Q3 2023 Centene Corp Earnings Conference Call
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Good day and welcome to the Centene Corporation third quarter earnings release, all participants will be in listen only mode.
Should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad.
To withdraw your question. Please press Star then two.
Please note today's event is being recorded.
I would now like to turn the conference over to Jennifer Gilligan Senior Vice President Finance and Investor Relations. Please go ahead.
Thank you Rocco and good morning, everyone. Thank you for joining us on our third quarter earnings results Conference call.
They were London, Chief Executive Officer, and drew Asher Executive Vice President and Chief Financial Officer of Centene will host this morning's call, which also can be accessed through our website at Centene Dotcom, Ken Fasola Simpsons' President will also be available as a participant during Q&A.
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.
<unk> most recent Form 10-K filed on February 21st 2023, 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.
I'll 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 2023 press release, which is available on the company's website under the investors section.
The company is unable to provide a reconciliation of certain 'twenty 'twenty four measures to the corresponding GAAP measures without unreasonable effort due to the difficulty of predicting the timing and amounts of various items within a reasonable range.
Finally, we'd like to highlight our upcoming Investor day scheduled for December 12 in New York City.
It will also be available via webcast with that I would like to turn the call over to our CEO Sarah Lynda Sara.
Thank you Jen and thanks, everyone for joining us.
This morning, we reported very strong third quarter 2023 results, including adjusted EPS of $2 outperforming our internal expectations by approximately 20 cents.
Strong fundamentals and excellent marketplace growth and performance contributed to the strength in the quarter as well as our improved outlook for 2023.
We now expect full year 2023 adjusted earnings per share of at least $6 60.
Representing over 14% year over year growth.
With my time this morning, I'll hit on key focus areas, including Medicaid Redetermination upcoming Rfps marketplace performance and recent Medicare advantage stars results and then provide a brief update on the operational progress we have made over the last few months.
Then I'll turn it over to drew to provide details on the quarter and additional commentary relative to our increased financial guidance for 2023.
Let's start with Medicaid.
We are now over 40% or approximately 1 million members through Redetermination and we continue to track in line with our expectations for membership and acuity changes as well as our assumed sloping of overall timing.
As we closely monitor Medicaid membership transitions rejoin our data remains instructive as we think about the net membership impact of Redetermination and coverage continuity.
We are now seeing April through August cohorts consistently experiencing rejoining rates in the mid 20% range Importantly, the 90 day Grace period in most states. It means that the majority of these members have no break in coverage as they return to the Medicaid program.
CMS has obviously been playing an important role with respect to the oversight of the Medicaid redetermination process, including recent intervention to pause redetermination in certain states as well as the effort to reinstate children in individuals who were incorrectly dropped from coverage due to system issues.
We are seeing some of the impact of these reinstatement come through in our rejoin our data and continue to monitor the impact. These changes will have on the timing of expected membership chefs over the coming months.
That said, we have not changed our view that the ultimate impact of Redetermination would be 2.3 to $2 4 million members.
Based on our view of recent CMS actions and our ongoing conversations with state partners. We still expect the overwhelming majority of redetermination to be completed by May of 'twenty 'twenty four.
We continue to track in line with our expected 200 to 300000 members moving from Medicaid into marketplace. As a result of the Redetermination process. We have partnered with an increasing number of states to make auto enrollment of more seamless path for Medicaid members, losing eligibility and are pleased to be able to leverage our market, leading and better platform to Maxim.
<unk> coverage continuity for members of the communities we serve.
Our rate discussions continue to be constructive as well the consistent trend we saw in seven one and 10 one rate cohorts has continued so far as the first wave of one 124, a draft rates have been released.
We are working through an incomplete for one retro rate as drew will discuss further but continue to have constructive discussions there as well.
We appreciate the thoughtful and database in collaboration with our state partners as they acknowledged the importance of matching rates with acuity in order to maintain the strength and effectiveness of each Medicaid program.
Overall, we are encouraged by the progress that states are making with respect to Medicaid Redetermination I'm pleased to be moving through the process with operational stability and results that are consistent with our modeling.
Turning to growth in North Carolina, we are preparing for Medicaid expansion that will go live in December .
North Carolina is the 41st state to expand Medicaid and by passing this legislation with the joint leadership of a Democratic Governor and a Republican supermajority legislature, they demonstrate the increasing bipartisan support for this program.
We expect this trend to continue as states look to provide improved access to quality care for their citizens.
In RFP news, our Sunshine Health team officially submitted our response to the Florida ITN This week.
I want to give a nod to the Sunshine health team to our exceptional business development team and the many sun tumors, who contributed to this effort I'm proud of the work. They did to prepare this response and proud of the long standing partnership we have established and serving the communities in Florida.
In general we are seeing an increase in RFP activity and momentum around states. Considering the addition of new populations into a managed care model, notably the recently released Georgia RFP includes for the first time, the state's aged blind and disabled population.
As we look ahead to our procurement pipeline, we feel good about the opportunity to leverage our incumbent position and our differentiated depth of expertise in managing complex populations to defend and grow our Medicaid footprint.
In support of this work I'm happy to share that we have officially appointed weighed rakes as Centene chief growth officer.
Wade will take on this responsibility in addition to continuing to serve as the CEO of our Peach State Health plan as he leads our incredibly strong Georgia team through their procurement remaining at the helm through the conclusion of that process.
Wade will bring valuable experience as both a local and enterprise leader for Centene as he helps to drive execution around our growth strategy.
Turning to marketplace are in better franchise continues to outperform this year outpacing our growth expectations in the quarter and reaching just under $3 7 million members as of September 30th.
This means added earnings power for the remainder of 2023 as well as a potential earnings tailwind for 'twenty 'twenty four as our retained special enrollment period or Sep members become more profitable in their sophomore year with him better.
And betters unique individual market density consistent performance and market, leading brand recognition have enabled us to build attractive and efficient networks and to foster productive relationships with a vast array of distribution partners.
This is driven our impressive growth in 2020, three and positions us well to continue to serve this large and expanding addressable market.
We'll have an opportunity to dive more deeply into the future growth drivers of this business during our Investor day in December and remain excited by the growth and earnings potential of the individual market in both the short term and the long term.
Finally, Medicare this is an important time of year for our Medicare advantage business as 'twenty 'twenty four enrollment begins to take shape through the annual enrollment period, which kicked off on October 15th.
As Youll recall, the 'twenty 'twenty four bid cycle represents a pivot point for our Medicare advantage products as we reposition our offerings to better serve low income and complex lives.
Touching on the important topic of stars we received the final star rating results along with the rest of the industry two weeks ago.
The final stars results for this cycle were consistent with our July and September commentary, where we expected two thirds of our membership associated with contracts showing year over year Raw score improvement that result was approximately 73%.
We also said we are expecting roughly 90% of our membership to be associated with contracts rated three stars or higher and that final result was 87%.
We delivered stars results in line with our Q2 expectations. These results certainly do not reflect the ambition of this organization. They do however represent an important step on our journey to improve quality scores and restored Medicare advantage earnings power.
Relative to our ongoing work to strengthen Medicare execution overall, we continue to see improvement in our operating metrics, which are important indicators for member experience and ultimately star scores. Our first call resolution has improved year over year and quarter over quarter as have our customer satisfaction scores.
We are still tracking a roughly 40% reduction in member complaints year over year and consistently delivering service levels in the high 90 percents.
And we continue to build out our network, including adding 6100, new providers in the quarter and moving more than 12000 members into new value based agreements.
Medicare advantage remains an integral part of our portfolio of businesses strategically aligned with our Medicaid and marketplace platforms and a long term driver of both earnings and growth, we remain committed to and focused on the work necessary to improve overall performance and quality on behalf of our Medicare members.
Before I turn it over to drew let me touch briefly on our value creation work.
We continue to make progress against the many initiatives that will focus and fortify our enterprise to support robust long term growth.
As our first wave of operational redesign work matures, we are evolving our focus for those initiatives to optimizing and automating workflows as we look to support more efficient and effective service for our members and providers.
For the initial installations of our new telephony system. We are now layering on additional features that are driving month over month improvement and self service and over the last few months within are now centralized utilization management teams, we have been focused on reducing provider abrasion by expanding the use of our proprietary tool, Canada, which automates the.
The approval of authorizations for clinically appropriate procedures using AI technology, we developed in collaboration with the pixel.
Speaking of technology, and I'm, particularly excited about the data work, we have accelerated over the last few quarters as we look to aggressively build out an integrated data fabric across centene to support our long term technology strategy.
One of the benefits of taking this work on now is that we can leverage the most modern technology and design our infrastructure to account for the ways in which we foresee both traditional AI and generative AI being deployed in our environments to an automated administration support more seamless provider collaboration and optimize clinical insights.
It will transform our members' health journeys across lines of business.
One quick milestone from this work over the last three quarters, we have significantly increased the number of digital clinical sources flowing into our clinical data hub, where we hold a longitudinal health record for our members and the.
The expansion of clinical data from digital sources is expected to reduce the overall cost and improve the accuracy and timeliness of information we can use to solve for gaps in care understand member risk in acuity and support predictive modeling for care management interventions.
There are a number of other operational and digital initiatives in flight across our value creation portfolio, and we look forward to providing updates and proof points for those as we move into and through 2024.
But it is important to note that increasingly this work is carrying momentum not because of the value creation scorecard, but because it is simply part of the disciplined operating DNA, we are building across the company.
Yeah.
From a portfolio review standpoint, we were pleased to reach a definitive agreement to divest circle health earlier this quarter.
Circle is an excellent asset with a strong management team and we took our time to find the right partner, who will continue to support the good work circle is doing to serve communities in the U K we.
We continue to expect this deal to close in Q1 of next year and to be three to four cents accretive to 'twenty 'twenty four.
There are a few remaining assets, we continue to evaluate and reposition but we are now in the final innings of this work and expect that as we get to mid 'twenty 'twenty four we will be focused on building around our solid strategic and streamline core business.
