Q3 2022 Humana Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Q3 2022 Humana, Inc. Earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session you'll need to press star one on your Touchtone telephone I would now like to turn the call over to your host Lisa Stoner Vice President of Investor Relations you may begin.
Thank you and good morning in a moment, Bruce Broussard, Humana's, President and Chief Executive Officer, and Susan Diamond Chief Financial Officer will discuss our third quarter 2020.
And our updated financial outlook for 2022.
Following these prepared remarks, we will open up the lines for a question and answer session with industry analysts.
Sure our Chief legal officer will also be joining Bruce and Steve for the Q&A session. We encourage the investing public and media to listen to both management's prepared remarks, and the related Q&A with analysts this.
Call is being recorded for replay purposes that replay will be available on the Investor Relations page of Humana's website Humana Com later today.
Before we begin our discussion I need to advise call participants of our cautionary statement.
Certain of the matters discussed in this conference call are forward looking and involve a number of risks and uncertainties actual results could differ materially.
<unk> are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our third quarter 2022 earnings press release.
Forward looking statements and to note in particular that these forward looking statements could be impacted by risks related to the spread of and response to the COVID-19 pandemic are forward looking statements should therefore be considered in light of these additional uncertainties and risks along with other risks discussed in our SEC filings.
We undertake no obligation to publicly update any forward looking statements in future filings or communications regarding our business or adults.
Today's press release, our historical financial news releases and our filings with the SEC are all also available on our Investor Relations site call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP.
Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release.
Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share with that I will turn the call over to Bruce Broussard. Thank.
Thank you Lisa good.
Morning, everyone. We appreciate you joining us.
Our third quarter 2022 results reflect the continuation of solid fundamentals and strong execution across the enterprise has seen throughout the year.
We reported adjusted earnings per share of $6 88 for the quarter above our initial expectations.
Strength of the quarter allowed us to raise our full year 2022, adjusted EPS guidance by 25.
To $25 at our September Investor Day.
We are pleased to affirm this recently raised outlook, representing a compelling 21% growth over 2021.
Susan will share additional detail on our third quarter performance and our full year expectation in a moment.
We appreciate the opportunity to share our value creation framework at our recent Investor day.
As well as the subsequent engagement with investors over the last several weeks.
We are excited about the company's future and our focus on executing against our strategy to deliver on our commitments communicated.
As previously discussed achievement of our mid term earnings target of $37 and adjusted EPS. In 2025 is underpinned by a return to at or above industry Medicare advantage membership growth by 2024.
Now that we've seen competitor plans for 2023 and the annual enrollment period is underway. We are happy to provide initial expectations for 2023 membership growth today.
Based on our understanding of the competitive landscape, we are anticipating individual Medicare advantage full year growth of 325000.
To 400000 members.
This represents an expected growth rate of seven 1% to eight 7% in line with our expectation of high single digit industry growth.
As we've spoken about previously we have made substantial investments in our MA product offering and are confident in our strong competitive position.
Very targeted surveys and deep analytics, we've designed products to meet better meet our members needs.
For example, 100% of our dual eligible plans will offer the healthy option allowance, which allows our members them flex.
Flexibility to direct funds to pay for healthy food over the counter items transportation.
Supplies rent and utilities.
We are differentiated in this benefit through the wide breadth and flexibility of spending categories as well as the rollover feature we offer in many geographies.
Outside our specific consumer segment strategies, we also improved plan offerings for our broader membership.
For example for our zero premium HMO and PPO products, we believe we're at parity or above the key competitor plan value and approximately 80% of our markets.
We also expanded the footprint of our zero premium L. PPO product now offered in over 2400 counties, a 34% increase year over year to better serve members looking for low cost options with network flexibility.
All combined we believe our plans are providing unique solutions to seniors most urgent needs, providing both affordability and value, which is especially important given current economic conditions and knowing many seniors are on fixed incomes.
Beyond our product investments evolving our distribution capabilities remain a focus and we are continuing to advance our omnichannel strategy.
As we've previously discussed we have been working closely with our external partners to improve sales quality through a variety of initiatives.
We are confident that we will continue to maintain strong partnerships and drive better quality through these this channel such as improved retention and better customer satisfaction.
Meanwhile, we continue to enhance the capabilities and our internal channels, which tend to provide higher quality sales.
We are leveraging improved analytics and artificial intelligence for all inbound calls to drive improved experiences for both our agents and our customers.
We believe this in combination with our refreshed marketing strategy.
Will result in an increase in internal sales of approximately 20% year over year.
Our ability to maintain our leadership position in the MH industry is supported by our excellence in quality and customer experience our.
Our success is demonstrated in areas such as our star ratings were at 96% of our MA members enrolled in plans rated four stars and above for bonus year 2024.
Humana has now achieved the highest percentage of members in four plus star contracts across all of our national competitors for five consecutive years.
