Q1 2022 Centene Corp Earnings Call
Good day and welcome to the Centene Corporation first quarter 2022 earnings results Conference call.
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I'd now like to turn the conference over to Jennifer Gilligan. Please go ahead ma'am.
Great.
Yeah.
Yeah.
As go ahead your line is live.
Thank you Rocco and good morning, everyone.
For joining us on our first quarter 2022 earnings results conference call.
Sarah London, Chief Executive Officer Brent.
Brent Layton, President and Chief operating Officer, and drew Asher Executive Vice President and Chief Financial Officer of Centene will host this morning's call, which also can be accessed through our website at Centene dotcom.
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 these forward looking statements as a result of various important factors, including those discussed in San teens. Most recent Form 10-K filed on February 22nd and other public SEC filings 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 first quarter 2022 press release, which is available on the company's website under the investors section.
Additionally, please mark your calendars for our upcoming Investor Day scheduled for June 17th This meeting will be hosted in a virtual format available via webcast.
With that I would like to turn the call over to our CEO Sarah Lynda Sara.
Thank you John .
Good morning, everyone and thank you for joining us as we review our first quarter 2022 results.
I want to begin by acknowledging the passing of a great man, Michael Neindorf, whose leadership and passion built centene into the purpose driven market leader that it is today.
Michael infused our entire organization with the belief that high quality affordable health care should be within reach of every American, especially our nation's most vulnerable.
On behalf of the entire Centene team I want to send our thoughts and prayers to Michaels family.
We will miss him dearly, but I can assure you that Michael's legacy lives on and the men and women of this company and our commitment to his vision has never been stronger.
On our call today I'll begin with an update regarding the Companys leadership structure.
Touch on first quarter highlights and then provide you an update on strategy and our value creation initiatives.
Brian will speak to our performance in our core business lines and finally drew will review our financial results and full year 2022 outlook in more detail.
First the company's core leadership structure.
We are updating this morning, the construct of the office of the CEO .
This group of individuals represents the most experienced strategic and senior leaders of the organization, who will assist me in setting policy and driving forward Centene enterprise agenda.
The office of the CEO includes myself Brent.
Brent Layton, our president and Chief operating Officer drew.
Drew Asher, our Chief Financial Officer.
Jim Murray, our Chief transformation Officer, who will take on expanded responsibilities. In addition to our value creation office and Ken Fasola, who in addition to leading Magellan will assume oversight of our portfolio of strategic non health plan assets.
This construct with key support from our Chief administrative officer, and General Counsel Formalizes, the manner in which we've been operating for the last several months and represents the agenda setting nucleus of the organization as we enter the next stage of transformation and growth.
Now, let's discuss our first quarter results.
<unk> delivered a strong first quarter performance, including adjusted diluted EPS of $1 83 up 12% compared to the year ago quarter.
We closed the quarter with $26 2 million members up 8% compared to the year ago quarter, demonstrating the strength and value of our products in the market and the success of our enrollment periods.
As a result, we are raising our full year 2022 outlook from our previously provided range.
We now expect our full year 2022, adjusted EPS to be within a range of $5 40 to $5.55.
Drew will provide more details on the quarter and outlook in a few moments.
Now to strategy.
Over the last few months the opportunities to optimize and strengthen our business have become even clearer.
We remain hyper focused on executing our value creation plan with many work streams, well underway and clear milestones ahead.
At the same time, we are refreshing our long term strategy in order to pave the way for growth beyond our 2020 for horizon.
As we have said before focusing on our core business and prioritizing value creation are not just short term ideas. They are pillars of and critical inputs to our long term strategic vision for the company.
Let me give you an example.
For the last nine months you have heard US repeatedly talk about operating excellence is a focus of our value creation work at.
It includes streamlining platforms standardizing processes, modernizing systems and using data everywhere to be as smart as possible about how we do our work it means fewer calls fewer clicks and faster answers will it create SG&A savings absolutely.
Is that our measure of success now.
The real goal of operating excellence is to fundamentally improve the experience that members providers community and state partners have with Centene.
Success put simply is making it easier to do business with us.
For our members, we believe we can deliver more seamless and efficient ways to get the information access and care, they need when and where they need at Mt.
Our goal is to increasingly empower our members and their caregivers as agents and advocates in the care journey.
For our provider partners. We believe there is a significant opportunity to align more closely and value based partnerships and we are committed to delivering the data and tools that will help them drive better health outcomes.
For our state partners, we believe in being excellent at the basics.
But we also intend to leverage our uniquely local approach to deliver innovative solutions that are infused with an understanding of the communities we serve.
Sure Andrew.
And to help them succeed.
The goal across all stakeholders is the same to build lasting trusted relationships.
This has been a differentiator for centene from the beginning and we intend to build on this strength as we grow and innovate.
More to come on this during our June Investor day in the meantime, you should feel confident the work we do over the next three years will not only align with but naturally fuel our next phase of innovation and growth and we are designing and executing with that end in mind.
