Q4 2021 Centene Corp Earnings Call
Good day, and welcome to the <unk> fourth quarter and fiscal year 2021 earnings Conference call.
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Please note today's event is being recorded.
I would now like to turn the conference over to John .
Mr Healey senior Vice President of Investor Relations. Please go ahead ma'am.
Thank you Rocco and good morning, everyone. Thank you for joining us on our fourth quarter 2021 earnings results Conference call.
Michael <unk>, Chairman and Chief Executive Officer.
London Vice Chairman.
Brent Layton, President and Chief operating Officer and.
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.
Yeah.
Any remarks that Centene may make about future expectations plans and prospects constitute forward looking statements for the purpose of the safe Harbor provision under the private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those indicated by those forward looking statements as a result of various important factors, including those discussed in <unk>. Most recent Form 10-Q filed on October 26, 2021, and other public SEC filings, including the risks and uncertainties described.
<unk> with respect to the potential impacts of.
COVID-19 on our business and results of operations.
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 comparable GAAP measures can be found in our fourth quarter 2021 press release, which is available on the company's website under the investors section.
With that I would like to turn the call over to our chairman and CEO , Michael <unk> Michael.
Yeah.
As you model.
As you all know me perhaps.
Can you hear me now.
Yes, Sir.
Hear me now.
<unk> sure.
Okay I'll start over.
Good morning.
Welcome to our fourth quarter 2021 earnings call.
I'm joined today by Sarah London.
Brent Layton and drew Asher.
We had a strong.
Through 2021.
Our portfolio is performing well and we will continue to grow.
The major product lines during the fourth quarter.
Building on our strong foundation and extending our market leading position in government sponsored at all.
Our membership grew four please go ahead.
$26 6 million individuals.
Driven by increases in Medicaid strong growth in Medicare.
Good performance in our marketplace.
We also welcome the Magellan.
<unk>.
Thanks Mark.
The acquisition.
Since we closing exactly one year after we announced this transaction.
We were pleased to welcome to the Magellan team led by Karen Controller and Jim.
There is a dire need for mental health care.
Yes.
Two years into it this pandemic and the acquisition Magellan will allow us to expand our reach.
Increased access.
Zero.
In addition, Magellan will give us the ability.
And we imagine.
Yeah.
Significantly enhancing our ability to.
Integrated physical and mental health care to own them.
Also in January we will have acquired Gordon.
As part of our board refreshment process.
Great.
And the C and D.
His leadership experience.
Rob did more genre.
Tommy.
Every time.
Hi, guys.
Thanks, Tim.
Many years of service.
With Houston.
Okay.
And then of gas.
On the onset of the pandemic.
Pleased with how we navigated Susan.
First our members.
It grew and grew the business.
This is Greg.
Sure.
Just this year.
$14 billion.
We have recovery plans.
Our value creation.
We have a clear pathway ahead to expand our margins and delivered strong multi year earnings growth.
We have the right team.
This strategy with significant opportunities ahead.
Finally, I want to take.
We'll continue with.
Improve our members to foods.
I couldnt be proud of.
Good rule and we are.
Ensuring data.
We stay strong and healthy.
With the highest quality care, particularly during the pandemic.
You probably hear a little froggy might go to.
Thanks, Chris.
Terry London, who help managers who the.
Question and answer period.
And I will participate.
Sure.
Great. Thank you Michael and good morning, everyone.
As Michael noted, we delivered a strong fourth quarter performance, creating positive momentum as we start the new year and successfully executed on key operational objectives, including the introduction of new marketplace products for the 2022 open enrollment period repositioning that business for success in a constantly evolving landscape.
The delivery of another strong annual enrollment period in Medicare advantage is the value we provide for beneficiaries continues to resonate in the market.
And continued progress on our value creation plan, including refining margin expansion opportunities and advancing the execution of our highest priority initiatives.
On today's call Brent will comment on our core businesses, including how we are carrying our Q4 momentum forward into 2022.
Then drew will provide details on our fourth quarter performance and financial outlook.
Before I turn it over to them, let me provide a brief update on the value creation progress.
From a structural perspective, we have added important talent and leadership to our value creation office as we announced in early January Jim Murray, who served as Magellan's President and COO has transitioned to take on the new role of Chief transformation Officer, leading the day to day management of the VCR.
Jim brings experience and operating discipline and a track record for successful execution, adding another important layer of accountability to our value creation program. We are thrilled to have him on board.
Now to the details.
