Q3 2022 Centene Corp Earnings Call
Good morning, everyone and welcome to the Centene Corporation third quarter 2022 earnings results Conference call.
All participants will be in a listen only mode should you need assistance. During todays conference you can single conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Can I ask a question you May press Star and then one to withdraw your question you May Press Star two.
Please also note today's event is being recorded.
At this time at this time I would like to turn the conference call over to Jennifer Gilligan Senior Vice President of Finance and Investor Relations Ma'am. Please go ahead.
Thank you Jamie and good morning, everyone. Thank you for joining us on our third quarter 2022 earnings results Conference call.
Sarah London, Chief Executive Officer, 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 com.
Any remarks that Centene may make about future expectations plans and prospects constitute forward looking statements for the purpose of the safe Harbor provision under the private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those indicated by those forward looking statements as a result of various important factors, including those discussed in <unk>. Most recent Form 10-K filed February 22nd 2022, 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 third quarter 2022 press release, which is available on the company's website under the investors section.
The company is unable to provide a reconciliation of its 'twenty 'twenty three and 'twenty 'twenty four adjusted diluted EPS targets to corresponding GAAP measures without unreasonable efforts due to the difficulty of predicting the timing and amounts of various items within a reasonable range.
Finally, please mark your calendars for our upcoming Investor Day on December 16th in New York City invitations unnecessary registration information will be sent out shortly with that I'd like to turn the call over tower CEO , Sarah London Sarah.
Thank you John and thanks, everyone for joining us this morning, as we discuss our third quarter results.
During our time today I'll review the highlights of our financial and operational performance for Q3 and address some of the more recent developments shaping our view of 2023 and beyond.
Then Brian will offer comments around the core businesses and share updates on our strong positioning relative to 'twenty, two 'twenty, three Medicare and marketplace enrollment.
Finally drew will provide details of our overall financial performance and update our full year 2022 outlook.
First the quarter we.
We reported third quarter adjusted EPS of $1 30, slightly ahead of our expectations are.
Our strong results were driven by continued organic growth in Medicaid and Medicare the continued impact of marketplace bid discipline as well as strategic capital deployment in the form of share and bond repurchases.
We now expect Centene as full year 2022, adjusted EPS to be within a range of $5 65 to $5.75 as we've raised the bottom end of the guidance range by five cents to reflect strong third quarter results and taking into account continued investments to yield future returns.
Since our initial issuance of the 2022 adjusted EPS guidance, we have now raised the midpoint five 5% or 30 cents driven.
Driven by government program growth and the successful execution of several key value creation initiatives.
Drew will cover the quarter and our financial outlook in more detail shortly.
Our strong year to date performance provides positive momentum as we prepare the organization for 2023 and beyond.
With successful Medicaid re procurements in Mississippi, Nebraska, and Texas This quarter, our business development team continues to execute well didnt demonstrating their powerful market knowledge and delivering solid results.
While we were disappointed with the results in the California RFP process, we remain confident in the quality of our RFP response and in the merits of our protest there, which we'll talk more about shortly.
In our other core business lines, we are enthusiastic about the opportunities we see to strategically balanced growth with margin expansion.
In marketplace, we have demonstrated strong margin improvement this year and see the recent developments in the marketplace competitive landscape as an opportunity for new organic growth in 2023 and beyond.
In Medicare we are confident we have positioned our bids to achieve expanded margin performance next year, while still delivering low to mid single digit growth.
Together, Medicare and marketplace are well positioned to offer tailwind in support of our 2023 earnings calls.
Behind the scenes our transformation work continues with a number of value creation initiatives, achieving key milestones during the quarter.
As you know we are redesigning key shared service functions to reflect the size and scale of the organization and we're supporting these teams with modern flexible technology that will streamline workflows and make it easier to serve both members and providers.
This quarter, we completed the first wave of call Center Regionalization and successfully installed new call Center technology to support the marketplace team and the upcoming open enrollment period.
We also launched our provider 360 application that will allow us to more seamlessly manage our provider relationships across the country.
Each of these enhancements position centene for improvement in both quality and efficiency as we move into 2023.
At the same time, we continue to advance our portfolio review work, we close Panther this quarter and are in the closing process on both Magellan Rx and Ribeira.
We will share additional updates as we position our non health plan assets for masks among strategic value.
Finally, and importantly, we are pleased to share that a major cornerstone of our value creation plan was achieved this month when we concluded our P. B M. RFP process ahead of schedule.
As many of you know we expected the RFP process to drive significant value for Centene, our members and our state and federal partners.
Beginning January one 'twenty 'twenty four ever North Express scripts will provide centene pharmacy benefit management services.
This new partnership will allow us to innovate and redesign the way our pharmacy benefits are administered as we deliver improved value to our customers and shareholders.
As a result of this new contract, we anticipate delivering savings that exceed our previous expectations in 2024 and throughout the duration of the multi year agreement.
Now turning to two recent challenges.
Given the development around both Starz, and our California contract I'd like to spend a few minutes, providing additional perspective on each of these issues.