Our commitment to quality is also evidenced in our CMS audit results.
Where we once again saw significant improvement in our overall results for CMS has recently completed triangle audit when compared to our 2019 program audit.
And finally, we are proud that Humana has been named the best overall Medicare advantage insurance company by U S News and World report, which created an honor roll based on the centers for Medicare and Medicaid services newly released star ratings for Medicare advantage plans. Additionally.
Additionally, Humana ranked as the best company for member experience and was declared the best company for low premium availability.
The durability of our success in these areas reflect our differentiation and capabilities, including highly diversified value based care solutions and locally oriented provider relationship models.
The use of deep analytics and digital capabilities.
First mover deployment of interoperability.
As well as customer centric products and solutions.
The entire organization is focused on efforts to continuously raise the bar on quality and member experience. So that our members can receive better outcomes and we will continue our relentless pursuit of maintaining our industry leading results.
Turning to our $1 billion of value creation initiative I'm pleased to share that we have line of sight to fully realize the $1 billion goal in 2023, which will support the investments for MA growth in 2023 that I just described.
The effort is required difficult choices focused execution and changes in the company, which we have already started to show positive results that we expect to continue over the near and long term.
While the form of $1 billion Golar has been achieved we are committed to ongoing improvement and operating leverage with a target of approximately 20 basis points annually on a business mix adjusted.
Going forward, we intend to continue our historical focus on productivity.
Utilizing a framework that has been enhanced with the best practices learned through our.
Creation efforts.
We are focused on running our business in a way that will create sustainability driving operating leverage while creating a culture that promotes continuous improvement.
Workflow efficiency and technology adoption to automate and assist our work wherever possible.
We are encouraged by the early indications of this sustainable productivity framework.
As an example, I'd like to highlight productivity efforts and our Preauthorization process.
Leveraging an in house artificial intelligence solution to automatically match incoming faxes to the correct authorization requests.
This solution creates administrative efficiencies across millions of inbound images.
We are also scaling this solution to multiple business units such as pharmacy and are also expanding the application of this type of AI to provide decision support to clinicians, which will result in improvements to authorization turnaround times redo.
Diction reduction friction for providers and creating a better member experience.
Before turning it over to Susan I'd like to say, thank you to our 63000 employees that bring their best selves to work every day and make our success possible.
I appreciate all they do for our members and patients.
I would also like to thank our shareholders for their continued support.
We are expected we are excited about the strong fundamentals of the industry, we operate within our competitive positioning in the M&A market for 2023 and beyond the scaling of our health care services offerings opportunities to come our compound our growth through local market integration and continued cost discipline.
And capital deployment.
We look forward to delivering against the commitments, we shared with you at Investor Day.
With that I'll turn the call over to Susan.
Thank you Bruce and good morning, everyone.
We reported adjusted EPS of $6 88 for the third quarter, representing 42% growth over third quarter 2021.
<unk> in the quarter came in above initial expectations, driven primarily by lower than anticipated medical cost trends in our individual Medicare advantage and Medicaid businesses.
Recall that we raised our full year adjusted EPS guidance by <unk> 25.
To $25 at our Investor Day in September , which we affirm today.
Our revised full year guidance anticipated the strength of the quarter and reflects the compelling 21% growth in adjusted earnings for 2022, while funding incremental marketing to support the 2023, AEP selling season, and the dilution related to the hospice divestiture.
I'll now provide additional details on our third quarter performance by segment beginning with retail.
Medicare advantage membership growth and revenue remain in line with expectations.
Total medical costs in our individual Medicare advantage business were lower than initial expectations for the quarter with a favorable inpatient trends seen throughout the year continuing with some moderation.
With respect to group MA, we shared last quarter that we were seeing higher than expected non inpatient utilization.
As I mentioned in September we have been pleased to see positive current year restatements and moderating trends during the third quarter, suggesting that some of the higher trend. We described previously was likely due to pent up demand.
Finally, I would note that while it is early in the season flu levels are running as anticipated.
All in our Medicare advantage business is strong and tracking consistent with the updated expectations shared at Investor day.
Our Medicaid business also performed well in the quarter experiencing lower than anticipated medical costs.
We updated our full year Medicaid membership guidance from a range of up 75000 to 100000 to our current guide of up approximately 175000 to reflect the extension of the public health emergency to January 2023.
We are prepared for the Ohio contract to go live on December 1st, adding approximately 60000 members that implementation, which is included in our guidance.
Group and specialty segment results were in line with expectations for the quarter with our specialty business continuing to benefit from lower than expected dental utilization.
We continue to anticipate a reduction of approximately 200000 employer group medical members in 2022, driven by our disciplined pricing and focus on margin stability.
I will now discuss our health care services businesses.
Pharmacy results for the quarter were in line with the increased expectations. We communicated in April as a result of the outperformance seen earlier in the year.