As we mentioned at our December Investor Day, 2022 is largely a year of foundational execution and we plan to provide guideposts on our operational progress incremental though some may seem as a way of bringing you on the journey with us and offering a view into the work underway.
And while we are only one month into Q1, we have already made progress on some of those key guideposts.
First our pharmacy platform consolidation project.
As a reminder, the strategy here is to outsource administrative TBM functions to an external partner, thereby allowing us to reduce our <unk> platforms down to one and to focus that technology on the clinical member and provider engagement capabilities that are most important to differentiating the overall member experience.
This will drive SG&A savings across the technology footprint and allow for more efficient investment and process automation.
Coming into 2022, we had eight remaining state specific programs that had not yet been consolidated on our external PVM platform with.
We successfully migrated three of these on January one and another on February one as planned we are targeting the fourth migration for March one and the remaining three are scheduled for later in Q2.
Overall, we are on track to be fully consolidated in time to issue our plan PVM RFP against our full $38 billion of pharmacy spend.
I am pleased to say that work is well underway to prepare for the RFP released this summer and we look forward to maximizing value for the enterprise through that process.
Since December we have also made good progress on the efforts, we outlined around standardizing and rationalizing core operations.
We initiated phase one of our call center standardization, including process mapping as well as beginning the formal enterprise transition of our telephony infrastructure to the cloud.
As we mentioned before this will offer a more convenient ways for our members to interact with us and get the information they need.
We are starting with our Medicare and marketplace products and expect this work to be completed in early Q3.
We also kicked off phase two of our utilization management work, which involves building an enterprise shared services function to serve all three major product lines with a primary focus on enhancing quality and productivity, we completed the Medicare transition and now have the marketplace transition in motion.
Lastly back in October we formally updated our work at home policies as we have learned how to deliver the same level of productivity and service to our members in a more flexible workplace environment.
Shift to work at home and enhanced flexibility will have a meaningful impact on our ability to recruit and retain talent, but it also means we need to reevaluate our real estate footprint something drew mentioned during the December Investor day.
We have already evaluated approximately 25% of our facility locations and see opportunities for our material downsizing of our footprint.
Expect updates on that work as we get through the full real estate portfolio.
Finally, I want to touch on the capital allocation pillar of our value creation plan and particularly the portfolio review process.
Closing out the story on U S. M. M. We used the proceeds from that majority divestiture to execute $200 million in share repurchases in December .
We are aggressively working our way through the noncore portfolio with a consistent rigorous and strategic evaluation process. We will continue to provide updates on this work as it progresses.
While the value creation work is critically important it is also complex let.
Let me assure you that we have full organizational commitment to our value creation objectives and are laser focused on leveraging centene size and scale to unlock significant value for our stakeholders.
But let me also take this opportunity to thank our leaders and our teams throughout the organization from our local market Ceos and operational leaders to frontline staff and clinical experts for their enthusiasm agility and willingness to think differently and work differently and service of our members.
Overall, our businesses are performing well we are building on the strength of our core business lines, and we are making meaningful progress on our commitment to margin expansion all while delivering for our members state partners employees and shareholders.
I'd now like to turn the call over to Brent for some insights on our core business line performance during Q4.
Thank you Sarah good morning, everyone.
I'm happy to be here today to talk about our performance of our core business lines.
Over the past two years, we've discussed how centene size and scale and our ability to be nimble has allowed us to manage through this pandemic.
We remain well positioned to provide quality quality services in a pandemic environment or a return to more normalized utilization.
Government sponsored health care continues to grow in the U S and Centene continues to gain momentum across all of our product lines.
Our Medicaid business is still growing with membership increasing to $15 million as we closed out 2021.
This growth was aided by the ongoing suspension of Redetermination, which I'll talk about more in a moment, we continue to see success in our Medicaid business, such as our new contract in Nevada.
In Medicare we ended the year with more than $1 2 million members across 33 states as we mentioned in last month, we experienced strong growth during the open enrollment period and remain on track to meet our 2022 expectations. We benefited from the combination of Wellcare is product expertise and Centene strong provider network and.
Vic footprint in 2022, Centene offers plants and 327, new counties as well as three new states.
We continue to see significant opportunity within Medicare as our expanding footprint makes centene product offering available to more than 75% of the country's eligible beneficiaries.
Finally in marketplace membership was more than $2 1 million at the end of the year and we are pleased with our open enrollment results.
