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Edited Transcript of CNC earnings conference call or presentation 23-Jul-19 12:30pm GMT

Q2 2019 Centene Corp Earnings Call

ST. LOUIS Oct 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Centene Corp earnings conference call or presentation Tuesday, July 23, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brandy Lynn Burkhalter

Centene Corporation - Executive VP of Operations

* Christopher Donald Bowers

Centene Corporation - EVP of Markets

* Edmund E. Kroll

Centene Corporation - SVP, Finance & IR

* Jeffrey Alan Schwaneke

Centene Corporation - Executive VP, CFO & Treasurer

* Kevin J. Counihan

Centene Corporation - SVP of Products

* Michael Frederic Neidorff

Centene Corporation - Chairman, President & CEO

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Conference Call Participants

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* Albert J. William Rice

Crédit Suisse AG, Research Division - Research Analyst

* David Howard Windley

Jefferies LLC, Research Division - Equity Analyst

* Gary Paul Taylor

JP Morgan Chase & Co, Research Division - Analyst

* Joshua Richard Raskin

Nephron Research LLC - Research Analyst

* Justin Lake

Wolfe Research, LLC - MD & Senior Healthcare Services Analyst

* Kevin Mark Fischbeck

BofA Merrill Lynch, Research Division - MD in Equity Research

* Lance Arthur Wilkes

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

* Matthew Richard Borsch

BMO Capital Markets Equity Research - Research Analyst

* Peter Heinz Costa

Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst

* Ralph Giacobbe

Citigroup Inc, Research Division - Director

* Sarah Elizabeth James

Piper Jaffray Companies, Research Division - Senior Research Analyst

* Scott J. Fidel

Stephens Inc., Research Division - MD & Analyst

* Stephen Vartan Tanal

Goldman Sachs Group Inc., Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Centene Corporation 2019 Second Quarter Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Ed Kroll. Please go ahead.

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Edmund E. Kroll, Centene Corporation - SVP, Finance & IR [2]

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Thank you, Alyssa, and good morning, everyone. Thank you for joining us on our Second Quarter 2019 Earnings Results Conference Call. Michael Neidorff, Chairman, President and Chief Executive Officer, and Jeff Schwaneke, Executive Vice President and Chief Financial Officer of Centene, will host this morning's call, which can also be accessed through our website at centene.com.

A replay will be available shortly after the call's completion, also at centene.com, or by dialing (877) 344-7529 in the U.S. and Canada, or in other countries by dialing (412) 317-0088. The playback number for both dial-ins is 10132753.

Any remarks that Centene may make about future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in Centene's most recent Form 10-Q filing filed today, July 23, and the Form 10-K dated February 19, 2019, and other public SEC filings.

Centene anticipates that subsequent events and developments will cause its estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The call will also refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our second quarter 2019 press release, which is available on our website at centene.com at the Investors section. Finally, a reminder that the Centene Third Quarter 2019 Earnings Call will be held on Tuesday, October 22, 2019, and our next Investor Day will be held Friday, December 13, 2019, in New York City.

With that, I'd like to turn the conference over to our chairman and CEO, Michael Neidorff. Michael?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [3]

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Thank you, Ed. Good morning, everyone, and thank you for joining Centene's Second Quarter 2019 Earnings Call.

During the course of this morning's call, we will discuss our second quarter results and provide update on Centene's markets and products. We'll also provide commentary around the healthcare legislative and regulatory environment as well as an update on the acquisition of WellCare.

Let me begin with second quarter 2019 financials. We were pleased to report another solid quarter marked by robust top and bottom line growth and operating cash flows.

Membership at quarter end was 15 million recipients. This represents an increase of 2.2 million beneficiaries or 17% over the second quarter of 2018.

Second quarter revenues increased 29% year-over-year to $18.4 billion. The HBR increased 100 basis points year-over-year to 86.7%. This was primarily attributable to the marketplace business. As expected, margins have normalized from the favorable performance in 2018. The increase was also attributable to the HIF moratorium as well as the acquisition of Fidelis.

We reported adjusted second quarter diluted earnings per share of $1.34. This compares to $0.90 we reported in the same period last year, representing a 49% increase year-over-year growth.

Lastly, operating cash flows came in at $917 million or 1.9x net earnings. This is the high end of our previously stated range of 1.5x to 2x net earnings.

