Q1 2022 Humana Inc Earnings Call
Good day, ladies and gentlemen, and thank you for spending by welcome to the Humana incorporated first quarter 2022 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone keypad.
As a reminder, this conference call is being recorded if you require any further assistance. Please press Star then zero at this time I would like to turn the conference over to MS. Lisa Stoner Vice President of Investor Relations Ma'am. Please begin.
Thank you and good morning in a moment, Bruce Broussard, Humana's, President and Chief Executive Officer, and Susan Diamond Chief Financial Officer will discuss our first quarter 2022 results and our updated financial outlook for 2022. Following these prepared remarks, we will open up the lines for a question and answer session with <unk>.
St. Joseph ensure our chief legal officer will also be joining Bruce and Susan for the Q&A session. We encourage the investing public and media to listen to both 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 Com later today.
Before we begin our discussion I need to advise call participants of our cautionary statement certain of the matters discussed in this conference call are forward looking and involve a number of risks and uncertainties actual results could differ materially investors are advised to read the detailed risk factors discussed in our latest Form 10-K , our other filings with us.
And Exchange Commission and our first quarter 2022 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 out in response to the COVID-19 pandemic are forward looking statements should therefore be considered in light of these additional uncertainties and risks along with.
Other risks discussed in our SEC filings, we undertake no obligation to publicly address or update any forward looking statements in 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.
Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release finally, any references to earnings per share or EPS made during this earnings call refer to diluted earnings per common share with that I'll turn the call over to Bruce Broussard.
Thank you Lisa and good morning, and thank you for joining us.
Today Humana reported financial results for the first quarter of 'twenty to 'twenty, two reflecting a solid start to the year.
I'll speak briefly about our first quarter results and outlook for the rest of the year before providing an update on our strategy and the steps we're taking to position Humana for continued long term success.
Adjusted earnings per share for the first quarter were $8.04, which was above our initial expectations. This outperformance was primarily driven by favorable pharmacy results combined with lower than planned administrative expenses some of which is due to timing.
All other lines of business are performing as expected or slightly positive further contributing to our strong quarter.
We raised our full year 2022 adjusted EPS guidance by 50.
To approximately $24 50.
Representing 19% growth over our 2021 results.
Importantly, our updated financial guidance continues to include an explicit $1 COVID-19 headwinds.
Our updated guide also includes the dilutive impact related to the pending divestiture of the company's 60% ownership of kindred at homes hospice and personal care Division.
Susan will provide additional detail on our first quarter performance and our full year outlook in a moment.
Turning to our previously announced 1 billion dollar value creation initiative.
You'll recall, we committed to delivering this value for the enterprise through cost productivity.
Productivity initiatives and value acceleration from our previous investments this will create capacity to fund growth and investment in our Medicare advantage business driving a more robust benefits and lower costs for our members, which we believe will lead to improved of membership growth.
In addition to and enables further investment in our health care service capabilities, including expansion of our value based home health model and transformation of the consumer experience in home delivery service model and Humana pharmacy.
I am pleased to report with the work completed to date, we remain confident in our ability to realize this value for investment in 2023.
As shared in February we are focused on four key areas that will drive the value creation strategic initiatives organizational efficiencies.
Third party spend and automation and digital advancement.
We indicated the value would be largely split evenly across the four categories.
Through work completed in recent months, we've established goals throughout the business within the four key areas. We now expect strategic initiatives to account for about a quarter of our goal.
By organizational efficiencies and third party spend well each got compromised.
A third.
The remaining 10% of value realized in 2023 will come from automation, which given the nature of the work will drive some incremental impact in 2024.
Susan will provide additional details on the progress made to date.
We are pleased with the quick pivot of our teams to support the value creation initiatives.
It is important to maintain our focus on one of humana's core Differentiators, our strong culture.
Currently we are seeing a slight decrease of engagement, but remain in the top 20% of the industry leaders.
Engagement scores are impacted in part by the internal uncertainty around our value creation initiative.
As well as the strong external market, Paul economic disruption and the inflationary environment.
Importantly, we are seeing strong engagement with our nursing population, which is currently at 89% and we are proud that 86% of our physicians with advocate for Humana as a great place to work.
While challenging choices remain to fully realize our goal I'm confident our team is equal to the task and understands the purposeful approach we are taking to make humana, even an even stronger company.
In addition to creating capacity to invest in our Medicare advantage product for 2023. We are also focused on working closely with our distribution partners to improve the retention of our members.
We continue to work with our call Center partners to more closely replicate the experience delivered by our employed agents through enhanced training.
We're also focused on service level agreements aimed at improving the quality of the sales experience and ultimately the customer satisfaction and retention.
As part of this work we have developed a new computer based training modules for our call center agents that focus on behaviors linked to customer complaints.
While still early we are pleased to see have seen a decrease in complaints to CMS year over year.
With respect to compensation for external brokers, we have introduced new compensation structure is designed to improve overall quality by more closely tying administrative service fees to specific quality assurance activities and service levels as well as addressing agent level compensation.
Promote individual quality performance.
Within our proprietary sales channel, we are looking at opportunities to advance our payer agnostic capabilities to improve our ability to support consumers who desire more choice.
In addition, we are making investments to better link digital first shoppers to our internal sales agents.
Digital shoppers are now able to not only complete an application online, but also request that one of our internal sales agents visit their home to discuss Medicare advantage plan options.
The digital shopper is also able to directly connect to one of our internal sales call center agents from Humana Dot com to assist them in their shopping experience.
Finally, we are working with brokers across our distribution channels.
Both internal and external to engage the customers and activities that are positively correlated to retention. This.
This includes onboarding activities designed to promote engagement prior to plant effective date as well as efforts to help members understand and fully utilize their plans benefits such as assisting in the activation of their healthy food card.
With respect to 2022 Medicare advantage membership trends.
Results of the open enrollment period trended slightly better than our initial expectations driven by higher sales and improved voluntary termination rates, both of which we view phase.
Favorably.
The outperformance was partially offset by higher deaths related to the pandemic and the first couple of months of the year.
Turning to our healthcare service businesses.
As you know, we introduced center well as the new brand to describe and connect our payer agnostic health care service offerings.
We have significantly expanded our healthcare service capabilities, including our senior focused primary care.
Pharmacy and home care offerings to better serve our medical members, while also increasing our total addressable market.
We've been developing our health care services capabilities in three phases.
The first is building the capabilities.
We're accomplishing this through a combination of organic build as we've done with our pharmacy business in Gore in organic growth as a result of our acquisition of kindred at home as well as through partnerships such as those we have would heal and dispatch.