Now turning to specific updates on the value creation work, we remain on track to achieve our previously stated goals.
Jim Murray and his team are moving at a rapid but thoughtful pace to execute on these initiatives with tremendous support and partnership from both our corporate business leaders and our local team leaders.
While we are excited about our progress. We also ask you to recognize that some of these initiatives are complex and will take years to fully complete.
We are being deliberate using a step by step approach to ensure that standardization and operational enhancements are taking place in the right way across the organization.
This means that as we enhanced certain enterprise wide best practices. We will also preserve the local feel an approach that has served as this company's hallmark for two decades.
I'll give you a few examples of the progress the team has achieved in the quarter.
First we successfully hit our pharmacy platform migration milestones and are already engaged in strategic discussions with our potential P. B M partners about how to drive additional quality and value in delivering pharmacy benefits to our members.
Last week slightly ahead of schedule, we released the RFP that will cover our more than $40 billion of pharmacy spend in 2022.
We have made meaningful progress this quarter in evaluating our existing portfolio of real estate assets, given our commitment to increased work from home and flexible work models.
We are in the process of determining the necessary square footage to support our employees moving forward and anticipate a significant downsizing of our current leased space.
We have also advanced our efforts to centralized key functions, such as utilization management and call centers to enterprise shared services organizations.
To that end, we performed a lift and shift of reporting responsibilities for both these functions earlier this month for.
For the remainder of the year, we will be focusing on standardizing best practices and optimizing these operating models.
In addition to the savings opportunity. We believe these organizational chefs will create a better experience for our members and providers as well as our employees.
Lastly, and importantly, we've kicked off our efforts around large scale I T platform consolidation.
As you know Centene has grown tremendously through acquisition over the last several years.
And as we've mentioned before the resulting technology footprint includes multiple core platforms and over 500 support applications.
The conversion process will require a multi year staged approach to derisk the effort, but the opportunity for increased efficiencies is significant.
And while this will be hard work consolidation is necessary to enable the stakeholder experience we intend to deliver.
These are just a few examples of the nearly 15 work streams in the process of being activated.
As I stated earlier, we are very pleased by our progress, but recognize that we still have miles to go before we sleep.
Before I wrap up I would like to highlight a recent example of the work we are doing to improve health equity through data driven innovation.
In March Centene was one of three organizations, who received the innovation award by the National Committee for quality assurance or NCQA for our focus on health equity.
The award recognizes send teens data driven health equity improvement model for being a leading edge strategy for improving health equity and health care quality.
The effectiveness of our health equity improvement model represents success on many levels.
By using a data driven process, we are identifying opportunities to reduce health care disparities designing initiatives across community member and provider levels and tracking our impact.
These efforts can produce higher quality outcomes for our members and in turn improvement two important metrics such as heat of scores.
To highlight some examples centene health equity model was able to improve rates of immunizations for Latino children with our silver Summit health plan in Nevada.
Colorectal cancer screening rates for American, Indiana in Alaska Native members in our Arizona complete health plan.
And maternal health outcomes, among African American and Black members with our health net plant in California.
Health net has also been chosen to participate in NCQA is health equity accreditation plus pilot program.
Addressing health equity in new and innovative ways is very much aligned with our purpose and will be an important part of our work going forward.
Further applying big data to drive local outcomes will be a critical and sustaining differentiating strategy for the enterprise.
In closing I'm humbled by the opportunity to lead this exceptional team and company. We have significant runway ahead to deliver for our members enhance our operations achieve our financial commitments and create value for our shareholders.
With that I will turn it over to Brent who will provide an update on our core business lines Brent.
Yeah.
Thank you Sarah good morning, everyone.
Before I jump in I would like to build on Sarah's remarks, I've had the pleasure of working with Michael in iron ore for 21 years.
His impact on this company is undeniable and I will continue to be thankful for the opportunity. He gave me.
Also I'd like to take a moment to recognize this is <unk> first earnings call as our CEO .
And Sir I couldn't be more pleased to continue to work with you in your new role.
And I think I speak for the entire team here at Sun team when I say, we're excited about what the future holds for us as an organization under your leadership.
Now back to the business of the day.
I'm happy to talk about the performance of our core business lines during the first quarter.
In the first quarter, we have seen H b O or in line with expectations across each of our core products.
Our Medicaid business remains strong with membership increasing to nearly $15 3 million members at the end of the first quarter.
Contract re procurement wins in Louisiana and Indiana.
And as I'm sure you've all gotten here.
It used to me, saying, our Medicaid growth continues to be aided by the ongoing suspension of Redetermination.
As drew will explain further we anticipate the return of Redetermination in August .
We continue to work with our state partners to better understand how we can support this transition and are confident in our ability to retain and attract membership to our exchange products in 25 States, where we have both Medicaid and marketplace.