These solid results reflect the benefit of our ongoing diversification strategy, which has led us to become a $74 billion enterprise. We're no longer simply a Medicaid health care company. One has to look at the totality of this enterprise as the scale and diversity allows us to absorb the ups and downs in rate cycles, markets and subsidiary performance. This ensures that no one part of the portfolio can jeopardize our total organization. Jeff will provide further financial details, including updated 2019 guidance, in his prepared remarks.

A quick comment on medical costs. They remain stable and in line with our expectations in the low single digits.

Moving onto markets and product updates. First, we will discuss Medicaid activity. Our Medicaid book of business continues to perform well in the second quarter. At June 30, we had 8.5 million recipients, representing year-over-year growth of 1.3 million or 18%. We continue to win Medicaid RFPs in new and existing states, upholding our industry-leading RFP win rate of 80%.

Now on to state updates. Oregon. In July, Centene successfully reprocured its Oregon Medicaid managed care contract. We expanded our presence under this new contract, adding 3 additional counties. We will now be operating in 6 counties, including Metro Portland. Centene currently provides care to 92,000 beneficiaries in the state. The additional 3 counties will materially increase our membership in Oregon.

We look forward to continuing to work with the state, demonstrating the value of integrated care, focusing on social determinants of health and maintaining sustainable cost control. The new contract is expected to commence January 2020 and will run through December 31, 2024.

Iowa. On July 1, we began operating in Iowa's Medicaid managed care program, a new state for Centene. Operations commenced as expected, and we are now providing health care to approximately 254,000 beneficiaries.

Iowa is committed to operating a sustainable Medicaid managed care program as evidenced by the recent rate increase, which we did anticipate. We expect to achieve a normal margin within a typical ramp-up period for any new Medicaid contract. Iowa marks Centene's 32nd state of operation.

New York. It has been just over 1 year since we closed the Fidelis acquisition, and we could not be more pleased with the performance. The integration of the company is running smoothly, and we are realizing our synergy and accretion targets.

North Carolina. As we have previously noted, Centene won 2 large regions in North Carolina Medicaid RFP and has an active appeal for the balance of the state. We remain cautiously optimistic regarding our appeal.

Texas. Texas recently decided to delay the STAR+PLUS reprocurement announcement until the end of August. We remain confident in the value we bring to the state.

Louisiana has also delayed the announcement of its reprocurement. We now expect to hear it late July and remain confident in our prospects there.

Next, Medicare. At June 30, we served just under 400,000 Medicare and MMP beneficiaries across 20 states. This represents a year-over-year increase of approximately 55,000 recipients. On a sequential basis, membership increased over 4,500 recipients.

As we have previously commented, we expect 2019 MA revenue and membership to be flat compared to 2018. This is net of the actions taken by Fidelis to reestablish their 4-star rating, which includes exiting 26 counties in 2019. Next year, we plan to expand into 100 counties in existing states and add 1 more new state, Nevada.

We will begin our joint venture with Ascension in [poorer] geographies in 2020. Further, Centene will return to a 4-star MA parent rating. And the addition of WellCare's high-performing MA portfolio will bolster our MA platform. Going forward, this should accelerate profitable long-term growth into 2020 and beyond.

Now health insurance marketplace. The marketplace business continues to perform well, consistent with our expectations. At June 30, we served approximately 1.9 million exchange members across 20 states. This represents a sequential decline of 58,000 recipients, which is lower than our historic attrition rate. We continue to see higher member retention than in prior years, which we previously noted. Importantly, the key demographics of our membership remain in line with our previous remarks on this subject.

Consistent with our previous comments, our marketplace margins continue to be in the 5% to 10% range. We continue to anticipate another strong year of operations as the national leader of exchange products and expect to continue to grow this business in 2020.

Next, international. In late June, we purchased an additional 40% ownership in Ribera Salud from Banco Sabadell, expanding our stake to 90%. We believe our knowledge and skills, along with our leading-edge IT systems, has further enhanced an already strong business in Spain. We continue to look for opportunities to expand our international business. Please note our growing international business will not distract us or impede our ability to pursue the growth opportunities in the U.S.

I will now provide an update on the health care legislative and regulatory environment. Although there appears to be no desire of Washington to revisit comprehensive health care reform, Congress and the administration continue exploring ways to improve health care delivery systems. We support the administration's decision to withdraw its rebate proposal to eliminate the existing safe harbor protection within Medicare and Medicaid.

While the Senate still needs to take up the matter, the House recently voted on a very bipartisan basis to eliminate the health insurance fee. Importantly, there are opportunities in which we can work together to bring down not only pharmaceutical costs but costs across the entire health care delivery system. The administration's approach to deal with the rebate rule is another example, demonstrating how Centene does not focus on short-term headline volatility. We focus on the facts as we know them today.