As we've shared before the year over year deterioration of our Medicare advantage Star ratings was driven in part by the sunsetting of disaster relief provisions related to Covid.
We were additionally impacted by a decline in specific metrics related to option admin a result of our own operational challenges during late 'twenty 'twenty and 2021.
While the final results were slightly worse than our internal expectations. The vast majority of the revenue headwind was known to us months in advance as we shared transparently with the investment community.
This knowledge allowed us to position 2023 products with an emphasis on benefit stability and create a glide path to better mitigate the member impact from the stars revenue headwind in 2024.
As we called out during our June Investor day since learning of the magnitude of the stars impact we've taken aggressive action to change our approach to the stars program.
From an organizational perspective, we hired an experienced chief quality officer and assigned strong operational leaders to manage key ops and admin programs beginning in Q1, we.
We centralized oversight of the quality program and moved the entire organization under Jim Murray, Our Chief transformation officer to directly connect quality to our value creation office and take advantage of Jim's long experience driving Medicare quality outcomes.
In addition, we launched a focused effort to standardize and streamline our quality processes and we implemented real time operational dashboards to track key performance metrics.
Earlier this year, we invested in new technology to enhance our access to clinical data around gaps in care and we committed to integrating the companies numerous quality platforms into a single unified workflow.
Finally, we made significant investments to improve our Medicare members Onboarding journey, including the redesign of our approach to those mission critical survey questions that impact caps and other metrics.
But addressing the stars challenge didn't stop with operational transformations in late Q1. This newly installed management team cracked open our 2022 performance plan and added quality improvement is a key compensation metric for every single employee at Centene across the enterprise.
When I say quality as a priority I mean it over the next three cycles. Our goal is to achieve at least 60% of members enforced our plans and I promise you. This senior management team is aggressively tracking stars improvement toward that goal on a real time basis.
Now turning to California.
The California RFP also carries implications for earnings power in 2024.
Shortly after the August Metical award announcement and after closely reviewing the results Centene along with many other RFP participants filed protests with the state of California.
This audience will appreciate we are limited in our ability to comment too much during an active protest, but I will say this.
Centene takes a matter of filing protests seriously when we do so it is not a matter of reflex, but done only when we see serious errors in the decision making process, resulting in negative impacts on our beneficiaries.
Because of our historic discipline around these decisions Centene has a proven track record of success in the protests, we've undertaken and given our strong view of the merits of our California protest, we intend to exhaust all available avenues of appeal.
Drew will talk more specifically about the financial impact of the stars issue in the California results in a moment, but it is important to note that we are actively managing both situations and feel confident in our current strategies.
As a reminder, centene is on a journey of transformation in service of value creation.
Between now and 2020 for our work is to focus and fortify the organization, creating a strong foundation from which to drive profitable growth over the long term.
From the time our value creation plans were initially laid in June of 'twenty 'twenty. One. This team went in eyes wide open to the level of change we were determined to enact.
If we reflect on 2022 and the two full quarters. Since this management team has taken the helm I am pleased with the amount of progress we have made and confident in our delivery of future milestones. We've assembled the right talent with proven executive leadership skills created a sharpened focus through our value creation office and made deliberate investments to accelerate.
Change.
There was a lot more work ahead, but delivering this year, it's foundational milestones creates important momentum that will carry us into 2020, three and 'twenty 'twenty four.
The upcoming December Investor Day presents us with an important opportunity to give investors clarity around our long term strategy that will underpin the trajectory of Centene business.
We'll use investor day, as a platform to share important areas of operational focus as well as to lay out the market opportunities upon which will build our future growth.
And importantly, we'll commit to long term growth targets. So that our investors are clear on management's expectations for our enterprise.
Before I turn it over to Brent I'd like to take a brief moment to express my gratitude to our Centene team members in Florida for their efforts in the face of the destruction wrought by hurricane in last month.
Once again, our local teams activated quickly harnessing the power of local partnerships to support our members and employees and their communities in a time of need.
Sunshine employees contacted more than 22000 high risk members ahead of the storm to ensure they had a plan.
And in the storms awake to confirm their safety and assess their needs.
We partnered with state and local government entities to strategically deploy resources provide community support and offer distribution and staging sites for relief efforts.
More than 500 Sunshine health employees, some of whom are impacted themselves. Nonetheless volunteered their time at disaster relief sites, including those sites, we stood up inside our health plan community centers.
At the height of operations, our community center in Fort Myers, with serving more than 2100 families. Each day, providing needed items like food water diapers baby formula and basic hygiene products.
Mission driven employees, our son teens, most powerful asset.
Thank you to Sunshine health employees and employees nationwide for your steadfast support of the communities impacted by hurricane in throughout 2022 from Buffalo too you've all day to Fort Myers Youre acts of Selflessness and service demonstrates the extraordinary impact of our mission driven workforce I cannot express to you how proud I am to call you colleagues and friends.
With that I'll turn it over to Brent for an update on the business.
Yeah.