Finally, I want to touch on our P. B M migration give it given its importance to our 'twenty 'twenty four financial targets, but more importantly, given the value we expect it will drive for our customers and members.
The teams have put in an enormous amount of work over the last few months and continue to make great progress against our key milestones.
In fact earlier this month, we got to see an early but important proof point of how well. These teams are working together on behalf of our customers due to a 10, one migration of one of our health plans from a legacy platform over to ESI. Thanks.
Thanks to thoughtful planning and testing ahead of time and strong collaboration and communication during the cutover. This was a very successful transition and we believe it turns a great signal about the health of this project as we move into Q4.
Overall centene continues to generate positive momentum, we are making important strides operationally fortifying the foundation of the business and increasingly leveraging our size and scale to better serve our customers.
Strategically as you've seen through our divestitures, we have sharpened the focus of the enterprise on our three core business lines and continue to work hard to preserve the unique innovation engine of our local health plans.
These advancements along with our 'twenty twenty-three outperformance give us confidence that we will exceed our 2024 earnings floor of $6.60 and continue to demonstrate improved member and provider experiences with that I'll turn it over to drew.
Thank you Sarah.
Today, we reported third quarter 2023 results of 35 billion in premium and service revenue and adjusted diluted earnings per share of $2 up over 50% from $1 30 in Q3 of 'twenty to 'twenty two.
This represents a 20 cent beat to our internal forecast, but we tried to recalibrate your two in early September .
Our Q3 consolidated H B R was 87% a little bit better than our expectation driven by the commercial segment. This keeps us right on track with our full year H B our guidance range.
Medicaid at 97% was fundamentally on track other than one of our states, providing a draft and incomplete rate update retroactive to four 123. This was worth about 40 basis points in the quarter relative to our expectations other than that unique item, which we would expect to be at.
Timing matter with a favorable future resolution, we continue to be on track in Medicaid, including relative to our acuity estimates that we've been tracking since the recommencement of Redetermination on April one 2023.
As you can see in the membership tables, we are down 1.1 million Medicaid members since $3 31, 23, right on track with our forecast that include Redetermination estimates.
That $1 1 million includes Iowa reshuffling of about 83000 members effective July 1st as expected.
To update US statistic. We previously provided 13 of our 14 states in the seven one to 10, one cohort have included acuity adjustments in our rates one is still outstanding.
So far seven of our one 124 cohorts states have provided draft rates that include acuity adjustments overall consistent with our estimates.
Unknown Executive: Good day, and welcome to the Centene Corporation third quarter earnings release. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero.
Our view of 2020 for Medicaid performance is unchanged other than revenue looks to be a little stronger than the 77 billion, we outlined on our Q1 call.
At Investor Day, we will provide more detail on 2020 for guidance.
Unknown Executive: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star them one on your telephone keypad. To withdraw your question, please press star them two. Please note today's event is being recorded.
Medicare was on track at 82.2% an improvement of 170 basis points from Q3 of 'twenty to 'twenty. Two similarly, our view of Medicare 'twenty 'twenty four performance is consistent with what we shared previously.
Jennifer Gilligan: I would now like to turn the conference over to Jennifer Gilligan, Senior Vice President, Finance and Investor Relations. Please go ahead. Thank you, Rocco and good morning, everyone. Thank you for joining us on our third quarter earnings results conference call. Sarah London, Chief Executive Officer, Andrew 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. Ken Susola, Centene's president will also be available as a participant during Q&A.
And as you finish modeling 2023 and make sure you factor in the Q4 2023, Medicare H B R step up including the previously discussed premium deficiency reserve.
The commercial H B R. At 78, 9% in Q3 continues to be strong and better than expected simultaneously. We are also capturing growth from both the redetermination and the special enrollment period.
We said on the Q2 call that we expected to hit 3.6 million members. This year and we accomplished that as of the end of Q3.
Jennifer Gilligan: 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 Security's 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 Centene's most recent form 10K filed on February 21st, 2023 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 display many obligation to do so.
You may recall that last quarter. We grew 200000 members. This quarter. We grew 386000 members. This continued growth at H B our performance in 2023 sets us up well to achieve our previously stated goal of growing marketplace at least $3 billion of revenue in 'twenty.
24, while also expanding margin.
Moving to other P&L and balance sheet items, our adjusted SG&A expense ratio was eight 6% in the third quarter compared to eight 3% last year consistent with our mix of business.
Jennifer Gilligan: The call will also refer to certain non-gap measures. A reconciliation of these measures, with the most directly comparable gap measures, can be found in our third quarter 2023 press release, which is available on the company's website under the Investors section. The company is unable to provide a reconciliation of certain 2024 measures to the corresponding gap measures without unreasonable effort due to the difficulty of predicting the timing and amounts of various items within a reasonable range.
Cash flow provided by operations was 1 billion in the third quarter, primarily driven by net earnings our domestic unregulated on unrestricted cash on hand at quarter end was $231 million.
During the third quarter, we repurchased 11 6 million shares of our common stock for $773 million year to date, we have repurchased 22 9 million shares for 1.58 billion a little over our goal of $1 5 billion for 2023.
Jennifer Gilligan: Finally, we'd like to highlight our upcoming investor day scheduled for December 12th in New York City. This event will also be available via webcast.
Our debt to adjusted EBITDA ticked down to two eight times.
Sarah London: With that, I would like to turn the call over to our CEO, Sarah London. Sarah, thank you, Jen, and thanks everyone for joining us. This morning, we reported very strong third quarter 2023 results, including adjusted EPS of $2 outperforming our internal expectations by approximately 20 cents. Strong fundamentals and excellent marketplace growth and performance contributed to the strength in the quarter, as well as our improved outlook for 2023. We now expect full year 2023 adjusted earnings per share of at least $6.60 representing over 14% year-over-year growth.
Our medical claims liability totaled $17 1 billion at quarter end and represents 53 days in claims payable up one day from Q2 of 2023.
Outside of adjusted earnings during the third quarter, we announced the divestiture of circle, our U K Hospital company, which triggers a noncash write down of goodwill. We also adjusted the carrying value of our UK physician business you can see these and other items in the table in our press release.
We are pleased with the performance of the company in the first three quarters of the year and are increasing our outlook to at least $6 60.
Sarah London: With my time this morning, I'll hit on key focus areas, including Medicaid redeterminations, upcoming RFPs, marketplace performance, and recent Medicare Advantage stars results, and then provide a brief update on the operational progress we have made over the last few months. Then I'll turn it over to Drew to provide details on the quarter and additional commentary relative to our increased financial guidance for 2023.
Adjusted EPS for 2023.
As Sarah mentioned this puts us at greater than 14% adjusted EPS growth in 2023 after posting 12% in 2022.
Pretty good years.
The press release table has other 'twenty two 'twenty three guidance elements, including no change in H B, our SG&A ranges and a half billion more in premium revenue.
Sarah London: Let's start with Medicaid. We are now over 40% or approximately 1 million members through re-determinations and we continue to track in line with our expectations for membership and acuity changes as well as our assumed sloping of overall timing. As we closely monitor Medicaid membership transitions, rejoin our data remains instructive as we think about the net membership impact of re-determinations and coverage continuity. We are now seeing April through August cohorts consistently experiencing rejoining rates in the mid 20% range.
We also still forecast investment and other income a little over 1 billion, excluding divestiture gains and losses.
As we are almost a 'twenty 'twenty four which we will go into more detail at our Investor day in a little over six weeks, we continue to have confidence in our 2024 adjusted EPS floor of greater than $6.60. In fact, the strength of this quarter is another data point that increases our confidence.
While I do spend a lot of my time talking about and driving margin, let me close by talking about growth.
Sarah London: Importantly, the 90-day grace period in most states means that the majority of these members have no break in coverage as they return to the Medicaid program. CMS has obviously been playing an important role with respect to the oversight of the Medicaid re-determinations process, including recent intervention to pause re-determinations in certain states, as well as the effort to reinstate children and individuals who are incorrectly dropped from coverage due to system issues. We are seeing some of the impact of these reinstatements come through in our rejoiner data and continue to monitor the impact these changes will have on the timing of expected membership shifts over the coming months.
Centene is a combination margin expansion and growth investment opportunity on.
Sarah London: That said, we have not changed our view that the ultimate impact of re-determinations would be 2.3 to 2.4 million members, and based on our view of recent CMS actions and our ongoing conversations with state partners, we still expect the overwhelming majority of re-determinations to be completed by May of 2024. We continue to track in line with our expected 200 to 300,000 members moving from Medicaid into marketplace as a result of the re-determinations process.
On gross Medicaid expansion is coming to North Carolina late this year.
Our Oklahoma win in both broad Medicaid and sole source Foster care is on track to commence for 124 and Theres a pipeline of complex population is expected to come into managed care over the next few years. One example, being the recent Georgia RFP is Sara referenced.
Marketplace has proven to be an excellent franchise and asset for this company. This business today produces more revenue than our Medicare advantage business and that will widen in 'twenty 'twenty, four and even our PDP business, which may be small and relative revenue should grow meaningfully in 2020 for these members produce pharmacies.
Spend and our potential M. A P D candidates down the road.
We're excited about the future and our ability to power through 2024 and come out the other side post divestitures post re determinations and on our way to fixing Medicare a better company than in 2020 one.
Sarah London: We have partnered with an increasing number of states to make auto enrollment a more seamless path for Medicaid members losing eligibility and are pleased to be able to leverage our market leading and better platform to maximize coverage continuity for members of the communities we serve. Our rate discussions continue to be constructive as well. The consistent trend we saw in 7-1 and 10-1 rate cohorts has continued so far as the first wave of 1124 draft rates have been released.
On the other side of 'twenty 'twenty four we look forward to driving a 12% to 15% long term adjusted EPS CAGR.
You for your interest in Centene.
Rocco, we'll take questions now.
Thank you we will now begin the question and answer session.