Our site of care innovators in the home.
The second phase includes enhancements to align with value based principles to improve health outcomes as well as expanding the capabilities to achieve the desired scale.
Our primary care business is in this phase today as we are expanding our geographic presence through a mix of.
Building de Novo centers as well as tuck in acquisitions.
The third phase is integrating these capabilities in select local markets.
We believe the integration of center, well primary care home health and pharmacy in a local market will lead to improved health outcomes increased customer satisfaction and decrease in the total cost of care. While also building additional profit pools for the enterprise.
Recall that our health plan member who utilizes the full suite of our health care service assets can drive two to four times the direct margin contribution for the enterprise as compared to the health plan margin alone.
This is what we referred to as the flywheel effect.
Let me highlight some of the progress we've made moving our various capabilities through these three phases starting with home.
We started our journey with kindred at home in 2018, acquiring 40% minority interest with the belief that a key component of the next generation of integrated care delivery model was the ability to provide care to consumers in their home.
Meeting them, where they want to be in a preferred lower cost setting.
Also recognizing that the traditional volume based fee for service model limits innovation and home health.
We then completed the full acquisition of Kindred at home in August 2021, reflecting our continued commitment to investing in Homebase clinical solutions that drive improved patient outcomes increased satisfaction for patients and providers and value for our health plan partners.
We took another step on this journey last week with the announcement of the divestiture of our majority interest in kindred at homes hospice and personal care divisions to Clayton Dubilier and rice or C. D. R.
We explored a broad range of alternatives for the hospice and personal care businesses and believe this transaction allows us to accomplish our previously stated an intent of divesting majority ownership of these noncore businesses, while maintaining a strategic minority interest through our remaining stake.
With C D and ours established physician relationships value based care expertise and record of supporting providers to deliver high quality care for patients where certain these divisions are well positioned for success.
Under the joint ownership of Humana and see DNR.
Importantly, we are pleased that when viewing this transaction in conjunction with our purchase of the broader kindred at home platform, we have been able to achieve our objective of substantially increasing our footprint in home care by acquiring one of the leading home health platforms in the country and an attractive.
The valuation for our shareholders.
Our home capabilities were further expanded with the acquisition of one home last year.
One home's management service organization capabilities and experience, providing home health infusion and durable medical equipment services establishes the platform for our value based home care model.
We remain on track to begin the launch of the value based model in North Carolina and Virginia in June .
With the expansion and additional geographies planned for late this year and early 2023.
Beyond shifting to value integrating <unk> and infusion one home will also have the ability to help members navigate the broader care ecosystem.
For example, if a member lacks a primary care provider one home could connect the member with a high value local option, including Humana's primary care organization.
In addition, if a member would benefit from home delivery of chronic medications.
<unk> can help the members set up home delivery through our Humana pharmacy.
We believe these efforts can lead to both improved member experience and better health outcome, demonstrating the power of integrating our health service capabilities and our local market.
Turning to primary care, we are actively scaling our platform through a combination of de novo expansion and organic growth. We are the largest senior focused value based primary care provider in the nation with 214 centers today.
This includes 37 centers in the Welsh Carson joint venture, which began in 2020.
We expect to have approximately 250 centers by year end and intend to add 30 to 50 centers per year going forward.
As shared in February we are committed to funding the organic growth of our primary care organization in 2023 and beyond through a combination of on and off balance sheet financing.
Such that we expect no dilution to earnings growth from organic expansion.
As of March 31st the 'twenty 'twenty cohort of 20 centers opened within Welsh Carson joint venture had an average of 520 Medicare risk patients per center.
Approximately 60 patients per center higher than plan.
In addition, our cumulative EBITDA results were in line with the plan we.
We are pleased with the results to date, which have demonstrated the performance consisted consistent with the expected J curve.
We continue work to establish off balance sheet structure that will be leverage beginning in 2023, we are applying the proof points and learnings from our joint venture with Welsh Carson to optimize the go forward financing structure, considering enhancements such as limiting the financing to own.
The operating expenses.
We look forward to sharing additional details when finalized in the coming weeks.
Our pharmacy business is the most mature of our healthcare service businesses driving significant value to the enterprise with industry, leading mail order penetration, resulting in improved medication adherence and better health outcomes for our health plan members.
38% of our individual Medicare advantage members utilize our mail order services in the first quarter 100 basis points increase year over year.
This increase is due in part to the fact that Medicare advantage members retained in 2022 used Humana pharmacy home delivery services, nearly 9% more frequently than members who discern rolled.
This is another demonstration that members, who engage with our healthcare service businesses not only create incremental enterprise profit, but are more loyal to our health plans.
This result demonstrates the impact of investments, we're making transform the consumer experience in home delivery service model through improved e-commerce , and logistics capabilities and additional distribution sites, allowing us to deliver prescriptions to our members within one to two days.
As you know we committed to providing additional transparency into our healthcare service businesses in 2022, which began with the new disclosures we provided on the <unk>.
Home and primary care in our first quarter earnings release Susan.
Susan will also provide further 2022 performance details during her commentary.
In addition, we look forward to hosting a virtual investor update on September 15th 2022, where we will discuss the operational model and the long term growth and earnings potential for the primary care and home businesses. The.
The benefits of integrating our health care service capabilities in local markets and driving penetration by our health plan members as well.
A progress update on our $1 billion value creation initiative and current thoughts on improving our Medicare advantage membership growth for 2023.
And the long term outlook for the company considering future earnings growth opportunities balanced against the ongoing <unk> investments.
The investments necessary to advance our strategy.
In closing today I want to reiterate that we are pleased with our strong start to the year with all our business lines performing well and.
In addition, we remain confident in our ability to deliver on our $1 billion value creation plan.
This will allow us to create the needed capacity to fund growth and investments in our Medicare advantage business, which we believe will further drive significant improvement in our membership growth as well as further expansion of our health care service capabilities, while still delivering on our long term earnings growth target in 2020.
Great.
With that I'll turn the call over to Susan.
Thank you Bruce and good morning, everyone I will provide an update on our first quarter results, including a line of business performance details our outlook for the full year and progress made to date on our $1 billion value creation plan.
Finally, I will provide an update on capital deployment, including the plan to use of proceeds from the pending divestiture of our majority interest in kindred hospice and personal care businesses.
Today, we reported first quarter 2022, adjusted earnings per share of $8 <unk> driven.
Merely by lower than anticipated administrative costs, some of which is timing in nature and outperformance in our pharmacy business.
All other lines of business are performing as expected or slightly positive further contributing to our strong quarter.