Thank you Sarah and good morning.
We're pleased to have made so much progress in 2022, both organizationally and operationally well.
Well some of the benefits will take time to materialize externally the internal advancements are tangible.
During the third quarter, we received results from civil Rfps in August we received mixed results in California, as we were awarded contracts in non counties, including San Diego. We've also been awarded a sole source contract in Imperial County.
As Sarah mentioned, we've appealed the state's notice of awards and we'll provide updates on the process as appropriate.
In August we were also informed divorces social bid to continue to serve the state of Mississippi is Medicaid managed care program, including entry into the Chip program. We've been a part of the Medicaid program since its inception.
Pleased to continue our relationship with the state.
And another of our long standing markets, we re procured the store help Medicaid program in Texas.
We felt this contracts since 2008 when in collaboration with the Texas Health and Human Service Commission and the Department of family and protective services. Our health plan Superior became the first managed care organization in the country to provide statewide sole source Medicaid coverage to children in foster care.
To round out the quarter, we were fortunate to win the re procurement of our statewide managed care contract in Nebraska, We look forward to continuing to serve our membership in the heritage Health program.
And our existing Medicaid business membership has increased to 15.7 million members at the end of the third quarter and we continue to see an uptick in RFP activity.
As the Phe has been extended to February our Medicaid growth continues to be aided by the ongoing suspension of eligibility redetermination.
As you heard me say before whenever the Phe comes to a close we will continue to work with our state partners to support member transition and believe we're well positioned to attract membership to our marketplace products.
Our Ambrose product ended the quarter with $2 1 million members and remains on track to meet its margin goal for 2022.
As the marketplace leader, we continue to ensure that Americans have financially affordable options for coverage, especially during times of disruption such as the recent announcement of market exits by some of our competitors. We are working closely with our state partners to ensure these members have access to affordable coverage. We also see the extension of the enhanced advanced premium.
Tax credits as fuel for additional growth there in 2023 open enrollment period, which will begin in a few days.
Assistant with our strategy and better health will continue to pursue margin expansion through strategic membership growth and thoughtful pricing discipline.
As we look to 2023, we've expanded our marketplace offerings to the state of Alabama, bringing Mr 28 States.
Additionally, we've added more than 60, new counties, bringing us to over 1500, which is over half the county's United States.
We're also looking forward to the expansion of our and better health virtual access product, which we first launched here in 2022 open enrollment.
This product supports affordable and convenient access to licensed virtual primary care providers as well as access to specialists and other support services.
We will offer virtual access of nine new states for the upcoming open enrollment period, bringing the product to 13 states in total.
Our geographic and product expansion cell strategy stable pricing product offerings and operational strengths allow us to be optimistic about our positioning for 2023 open enrollment.
In Medicare we ended the quarter with over one and a half million members. We have strong geographic growth for 2023 with Wellcare product offerings, we're able to 80%.
Eligible Medicare population, we feel our 2023 products are in line with expectations support a low to mid single digit growth expectations and continue to focus on member retention and look forward to telling you more about our twenty-three outlook in December in short our core products continued to perform well with that let me turn the call over to drew.
Thank you Brent.
Today, we reported third quarter 2022 results of $35 9 billion in total revenue an increase of 11% compared to the third quarter of 2021, and adjusted diluted earnings per share of $1 30.
Based upon performance in the quarter were raising our 2022 adjusted earnings guidance to a range of $5 65 to 575 by lifting the bottom of the range five cents.
Year to date, our guidance midpoint is up 30 cents or five 5% since our original 2022 guidance provided in December of 2020 one.
Total revenue grew by $3 5 billion compared to the third quarter of 2021, driven by one strong organic growth throughout the last year in Medicaid primarily due to the ongoing suspension of eligibility re determinations.
And Missouri Foster care that commenced seven 122.
Number two the January 2022 acquisition of Magellan and three strong Medicare membership growth. This was partially offset by the July 2022 Panther divestiture.
Our our Q3 consolidated H B R was 88, 3%.
Medicaid at 92% was right on track in the quarter consistent with normal seasonality and back to school and counters, 48% of our Medicaid members are under 18 years old.
Medicare at 83, 9% was better than expectations in the quarter, driven by favorable health care affordability initiatives consistent with our efforts to improve execution.
Year to date, the Medicare H B R is trending better than our original expectation, which we assumed would be roughly flat to 2021 that should bode well for our baseline as we look ahead to 2023 and 2024.
The commercial H B R of 84, 2% improved 450 basis points quarter over prior year quarter consistent with our original full year goal of an approximate 500 basis point H B, our improvement in 2022 compared to 2021.
Commercial performance in 2022 has been driven by disciplined pricing actions initiatives executed in 2022, and as expected a reduction in COVID-19 and pent up demand costs compared to 2021.
Our marketplace businesses in 2022 is a good example of execution of margin expansion balanced with growth, which will enable us to take advantage of membership opportunities in 2023 and beyond.