Sarah London: We are working through an incomplete 4-1 retro rate, as Drew will discuss further, but continue to have constructive discussions there as well. We appreciate the thoughtful and database collaboration with our state partners as they acknowledge the importance of matching rates with acuity in order to maintain the strength and effectiveness of each Medicaid program. Overall, we are encouraged by the progress that states are making with respect to Medicaid re-determinations and pleased to be moving through the process with operational stability and results that are consistent with our modeling.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset personally keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Today's first question comes from Kevin Fischbeck with Bofa. Please go ahead.
Great. Thanks, Yeah, just wanted to maybe dig into the exchange performance in the quarter, because obviously whenever.
Sarah London: Turning to growth, in North Carolina, we are preparing for Medicaid expansion that will go live in December. North Carolina is the 41st state to expand Medicaid, and by passing this legislation with the joint leadership of a Democratic governor and a Republican supermajority legislature, they demonstrate the increasing bipartisan support for this program. We expect this trend to continue as states look to provide improved access to quality care for their citizens.
75% membership growth in your beef and MLR, that's always a little bit unusual, particularly because in the past we've seen you know FEP enrollment come in ml.
MLR pressure so could you just talk a little bit more about it.
What's driving that outperformance and as you grow membership faster than you were thinking.
What gives you comfort around the MLR coming in better than some people have been forecasting.
Sarah London: In RFP News, our Sunshine Health team officially submits our response to the Florida ITN this week. I want to give a nod to the Sunshine Health team, to our exceptional business development team, and the many send teamers who contributed to this effort. I'm proud of the work they did to prepare this response and proud of the long-standing partnership we have established in serving the communities of Florida. In general, we are seeing an increase in RFP activity and momentum around states considering the addition of new populations into a managed care model.
Yeah. Thanks, Kevin Good morning, Thanks for the question as I talked about in my script. So let me hit on sort of what's driving the growth, which I think has a lot to do with the fact that we have an established franchise. We have a number one or brand recognition in the market a differentiated distribution network and there's a lot of experience exit.
<unk> and we foresaw the growth that was gonna come because of the additional awareness and affordability that was created not just through CMS spend on marketing and navigators, but really the Sentinel effect of the extension of the enhanced a b T. Six.
Sarah London: Notably, the recently released Georgia RFP includes, for the first time, the states aged blind and disabled population. As we look ahead to our procurement pipeline, we feel good about the opportunity to leverage our incumbent position and our differentiated depths of expertise in managing complex populations to defend and grow our Medicaid footprint.
Turning to performance, we're obviously pleased not only with the growth, but the fact that we sustained performance of that business in 2023 and done so exactly as you say, despite having significant C. P membership growth, which in past years has created pressure not just because of the risk adjustment effect, but also like we saw in 2021.
Sarah London: In support of this work, I'm happy to share that we have officially appointed Wade Rakes as Centene's Chief Growth Officer. Wade will take on this responsibility in addition to continuing to serve as the CEO of our Peach State Health Plan, as he leads our incredibly strong Georgia team through their procurement, remaining at the helm through the conclusion of that process. Wade will bring valuable experience as both a local and enterprise leader for Centene as the health-to-drive execution around our growth strategy.
Through pent up demand. So when we think about the factors that are contributing to overall performance and what's giving us comfort. The first is just what we're seeing in terms of underlying growth and performance of the core business that came in in OE P. The second is the fact that we are not seeing that pent up demand in the S. C. P membership like we saw.
In 2020, one partly due to the fact that those members. Some of those numbers are coming in for Medicaid, where they had coverage and others would have been eligible for coverage in previous years. So the belief is that they weren't carrying a lot of unaddressed acuity into the market the.
Sarah London: Turning to marketplace, our Ambetter franchise continues to outperform this year, outpacing our growth expectations in the quarter and reaching just under 3.7 million members as of September 30th. This means added earnings power for the remainder of 2023, as well as a potential earnings tailwind for 2024 as our retained special enrollment period or set members become more profitable in their sophomore year with Ambetter. Ambetter's unique individual market density, consistent performance, and market leading brand recognition have enabled us to build attractive and efficient networks and to foster productive relationships with a vast array of distribution partners. This has driven our impressive growth in 2023 and positions us well to continue to serve this large and expanding addressable market.
The other factor is and we pointed to this in the past, but in general when we see this level of market growth. It drives a healthier overall risk pool, and we're seeing some of that in the performance, but I think the bigger piece is probably just execution from the team really solid pricing discipline coming into the year as we've been on a margin progression with this product.
Execution on clinical initiatives really thoughtful risk adjustment calculations and again, just the expertise of having a team that's been doing this for a decade I think is really showing and what you're seeing in terms of performance. This year.
The only thing I would add numerically is just we've been through two rounds of wakely data. So you have to think about the claims cost matched against the risk profile of the population and so we've adjusted our risk adjustment payable actually up to 1 billion eight from a billion five from Q2 to Q3.
Sarah London: We'll have an opportunity to dive more deeply into the future growth drivers of this business during our investor day in December and remain excited by the growth and earnings potential of the individual market in both the short term and the long term.
Sarah London: Finally, Medicare. This is an important time of year for our Medicare Advantage business as 2024 enrollment begins to take shape through the annual enrollment period which kicked off on October 15th. As you'll recall, the 2024 bid cycle represents a pivot point for our Medicare Advantage products as we reposition our offerings to better serve low income and complex lives. Touching on the important topic of stars, we received the final star rating results along with the rest of the industry two weeks ago.
Consistent with the feedback and the data from Wakely.
And we're still holding the allowance on the.
The insolvent peers or those that were.
Waiting to get paid from through CMS, and so that $314 million.
It went up by $9 million in the quarter because one of those peers is still operating at least for the first half of this this year. So it wasn't the breakdown of that reserve that helped the quarter.
Sarah London: The final star's results for this cycle were consistent with our July and September commentary where we expected two-thirds of our membership associated with contracts showing year-over-year raw score improvement. That result was approximately 73%. We also said we were expecting roughly 90% of our membership to be associated with contracts rated three stars or higher and that final result was 87%. While we delivered star's results in line with our Q2 expectations, these results certainly do not reflect the ambition of this organization.
Thank you and our next question today comes from Stephen Baxter of Wells Fargo. Please go ahead.
Yeah, Hi, Thanks, I appreciate the commentary you made on acuity running in line with your expectations. So far I guess, how do you think the higher level of procedural dis enrollment that we're seeing across the industry have impacted that are able to comment yet on what youre seeing in terms of utilization on the rejoin or population, especially maybe in the earlier cohorts and then I appreciate you fly.
Sarah London: They do, however, represent an important step on our journey to improve quality scores and restore Medicare Advantage earnings power. Relative to our ongoing work to strengths and Medicare execution overall, we continue to see improvement in our operating metrics, which are important indicators for member experience and ultimately star scores. Our first call resolution has improved year-over-year and quarter-over-quarter as have our customer satisfaction. Scores. We are still tracking a roughly 40% reduction in member complaints year over year and consistently delivering service levels in the high 90%.
Again, you know kind of this unusual item on on the rate side I guess, how should we think about the path to the Medicaid MLR that you just reported this quarter to what you're targeting for 2024 that 91. Thank you.
Yeah.
Thanks, Steven Yeah. So let me hit on the first part of the question relative to them, what we're seeing in leavers and say ours. Obviously overall, we're seeing are leavers H b, our lesson stairs as we had expected what's interesting about the rejoin our rate the last time that we updated on this when we were looking at April rates in that sort of mid <unk>.
20% range, and then a sort of reasonable paredo as you move through the ensuing months, what we've seen in the last month or six weeks or so is really that April to August cohort, all filling up into what averages out at about 25% well, which tells me that we're seeing a rate of rejoining that has picked up a little bit again, and we think part.
Sarah London: And we continue to build out our network, including adding 6100 new providers in the quarter and moving more than 12,000 members into new value-based agreements. Medicare Advantage remains an integral part of our portfolio of businesses strategically aligned with our Medicaid and marketplace platforms and a long-term drive of both earnings and growth. We remain committed to and focused on the work necessary to improve overall performance and quality on behalf of our Medicare members.
That is being driven by the CMS interventions and given the fact that 75% or sorry, 70% of those members have no gap in coverage of 95% of them have less than two months gap in coverage. We feel good about the fact that there aren't significant laggard impacts to acuity in terms of what we're seeing in those rejoin R.
Sarah London: Before I turn it over to Drew, let me touch briefly on our value creation work. We continue to make progress against the many initiatives that will focus and fortify our enterprise to support robust long-term growth. As our first wave of operational redesign work matures, we are evolving our focus for those initiatives to optimizing and automating work flows. As we look to support more efficient and effective service for our members and providers.
And then maybe drew do you want to talk about the underlying Medicaid MLR, yeah, right and Sir said the leavers are have a lower H B R. Then the stairs consistent with our expectations, but actually the rejoin or as of right around the same H B R. As the stairs. So that's.
Sarah London: For the initial installations of our new telephony system, we are now layering on additional features that are driving month-over-month improvement in self-service. And over the last few months, within our now centralized utilization management teams, we have been focused on reducing provider abrasion by expanding the use of our proprietary tool, Cata, which automates the approval of authorizations for clinically appropriate procedures using AI-2 technology we developed in collaboration with a Pixio. Speaking of technology, I'm particularly excited about the data work we have accelerated over the last few quarters, as we look to aggressively build out an integrated data fabric across NTEAN to support our long-term technology strategy.
That's looking good as well relative to our forecast and then yeah. We're on track for the metrics, we gave out including the 91% target for 2024.
As we get as we get one one rates when I mentioned that we've gotten seven that include acuity adjustments. So far for one one in the form of draft rates. That's just another positive weighed on the scale of giving us confidence as we turn the turn the page into 'twenty 'twenty four.
Yeah.
Thank you and our next question today comes from Josh Raskin of Nephron Research. Please go ahead.
Hi, Thanks. Good morning, just a clarification first is just I think I heard 20% now maybe going into 25% of rich terminations are coming back I'm, assuming those were centene lives coming back to Centene plans and I think you said, 10% ish or so we're moving to exchanges I am curious about are you taking share from other plans when they were sangria.