For 2022, we're excited about our product offerings, which have evolved to meet the demands of our members with greater flexibility assess ability and affordability.
At the same time, we are further expanding our reach offered marketplace product in five new states this year and betters and 49% of all counties in the U S. This product and geographic expansion translated to solid growth during the open enrollment period and once it makes the sustained momentum in marketplace more impactful is the fact that we never.
<unk> participated in a race to the bottom of our rates, we remain committed to returning and better margins back to their long term pre tax target of five to seven 5% and I think the initiatives we undertook in marketplace in 2021.
And the pricing discipline showed clear evidence of our ability to execute on our margin goals across all of our business lines.
Before handing the call over to drew I wanted to provide a quick update on our thinking of Redetermination.
We continue to work closely with our state partners to understand the timing and how to best support the transition. Our current outlook continues to reflect a return of Redetermination in may but again this will not be universal and the team the timing will vary state by state the continuity of care by members that roll off Medicaid remains a top priority.
Our breadth of products and services provide centene, a great opportunity to deliver this continuity of care at a low cost through our marketplace capabilities. We currently offer exchange products in 25 of our 2009 Medicaid States. Overall, we are pleased with our competitive position of our portfolio heading into 2022 with that.
Let me turn the call over to drew.
Brent This morning, we reported fourth quarter 2021 results, including $32 6 billion in revenue an increase of 15% compared to the fourth quarter of 2020, and adjusted diluted earnings per share of $1. One in the quarter and $5 15 for the full year. These results are at the top end of our 2000.
'twenty one adjusted earnings guidance provided at our December Investor Day.
Let's start with revenue for the quarter.
Total revenue grew by $4 3 billion compared to the fourth quarter of 2020, primarily due to strong organic Medicaid and Medicare membership growth during 2021.
Total membership increased to $26 6 million up 4% compared to a year ago.
Our Q4 consolidated <unk> was 87, 9% consistent with our expectations.
As promised beginning with today's earnings release, and each quarter going forward, you will be able to see the HB are components that drive the overall consolidated H B R commercial Medicaid and Medicare H B.
In commercial you can see the high <unk> in the Q2 and Q3 timeframe driven by the risk adjustment items, we covered at our June Investor Day.
And the Delta variant in the third quarter as we discussed on the Q3 call.
Structurally Medicaid in the high eighties has the highest absolute <unk> of the three business lines.
And Medicare inclusive of our Medicare advantage and PDP businesses posted a 2021 H b are in the mid to high Eighty's.
As we've said before we believe there is an opportunity to lower the Medicare H B R. As we look to 2023 and beyond.
At an Investor Conference on January 10th this year, we provided insights about the omicron variant and related Covid inpatient authorizations rising in the back half of December .
As an update for January Covid inpatient authorizations continue to climb and peaked at least for now in mid January .
Interestingly with the Delta variant marketplace was the highest peak of our three business lines in Medicare was the lowest with Omicron Medicare was the highest peak and marketplace was the lowest but fortunately the acuity and therefore severity, we're seeing with <unk> is lower than the Delta variant.
And measures like average length of stay and resulting cost per admit are lower than during prior variance. This seems consistent with the lower acuity as seen in the national data.
One more item on trend influenza cases, so far continuing to be very low compared to a typical year.
Moving to other P&L and balance sheet items, our adjusted SG&A expense ratio was nine 2% in the fourth quarter compared to nine 7% last year. This was in line with our expectation that our SG&A rate would be the highest in the fourth quarter of the year because of open enrollment spending in both medical.
Their end marketplace.
Year over year improvement reflects leveraging expenses over higher revenues.
Some of you have asked about our SG&A rate in our mix of businesses. So let me give you some perspective relative to the midpoint of adjusted 2022 SG&A guidance of eight point over 5%.
First of all it's important to remember that we have and will continue to calculate our SG&A rate and margin metrics off of premium and service revenue, which excludes the forecast at $6 billion of pass through revenue.
And as we covered at Investor day, we're breaking out depreciation from SG&A in 2022 and reporting it on a separate income statement line.
We expect depreciation to run a little under $700 million for 2022.
On an absolute basis, Magellan increases our SG&A rate by approximately 20 basis points, our international businesses increase it by a little over 30 basis points and our other healthcare enterprise businesses increase it by about 10 basis points, meaning the midpoint of our adjusted SG&A rate for 2020.
Two excluding those businesses would be in the mid sevens and our value creation plan is focused on driving that lower over time.