Moving to other P&L and balance sheet items, our adjusted SG&A expense ratio was eight 3% in the third quarter compared to eight 1% last year, the inclusion of Magellan and the sale of Panther increased the ratio by approximately 20 basis points compared to the year ago quarter.
Additionally, we increased Medicare marketing and value creation investment spending in the quarter. This was partially offset by real estate optimization savings based upon efforts that we began in Q2.
Yeah.
Since the start of the third quarter, we have repurchased $15 3 million shares of our common stock for $1 3 billion year to date, we have repurchased 19 5 million shares for $1 7 billion.
Also since the start of the third quarter, we have repurchased approximately $317 million of our senior notes for $300 million to balance the capital structure and take advantage of market conditions.
We are working to close the Magellan Rx divestiture by the end of the year estimated net deployable proceeds on that transaction would be in the zone of 1.1 billion.
A few weeks ago, we were very pleased to receive an upgrade for our senior notes to investment grade by Fitch. The company has been working on that goal for a couple of years. Our senior notes are now rated investment grade by two of the three major rating agencies.
Cash flow provided by operations was $3 3 billion in the third quarter, primarily driven by earnings and the receipt of approximately $2 9 billion in CMS payments for October on the last day of September this temporarily drives up unearned revenue and accounts payable on our balance sheet.
Our year to date operating cash flow was $7 8 billion or $4 9 billion, excluding the early receipt of payments from CMS.
Representing 3.5 times net earnings or 1.7 times adjusted net earnings.
Our domestic unregulated and unrestricted cash on hand at quarter end was 387 million a portion of which was spent in October to finish up the capital deployment I just referenced.
Debt at quarter end was 18 billion our debt to adjusted EBITDA came in at three point O times are.
Our medical claims liability totaled $16 billion at quarter end and represents 54 days in claims payable compared to 55 in Q2, 2022 and 51 in Q3 of 2021. The sequential decrease was largely driven by the timing of pharmacy claims payments.
Outside of adjusted earnings during the quarter, we recorded a 65% gain on the sale of Panther, partially offset by a 23 cent loss on the impairment of Ribera Salud.
And a 16 cent real estate impairment consistent with what we discussed last quarter.
We expect another 15 sensors, so a real estate impairment outside of adjusted earnings over the next couple of quarters as we complete the value creation real estate optimization.
These items are reflected in updated GAAP guidance.
Quickly on 2022 adjusted earnings guidance since we only have one quarter left in the year as mentioned we are lifting the bottom of the adjusted EPS range by a nickel underneath that premium and service revenue was up approximately $700 million. There is no change to H B R from the previous range in the back half of <unk>.
<unk> 2022 investment income outperformance has largely been offset by SG&A investments to yield future returns.
Suffice to say 2022 has been a very good year, one of executing on the value creation plan as a new leadership team.
Many of you have asked about 'twenty, two 'twenty, three and 'twenty 'twenty four and the context of recent business developments like the California RFP.
Florida Medicaid rates and stars So let me give you some more color.
We are in the middle of building up our detailed 2023 annual operating plan that we will complete by the beginning of December CCAR Board approval, and then share formal 2023 guidance with you at our December 16th Investor Day.
Based upon good execution on our value creation plan and anticipated 2023 tailwind and headwinds we are still targeting low six's consistent with what we relayed to you previously.
Why are we so called Blessed consensus last December when it was at $6 22.
But let me boil it down into a macro view of 'twenty 'twenty four including the items I. Just mentioned there is approximately 20 to 25 to 50 cents of potential EPS pressure in 2024 in relation to our original goal of $7 50, plus.
Until we know more on the outcome of California, we are still committed to driving to at least $7.50.
And I'm sure you've thought through if we can achieve our 2024 goals that means we have pulled levers that both annualized and carry into 2025, when our stars headwind turns into a sequential tailwind.
We'll pause momentarily to assemble the roster.
And our first question today comes from Josh Raskin from Nephron Research. Please go ahead with your question.
Hi, Thanks. Good morning, I was wondering if you could talk a little bit more about the key factors in the decision to move the P. B M to express scripts.
So what got you over the hurdle of moving and I was curious if you were attracted by any of the other services that are offered by upper North that's part of it I'm, specifically interested in and specialty as well and then I know part three of one question, but any way to size the relative outperformance versus previous expectations just.
The economics of the deal.
Yeah. Thanks, Josh So first I would say that we were very pleased with and how competitive the process turned out to be and the fact that we had multiple very good options and as we said we were able to achieve savings that exceeded expectations are without feeling like we are sacrificing quality and execution and we carried for it.
The process all of the criteria that we talked about in earlier calls in terms of operational execution level of partnership and a sense of a quality performance innovation and yeah. We have ahead of us and a significant operational undertaking but I have to give major credit to our team for.
Spending a lot of the time during the RFP process doing preparation work in order to give us maximum optionality and in the consideration. So we're feeling good about moving forward with core services and you know the ability to continue to expand the relationship if that makes sense.
Yes, Josh on the economics as I'm sure you can appreciate we don't like disclosing sort of proprietary cost structure elements, but it did exceed our expectations.