As states began to transition back to re determinations I believe we will begin to see new opportunities for Medicaid managed care programs as we move past the pandemic and states look to improve health outcomes and Medicaid programs more efficient.
And our exchange product fallen a strong open enrollment we end the quarter at over 2 million members. We are pleased with both our member retention and our new member enrollments.
As I discussed at the fourth quarter call, we introduced three new product offerings for the exchange in 'twenty 'twenty to these.
These products designed to meet the evolving needs of our members.
Formed in line with our expectations Sherman as both a tool for member retention and attraction as a means to provide member engagement and manage utilization where.
While we're pleased with the performance of these products are core and better product offerings remain the foundation of our exchange offerings.
We continue to monitor the administration's adjustment to the exchange market, including efforts to close the family glitch, which could allow an additional 5 million people to use tax credits to purchase marketplace plans.
In Medicare we ended the quarter following annual enrollment with more than 1.4 million members across 36 states.
Overall, we were very pleased with our strong growth for Medicare, yielding 200000, net new members and 16% membership growth year over year 2021.
We've managed well through another COVID-19 period at the top of the year as well.
As we continue into 2022 and beyond we see significant opportunity in Medicare our posts continue to be margin enhancement through clinic, a clinical initiatives network network expansion and value based contracting overall 2022 is off to a solid start across all three core products.
Let me turn the call over to drupes. Thank you Brent this.
This morning, we kicked off 2022 with first quarter results of $37 2 billion in revenue and adjusted diluted earnings per share of $1 83 in the quarter up 12% from $1 63 in Q1 2021 .
Let's start with revenue for the quarter total revenue grew by 7.2 billion compared to the first quarter of 2021, primarily due to strong organic growth throughout the last year in Medicaid and strong Medicare membership growth during the annual enrollment period.
Total membership increased to $26 2 million up 8% compared to a year ago. It.
It is important to note a couple of revenue drivers that were unplanned in the quarter.
First of all you will see that our premium tax revenue was 3 billion in the quarter, that's about 1 billion and a half more than we had estimated.
This was largely due to four states, providing lump sums for us to pass through to providers and remember this revenue item is interesting, but not relevant since it's a 100% pass through that's why we are constantly orienting you to the premium and service revenue, which drives important metrics like net income margin.
And SG&A percentage.
Premium and service revenue of $34 2 billion in the quarter was about 1 billion higher than our expectation with approximately half of it due to a Texas retroactive hospital pass through that CMS recently restored.
Theres a small administrative provision on this retro item. It's included in premium revenue not premium tax revenue.
The remainder of premium and service revenue outperformance was strong.
[noise] continued Medicare and Medicaid growth.
Our Q1 consolidated H B R was 87, 3% consistent with our expectation leaning slightly positive.
Since you now have visibility and comparability into quarterly H B R components, let's talk about each.
Medicaid at 88, 9% was right on track in the quarter.
Our Medicare H B R was slightly better than our expectation driven by a good quarter for our Medicare PDP business.
The PDP business may only be 2 billion in annual revenue, but it's a great asset that's the largest contributor to our over 40 billion of 2022 pharmacy spend.
And it's a good captive audience for our Medicare advantage business.
Right back to the Q1 H B R.
Our commercial business improved 420 basis points year over year, reflecting pricing discipline, and making progress towards the annual goal, we laid out at Investor day.
Moving to other P&L and balance sheet items, our adjusted SG&A expense ratio was seven 7% in the quarter consistent with our expectations compared to seven 6% last year.
The inclusion of Magellan and circle each increased the year over year ratio by approximately 20, and 15 basis points respectively. We.
We expect our value creation plan to drive SG&A lower over the next few years.
Cash flow provided by operations was $1 2 billion in the first quarter, primarily driven by net earnings our domestic unregulated and unrestricted cash on hand at quarter end was $68 million as expected after closing the Magellan transaction in early Q1.
Our goal continues to be to build cash at parent beginning in the back half of 2022 for share buybacks and debt pay down this corresponds with the timing of the majority of our health plan dividends.
Debt at quarter end was relatively flat at 18.9 billion our debt to cap ratio was down slightly at 47%, excluding our non recourse debt.
Our medical claims liability totaled $16 3 billion at quarter end up 2 billion and represents 53 days in claims payable compared to 52 in Q4 2021.
As we begin 2022, we're building momentum both in our businesses and our value creation plan and as you've heard me say many times one quarter doesn't make the year. However, we do have a quarter of actuals under our belt and we all know that the ph D has been pushed out to July and therefore redetermination would start after that.
So let's go through some changes we made in full year 2022 guidance metrics.
Premium and service revenue was up 2.5 billion, including the first quarter results. The Texas item, we discussed earlier and an assumption that redetermination commence August 1st three months later than our prior assumption.
Since we continue to grow due to the pushback of the Phe end date. We also expect the ultimate run rate revenue reduction to be higher at around 6 billion up from our previous estimate of 5 billion that will largely impact 2023.