Cash flow provided by operations was $675 million in the quarter, primarily driven by net earnings we continue to maintain a strong liquidity position of $2 3 billion of domestic unregulated cash on our balance sheet at quarter end.
Furthermore, we closed our $2 6 billion Magellan transaction right after year end, which used our available unregulated cash.
Our goal continues to be to build cash at parent beginning in the back half of 2022 for additional share buybacks and debt pay down.
On that topic as Sarah mentioned during the fourth quarter, we repurchased approximately $200 million of our stock using proceeds from the sale of our majority stake in U S Medical management.
<unk> quarter end was $18 8 billion, our debt to cap ratio was 49%, excluding our non recourse debt.
Our medical claims liability totaled $14 2 billion at quarter end and represents 52 days in claims payable compared to 51 in Q3.
Our balance sheet remains strong and we expect it to strengthen even further as we improve margins and generate cash flow.
As we begin 2022, we're building on the positive momentum from our fourth quarter results as well as our organizational commitment to the value creation plan.
We are reiterating our full year 2022 financial guidance, including expectations for adjusted earnings per share of $5 30 to $5 50.
As you think about the seasonality of 2022 earnings it looks like consensus is about 58% of adjusted EPS in the first half of the year and 42% in the back half and that's a pretty good proxy for our estimates.
And as you heard from Brent we are pleased with our execution in the annual enrollment period for Medicare and marketplace and are well positioned to achieve our 2022 membership expectations.
Overall.
Our 2021 performance demonstrates the strength and agility of our organization as Sarah touched on we have a lot of work in motion to drive our multiyear financial commitments and the value creation plan.
We look forward to updating you on our progress as we move through the year.
Thank you for your interest operator, Rocco can you. Please open the line for questions.
Absolutely.
As a reminder, if you wanted to ask a question. Please those calls and one on your Touchtone phone.
They're usually please recall we ask you please pick up your handset before pressing the keys to withdraw your question. Please first of all of them too.
Today's first question comes from Josh Raskin of Nephron Research. Please go ahead.
Hi, Thanks, good morning.
Just wanted to follow up on the process around potential divestitures of noncore assets and I understand the complexity. Sarah that you mentioned I think I'm, specifically interested if theres an opportunity to include certain pbms assets as part of this RFP process that you're starting and then if you could just remind us on thoughts on international as well.
Yes, absolutely.
So as we've said there are no exceptions to the portfolio review process are being very clear eyed about all of those noncore assets and.
We really used U S. M M to codify that process and then we've been prioritizing sort of the largest and most independent of the assets, which is why you heard an update on international.
I'm sure you can appreciate for specific updates on execution phase are not always going to be able to be shared incrementally. So we'll definitely share updates with with you that we can as we have them.
On the PVM front, our strategy there overall has not changed.
So you know.
The various TVN assets, including the inbound Magellan assets are going through that portfolio review process.
We will be subject to the same criteria's as all the other assets so stay tuned for more updates on that.
Great and just a quick follow up can you just remind us any rfps that are coming up in the next year or two where centene is the incumbent.
Okay.
Well first of all we're waiting to hear award.
In Louisiana, So still way doing that no timetable or update but waiting on Louisiana is award.
We are anticipating the California RFP to be released this month and we've been preparing for that.
Okay.
Our next question today comes from Stephen Baxter with Wells Fargo. Please go ahead.
Hi, Thanks, so the commercial MLR and the new disclosures improved quite meaningfully versus Q3. So obviously that runs against the typical seasonality here appreciating the commentary on <unk> I was hoping you could talk a little bit a little bit about how utilization versus baseline levels trended from Q3 into Q4, and then I guess also whether theres any kind of revenue impact.
Consider since it looks like <unk> are up a little bit and then any impact from stuff like favorable development you'd flagged just trying to understand the moving parts first quarter utilization in the quarter. Thank you.
Yes sure. Thanks.
Q3, as I said in my remarks.
That's when we got hit with a delta variant largely sort of peaking in August .
And marketplace, which is the vast majority of that commercial line item.
Sort of took it the hardest in terms of the relative peaks compared to prior variance and it was the opposite of that with the the omicron variant, which started in the back half of December So I think thats the Q <unk>.
Largely the Q3 to Q4 progression that you are observing in that table.
Thing else notable in terms of.
Prior period development, we seek to reestablish at similar levels based upon consistent reserve methodology. So I think that was the driver of that that caused that.
Yeah.
Rocco.
Yes sure.