Which I think you can surmise by our willingness to take on the operational challenge of moving.
And that was sort of baked into the macro view I provided on 2024.
Okay understood. Thanks.
And our next question comes from Stephen Baxter from Wells Fargo. Please go ahead with your question.
Yeah, Hi, Thank you for the question and all the color I think you said that you'll be targeting 60% of your Medicare advantage membership enforced our better contracts.
Apologize if I missed it but what was the timeframe you're thinking more holistically to take to get there and assuming that it is a multi year process do you think it's reasonable to expect most of the improvement to be concentrated in the next cycle and some of those metrics are still in front of me to be measured or anything we should think about maybe a more even pacing on that thank you very much.
Yeah. Thanks, Stephen for the question and so it is we do see that our goal of 60% in force or at least 60% and four star over the next three cycles. So keeping in mind. The fact that stars. Our results are released in October and I think we see that progress over that over that time period to be fairly.
Equal steps and our you know again like I said pleased with what we're seeing in terms of the real time data that we're tracking and meaningful operational improvement over the course of 2022 so far.
Jamie.
And our next question comes from Justin Lake from Wolfe Research. Please go ahead with your question.
Okay.
Thanks, Good morning.
Couple of things here first I appreciate your comments on 2024.
Just give us a little bit more color in terms of when you say the 20 to 25 to 50 of headwind.
Potentially does that assume is that is that net of everything.
Yeah.
If I were to think about your guidance for <unk>.
2024, or so it looked like there was some conservatism just in terms of the buildup.
When you gave it initially was the tailwind might as a.
The headwinds are.
Are you, saying when you add all of that together if everything happens the way it looks today many of the appeals are successful for us.
That number would be 25 to 50 to high <unk>.
And then secondly could you just give us an update on California in terms of the timing my understanding is the city has to make a decision or the arbitrators to make a decision on the appeal and then there is also a lawsuit that are in place.
That the judge would need to rollout. So maybe you could give us color on that topic.
Yeah, I'll take part one Justin yes, as we sit here 16 months, you know removed from that first look into 'twenty 'twenty four back in June of 2021, we obviously know a fair amount more than we did then and so yes, what I covered was meant to capture everything we know now.
And I think you pointed out the biggest swing factor, obviously is California, a pretty sizeable piece of business for us.
Ally in Sacramento, and Kern counties, so that would be the swing factor of.
Of that 25 to 50 cents. It's it's a net view, but that's the biggest swing factor that would get us back into that 750 plus.
And then in terms of timing on the appeal. The department is currently considering all of the appeals that have been submitted across RFP respondents and the next step is what we consider to be a fairly procedural ruling and then from there. We went news into the courts with the lawsuit.
Yeah.
Okay.
And our next question comes from Lance Wilkes from Bernstein. Please go ahead with your question.
Yes, let's see.
Just wanted to get a clarification on the on the P. P M.
It kind of expected timing of the savings that they are all hitting in 'twenty or if youre getting a portion of that in 'twenty four and more than 25, and then just understanding the length of contract on that and then if there's anything to tell us about mitigation strategies on the star ratings like any opportunity should people to other.
If you have dual plans in the state or anything like that that'd be helpful too. Thanks.
Yeah on the <unk> contract, it's a multi year contract and so youre right, we get the stair step benefit quite frankly that we had always anticipated the concept of a stair step effect of 124 with with either a renewal or a new <unk> contract.
And then we negotiate multi year.
Guarantees and in flavors, and so think of it as sort of a gradual improvement thereafter.
So you.
Over the next call. It few years after the commencement of the contract.
And then on Starz I would say there are probably three ways to think about mitigation and the first and most important is making sure that we position 2023 beds in order to maximize benefits stability across 2023, and 2024 and given that we had early visibility into the headwind we were able to.
Do that the second of course is creating the important tailwind in 2024 in order to make up for the revenue head and then the most important one is making sure that our performance in stars through dates of service of 2022 is as strong as possible. So that we're creating maximum tailwind for the stars revenue as we head into 2025 is too.
You referenced it again on that latter point, having that the strong predictive data that allowed us to see that the impending impact of the 2021 issue is equally giving us visibility to meaningful improvement in our operational performance on stars in 2022 so far.
And our next question comes from a J Rice from Credit Suisse. Please go ahead with your question.
Thanks, just first one cleanup on the P. B M contract I know this is one of the biggest contracts has changed hands in a while and sometimes historically when there has been a big contract change.
The customer gets some help on the transition.
Period is there any support that youre going to get.
From your new P. B M. On the next year that impacts the results as you make the transition and then my more meaningful what a long term question is on the re Verifications, obviously theres been another delay in.
In the or extension of the P. A Z since I think the last time updated your thoughts on re Verifications Theres also the chatter about the economic economy slowing down.
Maybe give us your updated thoughts about how much of the training of re Verifications you might absorb next year versus slipping into 'twenty Board do you have any updated thoughts.
Okay, Yeah, two good questions on the first one.