The primary care organization continues to perform well with results in line with expectations for the quarter.
The team is focused on executing on the expansion expansion strategy, we shared at Investor Day, and we continue to expect to add approximately 30 to 35 centers to our portfolio through the first quarter of 2023, bringing our total center count to greater than 250.
Patient served also continues to grow as expected and we anticipate serving nearly 250000 value based patients by the end of 2022.
Turning to the home.
In our core fee for service business home health episodic admissions for the third quarter are up five 1% year over year, while total admissions are up six 4% year over year.
Year to date episodic admissions are up three 9%, while total admissions are up five 4% tracking in line with our full year expectations of a mid single digit year over year increase.
In addition, we plan to expand our value based home health model to cover an additional 450000 Medicare advantage members in the fourth quarter, bringing our total covered lives to approximately 15% as of the end of the year.
From a capital deployment perspective, our debt to capitalization ratio decreased by 590 basis points in the third quarter to 39, 4% as we retired $2 billion of debt. Following the divestiture of our majority interest in kindred hospice, which closed in August .
Continue to anticipate a customary level of share repurchase in 2022, and as a result expect our debt to capitalization ratio to be in the low 40% at the end of the year.
I will now take a few moments to provide additional color on our early outlook for 2023, starting with membership.
As Bruce shared while it's still early in the AEP, we remain confident that the investments we made to support 2023 growth has positioned us well and we are pleased to share our individual MA membership growth expectations today of 325000 to 400000 members, which is in line with our expectations.
<unk> of high single digit market growth.
As we always caution this time of year. It is early in the AEP selling season. So the outlook, we provided today could change depending on how sales and voluntary this enrollment ultimately come in.
Initial sales volumes are strong and favorable to our expectations.
Recall that we have limited visibility into member enrollment data. This early in the AEP season, as those results take longer to complete but we do expect modestly lower attrition in 2023 as a result of our improved benefit offerings enhanced onboarding support for all new members and increased broken up focused on sales.
Quality and retention by a call Center partners.
We also advanced our analytic models, incorporating additional granular inputs and maturing machine learning techniques, improving our sales and retention forecasting ability take.
Taken altogether these improvements and early results support our confidence in the guidance shared today.
With respect to group Medicare advantage as we've previously stated growth can vary year to year based on the pipeline of opportunities, particularly large accounts going out to bid.
We expect a net reduction in group MA membership of approximately 60000 in 2023.
This reduction is primarily driven by the loss of a large account partially offset by expected growth in small group account membership.
We remain committed to disciplined pricing in a competitive group Medicare advantage market.
With respect to stand alone PDP. The overall PDP market is declining as more beneficiaries choose Medicare advantage.
In addition, we remain disciplined in our pricing and as a result, our Walmart value plan will not be as competitively positioned and our basic plan, we will exceed the Wellington benchmark in three regions in 2023, driving an expected net decline of approximately 1 million PDP members.
As we look beyond 2023, we will evaluate the impact of the various regulatory changes proposed which are likely to result in higher PDP plan premiums broadly and could lead to further industry wide movement from PDP to MA PD plans, given the strong MA PD value proposition.
Our focus remains on creating enterprise value from our PDP plans by driving increased mail order penetration and convergence to Medicare advantage.
Finally in our Medicaid business, we expect 2023 membership to be flat to slightly up as the new State Awards in Louisiana in Ohio will largely offset the impact of Redetermination, which will begin following the end of the public health emergency.
Vienna has indicated that we will begin the program with 150000 members, while Ohio will ramp to 200000 members over the course of 18 months.
Turning now to our expected 2023 financial performance I would reiterate our commitment to grow 2023, adjusted EPS within our targeted long term range of 11% to 15% off of our expected 2022, adjusted EPS of $25 well.
We will continue with our practice of Conservative planning and at this time expect the current consensus estimate of approximately $27 90.
To be in line with our initial adjusted EPS guidance.
The earnings growth anticipated for 2023 will put us on a solid path to achieve our $37 adjusted EPS target in 2025.
We look forward to providing more specific 2023 guidance on our fourth quarter earnings call in early February .
Before closing I would echo Bruce's appreciation to our employees for their contribution to our success and to our shareholders for their continued support.
We are pleased to report another strong quarter and are excited about our outlook for 2023 and beyond.
We look forward to delivering against the commitments, we shared with you at Investor day, providing better experiences and outcomes for our members and patients and creating significant value for our shareholders.
With that we will open the line for your questions in fairness to those waiting in the queue. We ask that you limit yourself to one question operator, please introduce the first caller.
Ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your Touchtone telephone and his advisors before please limit yourself to one color one moment for our first question.
Our first question comes from Stephen Baxter with Wells Fargo. Your line is open.