Inpatient utilization was favorable across our Medicare and commercial businesses do you a faster decline in COVID-19 admissions and slower rebound and non COVID-19 admissions than we've seen during previous searches.
We will need to continue to monitor how utilization further rebounds in the coming weeks.
Typically we would not raise guidance at this stage. It is too early to fully evaluate results and medical cost trends in particular however.
However, given the main drivers of our first quarter outperformance, we are raising our full year guidance by 50.
To approximately $24.50.
Representing nearly 19% growth over our actual 2021 results.
Importantly, this revised guide continues to anticipate $1 of conservatism to cover our net COVID-19 headwind should it emerge and also anticipate the estimated impact to earnings of divesting, 60% of our interest in the kindred hospice and personal care businesses later this year.
With respect to quarterly earnings seasonality at this time, we expect the percentage of second quarter earnings to be in the low thirties, we want to reiterate however that investors should continue to focus on the full year estimates as quarterly development will continue to be impacted by ongoing COVID-19 related timing dynamics.
With that I will now provide additional details on our first quarter performance by segment, beginning with our retail segment.
As Bruce discussed results of our open enrollment period trended slightly better than previous estimates. If these trends continue for the remainder of the year, we expect our individual Medicare advantage growth to be slightly above the midpoint of our current guidance range of 150000 to 200000 members.
Revenue for the quarter was in line with expectations with individual Medicare advantage Pnp ends up 8% year over year, we continue to expect our P. M. P M yield to be in the high single digit range for the full year.
Turning to claims trend total medical costs, and our Medicare advantage business remain largely in line with expectations in the first quarter.
We experienced lower than anticipated inpatient utilization offset by higher inpatient unit costs and lower than projected favorable prior period development.
As it respects prior period development, we saw inpatient unit cost for the fourth quarter of 2021 restate higher than anticipated.
Claims received the average cost of non Covid hospitalizations restated higher and hospitalization occurring in December 2021, restated as a COVID-19 admission, whereas the initial authorization request reflected a non COVID-19 and meeting condition.
Call that we incur an additional 20% payment on any Medicare admission with a COVID-19 diagnosis under the public health emergency even when it is not the reason for the admission.
These incidental COVID-19 admissions represented 10% to 15% of total COVID-19 admissions during the Delta wave increasing to 25% to 30% with the omicron wave, resulting in a meaningful increase in average unit costs.
We will need to continue to monitor inpatient unit cost trends and COVID-19 positivity rate throughout the year.
With respect to current year utilization Covid admissions peaked in January at 65 admissions per thousand and then began reducing more quickly than we've seen historically ending the quarter at approximately $2 five admissions per thousand the lowest level. We've seen since June of 2021, just before the rise of the Delta there.
Non COVID-19 admissions did not rebound as quickly as COVID-19 declined resulting in net inpatient utilization favorability for the first quarter.
Though it continues to rebound towards expected levels.
We consider the higher fourth quarter 2021, inpatient unit costs in our first quarter estimates, resulting in overall inpatient costs running generally consistent with expectations.
As previously shared we have limited visibility into non inpatient trends until claims they received and so as is customary our first quarter results assume non inpatient utilization is in line with previous expectations.
All in we are pleased with the early performance of our Medicare advantage business and continue to expect a 50 basis point improvement in our individual MA pre tax margin in 2022.
However, as previously shared much remains to be learned about the long term impacts of COVID-19 , including the impact of higher mortality on the morbidity of our Medicare members.
Providing COVID-19 levels remain low we will have an opportunity to further evaluate baseline trends relative to our estimates.
Moving to PDP membership trends are tracking favorable due to higher sales and the Walmart value plan and lower voluntary terminations in the Premier plan. As a result, we have updated our full year guidance to down 100000 members versus our previous projection of down 125000 members.
In addition, we continue to expect approximately 80000 PDP members to move to a humana Medicare advantage products. This year.
Our Medicaid business performed well in the first quarter experiencing lower than expected COVID-19 costs. The Medicaid team is actively preparing for the Ohio contract implementation, which we expect to occur later this year.
We updated our full year Medicaid membership guidance from a range of down 50 to 100000 to a range of down 25000 to 50000 to reflect the extension of the public health emergency to mid July .
In addition, we were pleased to receive notification in the first quarter that the Louisiana Health Department announced its intent to award Humana a contract to serve Medicaid beneficiaries.
We now expect the state to re score the previously submitted Rfps with a decision anticipated in late May and we are optimistic that we will once again score well given the strength of our offering.
We continue to be very proud of our Medicaid program and success growing our footprint organically.
Group and specialty segment results were slightly favorable with growth our group medical and specialty businesses contributing to the positive results.
The fully insured group medical business experienced favorable inpatient utilization due to fewer COVID-19 admissions similar to what we experienced in the Medicare business, partially offset by slightly higher than expected membership losses the.
The rating actions taken in the back half of 2021 to incorporate expected ongoing COVID-19 costs resulted in slightly higher attrition than originally anticipated.
Our specialty business also outperformed as utilization, particularly for dental services continues to run lower than expected to the extent this lower dental utilization continues we plan to reduce pricing to our Medicare advantage business in 2023 accordingly.
Our healthcare services segment had a strong start to year as previously mentioned, our pharmacy business meaningfully outperformed expectations driven by higher than expected increases in mail order penetration lower unit costs due to favorable underlying drug mix and lower cost to fill.
Currently expect the favorability to persist throughout the year, although with some moderation as our previous estimates contemplated increasing mail order penetration rates over the course of the year.
Our efforts to drive increased mail order penetration are demonstrating success with 38% of our individual Medicare advantage members utilizing our home delivery services in the first quarter, a 100 basis point increase year over year as Bruce mentioned Medicare advantage members retained in 2020 to use.
Humana pharmacies home delivery services, nearly 9% more frequently than members, who just enrolled also contributing to the strong start to the year.
As a result of the outperformance scene in the pharmacy business, we've increased our full year health care services adjusted EBITDA guidance by 50 million to 175 billion to $1 87, 5 billion from the previous range of $1 $6 75 billion to $1 85.
This adjustment also contemplates the estimated impact to EBITDA or divesting, 60% of our interest in the kindred hospice and personal care businesses later this year.
At this time, we have not updated revenue our operating expense guidance points guidance points as the impact could vary depending on the timing of the transaction close.
Turning to the home beginning with our first quarter release issued this morning, we disclosed episodic and total admissions for our home health business.
Episodic admissions were up three 5% year over year, while total admissions are up four 9% year over year, largely consistent with expectations for.
