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 Lauren
Flynn Kelly, Managing Editor
May 5, 2016 Volume
22 Issue 9
In the midst of earnings releases and conference calls
held by publicly traded Medicare and Medicaid insurers in late April and early
May, the Pennsylvania Dept. of Human Services disclosed earlier than
anticipated that eight plans total, including three large insurers, had won
contracts to serve the state’s mandatory Medicaid managed care program for up
to five years. The big winners were incumbent UnitedHealth Group, which won
across all five regions, and Centene Corp., which was new to the state and
selected to serve in three regions. But the other major incumbent, Aetna Inc.,
was awarded only one region, posing an estimated $1 billion loss in revenue for
2017.
When questioned by Stifel analyst Thomas Carroll about
the loss, Aetna Inc. Chairman and CEO Mark Bertolini during an April 28 earning
conference call remarked, “[W]e win more than we lose. This is a much more
competitive market than it has been in the past. Incumbents have less of a lock
on these contracts than they have in the past as state governments struggle to
control the costs around Medicaid, looking for innovation.” He pointed out,
however, that Aetna has 230,000 more Medicaid members than it did a year ago,
that the company has gained expansions in other states and that it expects to
grow through the remainder of this year in Medicaid.
The new Pennsylvania contracts cover Temporary Assistance
for Needy Families, Children’s Health Insurance Program and Aged, Blind and
Disabled enrollees in the state’s mandatory Medicaid managed care program, pointed
out Carroll in an April 27 research note. The three publicly traded winners may
have a better shot at participating in the long-term care contract, which
remains at large and is worth another $10 billion, he suggested. The contracts
just awarded are valued at approximately $11 billion in overall premium
revenue, added Stifel.
Reporting earnings a day before Pennsylvania disclosed
plans to negotiate contracts with the eight managed care organizations, Centene
Corp. boasted overall membership growth in the first quarter of 162% to 11.5
million enrollees, which was driven by its recent acquisition of Health Net,
Inc. and includes 47% more Medicaid members. The company also reported adjusted
earnings of 74 cents per share, excluding Health Net acquisition-related costs
and other items, compared with 55 cents in the first quarter of 2015, and a 36%
year-over-year revenue increase to $7 billion. The company’s results included
eight days of Health Net’s financials.
During an April 26 conference call to discuss earnings
for the quarter ending March 31, Chairman, President and CEO Michael Neidorff
added that there are a “lot of contracts” left to be awarded by states this
year, including Alabama in the fourth quarter, Louisiana on July 1 and
Missouri, which just issued a RFP on April 29 (see brief, p. 8).
Meanwhile, Molina Healthcare, Inc. reported a decline in
adjusted net income per share from 62 cents in the first quarter of 2015 to 51
cents in the most recent quarter. Strong enrollment growth of 1.3 million
members from the first quarter of last year — representing the largest
membership gain during sequential quarters in its 35 years of doing business —
generated approximately $1 billion or 34% more premium revenue in the first
quarter than in the comparable 2015 quarter.
During an April 28 conference call to discuss
first-quarter earnings, CEO J. Mario Molina, M.D., explained that
higher-than-anticipated enrollment growth, particularly in the exchanges,
“stretched” the company’s operational resources. And a drop in per-member
per-month revenue from $354 to $324 — due in part to “lower Medicaid expansion
rates…and the general failure of Medicaid rates to keep [up] with the growing
medical care costs” — outpaced a 5% decline in medical costs to $291 PMPM, he
said.
As a result, the company lowered its 2016 adjusted
earnings per share outlook to a range of $2.50 to $2.95. Despite the revision,
the company said it expects to achieve its long-term goal of 1.5% to 2% profit
margin by the fourth quarter of 2017. And although the insurer did not compete
for the Pennsylvania contracts, Molina added that the company will continue to
respond to RFPs, “primarily to enter new states, especially as they relate to
Medicaid long-term supports and services.”
WellCare Health Plans, Inc., which also did not bid for
the Pennsylvania business, said it experienced modest membership growth in
Medicaid health plans and medical loss ratio improvement, mainly due to an
improved cost structure and its new PBM agreement with CVS Health Corp.’s
CVS/caremark unit that went into effect on Jan. 1.
During a May 3 conference call to discuss first quarter
earnings, CEO Kenneth Burdick said the company foresees “many growth
opportunities in Medicaid and Medicare, particularly with program expansion to
include complex populations and a growing M&A pipeline.” He cited WellCare
being selected as one of three insurers (along with UnitedHealth and Centene)
to serve Nebraska’s new integrated Medicaid managed care program as an example,
as well as its pending acquisition of Advicare Corp., a Medicaid MCO in South
Carolina (MAN 3/10/16, p. 8).
Anthem, Inc., meanwhile, remained positive on its
Medicaid outlook despite margin compression in the segment. “We continue to
expect Medicaid margins to compress from 2015 levels to a more normalized
level, and we are monitoring the performance of this business appropriately,”
said President and CEO Joe Swedish during an April 27 conference call. With an
estimated $68 billion of new business to be awarded by the end of 2020, he said
the pipeline for Anthem’s Medicaid business “remains substantial.”
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