Hi, Thank you I wanted to ask about the hydro Medicare advantage outlook that you provided for 2023 I appreciate the commentary unexpected in our retention to be a little bit better could you maybe tell us or quantify how much that contributes to your growth outlook, maybe what would your growth outlook.
If you had the same result on retention that you did last year and then more broadly any early insight you have on competitive dynamics in 2023, either on plan benefits or for sales channels. Thank you very much.
So we probably won't provide the detail on just how it affects the overall first thing is just early in the process, but we do we do want to continue this practice of being transparent with our investors just on where we are.
And just two weeks into the AAP.
We are seeing is that new sales volume has been strong and higher than expected.
Our close ratios are higher year over year, then versus what our expectations are and in addition, our field sales volumes are particularly strong.
The call Center channel volumes are slightly down on a year over year, which which we expected.
As I mentioned, our term data isn't is nowhere close to being complete so we have limited.
Visibility into that but what we do see is that we're seeing improvement in our non decent plans.
And in addition, we are incorporating about a 100 basis point improvement.
Our term rate this year and Thats really a result of what we're saying when our relationships with their broker.
Along with the product that we've put in place and then just our workflow improvement in both the enrollment area and on the on boarding with our members. So what we see early on is just in a really exciting.
Aspect of where we're seeing good growth in that good growth is coming across all parts of the organization and with continued improvement in our relationships with the with the channels.
Thank you one moment for our next question.
Our next question comes from Kevin Fischbeck with Bank of America. Your line is open.
Great. Thanks.
I wanted to go back to your commentary about cost side. It sounds like just because you didn't beat MLR by as much as period. It sounds like what Youre, saying is that question's largely as expected and it's more a function of kind of lowering the MLR guidance with your September .
Our outlook is that kind of how you would frame it and I guess, it's based upon how you've.
Reported so far in Q3 is obviously applications for Q4 MLR.
This is where consensus is just want to make sure that I'm understanding how you thought about Q3, and then and then how to think about the implications for Q4 MLR.
Sure Kevin.
As you mentioned, we are seeing lower than anticipated cost trend with the mid quarter raise in guidance, it's a little bit confusing I appreciate but so it would be beat in terms of cost trend was relative to our initial expectations for the quarter, which were considered end of 'twenty five cent raise that we announced at our Investor day in mid September so the commentary.
This morning was relative to our initial expectations, but then again once we account for the increased guidance and then more in line with what we expected in terms of Q3 versus Q4 as we look at current fourth quarter MLR consensus estimates currently are 87, six for retail and 86 seven for consolidated I would say.
Right now, they're a little bit light and then given the announcement of the <unk> results today, which were higher than the street estimates and reaffirmation of our full year EPS Guide, we would expect that analysts will adjust their models. Accordingly, and then we would see then an increase in the fourth quarter and full year MLR as a result, which then should be more in.
Align with our current expectations.
Thank you one moment for our next our next question.
Our next question comes from Justin Lake with Wolfe Research. Your line is open.
Okay.
Thanks, Good morning.
Hey.
On the.
Numbers question.
First just a follow up to Steve's question, you said, the churn numbers down 100 basis points.
Just as simple as saying $4 5 million members at individual 1% improvement at 45000 members to growth versus last year.
That's simple and then what drove the 4% decline in Medicare advantage <unk> in the quarter and lastly, yes lot of questions on <unk> I was wondering if you could help us understand what a reasonable fee for service adjuster that the industry is looking for out of CMS. So we see that.
Final rate.
Final notice in February would be a reasonable number for fee for service adjuster that you've been lobbying for.
I'll take the first question and then I'll, let Susan take the next two on the on the 100 basis points there.
Your math is correct.
Pretty simple there Justin so I'm always amazed me on your ability to back into the number.
And then just in terms of the revenue P. M. P M and Theres a few things impacting it theres always a decline over the course of the year from a seasonality perspective as new members continue to enroll at low typically lower risk scores and members pass away in those numbers nothing waiting to have higher risk scores and the other item that you need for this.
Here is just sequestration, which as you know sort of ended as of the second quarter, but it was in place last year and so that'll have an impact on the year over year comparisons as well.
Of your question on the fee for service for service Adjuster, I mean honestly, we just arent in a position to comment and wouldn't want to speculate on what the fee for service adjuster would be is it would ultimately based on fee for service data to which we just don't have access.
Thank you one moment for our next question.
Our next question comes from Nathan Rich with Goldman Sachs. Your line is open.
Thank you.
Morning, I wanted to follow up on the outlook for MLR I think for 'twenty. Three consensus is roughly flat I guess can you maybe talk about how youre thinking about the puts and takes the MLR next year.
And I guess, specifically are you expecting a normalization of.
Patient procedures over the course of the year and any change to your expectations around utilization just given.
The economic pressures that you highlighted and.
Maybe utilization of some of the investments that you've made and your plans for next year. Thank you.
Sure Nathan.