Continuing on with 2022 guidance premium tax revenue once again with no impact on bottom line is up 1.5 billion for 2022.
And our H B R and SG&A ranges are reconfirmed in unchanged.
Overall, given the results in the quarter and pushing back the commencement of Redetermination, we are raising our adjusted EPS guidance range to $5 40.
$5 and 55.
With a little over 60% in the first half of the year.
As we look ahead I'm pleased with the value creation work, so far and as Sarah said this goes well beyond cost cutting.
Jim Murray and the team are making operational decisions and changes that are focused on long term durability of operating excellence.
You've heard this company talked for years about quality and stars and now better late than never stars as a tier one initiative of the value creation office with new investments being made in member engagement value based contracting operational functions and clinical initiatives.
Given the star calendar it'll take a couple of years for our investments to show up in star scores that come out in late 2023, which will drive 2025 revenue.
In the meantime, as we said in multiple venues the star scores that come out in late 2022 that drive 2020 for revenue will show a meaningful drop due to the sunsetting of the Covid era disaster relief provisions and are immature operations. During these past measurement periods.
Another value creation initiatives, we look forward to giving you more details at the June Investor Day, but let me give you a teaser on one that Sarah mentioned.
We are still finalizing the details we expect to reduce over half of our domestic leased real estate footprint, though there will be a one time cost to this which we will frame for you in Q2, the run rate benefit will be a nice contributor to our value creation goals more to come in June .
In summary, the business is performing well, while we are focused on enthusiastic about and investing in the future. Thanks.
Thanks for your support operator, you May now open the line for questions.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one you touched on so.
We're using a speaker phone.
Please proceed with your handset.
Yes.
There's another question has been addressed and I would like to withdraw your question. Please press Star then two.
So the first question comes from Justin Lake Wolfe Research. Please go ahead.
Thanks, Good morning, Sarah Congrats on the new role.
Wanted to ask a couple of things one on the MLR.
Youre, giving us MLR by segment, which is incredibly helpful. Can you could you tell us how those numbers kind of shake out versus your expectations. I know you expected the exchanges to get 500 basis points better.
Talking about Medicaid being at least year over year mitigated probably up more than 100 basis points year over year. So just kind of curious how those came out versus your expectations and then secondly on the Medicaid side, how are the discussions going with states on the rate setting process for next year do you still expect them to kind of let these.
Our floors.
Absorb whatever upside there might be or do you think the states are looking to two.
After the lower utilization potentially be at lower rates.
Okay. Thanks, Justin Yeah, so ripping through the the H b ours by our lines of business Medicaid was right on track in the quarter and we sort of expect that to tick up during the year and then the fourth quarter to come down a little bit that's the progression throughout the year you're right on.
Our commercial business, we expect about 500 basis points year over year improvement, we've got for 'twenty and the first quarter. That's right on track with our expectation last Q2 was pretty ugly for commercial so youll see a wider gap, there and or improvement there and we expect that to continue on for the rest of the year. So we're.
Right on track commercial and Medicare was a little bit better than expectation due to the PDP business not only in H B R. But I'm actually pleased with that business. We had the collapsed six of our products are down to three remember when you acquired that business a few years ago and after a few years you have to.
Get down to the three products and we had great retention based on some programs that were implemented so not just a and H b R. A benefit but also really good retention performance on that business and then the the sunsetting of the risk corridor as that continues where it is still down to about a half a dozen.
Covid era risk corridors and therefore, the paybacks, we're seeing have diminished quite a bit from last year and those discussions continue to be constructive.
Thanks for all the color.
Hello, Ladies and gentlemen, our next question today comes from John Ruskin with iPhone Research. Please go ahead.
Hi, good morning close enough.
So I just wanted to try and sandwich comments earlier about the provider network and how are you thinking about sort of network development and specifically curious about you know potential impacts from providers that are seeing pressure on labor cost inflation, and then maybe any specifics around the changes with respect to value based care in 2023 and beyond.
Yes, Thanks, I can take that and then we'll probably ask Bryan to comment on it as well so first relative to inflation impacts you know we haven't really seen anything so far this year are the fact that our rates are contracted creates a buffer on that but obviously aware of the potential future impact and it's yet another reason why.
I, then move more aggressively to align with providers in value based contracting is a major priority as we go forward and we've made really good progress on that and I think probably you know relative to peers are further along on the Medicaid side, but I'll, let Brent talk about kind of where we are today and then how we're looking about at that going forward.
We're spending a great deal of time working with providers on value base and when I talk about value based I'm talking about risk both up and downside.
And I would say that in Medicare. We've continued a very strong efforts. So we've always been very focused on value based true risk in Medicare and we're continuing that accelerating that.