We continue to advocate for greater price transparency, which includes moving towards net pricing in pharmacy. In this same light, we commend Congress on their bipartisan effort to take steps to reduce the amount of money Americans pay out of pocket for their health care costs by ending surprise bills. We continue to see efforts both in Washington and the states to further stabilize the market price.

The administration's final rule allowing employers to offer HRAs as an option to pay for market price coverage provides an opportunity to have a positive impact on premiums. Also pending waivers in Utah and Georgia aim to stabilize the market price to provide affordable comprehensive coverage to those between 100% and 250% of the federal poverty level. This has the potential to improve affordability for those with and without subsidies.

As exemplified by Georgia, states are taking the lead with meaningful discussions on how to improve and expand government health care programs. They are focusing on taking private sector solutions to enhance quality and lower costs of health care. We are well positioned to be supportive of these efforts. We are encouraged by anything that moves us back from politics to policy. Centene is committed to working with both parties on bipartisan solutions that strengthens the nation's health care delivery system.

I would now like to provide an update on the acquisition of WellCare.

We were pleased shareholders of both Centene and WellCare for -- overwhelmingly to approve the acquisition on June 24. We appreciate the mandate of our investors as they recognize the value of this transaction. Regulatory discussions are well underway and have been very constructive. Both companies are currently working through the state insurance approval process required for the completion of the transaction. The required Form As and Es have been filed in 27 states. Additional approvals have been obtained in 8 states, which is ahead of schedule. Where applicable, the divestiture process is underway. And we are pleased to be seeing a great deal of interest in potential acquirers.

Centene and WellCare have each received a request for additional information and documentary materials from the Department of Justice. This was expected given the size of this transaction. Both companies continue to work expeditiously and cooperatively with the DOJ. Integration planning is well underway. Our teams are doing extensive work to ensure a smooth and seamless combination of the companies. Both companies are fully engaged and integration planning is progressing well.

We remind you that the combined company will have estimated pro forma 2019 revenues in excess of $100 billion and EBITDA of $5 billion. We are comfortable with our previously communicated synergy and accretion targets. We continue to be comfortable that we will receive all necessary approvals to close the deal in the first half of 2020. Given the progress of activities to date, there may be an opportunity to close earlier in 2020. Shifting gear to our [radar] growth. We expect a composite Medicaid rate increase of approximately 1.5% to 2% for 2019.

In summary, Centene continues to be a growth company both organically and through M&A. Our targeted pipeline remains robust. We continue to focus on margin expansion and are already realizing benefits from our Centene Forward transformation project. The pending WellCare acquisition firmly solidifies our 2020 vision of maintaining our industry-leading position in the highly competitive government-sponsored health care market. We look forward to leveraging the strength that each company brings in terms of providing high-quality health care at lower costs to our recipients and state customers.

We thank you for your continued interest in Centene. And I'll now turn it over to Jeff.

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [4]

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Thank you, Michael, and good morning. This morning, we reported solid second quarter 2019 results. Second quarter revenues were $18.4 billion, an increase of 29% over the second quarter of 2018. And adjusted diluted earnings per share was $1.34 this quarter compared to $0.90 last year.

Adjusted diluted earnings per share for the second quarter 2019 was driven by solid performance across our business segments; the reconciliation of the 2018 marketplace risk adjustment, which exceeded our expectations by $0.05 per diluted share; and $0.03 per diluted share associated with a gain on the Ribera Salud acquisition.

Let me provide additional details for the quarter. Total revenues grew by approximately $4.2 billion over the second quarter of 2018 primarily as a result of the acquisition of Fidelis Care, growth in the Health Insurance Marketplace business, expansions and new programs in many of our states in 2018 and 2019, particularly Arkansas, New Mexico and Pennsylvania. This growth was partially offset by the health insurer fee moratorium in 2019.

Moving onto HBR. Our health benefits ratio was 86.7% in the second quarter this year compared to 85.7% in last year's second quarter and 85.7% in the first quarter of 2019. The HBR increase was primarily driven by the performance in the marketplace business, the acquisition of Fidelis, which operates at a higher HBR, and the health insurer fee moratorium.

As we've highlighted previously at our Investor Day, we expected a return to more normalized margins in 2019 for our marketplace business. Additionally, we continue to experience a higher membership retention rate compared to prior years. As members stay with us longer, it increases medical costs in the HBR. I just want to emphasize that this is a slight increase and we are still well within our 5% to 10% pretax margin targets for the product.