Sarah London: One of the benefits of taking this work on now is that we can leverage the most modern technology and design our infrastructure to account for the ways in which we foresee both traditional AI and generative AI being the deployed in our environments to an automated administration, support more seamless provider collaboration, and optimize clinical insights that will transform our members' health journeys across lines of business. One quick milestone from this work over the last three quarters, we have significantly increased the number of digital clinical sources flowing into our clinical data hub, where we hold a longitudinal health record for our members.
The terminations and Youre getting their members into your exchanges and then you mentioned two of the big growth in PDP I guess, just a question sort of strategy you know it seems like a little de emphasis in terms of network or catchment points of the Medicare advantage program.
Switching the P. B M already so I'm just curious you know what the ideas around you know the low price products for the PDP next year.
Sarah London: The expansion of clinical data from digital sources is expected to reduce the overall cost and improve the accuracy and timeliness of information we can use to solve for gaps in care, understand member risk and acuity, and support predictive modeling for care management interventions.
Yeah. So I'll. Thanks, Josh let me hit those clarification points and then I'll turn it over to drew so what we are seeing on average across the April to August cohorts is 25% rejoin our rates on average so those those again that sort of filled up from what had been a parade of decreasing credo to pretty consistent 25%.
Sarah London: There are a number of other operational and digital initiatives in flight across our value creation portfolio, and we look forward to providing updates and proof points for those as we move into and through 2024. But it is important to note that increasingly this work is carrying momentum not because of the value creation scorecard, but because it is simply part of the disciplined operating DNA we are building across the company.
Rejoining rate and then our expectations again, just mathematically, we're about that 10% to 15% recapture which which leads to the 200 and 300000 member expectation that we're still tracking in line with we are pulling share from other players and trying to track pretty closely obviously members that are coming.
Sarah London: From a portfolio review standpoint we were pleased to reach a definitive agreement to divest circle health earlier this quarter. Circle is an excellent asset with a strong management team, and we took our time to find the right partner who will continue to support the good work circle is doing to serve communities in the UK. We continue to expect this deal to close in Q1 of next year and to be three to four cents accretive to 2024.
From our plans and then to the extent we can identify specifically those members that are coming from.
From other Medicaid programs, Yeah, Josh and then on PDP and you'll remember this business going back 10 years, which was the legacy Wellcare southern business.
The strategy there is as much about corralling in and managing pharmacy spend and having a future feeder for M. A P. D than it is about generating earnings on what's this year, two and a half billion of revenues. So I think it was fortuitous that.
Sarah London: There are a few remaining assets we continue to evaluate in reposition, but we are now in the final innings of this work, and expect that as we get to mid 2024, we will be focused on building around our solid strategic and streamlined core business.
Our change and improvement in cost structure, our change to a new P. B M and a meaningful improvement in cost structure occurred right. When there were a number of rule changes impacting P. D. P. Like no pharmacy D I R.
Sarah London: Finally, I want to touch on our PBM migration, given its importance to our 2024 financial targets, but more importantly, given the value we expect it will drive for our customers and members. The teams have put in an enormous amount of work over the last few months and continue to make great progress against our key milestones. In fact, earlier this month, we got to see an early but important proof point of how well these teams are working together on behalf of our customers due to a 10-1 migration of one of our health plans from a legacy platform over to ESI.
Elimination of the member cost share and the catastrophic phase the cap on insulin and so we were able to leverage that cost structure cost structure and make it affordable for our members while the direct subsidy went up meaningfully and so we'll be getting paid that direct subsidiary by the government. So it was actually a good alignment of.
Sarah London: Thanks to thoughtful planning and testing ahead of time and strong collaboration and communication during the cutover, this was a very successful transition, and we believe it tends a great signal about the health of this project as we move into Q4.
Of opportunities for us to continue to leverage that business to actually help our other businesses in terms of pharmacy cost structure.
Thank you and our next question today comes from Justin Lake with Wolfe Research. Please go ahead.
Sarah London: Overall, Centene continues to generate positive momentum. We are making important strides operationally, fortifying the foundation of the business, and increasingly leveraging our size and scale to better serve our customers. Strategically, as you've seen through our divestitures, we have sharpened the focus of the enterprise on our three core business lines and continue to work hard to preserve the unique innovation engine of our local health plans. These advancements, along with our 2023 outperformance, give us confidence that we will exceed our 2024 earnings floor of $6.60 and continue to demonstrate improved member and provider experiences.
Thanks, Good morning.
Question on a follow up so the question is on the Oh.
Jeans business, just can you give us some color in terms of how that membership growth was pretty exceptional in the third quarter, how did that look versus your expectations and how does that kind of educate 24, and then specifically on 24 with a margin there.
You kind of back of the envelope.
So through that you know your margin that your kind of guidance for next year assumes margin towards the higher end of that 5% to 7% target range is that right and then just a follow up on the on.
Andrew Asher: With that, I'll turn it over to Drew. Thank you, Sarah. Today, we reported third quarter 2023 results of 35 billion in premium and service revenue and adjusted deluded earnings per share of $2, up over 50% from $1.30 in Q3 of 2022. This represents a 20 cent beat to our internal forecast that we tried to recalibrate you to in early September. Our Q3 consolidated HBR was 87% a little bit better than our expectation driven by the commercial segment.
The retro did you give us any more color in terms of you know the.
Why do you think that would be incomplete that yourselves something I've never heard the word incomplete on a on a rate update and what gives you the confidence that they're going to reverse that you're already kind of color from the state that you could share with us on the topics and the party. Thanks.
Alright first on first on the growth in the quarter and marketplace Youre right that was outstanding growth now you May remember, we said that we expected to get to $3 6 million members. This year and we're just above 3.6 million. This quarter. So most of that was sort of embedded in our forecast as we saw the.
Andrew Asher: This keeps us right on track with our full year HBR guidance range. Medicaid at 90.7% was fundamentally on track other than one of our states providing a draft an incomplete rate update retroactive to 4123. This was worth about 40 basis points in the quarter relative to our expectations other than that unique item, which we would expect to be a timing matter with a favorable future resolution. We continue to be on track and Medicaid, including relative to our acuity estimates that we've been tracking since the recommencement of redeterminations on April 1, 2023.
The momentum from Q2, but you're right. It is a good.
Indicator in and you know sort of momentum builder for 'twenty to 'twenty four on margin. We are still just this year. We're in marketplace. We're still just below our target range of five to seven and a half and that's not because of H B R. It's actually because of all the growth in the year One commission that comes along with that.
Andrew Asher: As you can see in the membership tables, we are down 1.1 million Medicaid members since 3.3123 right on track with our forecast that include redetermination estimates. That 1.1 million includes Iowa re-shuffling of about 83,000 members effective July 1 as expected. United. To update a statistic we previously provided, 13 of our 14 states in the 7-1-10-1 cohort have included acuity adjustments in our rates. One is still outstanding. And so far, seven of our 1124 cohort states have provided draft rates that include acuity adjustments overall consistent with our estimates. Our view of 2024 Medicaid performance is unchanged other than revenue looks to be a little stronger than the 77 billion we outlined on our Q1 call.
So it's a real good reason to be just below your target range, which means there is capacity as expected and as we had forecasted into 'twenty 'twenty four to expand margin into that five to seven and a half zone and so I'll just leave it at that we expect to Pierce that zone and be well into that range for 2024.
For and we you know our forecast are on track for that we price for that and that's what we expect.
Regarding probably not going to get too much into a single state call. It negotiation, but yes that that was a 40 basis point.
Push in the quarter that pushed our H b are up a little bit higher in Medicaid and just based upon the back and forth and the construction of that.
Incomplete and maybe rushed retro rate.
We expect a favorable future outcome, maybe in Q4, but it could drag into 'twenty 'twenty four.
Andrew Asher: At investor day, we'll provide more detail on 2024 guidance. Medicare was on track at 82.2% in improvement of 170 basis points from Q3 of 2022. Similarly, our view of Medicare 2024 performance is consistent with what we shared previously. And as you finish modeling 2023, make sure you factor in the Q4 2023 Medicare HBR step up, including the previously discussed premium deficiency reserve. The commercial HBR at 78.9% in Q3 continues to be strong and better than expected.
Thank you and our next question today comes from AJ Rice of UBS. Please go ahead.
Thanks, Hi, everybody.
Two two quick areas of question on the marketplace comments I know traditionally that product you hit a deductible potentially in the fourth quarter and your utilization rate.
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Are you expecting that you think you have good visibility on all of these new members and how they might act in the fourth quarter and maybe to what degree have you reflected that and then as you think about that population, we sort of talked around it with a couple of the other questions are moving into next year you mentioned the commission dynamic.
Andrew Asher: Simultaneously, we're also capturing growth from both redeterminations and the special enrollment period. We set on the Q2 call that we expected to hit 3.6 million members this year, and we accomplished that as of the end of Q3. You may recall that last quarter we grew 200,000 members. This quarter we grew 386,000 members. This continued growth and HBR performance in 2023 sets us up well to achieve our previously stated goal of growing marketplace at least $3 billion of revenue in 2024 while also expanding margin.
Potentially better our risk, scoring and so forth how much of a margin tailwind will this population represents for you as you as you look into next year I know the churn rates in that population where high by historically, but I think they've come down and I don't know if that's it.
The same for you, but maybe any comment along those lines as well.
Yeah, a J you're right that the that particularly in that sat membership, we're seeing more retention industry wide, which is I think logical just given the installation and the extension of the enhanced a P. T sees in the the increase the affordability of the product and as you said the the sophomore effect of that membership in part.
Andrew Asher: Moving to other PNL and balance sheet items are adjusted SG&A expense ratio was 8.6% in the third quarter compared to 8.3% last year consistent with our mix of business. Cash flow provided by operations was 1 billion in the third quarter, primarily driven by net earnings. Our domestic unregulated and unrestricted cash on hand at quarter end was 231 million. During the third quarter we repurchased 11.6 million shares of our common stock for $773 million.