Think about 2023, there's always a variety of puts and takes that will consider I would say in terms of utilization and I think we commented on this last quarter as it respects our initial expectations, we did not contemplate the better medical cost trend that we have seen develop in 2022, and so that certainly should be something.
That does continue into 2023, although we would expect some offset in terms of risk adjustment given the lower utilization. So that's certainly something that we'll take into account as we estimate MLR for next year, which obviously, we're not prepared to give guidance on that today, but would certainly provide guidance on our fourth quarter call.
In terms of integration procedures I think we've also commented with CMS meeting to remove certain items from the inpatient only list, we frankly expected that to be more flat. This year and frankly I've been pleased to see continued inpatient to outpatient movement, particularly with orthopedic procedures.
Rates of outpatient.
Service is pretty high for some of those procedures. So in theory, we should start to see some moderation in that continued shift.
Just last night CMS did release the outpatient.
Reimbursement and within there there are also some additional changes to the inpatient only list that's something we'll have to review in greater detail.
Consider what if any implications we think it will have on further shifting trends for 2023, but otherwise for utilization I would say we are counting on sort of normal course baseline utilization trends as we've commented before there are two items. We want to continue to watch one is flu I mentioned in my commentary that so far that is in line with XP.
Patients, which you know it is early in the season, but we are anticipating lower than historical levels given what we've seen the last few years, we will want to monitor that and see if that does continue or if we start to see an uptick which we'd have to consider for 2023 and then finally I would just mentioned that.
Know that health care capacity is constrained that's something we continue to watch the labor trends and other factors and it's something we will continue to be mindful of as we evaluate our go forward medical cost trend estimates if we in fact start to see some of that return to higher levels.
Capacity as we would anticipate seeing some initial utilization as well so again not prepared to share guidance today on the MLR, but certainly we'll do that on our fourth quarter call as we normally do.
Thank you one of them before our next question.
Our next question comes from Gary Taylor with Cowen Your line is open.
Yes.
Hi, good morning.
Kind of my key questions were answered so I just wanted to get a PDP for a minute where enrollment has been declining since.
2017, but coming down 1 million members would be coming down almost a third which.
Just I think the largest decline youre seeing so <unk>.
Clearly this.
It doesn't generate a lot of.
Earnings I guess I have two questions one is.
I think it was Bruce who had made the comment about 20 basis points G&A improvement business mix suggested this is a business with.
Lower G&A, so if youre going to lose a couple billion dollars of revenue here.
How do we think about that impacting sort of that G&A improvement next year and then the second piece would just be is the whole thesis behind PDP with just kind of originally.
It would really set up to be a nice feeder.
In May is that thesis kind of debunk does it lessen corn clearly you've grown very nicely in the last six years five years. Despite the fact that <unk> been coming down. So just wanted to get caught up on your thinking around that.
Yes, maybe I'll take the latter point and then let Susan Thanks Ed.
Question around the operating leverage you know Gary we do still see.
We see conversions from PDP to Medicare advantage on an ongoing basis and we see that initial relationship we have with them is an opportunity to expand that relationship.
One.
Two things are happening in PDP <unk> there is.
There is.
Sure.
A few plans that are really at the lower end and we sort of question how they can get there at the price that they're offering and then there's a group of plans that are sort of in the same area. We're in so there is a bifurcation that's happening in the industry, which is really causing people to I think coda to the lower end pricing there.
As a result of just the aggressiveness in the marketplace.
Not going to we're not going to call that.
Direction, but what we do see is also because of the value proposition that has happened in EMEA. There's a much larger conversion just overall between PDP to MAA and end result is really a PDP is a declining business not only in our company, but as you look at the industry side.
To answer your question, we do see it as a <unk>.
<unk> is a very viable opportunity for us to expand our SMA platform through the PDP conversion as a result of just our relationship with the membrane and that has had a specific strategy within our company.
And then Gary to your question on the operating leverage if you recall, we were clear that the 20 basis point commitment was on a business mix adjusted basis, just recognizing across all of our lines of business. We have varying degrees of admin loads. So we remain committed to that target.
With respect to the PDP decline in particular as you mentioned the admin rate rate does run lower than say Medicare for sure and so that will be accounted for in our ultimate operating expense ratio I would just say with this level of reduction as you said, we will work hard across the enterprise to ensure we get the appropriate amount of variable costs out, but then also take some ground on the.
Indirect costs as well to make sure that the rest of the organization is pressured as a result.
Thank you one more before our next question.
Our next question comes from Scott Fidel with Stephens. Your line is open.
Hi, Thanks, good morning.
Question, just around the home and first just interested now that the final home health rates just came out.
Plus <unk>, 7%.
How you think about that sort of imply.
Influencing your thoughts on home health margins for 2023, and then into.
Rested from the contracting perspective before your MA business.
There's been a lot of focus.
So home health industry and re contracting to some different type of models for example, moving to the.