For the full year, we continue to expect home health admissions to be up mid single digits.
We also provided detail regarding members covered by our proprietary value based home health model. We continue to expect approximately 15% of our Medicare advantage members to be supported by this model as of year end 2022, as we expand to additional markets, including Virginia, and North Carolina, beginning at the end of June .
Within five years, we expect to support 50% of our Medicare advantage membership with our value based home health model and believe it will deliver mid single digit reductions in overall home health D E and infusion spend within 12 to 18 months of implementation and mid double digit reductions at mature.
Alrighty, while improving patient outcomes.
The nursing labor shortage continues to be a concern for the home health industry broadly and we continue to closely monitor clinical staffing levels capacity and admission trends, making targeted investments to sustainably improve the recruitment and retention of nurses to position the business for further growth.
We are particularly focused on markets, where growth has been negatively impacted by insufficient nursing capacity.
We are seeing positive results from our efforts, including a 5% reduction in full time nurse voluntary turnover in the first quarter as well as improved recruiting in March attributed to the return to face to face recruiting.
We are encouraged by the improvement we're seeing in recruiting and voluntary nursing turnover, but acknowledge there is much more work to be done.
Hospice business performed well in the quarter with total admissions up 9% year over year fueled by a general improvement in referrals led by increased access to facility based sources investments in the business to expand clinical capacity, mainly in the form of dedicated Oncall nursing staff and winter storms that negatively impact.
Admissions in the prior year.
Turning to our primary care organization results ran in line with expectations for the quarter.
We enhanced our primary care disclosures to include a breakout of clinics by de Novo, which includes all new centers opened since 2020 under our Welsh Carson joint venture <unk>.
We owned representing all centers not in the Welsh Carson joint venture, an IPA, which reflects patient served by our can be the MSL.
We also updated our patient certain metrics to only include Medicare patients covered by value based payment model. As this is our focus and represents the primary growth driver for the business.
As of March 31st we operate a total of 214 centers, serving 180000 patients and Medicare value based arrangements, while also supporting 58000 patients under IPA arrangements.
We operate 37 de Novo centers, which are focused on driving panel growth and patient engagement to ensure our patients needs are identified and we can begin our care planning.
This early engagement supports our ability to identify and slow disease progression.
We opened five new de Novo centers in the first quarter and 14 since March 2021, representing a 61% increase year over year.
These centers grew pain on membership by 4500 in the first quarter and 9100 year over year at 163% increase in patients served.
We operate an additional 177 wholly owned centers, serving 166000 patients in Medicare value based arrangements, primarily in Florida, and Texas we.
We are focused on continuing to grow these centers organically and inorganically, while also focusing on improving clinical and financial outcomes by leveraging our senior focused multi disciplined care model supported by proprietary workflow technology and analytics.
Since March 2021, we have increased our wholly owned center count by 30, and Medicare patients served by 37000 or 29% with approximately two thirds of this patient growth attributed to acquisitions of Florida, and Texas based primary care practices and approximately one third due to organic growth.
Including patient served under D C E contracts.
As we monitor the continued performance improvement of our wholly owned centers. We are pleased to report that 15 are producing our targeted EBITDA contribution of $2 million or greater and have an average panel size of 500 Medicare advantage risk patients.
Additionally, 69 of our wholly owned centers are EBITDA positive compared to 51 at this time last year.
Finally, I would like to add to Bruce's commentary on our 1 billion dollar value creation plan highlighting some of our recent progress we're tracking various initiatives across discrete stages of development, starting with ideation, followed by sizing design and execution and finally realization of savings we gain confidence.
As each initiative moves through the stages and we're pleased that initiatives valued at approximately $575 million are now in the design and execute phase we.
We continue to believe that the majority of initiatives will be implemented in the back half of 2022, which was contemplated in our initial guidance.
Our lower than expected administrative expenses in the first quarter in part reflect management actions that accelerated savings we otherwise expected later this year as well as some timing related variances.
We remain confident in our ability to achieve our goal creating capacity to fund additional investment in 2023 and will continue to share updates on our progress throughout the year.
From a capital deployment perspective, we expect to receive approximately $2 8 billion in cash proceeds upon closing of the pending kindred hospice transaction.
As shared last week, the enterprise value of Kindred Hospice is $3 4 billion to $2 8 billion. In proceeds is made up of approximately $2 billion related to the repayment of debt from kindred hospice to humana and $800 million reflective of 60% of the $1 4 billion equity value.
We intend to use the majority of the proceeds for debt repayment as we look to deleverage back towards our target of approximately 35%.
In addition, as previously disclosed we continue to plan for a customary level of share repurchase in 2022.
We expect our debt to capitalization ratio to be approximately 40% at the end of the year.
Before closing I would again reiterate that we had a strong quarter with all businesses demonstrating positive fundamentals supporting our full year guidance raise there are a number of items, we will need to continue to monitor to fully assess 22 performance, including non COVID-19 utilization trends the rate of Covid positivity and in pace.
Unit cost trends, which is why we believe it is prudent to continue to allow for COVID-19 conservatism in our guidance.
Finally, we are pleased with the progress made to date on the value creation plan and remain confident in our ability to achieve our goal creating capacity for further investment in our Medicare advantage business and expansion of our health care services capabilities, while still delivering on our long term earnings growth target in 2023.
With that we will open the lines up for your questions in fairness to those waiting in the queue. We ask that you limit yourself to one question operator, please introduce the first caller.
Yes, ma'am, our first question or comment comes from the line of Kevin Fischbeck from Bank of America. Your line is open.
Okay, great. Thanks, I guess I just wanted to dig in a little bit more to the guidance range, if I understood it correctly.
It seems like a little over half of it from the services business being higher and the rest is G&A. So you didn't.
Okay.
Read that into that you.
But at the lower end of your G&A guidance instead of you changed the range there.
And I just want to make sure that I understand the MLR guidance is unchanged there seems to be getting some questions about how MLR looks given the decline in BCP. Thanks.
Sure happy to take that to your first point I guess as you think about the raise relative to our performance for the first quarter first I would mention that.
Census was lower than our internal estimates for the first quarter. So as we think about it internally we think about about a dollar of the outperformance is what we were looking at from an internal perspective.
You are correct you can think about that as roughly half attributed to lower administrative expenses and have attributed to the pharmacy outperformance.
So as we thought about the year as you said and as I've said, we do expect that the pharmacy outperformance will continue although with some moderation and so that will allow us to support the 50 cent raise as well as the dilution that we're currently estimating from a hospice divestiture later this year.