<unk>. The fact that we'll have a full year of risk adjustment and we will have moved through any sort of early utilization. We think provides a tailwind for the retained part of that population and as drew said our focus going into 'twenty 'twenty four is really retaining the tremendous growth that we've had in 2023 and then continuing our progress.
Yes on pricing discipline in order to expand margin and peers into that five and sorry, five to seven and a half per cent range, yes, and on your Q4 comment you're absolutely right sort of if you look at the slope lines of the deductible wear off throughout the year, we do expect a healthy pick up in H B R. We planned for.
Andrew Asher: Year to date we have repurchased 22.9 million shares for 1.58 billion, a little over our goal of 1.5 billion for 2023. Our debt to adjusted EBITDA ticked down to 2.8 times. Our medical claims liability totaled 17.1 billion at quarter end and represents 53 days and claims payable up one day from Q2 of 2023. Outside of adjusted earnings during the third quarter we announced the divestiture of circle, our UK hospital company, which triggers a non-cash right down of goodwill. We also adjusted the carrying value of our UK physician business. You can see these and other items in the table in our press release.
That.
And our commercial including marketplace businesses.
And also in Medicare normally a step up in H B R. But then you had the P. D are on top of that so those are some of the things to think about for Q4 as well as heavy SG&A as expected as typical in Q4.
Which is as you're calibrating their models for 2023 to finish out the year.
Thank you and our next question today comes from Nathan Rich Goldman Sachs. Please go ahead.
Andrew Asher: We are pleased with the performance of the company in the first three quarters of the year and in our increasing our outlook to at least $6.60 of adjusted EPS for 2023. As Sarah mentioned this puts us at greater than 14% adjusted EPS growth in 2023 after posting 12% in 2022. Two pretty good years. Press release table has other 2023 guidance elements, including no change in HBR or SGNA ranges, and a half billion more in premium revenue.
Great. Thanks for the questions I wanted to ask on the Medicare business. I guess, you know is there any change to how youre thinking about EMEA enrollment.
In revenue kind of relative to the initial expectations. You know now that you have a fuller view of the competitive environment and just for clarification are you still planning the the 200 million PDR and <unk> and then kind of bigger picture could you talk about the path to getting.
The 85% of members into three and a half floor plans by October of 2025.
Andrew Asher: We also still forecast investment and other income, a little over a billion, excluding the vestiture gains and losses. As we are almost to 2024, which we will go into more detail at our investor day in a little over six weeks, we continue to have confidence in our 2024 adjusted EPS floor of greater than $6.60. In fact, the strength of this quarter is another data point that increases our confidence.
In the areas that you're investing in and you know kind of any incremental investments that you are maybe planning for for 'twenty for you know in that respect. Thank you.
Yeah. Thanks, Nathan so with the competitive landscape and additional information we have not changed our view that we would be down 4 billion in 2024 in the Medicare business again, our focus is really on narrowing to that lower income complex population that was part of how we constructed the beds and certainly how we crafted our strategy going.
Andrew Asher: While I do spend a lot of my time talking about and driving margin, let me close by talking about growth, because Centene is a combination, margin expansion, and growth investment opportunity. On growth, Medicaid expansion is coming to North Carolina late this year. Our Oklahoma win in both broad Medicaid and sole source foster care is on track to commence 4124. And there's a pipeline of complex populations expected to come into managed care over the next few years.
[noise] into a Pea and then relative to stars. We're obviously pleased to have delivered results in line with our expectations beginning in Q2, but there's obviously still work to do and so this next cycle will be an important additional step to that ultimate goal of 85% of members in three and a half stars and our focus really continues to.
Be on rebuilding the operational capacity and the infrastructure to support sustainable programmatic improvement and that was really demonstrated by moving again, 53% of our membership from sub 3% to 87% of our membership at or above three in this first step so well need to continue to pull up underperforming contracts.
Andrew Asher: One example being the recent Georgia RFPs are referenced. Marketplace has proven to be an excellent franchise and asset for this company. This business today produces more revenue than our Medicare Advantage business, and that will widen in 2024. And even our PDP business, which may be small and relative revenue, should grow meaningfully in 2024, these members produce pharmacy spend and are potential MAPD candidates down the road. We're excited about the future and our ability to power through 2024 and come out the other side, post-investigers, post-reted terminations, and on our way to fixing Medicare, a better company than in 2021.
We'll need to move contracts and members from three across that three and a half star threshold and in a lot of that is again why we've tried to create visibility into some of the underlying operational metrics that we're tracking internally around our overall C. T M around call center metrics and our ability to answer questions.
For our members and provide them a good member experience getting them connected to physicians getting them aligned to value based providers. So that those incentives are aligned to close gaps in care, which ultimately accrues not just to hit us but to cap. So those are all the things that we're really focused on and we've got a very robust governance structure in place as we've said before we've.
Andrew Asher: On the other side of 2024, we look forward to driving a 12-to-15% long-term adjusted EPS Kager. Thank you for your interest in Centene.
Unknown Executive: Rocco, we'll take questions down. Thank you. We will now begin the question and answer session. To ask a question, you may press star them one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star them two.
Got incentives aligned top to bottom in the organization. There is no confusion that this is a priority and.
And we continue to be focused on making incremental improvements in holding steady on those improvements that we've made to date.
And you ask about the our view on the PDR has that changed our current guidance gives us capacity for P. D are in the mid two hundreds.
Kevin Fishbrack: Today's first question comes from Kevin Fishbrack with BOA. Please go ahead. Great. Thanks. You just wanted to maybe dig into the exchange performance in the quarter, because obviously whenever you have 75% membership growth in your B&MLR, it's always a little bit unusual, particularly because in the past, we've seen, you know, SCP enrollment come in with MLR pressure. So you could just talk a little bit more about, you know, what's driving that outperformance, and as you grew membership faster than you were thinking, you know, what gives you comfort around the MLR coming in better than some people have been forecasting. Thanks. Thanks, Kevin. Good morning. Thanks for the question.
But the accounting calculations in December will dictate that precise number.
Thank you and our next question today comes from Lance Wilkes with Bernstein. Please go ahead.
Thanks, just wanted to do a quick deeper dive on a couple of the items that you talked to one would be on Medicaid redetermination that just talk a little bit about per leavers any sort of double coverage analysis, you've done to see like what percentage of those were maybe zero percent MLR and then for this more complex populations.
And then going forward you know what kind of percentage target margin would be for that as you think about that as a sustainable business going forward and if you wanted to give any update on your P. B M costs is obviously $500 million I think it was a category called say for gross margin improvement it.
Sarah London: As I talked about in my script, so let me hit on sort of what's driving the growth, which I think has a lot to do with the fact that we haven't established franchise. We have number one sort of brand recognition in the market, a differentiated distribution network, and just a lot of experience executing. And we sort of foresaw the growth that was going to come because of the additional awareness and affordability that was created not just through CMS spend on marketing and navigators, but really the Sentinel effect of the extension of the enhanced ABTCs.
It seems like you may have upside to that so I would love to hear any further color. Thanks.
Yeah back at a I think in the January conference, we outlined as.
As we talked about a number of the factors before we had any real data on the Redetermination and now we've actually got real data, where it's sort of trumps all the hypotheses that we were.
You know going through leading up to April of 2023.
Sarah London: Turning to performance, we're obviously pleased not only with the growth, but the fact that we sustain performance of that business in 2023, and done so exactly as you say, despite having significant SCP membership growth, which in past years has created pressure, not just because of the risk adjustment effect, but also like we saw in 2021 through pent up demand. So when we think about the factors that are contributing to overall performance and what's giving us comfort, the first is just what we're seeing in terms of underlying growth and performance of the core business that came in in OEP.
You had indicated that as.
As we look through our data we could see through C. O be claims the other insurance coverage, where members have duplicative coverage had had gone from two 7% of the Medicaid population in 2019, two to three 4%. So made sense at the time, we sort of triangulated that with a <unk>.
There are other things that come up with our forecast that we outlined on the Q1 call and the good news is we're right on track with those forecasts now that we've got you know, we're well into redetermination and over 40%. According to our estimates through Redetermination.
Sarah London: The second is the fact that we are not seeing the pent up demand in the SCP membership that we saw in 2021, partly due to the fact that some of those members are coming in from Medicaid, where they had coverage and others would have been eligible for coverage in previous years. So the belief is that they weren't carrying a lot of unaddressed acuity into the market. The other factor is, and we pointed to this in the past, but in general, when we see this level of market growth, it drives a healthier overall risk pool, and we're seeing some of that in the performance.
On the P B M.
That's right on track as Sarah mentioned and the economics as well that we're expecting and as you would expect from US many of those are in the form of guarantees.
That our P. B M. Underwrote. So we're on track for the contribution to the greater than 660 from the P. P M economics.
Yeah.
And then just a relative lands to your question on the complex populations, obviously, the reimbursement for those populations can be higher, but you're dealing with a higher acuity and more complex care within that cohort and so our view is that because that aligns with our expertise in managing Medicaid members that we have the opportunity.
Sarah London: But I think the bigger piece is probably just execution from the team, really solid pricing discipline coming into the year as we've been on a margin progression with this product. Execution on clinical initiatives, really thoughtful risk adjustment calculations, and again, just the expertise of having a team that's been doing this for a decade, I think is really showing in what you're seeing in terms of performance this year. The only thing I would add numerically is just we've been through two rounds of wakely data so you have to think about the claims cost matched against the risk profile of the population and so we've adjusted our risk adjustment payable actually up to a billion eight from a billion five from Q2 to Q3 consistent with the feedback in the data from wakely and we're still holding the allowance on.
<unk> through value based arrangements for that to be a profitable cohort, but also to drive differential outcomes for that population and if you take a step back and look at the segments of the Medicare population and the lower income complex members are the fastest growing segment and that is part of why we have focused on that number.
She had not just for this cycle, but as part of our long term fundamental strategy.
Thank you and our next question today comes from Gary Taylor with Cowen. Please go ahead.
Yeah.