Question today comes from Jonathan Fishman with Bank of America. Please go ahead.
Great. Thanks.
I was wondering if you could talk little bit about the exchange.
But at least one of your competitors scaling back pretty significantly kind of highlighting irrational pricing on the exchanges. So I think you talked about being able to improve margins. This year can you just kind of.
Remind us where your margin target is for this year versus that long term target and how.
How much of getting to that long term target.
Based upon what you have in control or whether some of that is based upon.
If you agree that some people are rational that pricing broadly speaking.
Returning to a normalized rate.
Yeah.
Yes, good questions in there all around marketplace as we sat here over the summer of 2021 and.
With new product development, we're thinking about how to respond to competition and continuing to hone our our portfolio for marketplace coupling that with a more disciplined financial bid approach at least for those.
Bids that were still open in that timeframe.
We expect no meaningful movement and that H B R going from 2021 to 2020 to sort of walk you back to our Investor day.
The conference that we were add on January 10th.
We expect about a 500 basis point improvement year to year in our commercial so that commercial line.
Yeah that's.
We price for and expect to execute on our.
Pretty meaningful improvement, which still won't get us to our final destination that.
That 5% to seven and a half pre tax zone for marketplace. So it'll be a meaningful move in and of course, there were some things that we we got hit with a 2021 that won't reoccur that will be part of it but we made conscious decisions on pricing, which is why we're so pleased to be.
$2 million plus in terms of membership.
Coming out of the open enrollment period.
Thank you. Our next question today comes from AJ Rice.
With credit Suisse. Please go ahead.
Yes, hi, everybody. Thanks for taking my question.
Taking the prepared remarks.
It was mentioned that Medicare.
Margins HBO or do you think will improve in 'twenty three and beyond.
I guess I would just wonder if you could flush out more what are the levers to allow that to happen is it an expectation about improvement in star ratings.
Expectation of some of the rapid growth you've seen recently some of those members maturing.
It is a little flavor for.
You have the visibility in 'twenty, three and beyond improving and maybe my follow up would be just to flesh out I know Brent mentioned, the California, RFP Theres been some discussion in the press about potentially a preemptive deal with.
Kaiser.
Just any any assessment.
Alright the process.
Gasoline about that you'd like to call out or highlight or give us perspective on.
Hey, Jay I'll start and then I'll kick it over to drew.
In regards to I think the announcement, you're talking about which caused a permanente, we do not subcontract with kozberg until you're in California. So it does not change our RFP strategy or any of our approach into procurement that will be forthcoming I will turn it over to drew yes, then on Medicare, Yes, a J, it's sort of a comprehensive.
<unk> plan, which touches the number of the areas you mentioned, so it's not just pulling clinical initiatives and we've got a slate of dozens of those initiatives that.
We brought from other experiences and we've seen work in other places. It's also the bid the bid process and quite frankly, having a little bit more of a discipline and a trade off between growth and margin.
And what I'm pleased that as our base of business is 55 zero per will be 50% higher coming off of the 2021 and 2022 open enrollment periods. So.
We expect growth to slow considerably in Medicare, but that's a heck of a base to then approach the margin expansion opportunity and so the.
The bid process.
Pushing towards margin it will be a multiyear effort, we're not going to try to go get it all in one year, because we got the balance of the attractiveness of our products Youre right to mention star Starz will be a little bit more volatility over the next few years. The star scores that were released in 'twenty, one called the rating your 'twenty, two which results in 2023 revenue.
Look good now we were aided by the disaster relief provisions and between that and some other operational challenges. These star scores that are released in October of 2022 called the rating year 'twenty three star scores, which resulted in 2020 for revenue we.
<unk> as I mentioned on the third quarter call those to drop and we've got a lot of work to do to improve our execution around stars as we look at what we can impact today are essentially the rating in your 24 stars for revenue and 25, So we'll have to manage through that.
Those cycles, but there are a number of levers to pull and clinical initiatives and just as Brent mentioned earlier.
Harnessing the assets of the combined company and continuing to push our push for excellent operational execution.
Thank you and our next question today comes from Scott Fidel with Stephens. Please go ahead.
Hi, Thanks, good morning, everyone.
Actually just quickly wanted to tack on.
<unk> question is just on the Medicare margin side, just wanted to get your initial thoughts on the advanced notice that just came out.
For 2023 keep pretty solid from my perspective, but just interested in how that reinforces.
Your confidence on on sort of getting that that that margin improvement in EMEA.