The case rates with some value based care components to that and interested just Ken Humana.
Sort of interest and activity levels I guess in terms of engaging in some of these types of re contracting considerations for from the M&A side as comparator from the home health side. Thanks.
Sure Hi, Scott. So your first question on the final rule impact and I know, we've got some questions previously about the proposed four 2% reduction and gave some commentary that from an enterprise perspective that would have been about a $30 million hit relative to our expectations at the time of bid and Thats a larger hit on the home health.
<unk> business, but mitigated by what would've been a benefit to the health plan with the final rule coming out at 0.7%, obviously that headwind is no longer an issue and it would be slightly positive relative to what we thought at the time of it but I would say relatively immaterial, but certainly positive to what it would have been at four 2%, which we had.
Not contemplated earlier in the year.
Terms of your question around how we think about the MH space in home health.
Andy mentioned at Investor Day, the work that his team is doing both on implementing a full value based model, which is inclusive of utilization management network management clinical advancement to take full compensated risks on Medicare patient and as we mentioned in my commentary, we expect to have 15% of our members covered by.
That model by the end of the year. In addition, Theyre also working on value based reimbursement models for the remainder of our Medicare population. Initially and then would expect that we would offer kindred would offer those arrangements to other payers and MA payers as well and so there we are very focused on the same things, making sure that we're driving appropriate.
Utilization of home Health services, but then also making advancement on the clinical side, such that we can improve outcomes and we'd look to structure that contractually where there is some component of a fee for service payment. But then also participate in the savings that kindred can help drive in terms of total cost of care going forward under a value based payment model.
So we would expect to continue to keep you apprised of our progress there, but we do intend to start with the Humana membership and then once we can demonstrate success then look to take that you are agnostic payers as well.
Thank you one more before our next question.
Okay. Our next question comes from George Hill with Deutsche Bank. Your line is open Sir.
Yes, good morning, guys. Thanks for taking the questions.
I guess first I'd ask kind of a big picture question on the recent star ratings performance I suspect that you guys have any window into your star ratings performance before you held the Investor Day, you provided the initial guidance, but I'd be interested if you guys have a sense for what the landscape was going to be like as it relates to stars performance and I guess does that kind of increase your your optimism and your confidence in.
Kind of outperforming that 2025 targets.
We did we did have a.
Insight into our our ratings, but we did not have the ability to understand how the industry was going to perform.
During the Investor Day meeting.
We are continuing to be remain confident in the capabilities of the company.
It gives us more confidence in what we can achieve and our commitment, but I wouldn't say, it's going to overly impact that commitment, but I do we're.
We're very proud of those those ratings I'm very proud of what it means to deliver better better health outcomes as well as a <unk>.
Better financial performance.
Thank you one moment for our next question.
Our next question comes from Josh Raskin with Nephron Research Your line is open.
Hi, Thanks. Good morning, I was wondering if you could speak to expectations around growth in the number of lives, where you're taking delegated risk in 2023 sort of compared to that 250000, you'll end the year with and maybe if youre growing Ma.
Faster in areas that are supported by your own or other value based care providers and then if you could just update us your views on potential M&A, specifically around primary care clinic operators.
Why don't we why don't I take the latter and then.
Susan can take the former on the <unk>.
M&A side, we continue to find the best Best Valley.
Value.
For use of our capital is really doing in market acquisitions, and being able to roll those into existing.
Primary care clinics that we have in the marketplace.
Not only the ability to leverage.
The size and scale in the marketplace, but also the administrative.
Productivity, we get and just the ability to continue to offer broader value two two.
<unk>, we serve so I think that will be.
The most likely scenario.
Of course, we've looked at some of the larger transactions that are out there and have been.
Reviewing that I think at this time, we're not really convinced that's the right direction for us and we will continue to do and market that might change, but based on where the where where people or the values are trading and what we can do inside of our marketplace, we will probably do.
Medium to smaller smaller acquisitions at this time.
And then just to your second question, we didn't provide specific guidance. This morning in terms of the increase in patients expected in our primary care business for 'twenty three but you can expect that we will provide some commentary on our fourth quarter call, but what I will say more generally is that we certainly expect an increase in patient panel growth in 2023 relative to.
What will deliver in 2022 and as you said that's due to the additional centers that we've opened and then the continuing maturation of those centers.
Of that increase drove is also as you sort of alluded to you predicated on the improved humana value proposition, which should then allow us to drive greater panel growth as a result of that one thing we will watch pretty closely is Florida in particular, we've made some nice advancements there and the value proposition we have a large number of our wholly owned centers there and so.
We are anticipating improved growth within those wholly owned centers and that is something in particular, we'll be watching closely but we will certainly provide more commentary on our fourth quarter call in terms of full year expectations for the provider organization patient panel growth.
Thank you one moment for our next question.