Medicaid, though is really discussions as we moved into the pandemic and now coming out of the pandemic have allowed us to really be a very high percentage for the Medicaid product and I think youll continue to see tremendous growth for risk within Medicaid and right now we're looking for the best approach within the exchange. So we're very focused on value based and Theres a tremendous.
Amount of effort I'm very excited where ultimately our conversations relationship with providers are going on where they're at today.
Okay. Thanks.
Ladies and gentlemen, our next question today comes from Scott Fidel with Stephens. Please go ahead.
Hi, Thanks, Good morning, and first of all I just wanted to send my condolences on Michael's passing to the <unk> team.
And then on the question I was hoping maybe you can give us a little more insight into some of the the policy dynamics that are playing out here around the.
The exchange market and Brian I know that you had touched on one of those with the administration looking to try to address the family Gladstone.
We've also obviously got the temporary subsidies that were in place from the ARPA Bell and those may or may not expire. So just interested on how youre thinking about some of these policy developments playing out and how much flexibility the administration will have to implement them.
<unk> just through executive actions or will there need to be a legislative vehicle to address some of these and you see one of those actually emerging here right at this point in time. Thanks.
Yeah, Scott Thanks for your comments and for the question.
So I'll touch on our the enhance a P. T. CS are relative to market place and then we can talk about the family glitch as well and so that then has a P. D. CS are currently sky scheduled to expire at the end of this year and if those are allowed to expire we estimate that it would impact around 10% to 15% of our marketplace membership.
That said there is broad Democratic support for the program and so as you pointed out over the next couple of months, we're watching very closely to see if they can identify and actionable legislative vehicle and so one example of that would be a slimmed down and build back better and the prevailing view is that the enhanced a P. T. C is being extended out to 2025.
Five as well as drug pricing reform would be the most likely health care candidates for inclusion in a bill like that so you know watching that certainly very closely over the coming months here, but I would also say that you know we don't see it as a binary endpoint on their other legislative and policy options that are available to mitigate the impact. So we are.
Talking to our state and federal partners actively about those in parallel and so you know as you would expect overall planning for both best and worst case scenario and proactively working to support and shape policy. That's not just good for Centene, but policy. We think is good for the entire industry and I will turn it over to Kevin Coen of Hana is on the phone to talk a little bit more about the fab.
Glitch and how we see that as an opportunity for am better product, but also some of the hurdles that we would need to overcome in order to make that as actionable as possible.
Thanks.
Good morning, we're very pleased with the administration's policy decision on the family Glitch.
Folks probably know we've been advocating for this for quite some time and it's it's really a long overdue. So it's a it's a very welcome change.
As mentioned there clearly are some issues related in the draft final rule that we're working very collaboratively with CMS in terms of addressing.
You know so much of health care policy is about should be about simplicity, and making things easier and simpler for individuals and families to access affordable coverage.
We believe the spirit of the of the family Glitch provision.
Temps to do that but also believe that there's opportunities for further refinement and as I said, we're working very aggressively with CMS and constructively to address those.
Thank you and ladies and gentlemen, our next question today comes from Matt Borsch of BMO capital markets. Please go ahead.
Yes. Thank you I was hoping you could help us.
I think about the headwinds from the dropped expected drop in star revenues going into 2023.
How you may have.
Anticipated and incorporating that into your bid for 2023, I know thats confidential, but maybe just some sense directionally you can give us on that.
Yes, it's a really good question actually it's a 2020 for question 2023, So the star scores that came out.
In October of 2021, they're called the rating your 2022 star scores, which is revenue 23 those were in good shape, obviously aided with a tailwind from the disaster relief provisions.
So those sunset as we go into 2024, and then some of the measures where quite frankly, we just werent operating at the level, we need to operate back in the back half of 2020 for ops in admin measures and then 2021 days of service, which fuel the rating year 'twenty three.
Star scores, which is revenue year 24. So we're we're enthusiastic about margin expansion opportunity for 2023, and that's sort of we're trying to balance that with a little bit of growth in Medicare advantage for 'twenty three and then we've got a hurdle for 'twenty 'twenty four and you know our jobs as managers.
Not victims is to execute and pull levers and the value creation plan is designed just to do that.
Yes, thank you very much.
Matt I was just going to add a little bit more detail on and Andrew touched on this in his comments, but sort of as we look forward right. Because it is a multiyear effort is our ability to focus on it and make it a tier one initiative right now is very important to making that sort of a meaningful rebound them. So you know we think we've talked about this before but we hired a chief.
Holiday Officer in Q4 of last year and are making real investment in processes and systems with a focus on the member experience, but I would also highlight this as another a great motivator for alignment in value based contracts with providers because that's the best way to improve the member experience and make sure. We're closing those gaps in care.
Great. Thanks.
And our next question today comes from Kevin Fischbeck Bank of America. Please go ahead.
Hi, This is Adam brought on for Kevin. It seems like you were largely able to improve your exchange margins and hit the <unk>.