Sarah London: And the insolvent peers or those that were waiting to get paid from through CMS and so that 314 million that actually went up by 9 million in the quarter because one of those peers is still operating at least for the first half of this this year so it wasn't the bring down of that reserve that helped the quarter.
Hi, Good morning, two quick ones on Medicare.
The first is as we're thinking about Medicare enrollment and.
2024, and looking at some of the reductions across OTC and flex benefits S. S. PCI you know it looks like those hit.
Pretty evenly across both individual MA and D SNP and I know you're talking about focusing on more complex care next.
Stephen Baxter: Thank you, and our next question today comes from Stephen Baxter at Wells Fargo. Please go ahead. Yeah, hi, thanks. I appreciate the commentary made on acuity running in line with your expectations so far.
Next year and I think you know D. SNP is actually growing this year. So just wondering how we should think about.
Individual retail in May versus D. SNP, if we should see similar trends and then just my second question on M&A is I still get a lot of questions from folks.
Sarah London: I guess how do you think the higher level of procedural disenrollments that we're seeing across the industry of impact of that are able to comment yet on what you're seeing in terms of utilization on the rejoiner population, especially maybe in the earlier cohorts. And then appreciate you flagging, you know, kind of this unusual item on the rate side. I guess how should we think about the path to the Medicaid MLR that you just reported this quarter to what you're targeting, you know, for 2024 that 90.1.
Trying to do the EPS Bridge I know, you've said 80 cent loss from Medicare.
Next year, just wondering if you could give us just an updated figure for Medicare this year, including the PDR.
Yeah. So sometimes it is tough to glean from public data exactly what we did with benefits or what any payer do it benefits you can get directional but you know if you.
Sarah London: Thank you. Thanks, Stephen. Yeah, so let me hit on the first part of the question relative to what we're seeing in levers and sayers. Obviously, overall, we're seeing our levers HBR less than stairs as we had expected. What's interesting about the rejoiner rate, the last time that we updated on this, we were looking at April rates in that sort of mid 20% range and then sort of reasonable Pareto as you move through the ensuing months.
Got into our bids and now our product set that's being sold out there in the market today.
See that we heavily trimmed our part B give back in P. P O plans, but we invested in D. SNP.
And with.
With the supplemental benefits, we actually combined a number of supplemental benefits into a simple spendable card. So think flex O T C grocery and so that simplifies it for the member and you may not actually be able to define that from some of the landscape files, but.
Sarah London: What we've seen in the last month or six weeks or so is really that April to August cohort all filling up into what averages out at about 25% which tells me that we're seeing a rate of rejoining that has picked up a little bit. Again, we think part of that is being driven by the CMS interventions and given the fact that 75% or sorry 70% of those members have no gap in coverage and 95% of them have less than two months gap in coverage. We feel good about the fact that there aren't significant laggard impacts to acuity in terms of what we're seeing in those rejoiner cohorts.
Yeah, as we said earlier, where we we haven't changed our view on sort of our forecast for 2024 in terms of about 16 billion of Medicare advantage revenue down about $4 billion.
Yeah.
Thank you.
Question today comes from Scott Fidel with Stephens. Please go ahead.
Hi, Thanks, I wanted to just ask about two salient points relative to medical costs and first just maybe an update on the behavioral utilization that you've been seeing earlier in the year end and how thats been getting factored into the rates and sort of comfort with that in 'twenty, four I guess, particularly for the bank.
Andrew Asher: And then maybe Drew, do you want to talk about the underlying Medicaid MLR? Yeah, right. And Sarah said the levers have a lower HBR than the stairs consistent with our expectations, but actually the rejoiners are right around the same HBR as the stairs. So that's looking good as well relative to our forecast. And then yeah, we're on track for the metrics we gave out, including the 90.1% target for 2024. As we get as we get one one rates, and I mentioned that we've gotten seven that include acuity adjustments so far for one one in the form of draft rates. That's just another positive weight on the scale of giving us confidence as we turn the turn the page into 2024. Thank you.
Magellan behavioral Bakken and then second would just be definitely curious in your thinking just around.
The new California minimum wage law for health care workers and similar types of.
Legislation and how you sort of are thinking about that factoring into the unit cost into your pricing looking out over the next several years.
Yeah, so relative to California that does not apply to M. C o's them, but we're obviously tracking that for a potential pass through costs from providers. So again, keeping an eye on that relative to behavioral and that's still a component of underlying utilization.
Joshua Raskin: And our next question today comes from Josh Raskin with Neffron Research. Please go ahead. Hi, thanks. Good morning. Just a clarification first. I think I heard 20% now, maybe going to 25% of rich terminations are coming back. I'm assuming those were centine lives coming back to centine plans. And I think you said 10%ish or so are moving to exchanges. I am curious about, are you taking share from other plans when they're seeing redeterminations?
It's not creating quite as much pressure as we were seeing before but certainly within the marketplace population in general which is sort of an industry wide trend a substance use in opioid use disorder continues to be something that the whole industry is focused on them and to your point about Magellan the increased focus on integrating.
Joshua Raskin: And you're getting their members into your exchanges. And then, you know, you mentioned through the big growth in PDP. I guess it's just a question and sort of strategy, you know, seems like a little deemphasis in terms of network or, you know, cash and points of the Medicare Advantage program, you know, switching the PBM already. So I'm just curious on, you know, what the idea is around, you know, the low price products for the PDP next year.
Medical care with behavioral and I'm one of the things that we hear very consistently when we are out with our state partners. Almost every single governor that we have talked to this year rates behavioral health and mental health as our number one issue in their state and whether that staffing shortages access thinking about broadband in order to increase telehealth them. They are all.
Joshua Raskin: Yeah, so all thanks Josh. Let me hit those clarification points and then I'll turn it over to Drew. So what we are seeing on average across the April to August cohorts is a 25% rejoiner rate on average. So those, those again have sort of filled up from what had been a parado, decreasing parado to pretty consistent, 25% rejoining rate. And then our expectations, again, just mathematically, were about that 10 to 15% recapture, which leads to 200 to 300,000 member expectation that we're still tracking in line with.
Focused on ways that they can support providing additional behavioral health to their membership and it has actually created really nice tailwind relative to our Magellan business. So maybe Ken if you want to talk about some of the recent wins that Magellan has experienced as a result of this focus yeah. Thanks, Sharon and good morning, Scott.
So we are.
Realized success in the state of Idaho, which I think is a forbear two opportunities to work with other states as they think about the point that surveyed.
Joshua Raskin: We are pulling share from other players and trying to track pretty closely, obviously, members that are coming from our plans. And then to the extent we can identify specifically those members that are coming from other Medicaid programs. Yeah, Josh, and then on PDP and you'll remember, you know, this business going back 10 years, which was a legacy well care asset in business. The strategy there is as much about corralling and managing pharmacy spend and having a future feeder for MAPD, then it is about generating earnings on what's this year, 2.5 billion of revenues.
She and I have met over 30 governors in the last six months every one of them mentioned behavioral health is top three so we're working with a number of states.
I won't mention them, specifically, but behind the scenes to cultivate opportunities to capitalize on this growing interest among governors and supporting the needs of their Medicaid members with behavioral health and then the point about.
The integrated offerings, our public sector Magellan business has all this this is a longstanding distinctive competency, it's a business that will power and leverage as we think about combined offerings moving forward and are really excited about our prospects.
And with wage appointment Zain and the team that runs business development here, leveraging the Magellan asset a lot to like about the future.
Joshua Raskin: So I think it was fortuitous that our change in improvement in cost structure are changed to a new PBM and a meaningful improvement in cost structure occurred right when there are a number of rule changes impacting PDP, like no pharmacy DIR elimination of the member cost share and the catastrophic phase, the cap on insulin. And so we were able to leverage that cost structure and make it affordable for our members while the direct subsidy went out meaningfully.
Thank you and our next question.
And today comes from Sarah James or Cantor Fitzgerald. Please go ahead.
Thank you.
So circling back to your comments on the leavers, having higher H B R. Then the stairs.
Seven out of 21.
States adjusting for acuity is there any way to give us some more color on that you know sizing the range of the lever versus stare each be our differential or <unk>.
Joshua Raskin: And so we'll be getting paid that direct subsidy by the government. So it was actually a good alignment of opportunities for us to continue to leverage that business to actually help our other businesses in the terms of pharmacy cost structure.
Sarah London: Thank you.
How influential how meaningful the acuity adjustments are to rates overall.
Yes, it's consistent with our expectations and as you might imagine it really varies by state to state sub population or subpopulation and Youre right with the one one rate seven of them and Oh, including acuity adjustments feel pretty good about the matching of rates.
Justin Lake: And the next question today comes from Justin Lake with Wolf Research. Please go ahead. Thanks. Good morning. A question of follow up. So the questions on the on the exchange business, just can you give us some color in terms of how that, you know, that membership growth is pretty exceptional in the third quarter. How did that look versus your expectations and how does that kind of educate 24 and then specifically on 24 with the margins there.
So far.
With a couple of exceptions, but in the aggregate matching of the rates are with our acuity forward estimates and I just want to add one clarification, sorry, I know this is what you meant but I just want to be sure that what we're tracking is that the leavers H B R is less than the stairs and that is what was expected and so one of the thing.
Justin Lake: You know, my kind of back to the envelope drew that, you know, your margin, you're kind of guidance for next year assumes margins towards the higher end of that five to seven and a half percent target range. Is that right? And then just the follow up on the on that, you know, the retro, can you give us any more color in terms of, you know, the, you know, why you think that was incomplete that just sounds something I've never heard the words incomplete on a on a rate update and what gives you the confidence that they're going to reverse that. There any kind of color from the state that you could share with us on the confidence in the timing. Thanks.
That we've talked about in the past that we did leading into the Redetermination process was identifying those members that we would have predicted would roll off as we look forward into the Redetermination process and then we could subject those populations and run the differential H B R. And those are the inputs that went into our model that we talked about on the Q1 call.