On the administrative expenses as I mentioned some of that is timing some of that is a pull forward of savings we would've otherwise expected later in the year, so not necessarily incrementally positive but wanted to see how that continues to develop and then we'll also look to see if we continue to see some favorability that may allow for some additional investment in the distribution and marketing.
Strategy that we've talked to you about and may allow us to accelerate some of those investments again, if we continue to see favorability, but we are not taking any of that into the full year guide currently.
On the MLR then.
I would say looking at the retail MLR in particular analysts' ranges were quite wide as we looked at the models and so the comparison to what's reported this morning is heavily influenced by the few that actually responded to this survey. So I think that's part of it as I mentioned in my comments from our individual Medicare perspective, I can tell you that the MLR came in as we.
<unk> per my commentary, we did see positive utilization on the inpatient side due to COVID-19 with Covid, while we saw higher absolute levels in January it declined more quickly than we'd seen historically and then we would've than we would've expected and non COVID-19 was not able to rebound as quickly as koby declines so that was certainly positive.
Given the high level of Covid, however, and the higher rate of what we refer to as that incidental COVID-19 , where it wasn't be admitting condition, but there is a COVID-19 positivity diagnosis that translates to additional unit costs. So we did see higher unit costs as a result as I am.
Mentioned, we also considered the higher unit costs, let me saw restated for fourth quarter in our first quarter estimates and so as you think about that all in the first quarter results reflect in patients pretty much inline with expectations and then for non inpatient just given how early in the year. It is and the limited visibility we have those in the first quarter expectations as well so well.
We continue to watch those things over the course of the year, but feel good about the early indicators, we're seeing in and no source for concern about what we're anticipating for individual MA retail MLR.
Thank you. Our next question or comment comes from the line of Nathan Rich from Goldman Sachs. Your line is open.
Hi, good morning, and thanks for the question.
I wanted to ask on.
Your bid strategy for 2023 and in the release you talked about the final rate notice and you expect rates to be up for Humana, a four 6% a little bit below the sector average and I think more of a gap then you faced in recent years I guess, how does that impact the strategy for 'twenty three and then I. Appreciate the details that you gave.
Bruce upfront about.
Kind of the plan design and distribution strategy do you have an updated view on how you might allocate that $1 billion of savings across plan design and distribution that will ultimately provide the best ROI on those investments. Thank you.
Sure.
Relative to the to the rate notice.
Our investment I would say, we feel very confident that we're going to have the.
The ability to be competitive in 2023, so even though we might have a little bit some.
Because of our star scores, we see higher star scores.
In absolutes, but on a relative change is lower than the industry. There. So we still have the same amount of dollars going into the program.
The second part of your question just about the allocation among.
Of the various different components the buckets so to speak.
<unk> plan design in the distribution and marketing.
We just don't feel comfortable today that give you that disclosure as we enter the latter part of the year end.
We're in the AEP cycle.
Cycle will probably give you more details there, but I think today it would be best that we don't do that.
Thank you fair enough. Thank you so much.
Our next question or comment comes from the line of Justin Lake from Wolfe Research. Your line is open.
Thanks, Good morning, Bruce wanted to follow up on your commentary around the Investor Day, specifically you talked about doing something to enforce this whole September just curious on the driver of that.
What have you been hearing from investors in terms of what well be looking for at that Investor day, specifically any thoughts around.
Margin targets any Medicare advantage business.
Yes, as I mentioned.
We are shooting for September and the reason for the move between June to September is we just felt that the information it would be more relevant as we entered the latter part of the year for a few reasons first will be closer to AEP and provide more thoughts around our go to market strategy since since the.
We're getting getting close to that second we'll have more progress on the $1 billion.
Program and I know Thats important in the short run. So those are really why are we just felt that getting later in the year would be important to us.
More timely information for our investors relative to the subject matters I mean, we do look as an important part of our strategy of the health care service.
Business being an important I think giving more disclosure on what that looks like in the and the and the strength of that over over a longer period of time will be unimportant discussion.
In addition, we will discuss discuss just our earnings potential and the growth in our earnings potential, including how that effects margin and.
And our view on the margin side. So we will discuss that in as you articulated. It is an area of particular interest by our investors and we will be prepared to discuss both the individual MA margin and then also just how health care services impacts the enterprise side and then lastly, we'll also just.
And I'll be able to.
To give you give the.
Investors much more update just on how we see the health care service business growing and the impact it has and the integration of it within the market itself because.
I articulated we are building the capabilities, we're leveraging and scaling the capabilities and then in addition, and an important part of that value as the integration in the local market as referred to in the <unk>.
And the commentary around the flywheel effect and so that'll be an important discussion that we'll have.
Thank you. Our next question or comment comes from the line of Matthew Borsch from BMO capital markets. Your line is open.
Yes. Thank you.
You know it was I'm looking back I know there've been other years, where it seemed like you have waited your Ma product.
Designed towards earnings improvement and whether it was deliberately yours or somewhat unintentional that was it.
Seem to be the case for this year I'm just wondering.
If I can ask why there isn't more apparent in the Medicare advantage profit margin that you've seen so far this year I would've expected that to be a bigger driver maybe on the medical cost ratio side of the upside this quarter.
Sure Matthew I can take that and.
And you are right as you look at the first quarter.
Again, youre looking at retail <unk> versus individual MA and so there are some differences in terms of the underlying product mix year over year, particularly around Medicaid and some growth in D. C. In membership, which has a higher MLR than individual Ma.
Again, I do want to reiterate that from an internal perspective, as we look at the underlying businesses. Each are performing as we would expect so no concerns there.
Terms of one other difference I would highlight in terms of just the first quarter specifically is the change in prior period development year over year with Covid. There were a lot of changes in claim processing.
Payment policy changes as a result of some of the stress the hospital systems were under and so that significantly impacted prior period development, we anticipated a significant decline in prior year development year over year and that will disproportionately impact the first quarter results, which is why in our earnings release. We gave you the detail on what that would look like if you just stripped out PPD in the noise.
But that creates it's hard to tell whether some of the analysts fully understood or oriented debated the magnitude of that change year over year. So those are really some of the main drivers and again I just want to stress that we continue to feel comfortable with our expectation of about 50 basis point improvement in the individual MA margin as we said and believe we're on track to do that and no early.
<unk>.
Early concerns the other thing to keep in mind is the dollar of Covid contingency you can assume that's largely in the retail and be our expectation as we said in our commentary we continue to hold that conservatism within our guide so if it proves unnecessary over the course of the year, then that would benefit the retail M yours as well.
Very helpful. Thank you.
Sure.