Yeah, it's very customary as you pointed out a J that the winning RFP P. B M covers the transition costs. So there was a negotiated pool.
Of course coverage for the actual sort of operating and consulting cost and execution costs. It will take during 2023 to convert as of 124 quite frankly similar concept we had back in 'twenty.
2015, and your second question so.
So yes.
Another another three months go by and we're targeting our construction of our forecast and our 2023 operating plan is assuming a two one commencement of redetermination, but that has moved.
Since last quarter, so right now.
If you look back at right before the pandemic, we've grown about 3 million members in Medicaid a little over $3 million. So call. It about $12 5 billion of revenue and so the last time, we talked we were estimating seven to seven 5 billion would be the amount that would be sort of give.
Back due to Redetermination bumped that up a little bit now to seven $5 billion to $8 billion. So it's about 62% of that revenue that we've gained but as each quarter goes by I think the long term prognosis of the company, we benefit because we don't give back 100% of that incremental revenue we've grown at least in our.
Our estimate so the.
The time has been really good to be able to work with the states.
The plan for not just ensuring that there's continuity of coverage for Medicaid recipients, but also to make sure our marketplace business, which is well positioned in 25.
Of our Medicaid markets to be the recipient of some of those members.
Your question about 23 versus <unk> 24 based upon a two one commencement date.
You know the mid pointed out revenue of $7 75 billion, probably four to four and a half of that.
Would hit in 'twenty, three and then the balance largely in 'twenty, four but let's see what happens with the Phe date, and we'll have to update you if that moves.
I don't either.
Oh, sorry, I'm, just going to add quickly on the recession point and you know it's hard to estimate exactly what the impact of that will be and partly because we're still watching that trend, but in general during a recession more folks rely on the health safety net and managed care grows and so and that may be an input as we see what the overall impact of Redetermination says as they unfold.
Okay, great. Thanks, so much.
Okay.
And our next question comes from Kevin Fitch, That's from Bank of America. Please go ahead with your question.
Alright, great. Thanks, I wanted to go into I guess, the state rate update and backdrop, you guys for a while but talk about redetermination and kind of this confidence that states who'll give you appropriate rates if the risk pool.
Does get worse I'd, just like to hear kind of what you think happened in Florida and were there any other states are talking about rate cuts in front of that because that one to me it kind of bothers me a little bit heading into next year, making me wonder if we're about to see additional states come in with rates. So any color on how you're thinking about that.
Yeah in Florida, they never put in a COVID-19 era of risk corridor, and so I'm sure that was a consideration for them, but believe me we pushed back on that we didn't think that the minus four and a half on behalf of the participants in the industry in Florida It was appropriate.
And the good news with Florida has historically, they're very good listeners and it's our job to show data and if we can show the data mid cycle or certainly by 10 one.
The 10, one 'twenty three we get another bite at the Apple in Florida has been a great partner for us and really expect to have a continuing strong and economically viable arrangement in Florida in the long run.
Other states.
Looking to for rate cuts.
Yes, if you go back let me, let me frame the answer in terms of what we shared with you at Investor Day. The 1.3% is what we had built in as our composite rate into the 'twenty to 'twenty. Two plan that we shared with you in December of 2021, that's closer to 0.9% to 1% and most of that difference is Florida. So the rest of the port.
Polio is sort of in the zone of right on track.
Our next question comes from Scott Fidel from Stephens. Please go ahead with your question.
Hi, Thanks, good morning.
I wanted to just maybe flesh out the exchange marketplace a bit more for for 2023 as you mentioned, obviously some pretty major.
Additive changes in the marketplace, particularly with bright acts today again looks like Fridays exiting at least taxes as well so maybe walk us through how how meaningful you think I guess the jump ball our membership could be a bad then also.
Your comfort with your pricing if you do end up getting a big bolus of members from some of these other carriers, whether you're confident that your pricing position Jared.
Still achieve your targeted exchange markets. Thanks.
Yeah. Thanks for the question in General we see the marketplace like I said as an overall positive, but I'll, let Brent walked through the wise and how we're feeling about pricing and positioning.
There is no doubt that there is a great opportunity for us here.
We've been in the exchange program from day, one we've never exited we've continued to provide a strong provider networks, good customer service and very stable pricing with good distribution. So we do see this as an opportunity from the standpoint at the same time, we think that there's one the membership that would potentially come.
I'm over.
From some of our competitors, who are exiting but also just overall growth as we head into the.
The upcoming open enrollment so we feel positive about the opportunities. We have spent many many years working very closely with our state regulators, which has given us an opportunity to work through this challenge that they faced as people have exited.
But that partnership allows us also to continue to work on a daily basis, we're giving strong customer service.
Yeah.
And our next question comes from Calvin <unk> from J P. Morgan. Please go ahead with your question.
Yes, hi, good morning.
Maybe ask one just on utilization can you give us a little color on utilization trends in the quarter by product line and how those compared to pre pandemic levels and I guess, whether you've seen any notable shifts quarter over quarter.