And then just as a follow up.
Just I appreciate the color that you've given us on the year over year expected change in MLR for commercial.
Just interested if there's anything you'd want to call out for us in thinking about Medicare and Medicaid MLR in.
2022 versus 2021 obviously now we're all going to be tracking those metrics closely now that you are providing them. So just if there's anything you want to call out ahead of time that would be helpful as well. Thanks.
Oh, yes, absolutely in fact point you back to the Investor Day, Slide where we gave a specific bridge by major line of business of H B R progression.
You know from from 2021 to 2022, and so if you do the math that shows the impact on the entire <unk>. So if you.
Divide that by the percentage that that business represents you get to the 500 basis points in commercial Medicare we expect around flat you know once again, we didn't price to improve nor do we think it will degradation in 2022 and that creates an opportunity for 'twenty, three and beyond and Medicare.
And then in Medicaid we talked about the last few times, we were in public forums talking about a reversion to the mean in utilization returning.
To a more normalized H b R and Medicaid, which would be up about 130 basis points year to year, you see that represented in that waterfall from our Investor day slides at 90 basis points, but that applies to the entire H B R. 130, if you just isolate.
Medicaid itself.
And then with the advanced notice.
What it does demonstrate is bipartisan support for the Medicare program and agree those those rates and elements. So far we expect to be workable for <unk>.
Next year.
Thank you and our next question today comes from Joseph Wolf Research. Please go ahead.
Thanks, Good morning, I actually wanted to follow up through on your comments around Medicaid specifically when you talked about margin normalization.
130 basis point move is pretty significant in Medicaid can you give us an idea of where those margins were in 'twenty, one and where you expect them to kind of normalize.
In 'twenty two to start up.
I think youll have to Orient yourself to the H, b ours and sort of track in that manner.
And don't forget we also had pharmacy carve outs and a couple of our states. So that was not insignificant the impact of that especially in California. So that that was sort of a progression a mathematical.
Progression right off the top and then yeah, we're making forward estimates of.
We see returning at least at Merck like emergency room access for Medicaid on the emergent side. So things that are truly emergent that has returned.
Non emergent, we think theres still an opportunity to keep some of that suppressed and redirect members to the PCP and physicians. So it's it's a culmination of forward estimates.
And our view into the rate.
So the rate environment for Medicaid.
Okay, maybe again I don't want to pin you down on the 10 basis points, but versus one of your peers talked about.
Margin target closer to 4% most of the others talk about kind of a mid point closer to three maybe you can help us just kind of orient to that in terms of what you think normal is.
Yeah going back to our June Investor Day, where we first laid out our north star margin goal of three 3% after tax and sort of explained that's 4.4 pre tax.
Medicaid is going to be able to below that but I can't be too far below that because it's over 60% of our business. So maybe that helps you frame.
In your models the different businesses Medicare would be above the average in that marketplace.
The highest of the three at the five to seven and a half pretax zone.
As far as long term targets.
Thank you and our next question today comes from Matt Borsch of BMO. Please go ahead.
Yes, maybe if I could just.
Continue on.
Medicare advantage product.
Should we take as.
From what Youre, saying that youre going to be more conservative.
<unk> planned to be in your approach on bidding Medicare advantage for 2023.
And so.
<unk> added with the follow up if you could just talk about the level of intensity of competition.
In Medicare advantage today.
I'll tackle the first piece and then Brent is really close to this on a daily basis and competition can can follow up.
I think Matt by definition, if we're going to be seeking to expand margin.
Obviously, there is a tradeoff there, which you shouldnt expect us to grow 30% like we did last year in terms of membership, which was just a phenomenal topline result, but now he's got to come.
Some of that to deliver on margin so yes by definition.
We will be pushing margin harder in 'twenty, three 'twenty, four and 'twenty five bids than we did in the 'twenty, one and 'twenty two bids and that's just sort of the opportunity that stands in front of us.
Theres always going to be competition, whether it's Medicare advantage or whether its marketplace I would say, though that the smaller players are Medicare advantage really did not have a minimal impact in regards to our results in our growth but.
But we feel good about our positioning and over 22 and ongoing.
Yeah.
Our next question today comes from Ricky Goldwasser.
Morgan Stanley . Please go ahead.
Yes, hi, good morning.
As we think about it.
In 2022 from from what we saw you meaningfully invested into very rich benefit. So how should we think about sort of Medicare margins. In 2022, maybe you can give us some based on that we can think of as we're thinking of that margin expansion opportunity in 'twenty three.