Thank you. Our next question or comment comes from the line of Kevin Caliendo from UBS. Your line is open.
Yeah.
Thanks, so much.
I just wanted to get a little bit better understanding maybe a better way to ask this is what do you expect the MLR trend to look like over the course of the year.
Meaning given what we saw in the first quarter with the prior period development. If we when we kind of just take where we started this year and where you expect to and how would you see is it more of a straight line or is there going to be a little bit more of a hockey stick to the back end of the year and part of that question. I guess is did you see any of the COVID-19 headwinds in one queue at all.
The $1.
Hi, Kevin This is Susan.
So in terms of your second question around the Covid headwinds, we would say that we did not see a COVID-19 headwind emerge in the first quarter as I mentioned, given the dynamics, we saw with the utilization patterns. The way we've thought about it is not just the absolute gross COVID-19 impact, but rather net of any offsetting reductions in non COVID-19 and so as I mentioned.
January saw higher Covid levels and in fact, we saw that that was the highest level of COVID-19 admissions in any given month since the start of the pandemic in February and March given the rate of decline and how much faster that was versus previous searches. We just didn't see non COVID-19 have the ability to rebound at the same pace, so and that's true.
Both across Medicare and commercial so we would say that that was net net positive as we said in our fourth carrier commentary, we do not and we will be very cautious and releasing that dollar of contingency that we're holding just recognizing the longer COVID-19 goes on.
Just don't want to assume that patterns will remain the same as we've seen historically and then as I mentioned in my commentary just the rate of sort of Covid positivity itself, while the public health emergencies in force will drive additional unit costs for any admission that does happen to have a COVID-19 positive diagnosis associated with it. So we'll need to continue to watch that in terms of <unk>.
With the exception of the P. P. D. Then I mentioned that will disproportionately impact the first quarter I think if you normalize for that then I would say, there's nothing sort of unique about this year that we would expect <unk> to be.
The very other than the fact that sequestration. If you recall is still in play the waiver for the first quarter it will reduce by half or the second quarter and then it seemed to be back in force for third and fourth quarter. So that will cause a little bit of seasonality differences year over year, but aside from that I can't think of anything else specifically that we would expect unless you know as I said that.
It depends on what happens with Covid, which we've acknowledged could create some some quarterly variation.
Thank you.
Thank you. Our next question or comment comes from the line of a J Rice from credit Suisse. Your line is open.
Oh, hi, everybody I thought I might just ask you about the home health Kindred at home business and some of the things you're doing there first of all I think Susan you called out.
Some labor challenges that you're trying to address I wondered how widespread those are in the business and.
Have they gotten worse in the first quarter versus what you saw in the board or are they getting better and then on the virtual value based.
Work Youre doing I'm, just trying to make sure I understand is that kindred at home contracting with the Humana MA plans or is it sub contracting with your primary care docs, how does that work and how do you manage the steerage of the patients to make sure. They end up in your home health.
Operations and not someone elses.
Hey, Jay sure happy to take that the first question on labor challenges I would say they are fairly widespread there are certainly some markets, where we have sufficient capacity and we're certainly doing everything we can to take advantage of growth opportunities there, but generally speaking some of the larger markets, where there is more of an opportunity we continue to see challenges.
Is I would say, though there I would say they are getting a little bit better primarily due to the fact that COVID-19 has subsided. So some of the labor challenges are due to nurses having to quarantine as a result of COVID-19 and so as we see that.
Come down to again, the lowest levels, we have seen that certainly helps as we have more nurses available.
As I mentioned in my commentary. We are also pleased to see that we you know our initiatives are having some positive impact on recruiting nurses and retaining those nurses nurses again, creating some additional capacity, but it but I don't want to diminish. The fact that it continues to be a challenge we continue to watch sort of the wage environment and other sort of resources being used to work for.
And retain nurses and we'll try to make sure we stay contemporary with that on.
On the value based model and the way that works is one home, which is a company you might recall, we acquired last year, which currently provides home health do you mean infusion services to our Florida, and Texas members under a value based model.
That is the model that we're looking to expand so one home actually contracts with the health plan under a capitation arrangement for all of the spend for those three service categories and then in markets, where they are downstream risk providers. They will then downstream sub cap with those providers, but one home even when taking the full risk on those services, what's unique about that model is.
Is it the way that it is structured is they act as a convener and providing some relieve some administrative burden from referring providers, where the referring provider can refer a patient in for the home health, Danny and infusion services and one home will take responsibility for placing all of those services and the absence of that model the referring provider has to industry.
We coordinate all of those services, which can lead to some fragmentation and dislocation in the way care is delivered so with the <unk> model. They will take responsibility and where possible then they can refer that patient directly into kindred or other high quality home health providers in the market based on capacity and other things and so that.
Typically as we launched the market we will go in with a more broad network to avoid any sort of provider and patient friction at start and is it providers get more comfortable and understand the model. Then we will look to then begin referring those patients into our high quality providers in the market and certainly with kindred top of mind. So that's how it works happy to answer it any.
Other questions. When we talk later today, if you like.
Okay.
Thank you. Our next question or comment comes from the line of Stephen Baxter from Wells Fargo. Your line is open.
Hi, Thanks, I appreciate all the color on utilization and provide you certainly gave us a lot to digest just wanted to ask a clarifying question on the lower than expected <unk>. So on the inpatient unit cost side can you just clarify whether or not the higher unit cost. Your experience was purely the result of these incidental COVID-19 dynamics. If you were to look at.
The remaining inpatient nonwoven utilization I guess, how did that compare to your expectations on the unit cost side I guess big picture, just an update on acuity trends and how they are running on the non covered population. Thank you.
Sure Stephen So yes, so on the <unk>, we did see lower prior period amount. Most favorite was just lower than we had previously expected and really attributable to higher inpatient unit costs in the fourth quarter. There were two main drivers of that one was higher non COVID-19 unit costs. They were.
Quite high in the fourth quarter and frankly, there is still some work we're doing to understand why that is and then also on the Covid admissions.
We set reserves at year end, we have the benefit of authorization data and so we have really good data on the absolute level of admissions.
From a utilization perspective.
Claims have restated just as we would have expected so the absolute level of admissions is consistent with what we thought what we saw however is of those admissions we anticipated more restated as a COVID-19 admission when on the initial authorization. They did not reflect COVID-19 is the reason for the admission and so we would have contemplated those as non COVID-19 admissions given the.
I can't difference in unit costs for a COVID-19 admission versus non COVID-19 that caused our December unit cost to restate higher so I'd say, it's a little bit of a mixture with December specifically related to COVID-19 and the previous months more reflective of increases in the non Covid unit costs, which were still studying those are things.