Good question. So let me hit Covid first and then I'll get to your non Covid, which I think is more of the line to your questioning so COVID-19 was slightly higher than Q2, which was as you may recall down from Q1, So and there was a very shallow peak in August.
So really you know sort of consistent you know slightly higher than Q2, the non COVID-19, which is what you're asking about is really in line with normal seasonality and pre COVID-19 movements like from Q2 to Q3, we don't see any signs of pent up demand at the magnitude that we saw in 2021 and we also track a.
Basket of potentially deferrable services, and that's flat to Q2.
So pretty stable macro and yes. There is a couple of pockets of continued call it minor suppression.
I would point to non emergent E are still a little suppressed which you know.
There's good news, obviously and then while we had a really good quarter in Medicare underneath that I'd say are an urgent care or a little high offset by you know a little bit favorable inpatient in Medicare. So just something we're watching and in Medicare, but obviously it didn't affect the aggregate results which were.
Really strong in Medicare in the quarter.
If I could I just ask on the Medicare and commercial side are you seeing any change from inflation.
Consumers' willingness to sort of access care.
Okay.
With the subsidies.
You know our government programs business and the cost sharing that you know most of our members avail themselves of it.
I think you know, it's probably a different population than if we had a national account business. So so no yeah, no signs of that yet.
Okay.
And our next question comes from Michael Hall from Morgan Stanley . Please go ahead with your question.
Hey, Thank you guys just spent MLR real quickly it looks like the street might have been a little bit too low on Medicaid MLR for the corner, but it sounded like it was directly in line with your internal expectations is that right and an MAA in a very strong performance sequentially improving hundreds of Japanese bets now you mentioned some favorable affordability initiatives, but.
It just seems unusually strong for third quarter I was wondering if you can help trail down a bit on that and then one last one on the PJM contract of your 35 billion in drug spend how much of that is currently sitting with Cvs caremark.
Alright, let me see if I can remember all three questions almost all of it is the the answer to your last question. We have about 40 billion plus or minus of of gross spend and almost all of that is with caremark.
On Medicaid Yeah, we were right on the nose, we were right at our expectation both in our plan as well as our six plus six forecast, which is that mid year re forecast. So right on track are on Medicaid.
And in Medicare.
Pleased with the performance, there's a whole slate of clinical initiatives and call them sort of initiatives to help improve quality and the affordability of health care and so it could be anything from you know clinical initiatives or provider contracting or execution on.
Chart Chase for risk adjustment, so it's sort of like the nuts and bolts execution that are we've got a whole slate of initiatives that will continue to drive it to all of our businesses. We just happened to you know do really well in Medicare So far this year.
Got it thank you.
Okay.
And our next question comes from Nathan Rich from Goldman Sachs. Please go ahead with your question.
Thanks, Good morning, first if I could just ask a quick clarification on the 25 to 50 cent potential headwind I guess does it include incremental capital deployment benefits from buybacks and debt repayment and you know could you maybe just talk about generally how youre thinking about the capital deployment piece of the long range plan and then as a.
A follow up on MA business I think you had previously talked about margin improvement in 2023, sorry, I think highlighted some of the investments you're making in light of the recent star scores. So does that change the margin trajectory for that business over the next few years. Thank you.
Yes, we will talk a lot more at Investor day about capital deployment, but yes, that's the third bucket of our value creation plan is always contemplated a heavy deployment of share buyback, but debt management as well as you saw this quarter we were.
We bought back $317 million of face of our bonds for 300 million in.
Cut out some future interest expense along the way.
But we'll cover more of capital deployment at Investor Day. So to answer. Your first question is yes, it's contemplated in that and the 'twenty 'twenty four macro view I provided and then I guess since we've already sort of blessed. The current consensus you know the answer to your second question, which is yeah, we've contemplated.
Good investments necessary to drive performance and our 2023 buildup.
And we still expect a margin expansion in Medicare for 2023.
Yeah, and again I think we've pointed in the past of the fact that the marketplace progression is a good proof point of our ability to expand margin and still grow and innovate in our product line as well as being positioned to take advantage of market opportunities like we are in marketplace. So that is still the plan for 2023, and where we felt good about how.
Our bids are positioned for that and then I think.
Go through 2020 four you know, we're going to want to make sure that we reduce member abrasion and that was part of how we designed the beds and then as we look to 2025 and pick up the tailwind of stars are the ability to revisit it sort of that margin and growth balance on a go forward basis.
Our next question comes from Greg Taylor from Cowen. Please go ahead with your question.
Hey, good morning.
Had a quick question and then I wanted to pass along a clinic question I still get a lot, including this morning. My quick one was just on the Florida rate cut which you said was I think worse than you had.
So you maintained.
Actually raised the low end of this year and and.
Blessed and maintained what you had said about 2023. So my question was just other.
Operational offsets anything specific that are that allows you to.
Have pulled the guidance despite that cut and then the client question I still get all the time is really around.