And beyond.
Then if you can comment on just what you're seeing.
<unk> utilization versus baseline and how is that factored into 'twenty two guidance.
Then in terms of use of your acuity and acuity levels. Thank you.
Yeah, Ricky I think I'd ask you to Orient to the.
Macaire H B R that we disclosed for 2021, and our expectation of that being you know sort of in the zone of flat consistent 21 to 'twenty. Two that's that's been explained at Investor day, It's one of the pieces that our guidance is predicated on.
And then then yeah every every on utilization.
Every wave omicron or every COVID-19 wave since the beginning.
There is a the.
The deferral services are less and less impacted doesn't mean, we don't think there are channel checks tell us that there are surgeries that were are being rescheduled for February that would've otherwise been done in January but.
The providers are getting more and more resilient in terms of being able to manage both so.
Theres been a continuing return to call it normal utilization over the past six to nine months.
Some areas arent fully there like I mentioned, the non emergent emergency room, which is good and hopefully that's a structural change for the industry.
We're certainly working with our members and our physicians to try to.
You know get members to engage directly with their physicians for non emergent services, but.
All of that's factored into the progressions of our H b ours that we laid out at Investor day.
Uh huh.
Thank you and our next question today comes from Steven Valiquette with Barclays. Please go ahead.
Great. Thanks, good morning, everybody.
Question around Medicare advantage and obviously the early CMS data looks promising for <unk> MA membership growth for 'twenty two.
Just given the greater than average industry volatility and this year's Medicare AEP. Just curious if you can remind us just on San teens profile on how much of your tip.
Typical MA membership growth is maybe driven by internal sales efforts versus reliance on external channels and do you expect any notable changes in that mix going forward just given some of the vol.
Volatility that we're seeing in other trends across the DMA marketing efforts.
Yeah, we're not really seeing that volatility you're referring to I mean, we've got multiple channels the.
The Medicare team over the past four or five years has developed multiple channels. The W. Two workforce going back a long ways back and then more recently in the last three or four years Tele digital.
Got it.
We actually created our own direct to consumer.
Proprietary internal capability, that's another channel we've got the brokerage channel, which we honed probably a few years ago. After the Universal American acquisition. So we've been working on this for a number of years and then you know the merger with Centene gave us as Brent mentioned access to a much broader foot.
And quite frankly network.
To complement what Wellcare had.
Built along the way so.
Just to give you one data point or I think what you're getting at is sort of that that distribution channel of tele digital and telemarketing.
Half of our sales, but it was about half of our sales last year or two so not not a real change.
The distribution of where we're getting our growth from.
Thank you and our next question today.
Windley at Jefferies. Please go ahead.
Hi, Good morning, Thanks for taking my question I was wondering in Medicaid.
If you are able to do analytics that would would either tell you explicitly or give you.
Hence as to which members were likely to be re determined off when that when that turns back on and as you can see that what are the relative claims patterns of those people are the HB are on that that subgroup versus the whole. Thanks.
Yeah, No obviously, we've been thinking about that and while there are some characteristics. We don't have good employment data on those that may have.
<unk> got an employment sense. They originally qualified for Medicaid.
Yes, theres some theres some cohorts such as moms post delivery in some states depending on state eligibility rules that they might have otherwise rolled off at a certain point postpartum. So we can look at some of that but.
But there's not it's not like you've got a cohort.
That we're getting.
With a rate sell that says you know to be re determined in the future.
So we can make estimates of that and we've seen over time the impact of of eligibility going up and down the SPL scale, but.
We think we're well prepared for that time when it comes we will see if it pushes out past our may 1st assumption, which our guidance is built on and the teams are really focused on.
25 out of 29 states being prepared and I think Brent can probably add some color. Some interesting color for you guys on our engagement with states on that topic.
Yes, I mean, we have been in constant contact are well starting last year with both the federal government and obviously, our state partners and as drew said, we've really built.
Our platform between our exchange through to Medicaid and from that standpoint, whether its network and communication and planning we preparing for this so when whenever that date is.
We believe that we have the ability to really be a solution as people want it obviously states want to make sure their citizens have health insurance coverage and we've been working with them and we're preparing for it.
Okay.
Thank you and our next question today comes from Nathan.
<unk>. Please go ahead.
Hi, good morning, Thanks for the questions Joe could you, maybe just remind us whether the 'twenty two guidance includes any expected savings from the value creation plan I think going back to the December analyst day. The SG&A Bridge had 15 basis points of leverage on the core business, but I wasn't sure if that included anything.
