Reprinted from MEDICARE ADVANTAGE NEWS, biweekly news and business strategies about Medicare Advantage plans, product design, marketing, enrollment, market expansions, CMS audits, and countless federal initiatives in MA and Medicaid managed care.
By James Gutman, Managing Editor
May 9, 2013 Volume 19 Issue 9
Medicare Advantage plans still generally are reporting strong earnings, aided by continued low medical-services utilization, based on figures and comments on first-quarter results of publicly held firms presented late last month and early this month. But several of the plan sponsors also pointed to storm clouds on the horizon in the form of not only payment-rate reductions but also the industry fee that starts in 2014 and the expected return of higher utilization patterns.
The prime example of all of those trends may be Humana Inc. The MA-focused firm on May 1 posted first-quarter net income of $473 million or $2.95 per diluted share, up strongly from $248 million or $1.49 a share in the year-ago period, albeit aided by some extraordinary items. Revenues climbed to $10.49 billion from $10.22 billion. The insurer also boosted its earnings guidance for the remainder of 2013.
President and CEO Bruce Broussard in the earnings conference call with investors pointed to several reasons for the gains, and most of them also were cited in other MA sponsors’ quarterly financial reports. One was that “we…experienced favorable medical expense trends in most lines of business,” he said. “This was primarily driven by lower levels of hospital utilization after the flu season rapidly abated in the third week of January.”
Even aside from that, though, according to Broussard, Humana had “strong operating performance” in each of its business units. This included stand-alone Prescription Drug Plans (PDPs), noted Chief Financial Officer (CFO) James Bloem, which benefited from “a favorable drug utilization mix” versus the 2012 period.
But both executives cautioned against expecting the good financial news to last indefinitely. Broussard said that Humana’s calculations of the overall 2014 MA rates, for instance, indicate a decline in the company’s MA payments from the government of “well over” 4%, including the impact of the annual insurer fee that starts in 2014. In light of this, he added, “we remain uncertain if 2014 will be a year of earnings growth.”
Moreover, he asserted, the risk-coding “recalibration formula” changes CMS made in the final 2014 rate notice (MAN 4/11/13, p. 1), combined with the impact of another year of “rebasing” of counties by the agency, means that “certain of our stronger markets will see a rate pressure in the mid-to-upper single digits for 2014.” Chief Operating Officer Jim Murray, in response to a question, indicated those include MA HMO-heavy markets in Florida, Louisiana and Las Vegas.
Asked what the company might do about the coming squeeze, Murray replied that “we’ve got premium [hikes] and benefit cuts that we can evaluate on a market-by-market basis.” In several markets, he continued, Humana has risk-based arrangements with providers who will help the company absorb some of the hits, although the company may not want them to incur too much out of fear of damaging “one of our strongest assets.” CMS’s use of a maximum allowable Total Beneficiary Cost increase for 2014 of $34 per member per month, down from $36 PMPM for 2013, “may have some unintended consequences, because we’re evaluating that in terms of whether we want to exit a market now,” he asserted.
None of this, though, will stop Humana from making major investments in the MA business that it considers desirable, executives emphasized. The company already, Broussard noted, for instance, boosted the number of its care management-related workers to about 7,600 on March 31 from 4,400 one year earlier. He added that Humana has 180,000 seniors in chronic condition care programs now, up from 125,000 a year ago, and expects to have 275,000 in those programs by the end of 2013.
Cigna Says Rates Will Cause ‘Market Disruptions’
Cigna Corp. President and CEO David Cordani also warned that the final MA rates for 2014 will cause “market disruptions.” Speaking in the company’s May 2 earnings call, Cordani said Cigna calculates the net impact as a “mid-single-digits” reduction, excluding the impact of the new “industry tax” and varying, of course, by service area. He added, though, that there also may be benefits for Cigna in this, since the tough climate could present opportunities for acquisitions in the MA arena.
“We’d expect to have less than average disruption” compared with other MA operators because of the “provider-collaboration model” that it increasingly has used since acquiring HealthSpring, Inc. in 2012 (MAN 10/27/11, p. 1), he maintained.
Even Cigna, however, already is experiencing some MA challenges. The company’s MA medical loss ratio (MLR) for the first quarter, noted Cordani, was 84.3%, up 3.2 percentage points from the year-ago period, with about one-third of that increase due to the higher prevalence of the flu.
While part of the flu impact was offset by favorable prior-period reserve development (PPRD) as utilization remained low, indicated CFO Ralph Nicoletti in response to a question, Cigna expects the MA MLR to continue edging up during the rest of the year. That’s not all bad, he noted, since MA plans must meet a minimum 85% MLR beginning next year. Nicoletti said MA now accounts for about 15% of Cigna earnings, a figure much higher than before the HealthSpring purchase.
Aetna Inc. on April 30 also reported a rising Medicare MLR. Its figure, which includes PDPs and Medicare supplement as well as MA, was 87.8% for the first quarter. This, pointed out securities analyst Carl McDonald of Citigroup Global Markets in an April 30 research note, is more than 3 percentage points above the figure for the year-ago period. But analyst Matthew Borsch of Goldman Sachs said part of that may result from the huge Teacher Retirement System of Texas (TRS) employer group plan it landed for MA last summer (MAN 8/2/12, p. 1).