The target that you outlined so I'm wondering after the open enrollment experience that you had if you've noticed any.
Increased price competition, and if you would expect that to continue and how you're thinking about growing office space setting aside the exploration of subsidy.
Yeah. So there's certainly competition you've seen that increase in some markets exponentially in the last couple of years.
I think some companies are figuring out that this at the at the core is an insurance business and so you've actually got to get to an earnings standpoint to have a viable business and I think that's going to help the market sort of balance out a little bit better as we look ahead, but you're absolutely right. We powered through that competition, we welcome competition.
And Brian maybe a couple of new products that helped us helped us diversify our portfolio.
Yes, I mean, we actually raised our premium we increased it but yet we were still able to grow and be successful in our markets from the standpoint.
Some of that has to do with the new products that we developed one of the products was more of a clinic focused in south, Florida and in Texas and also more of a tailored network approached we use did not help us retain members. We've been also not only grew we retained a great deal of our members year over year, which we're excited about.
In fact last year, we grew a great deal through the bottoms up and we actually have been able to retain 69% of those from 'twenty one into 'twenty, two so retained growth and being able to vary very much bring new product had really helped us retain and keep her membership in actually grow even if we raise premiums.
I I pointed this out before but I'll do so again, because I think it's an important bellwether that the work that the that the marketplace team did to really understand the competitive dynamics on a county by county level, and then to build that up to the portfolio performance that we were aiming for I think is not only tremendously impressive work, but there's also other.
Indicator of how we think about going into the calibration of margin and growth in Medicare in the upcoming bid cycle.
Thank you and our next question today comes from Gary Taylor of Cowen. Please go ahead.
Yeah.
Hi, good morning.
I know Michael will be missed so I'll share my condolences as well.
Just a two part question first drew I appreciate the comment on the Medicaid H B R seasonality.
The commercial H B R seasonality was so unusual.
Last year I, just wondered if you could.
Comment on expectations for that line of business, specifically, we will see a more typical seasonality, where it's far lower in the first quarter first half and higher in the second half second part of the question was just we reach so much noise about the California P. B M implementation with.
Magellan, having having gone poorly initially and just wondering if you could comment on what you're doing to mitigate that and can you provide any comfort that you know it wont have impact on the August Medical Award.
Let me hit the mechanical question first you're right last year, we sort of whipsaw it quarter to quarter in our commercial performance I'm not part of that is you know COVID-19 variance coming at us and and so I'll say everything else equal Gary.
We expect a steady tick up based upon the benefit plan designs in the commercial business as you would expect throughout the year, So a steady rise to get to our goals.
Yeah, and then on the Magellan front and you know I would tell you that the team out there worked very very closely with the state in those early days of go lives and it's been performing very very well since mid to late February they're zero backlog in authorizations.
And and I think has built a really positive relationship with the state through that collaboration and you know relative to the RFP. It you know, California is a very important state for us and we have throughout the Magellan acquisition process throughout the Rx go lives and throughout our bid process. You know have been very focused on making sure that we are aligned with.
The state and meeting their expectations and looking to exceed their expectation. So there are challenges out of the gate, but I think the team are covered incredibly well and you know you'd have to ask California, but at least the signals. We're getting from them is that they're very happy with the collaboration and the partnership.
I'll add one thing obviously, California is a very important state to centene.
But we are very fortunate to have many years of experience in California, and we're honored to be in California, and we have a lot of preparation for this RFP, we've been preparing for it for a very long time, and we strive every day to be the best Health plan in California, and that is our goal and that's what we want to obtain and will be.
Thank you and our next question today comes from Nathan Rich Goldman Sachs. Please go ahead.
Thanks, Good morning.
Sir I wanted to a follow up on some of your comments on the value creation plan to start you you mentioned, putting the pharmacy RFP out I guess could you maybe at a high level talk about the key elements of that RFP and you know what you're looking for in a partner in and kind of where you see the biggest opportunities for cost improvement in your.
Pharmacy booked and then maybe a bit longer term, but you talked about refreshing the long term strategy to drive growth and I know you'll get into more detail in June but could you maybe just talk about some of the key areas that you're looking at when you look at the business in terms of where you see the opportunity. Thank you.
Sure. Thanks for the question so I'll hit on the P. B M front and invite drew to weigh in as well because we've been having these conversations with potential partners together and you know where we issue. The RFP early we're still on track for the year and award, but part of the logic of getting the RFP out there earlier was to allow for more strategic conversation about what the.
Scope would be with that partner and you know that the key criteria are obviously going to be quality and performance transparency is incredibly important and then also feeling like we have a very close partner and so you know economics are incredibly important probably first second and third but then also making sure that you know as we do.
Liver, a member and provider experience that we have a very responsive partner that is is focus on quality as we are.
Andrew if you want to add anything no I think you hit on the key word which is partner don't want have to arm wrestle every other month on issues and really want someone in tandem thinking about how we can deliver the most value to our state and federal customers and our members.