Our next question comes from a J Rice with credit Suisse. Your line is open.
Yes, hi, everybody.
Sure.
Just wondering we've talked a lot about obviously, what youre doing in the primary care arena, and what Youre doing with home health.
<unk>.
It continues to be a big part of your services.
Offering as well.
Alex or updated comments on strategically.
Doing more with that I know its primary focus over the years has been just to service your internal MA population in your overall membership, but any any.
Any thoughts on making any moves in that with.
With respect to the PVA.
Yes, a few things there a J one is just continuing to grow our penetration in mail order.
And what we see as the opportunity to continue to make that convenient for our customers as a result of being able to have home delivery.
We're really working hard on both of the digital experience, but also shortening the time of delivery through having more warehouses closer to to where a large number of our members are so we are working hard on that.
On the opportunity to continue to improve the mail order rate overall, we do have a few customers I would say small customers that are that are utilizing our platform under more of a private label we've seen that.
I think that is an area of opportunity, but not an area of focus for us we've done a lot of work on the specialty side and we see the opportunity to continue to grow our specialty business.
In a more of a provider oriented and agnostic provider orientation and the ability to continue to have stronger relationships with with the pharmaceutical side and being able to utilize patient compliance.
Programs, So I would say.
To grow our mail order is top through continuing to improve our our experience and then secondarily our specialty area. We will look at opportunities to private label or do white label for for our for our delivery.
Probably will be less of a focus.
Okay.
Thank you one moment for our next question.
Our next question comes from Michael <unk> with Morgan Stanley . Your line is open.
Hey, Thank you guys just want to dive deeper into next year's growth.
Based on analysis, we've done unplanned benefit richness that shows the increasing benefit ritchie significantly more than your peers almost double the national average.
Longer benefit coupled with leading star ratings performance and surprising decline and stars from some of your peers.
Seemingly it looks like Youre positioning into 'twenty three it might be the strongest it's been in recent history I know youre expecting roughly in line with industry growth next year, but I'm curious one how is your growth expectation developed evolved since early October and I understand and appreciate the multiyear earnings power that more membership growth can provide.
But for <unk> specifically.
Just given the slightly dilutive impact of year, one numbers in the event you are able to procedure growth.
Patients how does that impact your ability to reach your target 23, EPS, which gets the low end of your long term range is there a specific membership growth number that you think could be end up being potentially that data journey. Thank you.
Hi, Michael.
In terms of your first questions in terms of how our thinking has developed since.
Before all the data was released I would say as the data came out and we commented investors and we are pleased to see that our positioning is relatively speaking generally where we expected it to be going into 2023 and that would be certainly deposit rate notice and then in addition, the additional value that our value creation initiative.
Opened up for us in terms of capacity to reinvest into our Medicare product with sufficient to get us back to a really strong value proposition. We have been able to also validate through discussions with brokers during that time that they are in agreement with our view that we are very well positioned in 'twenty three and anything a number of analysts have also had independent calls.
Were they heard the same thing so that was further validation we.
We do recognize that we expect more change within the call Center channel. This year given some of the changes those partners are making.
Some comments, they've made about reducing marketing et cetera, and so that's one of the reasons. We continue to remain a little bit cautious in terms of our range recognizing that we'll need to see how that develops but I would say as Bruce mentioned in his commentary all the early signals are positive while we recognize it is still early.
In terms of your second question about is there any level of growth that would compromise our EPS contribution for the year I would say from a growth perspective, no. I think we've commented a number of times that new members typically have little to no contribution, but they wouldn't be negative. They just wouldn't add incremental earnings accretion in the first year the more relevant metric.
Is retention those members obviously are positive in terms of contribution and so that's why we always watched that closely and to the degree we see outperformance and retention than we would that could be a tailwind for 'twenty three and to the degree it comes in lower it could be a headwind, but again based on everything we're seeing and the strength of our product we think our retention estimates.
Any improvement we're expecting is quite reasonable.
Thank you one of them before our next question.
Our next question comes from Lisa Gill with Jpmorgan. Your line is open.
Alright, thanks, very much for taking my questions. Just a couple of really quick follow up ones. One Susan you said that flu was kind of trending in line, but just given what we're seeing in the southern hemisphere I'm just curious as to what your expectations are for Q4, and maybe even the first part of 'twenty three and then just secondly to the thoughts around the Pbms Bruce.
Highlighted the specialty business clearly, there's a number of biosimilars that are coming to the market I'm just curious as to how you think about that as Humira a big drug when we think about your specialty business and is there an opportunity there as you think about late 'twenty three early 'twenty four.
Hey, Lisa So in terms of your first question about fleet. So as I mentioned, we are seeing relatively low fleet levels.
It's very early in the fall.
Season for the fourth quarter and so we'll certainly continue to watch that.