The company’s overall Medicare MLR, said CFO Shawn Guertin in the earnings call, is expected to be in the “mid-to-high 80s” for all of 2013, up from the mid-80s in 2012 partly because of the effects of the ongoing federal sequestration, but in line with its previous guidance. He noted that Aetna posted a big increase in MA membership, to 941,000 at the end of March from 605,000 one year earlier, with the aid of the TRS contract.
The government-programs plan specialist — Coventry Health Care, Inc. — that Aetna just completed acquiring (MAN 4/23/12, p. 1) also reported a substantial membership gain. Coventry said on May 1 that it had 309,000 MA coordinated care plan (CCP) members on March 31, up 24% from the end of 2012. MA revenues were slightly down in the first quarter, to $831.38 million from $834.31 million in the year-ago period, when revenues were aided by a $141.8 million reserve release, the company said.
Coventry posted an MA-CCP MLR of 84.6% for the first quarter, slightly up from the 83.9% in fourth-quarter 2012 and an adjusted 82.9% for last year’s first quarter.
Universal American MA Plans Had Strong Quarter
The first-quarter 2013 MA MLR of Universal American Corp. was 80.3%, and the restated MA MLR after taking into account typical prior-period adjustments was 83.5%, in line with expectations, said CFO Bob Waegelein in the April 30 earnings call. He said the MA business had a “strong quarter, with pretax profits of $38.6 million,” aided by favorable PPRD. Overall, net income slipped to $14.0 million or 16 cents a share from $19.5 million or 24 cents in the year-ago period, but revenues advanced to $563.3 million from $531.8 million.
In response to a question, Waegelein said sequestration is likely to cost Universal American between $6 million and $7 million this year. And Chairman and CEO Richard Barasch said the changes in MA risk adjustment for 2014 outlined in CMS’s final rate notice could hurt the company’s key Houston MA market “a little worse” than it hurts “less advanced markets.”
The same two negatives for MA — sequestration and risk-adjustment changes — also got singled out in the May 3 earnings call of WellCare Health Plans, Inc. CEO Alec Cunningham said the impact of CMS’s new risk-adjustment model for 2014 is “negative” for the company’s service areas, especially those in which it has many beneficiaries with “complex” needs and dual eligibles. CFO Tom Tran added in response to a question that the impact is going to be “more than we had expected” and that WellCare is “reassessing” benefits and other product features as a result.
While the company raised its earnings guidance for full-year 2013, it posted first-quarter net income substantially lower than analysts had projected and below that in the year-ago period. Among the reasons for this, Tran explained, was a higher-than-anticipated impact of the flu season, which did not drop off for WellCare as much in February and March as the company had “hoped.”
Sequestration Is Seen as Hampering Results
Another reason for the shortfall, he indicated, was the effects of sequestration, which the company had not figured into its February earnings guidance. Cunningham said WellCare is trying to cut costs to deal with the continuing impact of that.
WellCare reported an MA MLR for the first quarter of 87%, well above the 78.8% in the year-ago period although consistent with expectations, according to Cunningham. Tran explained that the insurer had expected this MLR to rise based on the benefit levels it had included in its 2013 MA bids, along with the acquisition late last year of high-MLR MA plans in California and Arizona (MAN 9/20/12, p. 3). Another factor, the company said, was a lower level of favorable PPRD in the 2013 quarter.
The MA MLR also was a problem for Health Net, Inc. The company on April 29 said the segment MLR for the first period was 91.9%, much higher than analysts had expected and than the 87.9% in the year-ago period. Analyst McDonald figures the higher-than-anticipated MLR contributed to a “shortfall in gross profits” relative to his expectations of $24.5 million or 19 cents a share. And Health Net President and CEO Jay Gellert said the company expects its MA payment rates will decline about 3.5% in 2014.
For a change, Triple-S Management Corp., whose MA financial results in many prior quarters had disappointed analysts, posted strong first-period MA gains. The company on May 1 said that its MA MLR for the first quarter was 83.1% (or 85.0% adjusted), well below the 91.0% (88.3% adjusted) in the year-ago period, partly as a result of favorable PPRD.
Another contributor, said President and CEO Ramón Ruiz-Comas in the earnings call, was improvements stemming from a new pharmacy benefit manager (PBM) contract that took effect Jan. 1 as well as “adjustments” in its pacts with primary care physicians.
McDonald said in a May 2 research note that the new PBM vendor negotiated more favorable pricing terms, especially for Triple-S’s American Health subsidiary. Triple-S also reduced MA benefits, he said, which resulted in declining enrollment but helped the company post pro forma net income of $15.6 million or 55 cents a share, well above the pro forma $6.1 million or 21 cents a share in the year-ago period.
http://aishealth.com/archive/nman050913-02
No comments:
Post a Comment