So pretty pleased with the level of engagement so far.
And then on the strategy front you know obviously, we will get more into this in June and and I think more over the back half of the year, but you've heard us lay out some of the principles and so making sure that we are you know growing from the strength of our core business lines and looking at obvious Adjacencies and then.
Making sure that we are operating at a high level of excellence you know on an ongoing basis, because we believe that will build the trusted relationships and through that local approach can give us a differentiated strategy for growth so more to come in June on that.
Thank you and ladies and gentlemen, our next question comes from AJ Rice of credit Suisse.
Please go ahead.
Oh, Hi, everybody I'm just wanted to follow up first a clarification on <unk> comments are made about the Medicare bid strategy. I think previously you guys have said that your focus in 'twenty <unk> three will be on pricing for margin I Wonder if you would still say that that would be the case and then warbler.
<unk> question, you referenced in the release that Medicaid utilization seems.
It seems to be returning to somewhat normalcy, I wonder, where you add relative to our pre pandemic level or a a baseline level on Medicaid at this point do you think you are fully sort of where you would be or is there still some utilization that has not come back in if you want to make.
Any comments on Medicare and the marketplace as well on that that'd be great.
Sure. Thanks, a J I will just clarify relative to Medicare or the focus is absolutely on margin I'm still preserving slight growth that really starting to turn the dial on margin expansion and it's a true I said before is a multiyear journey, but it starts in 'twenty 'twenty, sorry, Gerry do you want to talk about utilization yeah sure Yeah, we're pretty.
Back to you know sort of the pre pandemic levels on Medicaid, Let me give you a couple of examples like pediatric physicals and preventative that snapback pretty quickly which is a good thing in 2020.
But the adult visits are still lagging a little bit and then E. R has come back for all business lines.
Except for non emergent and ER visits and Medicaid. So theres a couple pockets, where there is still a little bit of a slight suppression, but we're largely back to pre pandemic levels. As we look at you know utilization metrics.
Thank you and our next question today comes from Michael Hall with Morgan Stanley . Please go ahead.
Thank you guys and my condolences as well to Mike on the <unk> team.
So my question two part question on Medicaid pipeline.
First with a number of upcoming Rfps.
Wondering if you could highlight which near term opportunities are top of mind to us it looks like they're mainly re procurements, but are there any specific upcoming greenfield opportunities you've got island and then.
Part a question of time, firstly, congrats on the appointment I know Michael's and speaking about 17 is more than just a health plan with mom and you know with your extensive background in health care Tech really looking for it I shouldn't the company forward, but yeah looking at Medicare typically in continuity up could you talk about how you can help too.
To your other companies arent you been raised that has been around 80% for the better part of the past decade.
So the best person to answer that question and the answer to your second question is Brent [laughter].
There's no doubt the Medicaid RFP pipeline is reopening a it's much more like a 2017 18 and 19 and clearly the pandemic slowed down re procurements in 2020 one.
And with that we're seeing both yes re procurements and we are prepared for these we try to run the very best health plans, each and everyday and respond to when these rfps, but we also see a lot of new opportunities, we see new opportunities in states that have managed care for medicate that were not in and yes. We are beginning many many discussions with states talking about enhancing.
Their Medicaid program, So I think you'll see a great deal of Rfps.
Where it gives us new opportunity to grow and new opportunity really to have a positive impact actually very excited about it seeing that are really normal course is reappearing.
Thank you ladies and gentlemen, our next question today comes from George Hill with Deutsche Bank. Please go ahead.
Yeah, Good morning, and thanks for taking the question just a quick follow up on the P. B M. RFP can you talk about how broad the P. B M rfps going.
Like is it going to what I would call the usual suspects and maybe can you talk about how you think about an early renewal for 'twenty three given you've got a pretty good partner Cvs and they've got the ability to pull some of the cost savings forward.
Yeah, we we need a partner that can handle the size and scale of $40 billion of spend and the complexity of our multiline business. So that does limit the field to some degree, but theres still you know adequate competition out there and and and I mean, each of the parties has their own unique opportunities.
To impress us.
And I would just reiterate relative to the timing that you know again, we've released RFP early in order to give time for those fulsome conversations, but we're still on track for a year end award and as drew has said and we have said multiple times that there's nothing like a good old fashioned RFP to make sure that we're getting the best economics.
Thank you.
And our next question today comes from Steven Valiquette with Barclays. Please go ahead.
Great. Thanks. Good morning, Let me also offer my condolences to everyone who is close to Michael.
Just a quick question here in relation to your comment that you now expect the $6 billion revenue loss from the Redetermination from the 5 billion previously.
Was there any change to your internal projections on where you think you'll end the 'twenty 'twenty three in relation to the Medicaid membership numbers or is that $1 billion additional revenue falloff just purely related to the extra revenue that youll book for the additional months in 'twenty two that would still fall off in 'twenty three I just want to better understand the mechanics around that but more importantly, just where do you.