[noise] Redetermination adverse selection risk I know drew you talked a lot about that low utilize our bucket and keeping an eye on that et cetera, but anything sort of updated there that is.
Is underpinning that confidence on the Medicaid MLR in margin for 23 would be helpful. I think.
Okay.
The answer to your first question, it's really the beauty of having a very broad portfolio of multiple lines of business you know being in 30 States now for Medicaid I mean that helps a lot. So you are not.
You know ultra ultra dependent on any single state, Although Florida is a pretty big one for us. So I think it's the execution of the value creation plan and the levers that the team is pulling that has enabled us to power through that isolated item and in our portfolio Theres things that are going to be better than you expected and things that.
Wont come in exactly where you had expected so we're pretty pleased to be able to still be targeting.
Low sixes zone for 2023.
On Redetermination as we continue to look at the data sort of nothing different than what we've said in past earnings calls or at our June Investor Day, you know I don't want to minimize that as a you know important lever that we will be tracking it's our job to edge.
Educate states.
And you know provide data to the extent that a rate modification would be necessary in a post redetermination world. So there's work to do on there, but we're ready to do so I think I described on the prior call you always got to we've actually developed a common template across all of our health plans, we've got the data sources.
Is available and we're ready to go in and make the arguments and we've we've warmed up our state partners, who acknowledge that it's going to be something that they are going to track also so you know I don't want to minimize that as either a risk or something that we really have to work hard to execute on but we're ready and our ste.
Partners are generally good listeners.
Yeah.
Our next question comes from Steven Valiquette from Barclays. Please go ahead with your question.
Great. Thanks, Good morning, everybody. So just a follow up on the utilization trends I think if I heard you right you mentioned that you're not really seeing any notable pent up demand of traditional non COVID-19 utilization in 'twenty two versus what you saw in 'twenty one.
So I guess as we just sort of think about the puts and takes for utilization for 'twenty three.
Still a factor in the possibility of pent up demand and utilization and any cost categories for next year, whether it's elective procedures or other areas or do you just named Mcafee or this is just not going to happen now and it's all in the rearview mirror as far as this whole notion of pent up demand. Thanks.
Yeah I think.
We're going to assume it's going to be a blend I mean, there are some there are some pockets, where we do expect some normalization but.
When I say pent up demand, it's really the sort of the flood that we saw in Q2 of 2021, especially in the marketplace.
And we don't expect something like that to occur again, you know providers have become very resilient of managing through that.
And we saw that in Omicron, then they were able to manage through that very well without any residual meaningful pent up demand coming out of that Q1, you know early Q1 omicron variance so.
We're gonna make for trend assumptions that we.
We think about not just future COVID-19 cost future COVID-19 vaccine costs, but also sort of flu normal trend you know a normal flu season, meaning sort of a pre COVID-19 era of flu season, and so all of that is fungible and our forward estimates of trend, but yeah, we're thinking about.
All of those legs of the stool.
Okay got it okay. Thanks.
Okay.
And our next question comes from George Hill from Deutsche Bank. Please go ahead with your question.
Hey, good morning, and I. Appreciate you guys Sneaking me and drew just two things I wasn't clear on is number one is there any recourse left for the Florida rate cut or is that decision final.
I was just a little confused by the commentary as to whether or not we're done there or something goes forward and maybe just I had a quick I'll do TV for thousand here well I'll ask.
Is it can you provide any color on kind of what what was kind of an incremental thing that drove the decision change from Cvs to ESI I typically for the linked quarter. These things like price service access formulary just.
Would love to know kind of what was the needle mover.
Thank you.
Yeah, I can take that P. B M question first and then kick it over to Jerry on Florida, I think [noise].
Like I said, we were really happy with how competitive the process was we thought everybody showed up with really strong bids you know, obviously economics matter a lot and but we look across the whole slate of criteria and it was really sort of the aggregate calculus that made the decision not end.
One individual thing again, I think that the market has good strong competition. We were we feel good about our go forward partnership and any ability to sort of innovate how our P. D N functions are administered.
And then on Florida.
The cake is baked for the 10, one you know sort of rate change, but my my reference was we're constantly.
Reviewing data with not just the state representatives, but also their actuaries and we'll continue to do so you know over the next year and then we expect a renewal of that rate. No. Later no later than 10 123.
One question you didn't ask but we've got a couple of notes coming in on just to be clear on the 25 to 50 cents is net of the tail ones that I laid out so that was a macro overall view of 2024, where this team we are committed to driving to the 750 plus but we also have we don't have.
Perfect information, including California, and that view is net of a tailwind, but it includes headwinds such as star.
Very helpful. Thank you.
And ladies and gentlemen that will conclude our question and answer session. At this time I'd like to turn the floor back over to Sarah London for any closing remarks.
Thanks, so much and thanks, everyone for your time this morning, and great questions and we look forward to seeing many of you at our December Investor Day, and look forward to the opportunity to share more about centene strategy for long term profitable growth have a great day.
And ladies and gentlemen, the conference has now concluded we do thank you for joining today's presentation. You may now disconnect your lines.