Sequentially, the 100 basis point increase in HBR from the first quarter of 2019 is primarily due to the performance and seasonality in the Health Insurance Marketplace business.

Before I get into SG&A, let me provide an update on the marketplace business. As expected and highlighted at our Investor Day, the final risk adjustment was lower than our year-end accrual by $238 million. Additionally, after adjusting for other risk sharing programs, including minimum MLRs, our estimated RADV adjustment and other programs, the net amount exceeded our expectations by approximately $31 million or $0.05 per diluted share. Recall, we had included approximately $100 million in our annual guidance. This benefit was driven by our Centene Forward program. And as highlighted during our Investor Day in June, we are reinvesting this amount in other Centene Forward initiatives in the back half of the year.

Now onto SG&A. Our adjusted selling, general and administrative expense ratio was 9% in the second quarter this year compared to 9.6% last year and 9.5% in the first quarter of 2019. The year-over-year decrease was primarily driven by the acquisition of Fidelis Care, which lowered the ratio by 60 basis points. The sequential decrease is primarily due to the higher selling costs in the first quarter associated with the marketplace and Medicare products. Additionally, we spent $0.04 per diluted share in business expansion cost during the second quarter.

Investment and other income was $120 million during the second quarter compared to $65 million last year and $99 million last quarter. The increase reflects increased investment balances over 2018 as a result of the Fidelis Care acquisition, higher interest rates and a gain of $16 million associated with the step-up in basis of our previously held equity investment in Ribera Salud upon acquiring a controlling interest.

Sequentially, investment income increased due to the previously mentioned gain on the acquisition of Ribera Salud recognized in the second quarter. Interest expense was $101 million for the second quarter 2019 compared to $80 million last year and $99 million last quarter. The increase year-over-year was driven by the additional debt to fund the Fidelis acquisition and higher interest rates associated with our interest rate swaps. Our effective tax rate for the second quarter was 25.7% compared to 36.9% in the second quarter 2018, which reflects the impact of the health insurer fee moratorium.

Now onto the balance sheet. Cash and investments totaled $15.9 billion at quarter end, including $801 million held by unregulated subsidiaries. Our risk-based capital percentage for NAIC filers continues to be in excess of 350% of the authorized control level.

Debt at quarter end was $7.1 billion, which includes $513 million of borrowings on our revolving credit facility. Our debt to capital ratio was 36.3%, excluding our nonrecourse debt, compared to 36.7% last year and 36.5% at the first quarter of 2019. Our medical claims liability totaled $7.4 billion at quarter end and represents 47 days in claims payable compared to 48 days in the first quarter of 2019.

We continue to expect the DCP to be in the mid-40 range on a run rate basis with the inclusion of Fidelis. Cash flow provided by operations was $917 million in the second quarter or 1.9x earnings. The cash provided by operating activities in the second quarter of 2019 was due to net earnings, collections as premium and trade receivables and an increase in other long-term liabilities driven by the risk adjustment payable for the Health Insurance Marketplace business in 2019.

Lastly, I would like to highlight a few of the changes to our 2019 annual guidance. We are increasing the total revenues guidance at the midpoint by $700 million to reflect the second quarter results and higher membership retention in the marketplace business. Additionally, we are increasing our GAAP and adjusted diluted earnings per share guidance at the midpoints by $0.03 and $0.05 per share respectively, associated with the second quarter performance and the gain from the Ribera Salud acquisition.

While risk adjustment delivered an additional $0.05 per diluted share of earnings during the quarter, we are reinvesting the additional earnings in other initiatives to accelerate the Centene Forward program. Overall, the operating metrics for the second quarter were good across all of our business segments. We believe the continued growth in revenue provides opportunity for future earnings growth.

That concludes my remarks. And operator, you may now open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Scott Fidel with Stephens Inc.

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Scott J. Fidel, Stephens Inc., Research Division - MD & Analyst [2]

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I just wanted to start on the exchanges. And maybe just update us in terms of -- on the margin front. I know that you're still within that 5% to 10% range. Just interested in terms of are you tracking sort of right to where you had thought previously. And any sense in terms of within that range you may be sort of tracking for the year?

Then just as a follow-up just on the exchanges as well. Just interested. We're seeing a lot of the rate filings coming out and the proposed rates for 2020. I'm just interested in your updated views on how the pricing environment appears to be trending for 2020 in the exchanges and just your views on whether competition is increasing in the marketplace.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [3]

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I'm going to start off with the margins. Maybe a little comment on competition, and then let Jeff and Kevin and others comment.