Thank you have a membership numbers will end twenty-three any change there or not thanks.
Yeah, well, let me let me answer it this way we've grown if you go back to March of 2020.
Inception, and the onset of the pandemic, we've grown $2 8 million members. Since then in Medicaid. Excluding you know as like North Carolina, or you know, Missouri expansion business, which was sort of an organic wins. So we expect a little over half of those members to a trip through the redetermination.
So as granted it's an estimate but it's a very.
It's a very complex estimate that we've assessed Ah 29 times over picking slope lines based upon direct conversations with the state and Brendan Dave Thomas's team have done a really good job engaging with states and actually you know preparing for the catcher's Mitt opportunity in marketplace.
But sticking with your question in Medicaid.
We expect a little over half of that $2 8 million members, which gets you to the $6 billion of revenue to trip largely by the end of 'twenty three I guess some of it could go into 24, depending on the states that really want to stretch out redetermination, but I'd say largely by the end of 2023 okay.
Great. Thanks.
And our next question today show and tell room.
With J P. Morgan. Please go ahead.
Yeah. Thanks for the question.
A couple of related questions here on the Redetermination in the exchanges.
I guess first you know with so many members coming to market either late this year or even into the first half of next year.
You anticipate any meaningful uptick in marketing spend to try to capture these members.
And just sort of how you think that would compare to historical spending levels and then second can you just remind us what programs or initiatives you got place to try to capture.
Medicaid members as their income moves up and down to sort of retain the medicine teen product.
Thanks.
Yeah like I mentioned in my last response, the team has really put a lot of thought into making sure. We've got the processes in place to be able to in some cases market. Two in some cases work directly with the state in terms of making those redetermination members aware.
Or have the opportunity to move into marketplace and I think Brent you probably got some insights into how that process has gone with the assistance from the CMS letter that was put out in early March.
So the 29 states, where we have Medicaid health plans, we have the exchange, where I am better product and 25 of them. So we're able to overlap the counties and a lot of ways to open up the provider network first and foremost second we spent a great deal of time with the states and absolutely both at the federal level and state level absolute.
We want people to have coverage and both are government entities, who are working very closely with us in regards to the states. It's about communication, how can we actually communicate with our members and what way through texting and so forth to let them know what their options and opportunities are to work with them in the exact same on the federal level from that standpoint in regards to your question about Mark.
You can spin and so forth. Another component is exactly windows. The P. H a N number one and number two every state will work at a different time, some will want to move fast some not so fast and that will impact it but no matter. What it is we will absolutely focus on distribution.
Got it very good a distribution for the exchange and we'll continue to do that.
Thank you and our next question today comes from Benjamin <unk> with Jefferies. Please go ahead.
Hi, Thank you good morning.
I just wanted to follow up on the terminations.
Specifically on the impact of the Medicaid risk pool, we believe took some state program leaders indicate they're going to make an effort to keep the six members all roles as long as possible, which seems like it could front end.
Front end load some of the margin risk can you just provide an update on your thinking about managing through a redetermination.
If and when those do begin thanks.
Yeah, I think the longer the Medicaid members are on the roles as sort of the better for the member obviously and the more stable the sort of the overall aggregate population, but look it's our job to get out in front of our state customers with data. We've already started doing that we've had conversations with CMS.
To prepare for any necessary moves in rates you know right now we're focused on the sunsetting of the risk corridors and as soon as we get some additional data as redetermination start presumably in August , but I guess, we'll see if that sticks.
Then to ensure that rates are actuarial sound and that's sort of what we do for a living around here regardless of what changes. There are Medicaid programs are also you'll note that we've lifted the H b or this year.
In Medicaid into the 80 nines and so it's our job to sort of keep it there regardless of what's thrown at us.
And I would just touch back on on Brents comments as well that the benefit of being so conversant with our states and in and helping them to even think about what the right strategy as going into Redetermination and what the impacts might be is it you know we have a line of sight to how each one of the states is thinking and some of that thinking of shifting.
So we have states that started off thinking that they could go through the the roles in three months and I think then better digested. The fact that it was probably if if coverage continuity and and and voter abrasion was important that that's more like a 12 month plan, but we're seeing states everywhere from five months, which I think is probably the most aggressive all the way to 17 months.
And again, just the fact that we're in those conversations gave US line of sight to plan and then as you said also be able to bring forward data that makes sure that the rates are actuarially sound based on the impact, we think well Ah well incur.
Ladies and gentlemen, this concludes our question and answer session I'd like to turn the conference back over to the management team for any final remarks.
Thanks, Rocco and thanks, everyone for joining us. This morning, please feel free to reach out to Investor relations with any follow up calls and well talk to you soon.
Thank you Ma'am. This concludes today's conference call. Thank you all for attending today's presentation you may now.
I'll just go ahead your line's level wonderful day.