Again, we want to see how those continue to play out but for the first quarter estimates we have contemplated those higher unit costs in terms of acuity I would say broadly we do not believe we are seeing an increase in acuity.
Of the patients across any of our lines of business. There is no indicators of that so far we think again when you are talking about the level of particularly in the fourth quarter of sort of Covid admissions to some degree. This is a reflection too of as you see that higher incidental COVID-19 positivity rate as I mentioned the admissions that are then sort of left in the non COVID-19 bucket tend to be higher average.
Unit costs and in this case, just happened to restate them higher than we had initially expected.
Yeah.
Yes.
Next question please.
Our next question or comment comes from the line of Ricky Goldwasser from Morgan Stanley . Your line is open.
Yes, hi, good morning.
I just wanted to focus on the pharmacy outperformance I think you said it was about it.
<unk> off the dollar upside from your initial targets.
So what specifically drove the outperformance I know Susan you mentioned that the existing members that are using your pharmacy services at a higher utilization of mail versus the wanted off boarded.
Is that sort of the entirety of it is it just kind of like that member mix or are there other more.
Underlying trends that we can extrapolate for the rest of the year.
Hi, Ricky Yeah, sure happy to answer that.
So there were a couple of contributors to the pharmacy outperformance.
One as you said was related to just some of the slightly favorable membership we saw across EMEA PD and PDP from an absolute perspective, and then as you mentioned and Bruce and I highlighted what we saw was that the members that were retained by the health plan through AEP had a higher use of humana pharmacy than members who disagree.
Rolled in AEP and it was about a 9% difference and that was a larger difference than we've seen historically so it was not something we had specifically anticipated and so that higher membership and that dynamic of retaining more members who are more likely to use human pharmacy contributed to some of the volume outperformance.
I'd say there was additional volume outperformance, even above that and we think that's a reflection of the continued investments we're making in the pharmacy business to improve the service delivery model.
And experience overall.
<unk> implemented a number of initiatives over the course of 2021 designed to drive improved mail order penetration and use of the pharmacy business and saw success there and we've seen further success in the first part of 2022, just beyond what we had originally anticipated and as I mentioned, we did anticipate higher mail order penetration in 22 versus <unk>.
21, and you're just seeing that come in slightly higher even than we had expected, which we view very positively.
In addition, we did see lower unit costs that is a function of just the underlying drug mix and the negotiated rates and so that is contributing as well and then finally, we also saw favorable cost to fill and so as a result of some of the investments and enhancements that we're making and the service delivery model and Bruce referred to some of those investments they're all seeing also seeing some pause.
Tivoli with reduced cost to fill than we expected. So all of those we'd be very favorably and generally you can assume that those do continue although as I mentioned, we do expect some moderation because our plane did contemplate continued increases in mail order penetration over the course of the year.
So as we described in the commentary you can think about our thinking on pharmacy is raising 50 now that reflects the outperformance and then also that outperformance, allowing us to cover the potential dilution from our hospice divestiture, assuming that we don't use the proceeds for share repurchase.
Thank you. Our next question or comment comes from the line of Joshua Raskin from Nephron Research. Your line is open.
Hi, Thanks, Good morning, I wanted to clarify the 2020 to sort of run rate a jumping off point for next year should we think about the 24 50, plus the dollar as sort of that starting point and maybe you could give us a little bit more color on the hospice dilution in 2023, Europe buybacks or something else will offset that and guys.
A long question, but the real question is really with the potential headwinds for 2023 that we should be thinking about that would preclude you from attaining.
Long term EPS target, specifically thinking about investments in primary care et cetera.
Hey, Josh.
So yes. So for your first question, we would say that you should think about the 22 baseline at $24 50, similar to how we talked about it in our initial guide we would just encourage you not to get ahead of us on the dollar of Covid contingency as I mentioned, there's still a lot to see in terms of how many.
Medical costs play out over the course of the year and utilization were broadly morbidity et cetera. So you can consider the baseline for now the $24 15, and we will continue to be transparent about what we're seeing.
But certainly pleased with the ability this early to raise and get towards the higher end of our range and certainly hope that we can see continued progress but would encourage you to consider the baseline for now the $24 50.
In terms of hospice dilution. So as we said for 2020 to you the pharmacy outperformance will allow us to cover any potential dilution, we're internally anticipating that the transaction would likely close third quarter and so that's what we're thinking about in terms of our current guide as we've talked about this has been something that we've been planning and looking at options.
For some time so from a 2023 perspective, we have always been anticipating that we would divest our majority stake in hospice and so that is contemplated and will be contemplated in our earnings progression in 2023, where we would expect to again see a return to higher levels of Medicare growth, while also delivering within our.
Our targeted long term range of 11% to 15% off of that 24 50 baseline despite the hospice divestiture.
For the proceeds as I mentioned in my commentary my preference would be to use as much as possible towards deleveraging. Just so we can get that down and give us. Some additional flexibility. We mentioned in my commentary that we would expect to be at approximately 40% by year end versus the 45% we reported for the first quarter and so we do expect to use a majority for debt repayment.
Okay, so 11% to 15%, even including the dilution off of $24 50, that's the right way to think about it yes.
Yes, exactly perfect. Thanks.
Thank you. Our next question or comment comes from the line of Scott Fidel from Stephens. Your line is open.
Hi, Thanks, good morning, everyone.
Interested just to get your thoughts on Medicare provider contracting the environment for FY 'twenty three just as we're tracking all of the proposed Medicare FFS provider rate updates that are coming out from CMS. Most of them are tending to be notably lower than what the final rates actually came at us So just interested whether.
Do you see any type of positive arbitrage around that variance or do you think ultimately that providers will be pushing for higher.
This increase is that what they seem to be getting out on that basis.
Medicare ex FX at least based on the proposed rates so far thanks.
Hey, Scott so yeah. So.
To your point so right now we'll have to see obviously, what the final rates come in at but currently with what we've seen preliminarily they are lower than the overall average rate increase in terms of the rate book.
First of all on the hospital contracting so I would say most of our contracts are tied to fee for service reimbursement and so typically we would not see much whatever those rates come out with is what we would see it's not to say that we might not see some providers come in sort of wanted to talk to us I would say they may want to talk to us about some other components of our contracts in terms of how we handle claims.
Processing and audits and some other things, but I would not anticipate that we would be opening contracts up to move off of the.