As we built up what both right on acuity, we would want across each state and then rolled up to the portfolio in order to be tracking as we are in line with expectation going into 2024.
Thank you and our next question today comes from Michael <unk> with Morgan Stanley . Please go ahead.
Andrew Asher: All right, first on the growth in the quarter and marketplace, you're right, that was outstanding growth. Now you may remember we said that we expected to get the 3.6 million members this year, and we're just above 3.6 million this quarter. So most of that was sort of embedded in our forecast as we saw the momentum from Q2, but you're right, it is a good indicator and sort of momentum builder for 2024.
Thank you just first quickly regarding exchange sequential membership growth the 300 and you picked up on that.
Each of the three to six purely best recapture Medicaid Redetermination, but number two regarding M&A I'm curious to hear your thoughts on what transpired in California, The star ratings decline and disruption there across a number of market leading plan whether that might positively impact your gross growth assumptions in California.
Andrew Asher: On margin, we are still just this year, we are in marketplace, we're still just below our target range of five to seven and a half, and that's not because of HBR, it's actually because of all the growth and the year one commission that comes along with that. So it's a real good reason to be just below your target range, which means there is capacity as expected. And as we have forecasted into 2024 to expand margin into that five to seven and a half zone, and so I'll just leave it that we expect to pierce that zone and be well into that range for 2024, and we, you know, our forecast are on track for that we price for that, and that's what we expect.
And then lastly on star ratings improvement I understand in <unk>, you had about 47% of your MA lives in value based care arrangements. It grew about 3% year to year, but what was the percentage change of lives and downside arrangements I'm curious because I understand that this metric improves so does the overall consumer experience.
<unk>, which could help organically generate improvement.
Quality consumer experience metric so im.
I'm trying to understand how much of a tailwind that could be for next year. Thank you.
Yeah. Thanks, Michael.
So of the 386000 in the quarter, it's not a perfect science to figure out exactly which are coming through pure enrollment growth versus those coming over from Redetermination. We're obviously able to attract those who are moving from a centene plan two of Centene plan and then we extrapolate based on the data that we are seeing based on the data that.
Andrew Asher: Regarding probably not going to get too much into a single state, call it negotiation, but yes, that that was a 40 basis point push in the quarter that pushed our HBR up a little bit higher and Medicaid, and just based upon the back and forth and the construction of that incomplete and maybe rushed retro rate. We expect a favorable future outcome, maybe in Q4, but it could drag into 2024. Thank you.
CMS is publishing and then in cases, where we can specifically identify which of those members are coming over from a competitor. So not entirely clear that we can again through dissects of that membership as you talked about in California, I think what we're seeing in California is actually consistent with what you see across the entire country.
AJ Rice: And our next question today comes from AJ Rice at UBS. Please go ahead. Thanks. Hi, everybody. Two quick areas of question on the marketplace comments. I know traditionally that product you hit a deductible potentially in the fourth quarter and your utilization rate. What kind of upticks are you expecting that you think you have a good visibility on all these new members and how they might act in the fourth quarter and maybe to what degree have you reflected that.
If you take a step back and the fact that the two key points that were put in this place are in place. This year were tougher in those middle ranges of our star ratings, and particularly trimmed the outliers as we all know and so that was part of what happened in California, but I think it's too early to see what impact that will have in terms of overall competitive.
Of outcomes through the AEP process, because we're only about 10 days into that but certainly I look forward to updating everybody on that at Investor Day, and then relative to stars in value based arrangements again, we're still in that high 40% range from a value based care standpoint, and it is a mix of upside only.
AJ Rice: And then as you think about that population was sort of talked around it with a couple of the other questions moving into next year, you mentioned the commission dynamic potentially better risk scoring and so forth. How much of a margin tailwind will this population represent for you as you as you look into next year. I know the term rates in that population were high by historically, but I think they've come down and I don't know if that's the same for you, but maybe any comment along those lines as well.
An upside downside risk and you're right that as we move members into them more downside risk arrangements, we get tighter alignment between us and the providers, we lead to better heat us outcomes in terms of getting members in addressing gaps in care and we know that there's a direct correlation between members who access care and their <unk>.
At cap scores and so that is been a huge focus for us in general, but obviously, our leverage point, where we can use our provider partnerships to help them accelerate that work, particularly on our stars improvement journey.
Sarah London: Yeah, AJ, you're right that particularly in that set membership, we're seeing more retention industry wide, which is I think logical just given the insulation and the extension of enhanced APTCs and the increase affordability of the product. And as you said, the sophomore effect of that membership in particular, the fact that we'll have a full year of risk adjustment and we'll have moved through any sort of early utilization. We think provides a tailwind for the retained part of that set population.
Thank you and today's final question comes from showroom stomach with J P. Morgan. Please go ahead.
Thanks for the question a couple of clarifications. So first on the one 124 rate update I think you said so far some of those states are including acuity adjusters just to be clear is the expectation that the rest of that one one cohort will also provide acuity gestures.
Sarah London: And as Drew said, our focus going into 2024 is really retaining the tremendous growth that we've had in 2023. And then continuing our progress on pricing discipline in order to expand margin and peers into that five and five to seven and a half percent range. Yeah, and on your Q4 comment, you're absolutely right. Sort of if you look at the slope lines of the deductible wear off throughout the year, we do expect a healthy tick up in HBR.
And then second I think in the past you've talked about the percent of zero and low utilized as being up only marginally does that fully normalized back to the historical range or is there still some room for that sort of work its way down.
Yeah, we do expect other than one state, where we're only L. T. S. S, which is an exception obviously relative to re determinations are the answer is yes to your first question.
Sarah London: We plan for that in our commercial, including marketplace businesses. And also in Medicare, normally a step up in HBR, but then you add the PDR on top of that. So those are some of the things to think about for Q4, as well as heavy SGNA as expected, as typical in Q4, which is as you're calibrating your models for 2023 to finish out the year. Thank you.
And then you're right we're still shifting during this intermediate time period of getting to a post redetermination environment from the pre and the pre redetermination environment. The zero utilizes were up for the expansion population, they're actually down and ship and TANF as you're recalling correctly was flat so.
We're moving through that process refreshing data.
But that's sort of where in between the pre and post redetermination phase so that will shift throughout that time period.
Nathan Rich: And our next question today comes from Nathan Rich at Goldman Sachs. Please go ahead. Great. Thanks for the questions. I wanted to ask on the Medicare business. I guess, you know, is there any change to how you're thinking about MA enrollment and revenue kind of relative to the initial expectations? You know, now that you have a full review of the competitive environment, and just for clarification, are you still planning the 200 million PDR and 4Q?
Thank you.
Gentlemen.
And the answer session I'd like to turn the conference back over to Central London for any closing remarks.
Thanks, Rocco as we close out this morning, I'd just like to thank our more than 66000 employees for delivering excellent results this quarter and year to date.
As a company we remain focused on our mission and on creating value for our members our stakeholders and our shareholders. We appreciate the time and interest this morning and look forward to continuing this discussion at our upcoming Investor day in December Thanks, everybody.
Nathan Rich: And then kind of bigger picture, could you talk about the path to getting the 85% of members into three and a half star plans by October of 2025? And, you know, the areas that you're investing in and, you know, maybe planning for 24, you know, in that respect. Thank you. Yeah. Thanks, Nathan.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect. Your lines will have a wonderful day.
Okay.
Yes.
Sarah London: So with the competitive landscape and additional information, we have not changed our view that we would be down 4 billion in 2024 in the Medicare business. Again, our focus is really on narrowing to that lower income complex population that was part of how we constructed the bid and certainly how we crafted our strategy going into AEP. And then relative to stars, we're obviously pleased to have delivered results in line with our expectations beginning in Q2, but there's obviously still work to do.
Yeah.
[music].
Sarah London: And so this next cycle will be an important additional step to that ultimate goal of 85% of members in three and a half stars. And our focus really continues to be on rebuilding the operational capacity and the infrastructure to support sustainable programmatic improvement. And that was really demonstrated by moving again 53% of our membership from sub three to 87% of our membership at or above three in this first step. So we'll need to continue to pull up underperforming contracts.
Sarah London: We'll need to move contracts and members from three across that three and a half star threshold. And a lot of that is, again, while why we've tried to create visibility into some of the underlying operational metrics that we're tracking internally around our overall CTMs, around call center metrics and our ability to answer questions for members and provide them a good member experience, getting them connected to physicians, getting them aligned to value-based providers.
Sarah London: So those incentives are aligned to close gaps in care, which ultimately accrues not just to heat us, but to caps. So those are all the things that we're really focused on. We've got a very robust governance structure in place. As we've said before, we've got incentives aligned top to bottom in the organization. There is no confusion that this is a priority, and we continue to be focused on making incremental improvements and holding setting on those improvements that we've made today.
Sarah London: And you ask about the, our view on the PDR has that changed. Our current guidance gives us capacity for a PDR in the mid-200s, but the accounting calculations in December will dictate that precise number. Thank you.
Lance Wilkes: And our next question today comes from Lance Wilkes with Bernstein. Please go ahead. Thanks. Just want to do a quick deeper dive on a couple of the items that you've talked to. One would be on Medicaid re-determination. If you can just talk a little bit about for levers, any sort of double coverage analysis you've done to see what percentage of those were maybe 0% MLR. And then for this more complex population focus and then MA going forward, can you know what that kind of percentage target margin would be for that?
Lance Wilkes: As you think about that is a sustainable business going forward. And if you wanted to give any update on your PBM cost save, obviously $500 million I think was the category cost save for gross margin improvements. Seems like you may have upside to that, so we'd love to hear any further color. Thanks. Yeah, back at, I think in a January conference, we outlined as we talked about a number of the factors before we had any real data on the redeterminations, and now we've actually got real data with sort of trumps all the hypotheses that we were, you know, going through leading up to April of 2023, we had indicated that as we looked through our data, we could see through COB claims, the other insurance coverage, where members had duplicative coverage had had gone from 2.7% of the Medicaid population in 2019 to 3.4%.