In terms of our expectations, we did anticipate in our guide that we would see blue level is higher in the fourth quarter than we've seen in the last few years, but not as high as we would have seen pre COVID-19 and so far again, while it's early the early trends are consistent with our expectations that will certainly continue to watch that for 2023, We then asked.
Some further incremental increase in flu going into next year, assuming that it won't permanently stay at the lower levels. We've experienced to date. So we'll certainly keep you guys informed but so far we are seeing it run inline with expectations, which are slightly higher than what we experienced previously.
And as you talk about Humira as.
As we look at both the 23% and 24, we continue to see that our existing contracting.
And the rebates that we receive and when we compare that to what's in the marketplace today, we don't see.
Significant benefit coming from that maybe as the competition increases and it becomes more.
Sure.
Oriented.
Driving down price, we'll see some benefits, but in the short term, we just don't see the benefits.
Thank you one moment for our next question.
Our next question comes from Steven Valiquette with Barclays. Your line is open.
Thanks, Hello, everybody.
Just a quick question here following up on the <unk> situation now you mentioned that you can't really comment on what the adjustment might be for <unk>.
With the new rule goes into effect one following that 90 day extension, but you investors seem to have just a pretty wide view on the potential impact of the company around the situation just based on some of the inbounds coming into asking this week just wonder if you could maybe just take a second just to remind investors of the framework of the situation.
And just more color on how heavily you guys are focused on this internally just for context is this a potential material risk factor because of that I expect that to really be material relative to your preliminary EPS growth guidance you've already provided.
Just wanted to get more sense for that just to help out investor community around this dynamic.
Hi, Steve Yeah happy to answer that.
As we've disclosed previously our view is that the proposed rule failed to adequately address the statutory requirement of actuarial equivalence by not applying a fee for service adjuster to their IV overpayment calculations, we've been very proactive in communicating our position and have provided steps to Jim's comments <unk>.
MFS and actively engaged hoping that CMS will address these concerns in the final rule.
In addition, we've commented a number of times on our internal programs around risk adjustment and we feel very good about what we feel are industry, leading processes as it respects Medicare risk adjustment compliance and our sophisticated mechanisms for correcting risk adjustment data if we determine there to be errors in that data. This has included internal.
Contract level audits that we perform.
We have reported the results of which to CMS, including any identified overpayments.
And then as you pointed out we do have a material risk factor, but it is included in our disclosures related to this item. So definitely we encourage investors to review that language as it does represent a material item depending on how the final rule comes out.
Thank you one moment for our next question.
Our next question comes from rocket trial with Cleveland Research. Your line is open.
Hi, Good morning, Thanks for taking my question just a couple of follow ups first.
I appreciate the commentary on stronger than expected applications. So far in the AEP, but can you remind us the typical pacing of application throughout AP, how much is backend weighted weighted how many applications come through after Thanksgiving and those last 10 days.
And then secondly.
Yes.
If you can comment on expected utilization rates of some of the more cash like benefits that youre, all offering next year and the healthy option allowance does that utilization increase.
It's more of a cash payment to the beneficiary and does that have any MLR application. Thank you.
Yeah.
Hi, Rob Yes in terms of your first question in terms of sort of completion over the course of AEP I would say you definitely see it a little bit more back loaded, particularly say in the last two weeks of AEP selling cycle represents a disproportionate percentage of the sales and so that's why unfortunately, it generally take.
Since you get pretty late in the AEP cycle to fully predict what the outcome will be even as you can imagine just a cheaper cent movement in either retention or sales rates can have a meaningful impact and so I would say it is back loaded terms or even more back loaded and that's a function of if I remember were to this enrolled they.
Have to enroll another plan that plan has communicated to CMS and then CMS communicated to US which is why that takes longer for us to be able to see the full completion.
In terms of the cash lag benefits and expected utilization, we do expect a very high utilization rate for those benefits, we've seen that for the OTC benefit and food card that we've offered the last number of years and we expect that to be the case with some of the new services that are included in our offerings for 2023.
We also included an enhanced rollover benefit we expect that to also generate some additional utilization as it provides more flexibility to members. We've contemplated all of that obviously and our pricing for 2023, and our estimates and given the high rate of utilization, we anticipate I don't expect that to create any pressure in terms.
Our guidance for 2023.
Thank you I'm not showing any further questions at this time I'd like to turn the call back over to Bruce <unk> for any closing remarks.
Yes.
As stated at the end of my comments I will just continue to reiterate I want to say, thank you to our 63000 employees.
That really make our success every day with what they do.
Also I want to thank our investors to continuing to support us.
Can you to support us and as you can tell from the call and from our comments. We're excited about the strong fundamentals of the industry and of the company and look forward to continuing to provide you updated progress on us meeting the commitments going forward.
So again I. Thank you for your time today, and we look forward to continuing to have the dialogue on our progression.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Goodbye.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
Okay.
[music].
Okay.
Okay.