Specifically from the program and then it sounds like the company is tracking well against the early guidepost that you laid out, especially around pharmacy I guess I'd just be curious is there a potential to see savings from some of those those actions. This year as we think about progression over the balance of the year.
Yes, it's a really good question on sort of the jump off point, because we're crystal clear internally also the midpoint of $5 40 for 2022 as a jump off point upon which we will pull levers to get the $2.
Of opportunity the opportunity, including the SG&A bucket that $700 million of SG&A bucket that we laid out at Investor day. So.
Those should be incremental.
Largely.
<unk> up in 'twenty, three 'twenty, four but incremental to the jump off point of the $5 30 to $5 50 guidance and sarokin.
Give you an update on some of those activities.
Yeah. As you noted we are making good progress.
We are very focused on hitting those EPS targets for 'twenty, two 'twenty, three and 'twenty four and we'll always look for upside, but I think the way we look at it you don't get to kick the extra point. If you don't score the touchdown first so we're staying really focused on our goals first and foremost in year.
Thank you and our next question today comes from Gary Taylor of Cowen. Please go ahead.
Hey, good morning.
First I just wanted to say Hello to Michael and wish him well.
Wanted to see if there was any updates.
Please go ahead Ms.
Thank you.
Hey, Michael.
Im wondering if theres any update on CEO search and.
What's the timing you can provide I know there were five new board members.
In January but is that a is that likely a first half or second half announcement and is there any visibility for investors outside of just wake up.
One day, and we'll see who's the CEO of <unk>.
Let me start.
As opposed to Google.
Good.
Yes.
Hey, good candidates.
They recognize that sometime ago.
Please go ahead.
Talked about this.
Welcome to board.
Yes.
And if those businesses please.
<unk> two is more than that.
We'll be getting over our skis.
Is it clear choices and I hope to see as we go.
As we know.
Good day ladies.
Thank you ladies and gentlemen, our next question today comes from Collins with Jpmorgan. Please go ahead.
Yeah, Hi, good morning, just wanted to ask on the exchanges and the enhanced subsidies and any update on legislation and timing for something to get done there and just any sense for the likelihood that something will get done there in 2022.
Yes.
Okay.
And then.
Great.
Michael I'll start that and then I'll, let John <unk> speak from there I mean, it's clearly it's clearly a priority.
Clearly a priority of the by the administration.
This has clearly had an impact it's clearly led to large enrollments from that standpoint, we do anticipate there.
That there'll be many efforts and we anticipate future legislation, but John I'll, let you add to that Sir.
Yes.
The one thing that's important is it had strong support that I mean out of the house also maintain that strong support in the Senate. So.
Clear recognition, especially by the Democrats that this was critical to strengthening the HCA and even the mansion proposal included this so.
Body, who guesses on timing is really doing that yet, but we still feel like.
Confident that if there is a bill that passed that this will be included.
Thank you and our next question today comes from George Hill of Deutsche Bank. Please go ahead.
Yeah, Hey, good morning, guys and thanks for taking the question just on the PVM project I guess as the project continues to press along are you able to give us any more color maybe on which parts you feel like you want to in source versus outsource do you feel like this is a complete outsourcing project or you guys hold on the higher value prop.
Projects like formulary network management, just kind of as we think about the scope of the RFP and the outsourcing project just kind of what stays and what goes.
Yeah, It's a great question and yes.
I would say, we have a pretty strong operating hypothesis going into the RFP about what pieces, we want to.
Partner for unless you want to keep in house, but we're also doing a pass at that work through the lens of value creation to make sure that.
We still feel like that hypothesis holds and I think some of that will also be informed quite frankly by the conversations that we have with potential partners through the RFP process, but I would say on an on balance keeping those capabilities that allow us to create a differentiated experience for our members and prior providers is always going to.
The priority.
Thank you ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to the management team for any final remarks.
Thank you well thank you everybody.
Good day.
We look forward.
Thank you.
Please go.
Quarter results.
I believe we have the right.
Got it.
The right strategy.
Yes margin expansion globally.
<unk>.
Hey, good morning, guys. These days.
Well most of the growth rate.
Has the right to.
Working all day.
Uh huh.
Because in the results.
Thank you please.
Thank you Sir and thank you all for your participation on today's conference. Today's call is now concluded you may disconnect your lines and have a wonderful day.