulting to provide them.
And then analyzing that and.
As we said with the settlement and then no harm in all court cases, we moved everything there's no reason for them not to.
Reinstituted.
We did come in number 2 and so.
I am I'm very optimistic.
And our next question today comes from Mike Michelle with Evercore ISI. Please go ahead.
Thanks, So CMS recently proposed a monthly special enrollment period on exchanges, but just.
For people below 150 per cent of the poverty level I'm, just wondering if you're expecting any meaningful impact on your exchange business. Since you do focus on lower income and then both of them like an enrollment and revenue perspective, and also any potential adverse selection problems for margin.
But Kevin sure Yeah.
Thanks for the question first of all as you know the debt is a proposed policy change as you underscored and were in the common period right now.
So I think it's it may be just a bit premature to say that this is gonna be policy.
We do have some concerns about this with respect to potential.
Adverse selection, particularly since there are some states where the a P. T C. It's not going to fully cover the cost of the premium and in that instance, there was that that risk of of with adverse selection.
We think there are ways to ameliorate that.
And pricing and so on.
As drew has acknowledged and so we'll see.
CMS ends up rolling.
Yes.
I think that would be particularly.
Adverse selection and for those that have the.
The very low prices pushing too.
Gain membership and pricing.
That's true.
How are you.
So there's a lot of question comes from George Hill of Deutsche Bank. Please go ahead.
Hey, good morning, guys and thanks for taking the questions I guess, Michael just as you look forward to the closing of the Magellan transaction I guess can you talk about how youre thinking about the P. B M business in the pharmacy business, both as it relates to the the government businesses that you serve now and the opportunity.
Turning to maybe interest some of the some of the non government businesses.
Yes, you know I'll ask Sarah to respond that she's close to it and working through it.
Yeah. Thanks for the question.
When making really good progress on our integration planning and as we said at Investor Day, we're focused on the restructuring.
Sharing of our involved pharmacy business are to focus on member services and clinical operations and relying on an external D. B M and so the goal is to position that Magellan.
Excuse me as we've said before within health care enterprises, where it will remain independent and focused on its third party business, So and I think you.
Should expect an update from us once they get through that transaction on how were specifically thinking about the Magellan Rx business.
Maybe then as a quick follow up Tom I guess could you talk about how you feel about the segments competitiveness.
Ex the government business.
Alright.
Perfect.
My question, if you don't mind.
I said just like how do you guys feel like you'll be positioned competitively well once the transaction closes ex supporting the government business.
Well, we think that we think the Magellan P. B M business has a lot of opportunity for growth and we also think there is really interesting synergies relative.
Our existing specialty pharmacy assets with their portfolio and so that's been the major focus of our of the integration planning.
Okay. Thank you.
Ladies and gentlemen, listen Who's reported so I want to.
On the call Herzog, who was allowed to own for closing remarks.
Thank you all.
2 of them will continue to focus on our margin expansion and capital allocation as we've talked about while managing through a well it could be a difficult pandemic, but I would think we have what it takes to get through it. So we look forward to it and we maintain an optimistic attitude. So thank you very.
And.
This concludes today's conference call. We thank you all for attending today's presentation, you may notice much lines and have a wonderful day.