Lance Wilkes: So, made sense at the time, we sort of triangulated that with a bunch of other things to come up with our forecast that we outlined on the Q1 call. And the good news is, we're right on track with those forecasts, now that we've got, you know, we're well into redeterminations and over 40% according to our estimates through redeterminations. On the PBM, that's right on track, as Sarah mentioned, and the economics as well that we're expecting, and as you would expect from us, many of those are in the form of guarantees that are PBM underroads.
Lance Wilkes: So, we're on track for the contribution to the greater than 660 from the PBM economics. And then just relative, Lance, to your question on the complex populations. Obviously, the reimbursement for those populations can be higher, but you're dealing with a higher acuity and more complex care within that cohort. And so our view is that because that aligns with our expertise in managing Medicaid members that we have the opportunity through value-based arrangements for that to be a profitable cohort, but also to drive differential outcomes for that population. And if you take a step back and look at the segments of the Medicare population, the lower-income complex members are the fastest-growing segment.
Sarah London: And that is part of why we have focused on that membership, not just for this cycle, but as part of our long-term fundamental strategy. Thank you.
Gary Taylor: And on our question today, Councilional Gary Taylor with Cohen, please go ahead. Hi, good morning. Two quick wins on Medicare. The first is, as we're thinking about Medicare enrollment in 2024 and looking at some of the reductions across OTC and Flex Benefits and SSBCI. It looks like those hit pretty evenly across both individual MA and DSNIP, and I know you're talking about focusing on more complex care next year. And I think DSNIP's actually been growing this year, so just wondering how we should think about individual retail MA versus DSNIP if we should see similar trends.
Gary Taylor: And then just my second question on MA is, I still get a lot of questions from folks trying to do the EPS bridge. I know you said 80 cent loss from Medicare next year, just wondering if you could give us just an updated figure for Medicare this year, including the PDR. Yeah, so sometimes it is tough to glean from public data exactly what we did with benefits or what any payer did with benefits.
Gary Taylor: You can get directional, but you know, if you sort of got into our bids and now our products set that's being sold out there in the market today, you see that we heavily trimmed our Part B give back and PPO plans, but we invested in DSNIP. And with the supplemental benefits, we actually combined a number of supplemental benefits into a simple spendables card, so think flex OTC grocery. And so that simplifies it for the member, and you may not actually be able to divine that from some of the landscape files, but yeah, as we said earlier, we haven't changed our view on sort of our forecast for 2024. In terms of about 16 billion of Medicare advantage revenue down about four billion. Ryan.
Sarah James: Thank you.
Scott Fidel: And our next question today, Council Scott Fidel, with Stephen's, please go ahead. Hi, thanks. I wanted to just ask about two salient points relative to medical cost. And first, just maybe an update on the behavioral utilization, you know, that you've been seeing earlier in the year. And, and how that's been getting factored into the rates and sort of comfort with that in 24, I guess, particularly for the big Magellan behavioral book.
Scott Fidel: And then second would just be definitely curious and you're thinking just around the new California minimum wage law for healthcare workers and similar types of legislation and how you sort of are thinking about that factoring into the unit costs and into your pricing, you know, looking out over the next several years. Thanks. Yeah, so relative to California, that does not apply to MCOs, but we're obviously tracking that for potential pass-through costs from providers.
Scott Fidel: So again, keeping an eye on that relative to behavioral, that's still a component of underlying utilization. It's not creating quite as much pressure as we are seeing before, but certainly within the marketplace population in general is sort of an industry wide trend, substance use and opioid use disorder continues to be something that the whole industry is focused on. And to your point about Magellan, the increased focus on integrating medical care with behavioral and one of the things that we hear very consistently when we are out with our state partners.
Scott Fidel: Almost every single governor that we have talked to this year rates, behavioral health, and mental health as a number one issue in their state, and whether that staffing shortages access thinking about broadband in order to increase telehealth, they are all focused on ways that they can support providing additional behavioral health to their membership. And it has actually created really nice tailwinds relative to our Magellan business.
Ken Susola: So maybe Ken, if you want to talk about some of the recent wins that Magellan has experienced as a result of this focus. Yeah, thanks, Sarah, and good morning, Scott. We realized success in the state of Idaho, which I think is a forebearer to opportunities to work with other states as they think about the point that Sarah made. I think she and I have met over 30 governors in the last six months, every one of them mentioned behavioral health is top three.
Ken Susola: So we are working with a number of states, won't mention them specifically, but behind the scenes to cultivate opportunities to capitalize on this growing interest among governors and supporting the needs of their Medicaid members with behavioral health. And then the point about the integrated offerings, our public sector, Magellan business, this is a long standing distinctive competency. It's a business that will power and leverage as we think about combined offerings moving forward and really excited about our prospects and with ways appointment, Zane and the team that runs business development here, leveraging the Magellan asset a lot to like about the future.
Sarah James: Thank you, and our next question today comes from Sarah James at Cancer Fitzgerald. Please go ahead. Thank you.
Andrew Asher: So, circling back to your comments on the levers having higher HBR than the stairs and 7 out of 21 states adjusting for acuity, is there any way to give us more color on that, you know, sizing the range of the lever versus stair HBR differential or how influential, how meaningful the acuity adjustments are to rate the overall? Yes, consistent with our expectations, and as you might imagine, it really varies by state-to-state, sub-population, the sub-population, and you're right with the 1-1 rate, 7 of them in all including acuity adjustments feel pretty good about the matching of rates so far, with a couple of exceptions, but in the aggregate matching of the rates with our acuity forward estimates.
Andrew Asher: And I just want to add one clarification, Sarah, I know this is what you meant, but I just want to be sure that what we're tracking is that the levers HBR is less than the stairs, and that is what was expected.
Andrew Asher: And so, one of the things that we've talked about in the past that we did leading into the re-determinations process was identifying those members that we would have predicted would roll off as we looked forward into the re-determinations process, and then we could sub-sector those populations and run the differential HBR, and those are the inputs that went into our model that we talked about on the Q1 call. As we build up what both rate and acuity we would want across each state, and then rolled up to the portfolio in order to be tracking as we are in line with expectation going into 2024.
Michael Howell: Thank you, and our next question today comes from Michael Howell with Morgan Stanley. Please go ahead.
Sarah London: Thank you, just first quickly regarding exchange to Quential Membership Growth, the $300,000,000, how much of that $386,000 purely just recapture Medicaid re-determination live, number two regarding MA. I curious to hear your thoughts on what transpired in California, the star rating decline disruption there across a number of marketing plans, whether that might positively impact your MA growth assumptions in California. And then lastly on star rating improvement, I understand in 2Q, you had about 47% of your MA lives and value-based care arrangement.
Sarah London: It grew about 3% year to year, but what was the percent of change of lives and downside of arrangement? I'm curious because I understand that this metric improves soda, the overall consumer experience, which could help organically generate improvement in quality consumer experience metrics. So I'm trying to understand how much would talent that could be for next year.
Sarah London: Thank you. Yeah, thanks, Michael. So of the $386,000 in the quarter, it's not a perfect science to figure out exactly which are coming through pure enrollment growth versus those coming over from re-determinations. We're obviously able to track those who are moving from a centine plan to a centine plan, and then we extrapolate based on the data that we are seeing based on the data that CMS is publishing. And then in cases where we can specifically identify which of those members are coming over from a competitor.
Sarah London: So not entirely clear that we can, again, sort of dissect that membership, as you talked about in California. I think what we're seeing in California is actually consistent with what you see across the entire country if you take a step back. And the fact that the two key cut points that were put in this place in place this year were tougher in those middle ranges of star ratings and particularly trimmed the outliers as we all know. And so that was part of what happened in California. But I think it's too early to see what impact that will have in terms of overall competitive outcomes through the AEP process.
Sarah London: It's only about 10 days into that, but certainly look forward to updating everybody on that at investor day. And then relative to stars and value based arrangements, again, we're still in that high 40% range from a value based care standpoint. And it is a mix of upside-only and upside down side risk. And you're right that as we move members into more down side risk arrangements, we get tighter alignment between us and the providers.
Sarah London: We lead to better heated outcomes in terms of getting members in addressing gaps in care. And we know that there's a direct correlation between members who access care and their ultimate cap scores. And so that has been a huge focus for us in general, but obviously a leverage point where we can use our provider partnerships to help accelerate that work, particularly on our stars improvement journey.
Unknown Executive: Thank you.
Calvin Sternick: And today's final question comes from Calvin Sternick with JP Morgan. Please go ahead. Thanks for the question. A couple of clarifications. So first, on the 1124 rate update, I think you said so far, seven of the states are including QIT adjusters. Just to be clear, the expectation is the rest of that 11 cohort will also provide a QIT adjusters. And then second, I think in the past, you've talked about the percent of zero and low utilizers being up only marginally.
Calvin Sternick: Is that fully normalized back to the historical range? Or is there still some room for that to work its way down? Thanks. Yeah, we do expect other than one state where we're only LTSS, which is an exception, obviously, relative to redeterminations. The answer is yes, to your first question. And then you're right, we're still shifting during this intermediate time period of getting to a post redetermination environment from the pre. And the pre redetermination environment, the zero utilizers were up for the expansion population.
Calvin Sternick: They're actually down in chip and TANF as you were calling correctly was flat. So we're moving through that process, refreshing data. But that's sort of we're in between the pre and the post redetermination phase that will shift throughout that time period.
Unknown Executive: Thank you, and ladies and gentlemen, this concludes the question and answer session.
Sarah London: I'd like to turn the conference back over to Sarah London for any closing remarks. Thanks, Rocco. As we close out this morning, I just like to thank our more than 66,000 employees for delivering excellent results this quarter and year to date. As a company, we remain focused on our mission and on creating value for our members, our stakeholders and our shareholders.
Unknown Executive: We appreciate the time and interest this morning and look forward to continuing this discussion at our upcoming investor day in December. Thanks, everybody. Thank you.
Unknown Executive: This concludes today's conference call. We thank you all for attending today's presentation. You may not have to select your lines and have a wonderful day.