Then being tied to the Medicare reimbursement rate I think that there are some other service categories home Health is one example, where we tend to pay lower than Medicare fee for service rates, so depending on where those rates come in you know that could be an area where providers may come where they're being paid less than Medicare reimbursement and they may want to have a conversation of that in this inflationary environment.
So we will continue to monitor it I would say, though at this point based on what we've seen we're not considering that a significant headwind that we're considering for 2023 and would view it as something that we can manage through.
So she is just fair to say that you are seeing some favorability here between the final MMA rates and the likely debt provider if FX rates right.
I mean based on what's come out so far and then that's what I would suggest and want to see where the final rates come in.
Okay. Thank you.
Thank you. Our next question or comment comes from the line of David Windley from Jefferies. Your line is open.
Hi, Good morning, just focusing on the home health build out and expansion. There you mentioned I think one home relative to <unk>.
Texas, and Florida launching your value based in North Carolina, and Virginia can you can you talk about how how rapidly you can continue to expand markets with that strategy.
And then are there other.
Is that mostly an organic strategy or are there some.
Organic.
Bolt ons that you could add to that to accelerate it.
Yes.
A few things I think our goal is to get to close to 50%.
Over the next five years some of our members to be in that and that's the full relationship with want a home and there's really a components of that relationship one is around the actual.
The ability to.
Susan was describing the value based payment area, where you manage that in your view.
We go through our one home for them from a contractual point of view.
The second part of it is the build out of the army and their pharmacy and as you look at sort of the length of time. It takes it actually is a latter part of the DNA in the pharmacy. It takes more time than the actual contractual side. So what we're testing right now is actually a sort of a light.
Heavy model so to speak the heavy model that has everything and the light model is really more oriented to the contractual area that in and we're hoping that that will facilitate getting to the 50% quicker as a result of that and actually provide further improvement on the clinical cost both in the clinical cost of.
Of the actual cost of providing the services, but also downstream prevention of.
ER visits in the hospital admissions there. So it's really a two pronged and again, we're trying to find how we can facilitate a quicker through.
A lighter model that doesn't just have to require the build out of the DNA and the pharmacy side.
Yeah, and the one thing I would add to Bruce's comments is today. The model is deployed in markets that are heavy risk based primary care. So we're moving into markets, where that's not the same dynamic and so we're really interested to see how these first implementations go and assuming those go well then I do think we would look to go ahead and accelerate some of the further expansion, but want to make sure we fully assess sort of how the model works.
And anything that we need to learn in the environment, recognizing it's a little bit different and then your second question was organic versus.
And organic this will be mostly organic I think.
The ability to theres not a lot of assets out there to buy and then in addition, I think the integration of it will probably not be as fruitful as us just continuing to build the organic side.
Thank you.
Thank you. Our next question or comment comes from the line of Lisa Gill from J P. Morgan Your line is open.
Alright, thanks, very much I, just really wanted to ask about your risk based primary care relationships can you talk about the percentage of premium that are under those types of relationships and the impact to MLR and then as I think about primary care services more broadly how do you think about virtual health care.
I'll take that today, it's about two thirds of our revenue is within the Medicare.
Advantage business is really with individuals with practices that are.
Under our risk model now that varies between a full risk to we referred to as a pass through risk, which is up and down.
But whether it's a bonus who are up and down risk with some with some.
Caller around protection of it. So we do see continued growth in that area and continued.
And not only improvement in the number of members that are under under that relationship, but also more and more of our <unk>.
Practices are in surplus, which we really consider as being the most important value because this means that they are earning more dollars than.
And then they would in a fee for service environment. So firstly, we do measure not only the total but also the effectiveness and the <unk>.
And the impact it has on providers.
Relative to virtual health.
I would I would say, we look at that as a virtual primary care, we look at that as not only being part of the primary care itself and being.
Corporate it and our.
Our relationship but in addition, we are testing through our hill relationship actually attribution of of individuals to pay virtual health provider.
And then they'd be.
<unk> not only use virtual health, but also go into the home. So it's not office space that's actually.
Got it.
Travelling position along with a virtual health component to it and they are actually attribute to the patient and so we are testing that in a few markets as we speak today with the partnership.
We have with one of our joint venture relationships, we have a heel.
Great.
Thank you our next question or comment comes from the line of <unk>.
Gary Taylor from Cowen Your line is open.
Hi, Good morning, just wanted to go back to reserves for a SEC.
Just a couple of parts to my question I know day's claims payable only down <unk>.
Seven tenths of a day sequentially, but the.
The fee for service IV in our piece was down about three sequentially. So just wanted some help if there was anything in particular.
Driving that and then my second part of the question was Youre sitting at 43 days days claims payable Theres a comment that pre pandemic.
You ran closer to 40 and just wondering is that just sort of in FY. <unk> are you alluding to the fact that as we sort of move post pandemic.
Do you anticipate moving back towards 40 in releasing some of those reserves at the earnings overtime.
Yes, Hi, Gary.
And so to your point there is.
A lot of noise, just a last couple of years due to COVID-19 and the impact to sort of claim submission timelines cap cavitate it provider surplus amounts in payments and I know, we've talked about that the last number of quarters and the magnitude of the impact of those dynamics and so that's why we provided the reference to the pre COVID-19 levels, which we think is a better benchmark.
Seth it's hard to otherwise normalized for all of those considerations and so as you said, we're sitting three days above what our average Rand pre COVID-19 , which we view is is the more relevant comparison comparator and feel good about the level of reserves that we that we're sitting on as at the end of the quarter.
Can I ask just follow up real quick is the dollar of Covid cushion is that.
Your view that sort of already sitting in reserves and would be released or as part of that anticipated to be generated by the 22 operating results.
So I would say in terms of what's currently sitting in D. C. P. G to a degree some of our reserve estimates for the first quarter or prior year proved to be conservative as that would unwind then that would have been some of what is currently reflected in the reserve levels.
Okay.
And the way we thought about in our plan anyway, we sort of layered in that conservatism ratably and as we said in the earlier commentary, we certainly did not see a net COVID-19 headwind in the first quarter, but were being cautious about how we think about unit costs are and in particular.
Got it thanks.
Thank you ladies and gentlemen, this concludes the Q&A session I would now like to turn the conference over to Mr. Bruce Broussard for any closing remarks.
Well, thank you and thank you for all our investors in both participating in today and continuing to support the company.
As we've communicated we continue to believe that we started with a strong year and look forward to continuing the progression throughout the remaining part of the year.
And then lastly, I would like to thank our 90000 employees that are everyday going to work to help support both of these results, but more importantly, our members and patients that we serve on a daily basis.
Thank you and everyone have a great day.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
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Yeah.
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