The margins are well within a 5% to 10% targeted range. I cannot emphasize enough to everybody that in this business, and I've said this historically at Investor Days and other times, you will see movement up and down within that range.

Now in this instance, we commented our retention of membership has been longer than typically -- what we have typically seen. That means we are going to get increased revenue because we're retaining that membership. They will reach their maximum out of pockets. And so some of the costs will go up, but we'll still have increased revenue and increased earnings from that increase. It's the nature of this insurance business and it's really what one expects. And the longer we retain a member, the better it is because over time we have demonstrated we keep him for a long period of time, we're bringing the costs down for that person.

So I can -- as I said, it's a little frustrating to see people concerned about a margin and -- a move in a margin which is doing so well within the range, is normal health insurance performance and shows that this business is really growing and performing as we expect it to. And we've commented earlier to expect this. So from a margin standpoint, it's doing just what we want it to do and what we expect it to do. And we see that continuing.

And the longer you keep the member, the higher the MLR it might go. But also you get all that incremental revenue, which gives you actual dollar earnings increases. And the shareholders and everybody benefit from it.

I'll start off a little bit from the competitive standpoint, but we like competition. And we think it's important we have it. It just makes us better. And we've also commented that in our segment, which is 400% the federal poverty level and below, that it's fully subsidized, highly subsidized. And therefore, price and those types of issues do not give somebody trying to come in on price an advantage. So I think this is a solid business. The actions we took in building it and becoming a leader in it, I think it's going to pay a lot of dividends to our shareholders going forward.

Jeff, anything you want to add?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [4]

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Yes. I think Michael addressed the members staying longer comment. I think the only thing I would like to bifurcate is we did talk about -- previously about margin normalization and that marketplace margins would be consistent with '17, '16 and '15 and that '18 was a very good year. And so that piece was completely expected and in our forecast.

And then the second piece I think that Michael mentioned here was the members staying longer which, just to highlight, we've increased our guidance, our revenue guidance, over $1.4 billion for the first and second quarters here, really due to the member retention and them staying longer. And I completely agree with the comments you stated about that.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [5]

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I want to make one more comment. That when you have a $75 billion business, it's different than when you have a $20 billion, $30 billion business. And you have more complexity. You have more products. You have more states. There's going to be some variability, but it's really a very strong position to be in. And that really affords us the offsets. And with that size business and now going international, we may have a market that may have an issue. It's no different than investors that have funds that have a stock, that maybe not perform but they but have others that offset it. Marketplace is one of our key strengths, and I can't emphasize that enough, Scott.

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Scott J. Fidel, Stephens Inc., Research Division - MD & Analyst [6]

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Got it. And it sounds like -- Michael, so just to clarify on 2020. With what you're seeing the pricing at this point, it sounds like you're still comfortable with the growth rate that you've been targeting in that market for next year.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [7]

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Yes. I think I commented in my prepared remarks that I expect it to grow next year. So -- and I think that's -- and I still feel that way.

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Operator [8]

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The next question comes from Kevin Fischbeck with Bank of America Merrill Lynch.

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Kevin Mark Fischbeck, BofA Merrill Lynch, Research Division - MD in Equity Research [9]

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So I guess maybe 2 questions. First question being when you think about the guidance update, there's a few items in there. You had the $0.03 gain, and then you had the $0.05 that came in. But it sounds like you're spending $0.05 away. When you think about the components of the guidance raise because I think the raise was a little bit less than what the beat was, at least versus consensus in the quarter. How do you think about that guidance raise? How much of that is kind of core operational earnings versus kind of one-time things versus potential offsets as far as reinvestments?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [10]

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I will make one comment, and Jeff can go in all the detail you want. But what we're trying to say is that we have this Centene Forward, which is really working well, it's going to -- it's freeing up funds to invest in technology, the things that will pay big dividends going forward. Couldn't be more pleased with it.

What happened is we started to realize results in this quarter. And the shovel-ready projects won't be ready till next quarter. So we had to take the earnings but in effect said we've taken earnings this quarter. But next quarter, we're going to have the expense. And Jeff, you might just further...

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [11]

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Yes. I mean a couple of things, I would say is that if you're comparing to, I think, the consensus number, I think that was around $1.24. That's $0.10. So we were at $1.34, so that's a $0.10 beat. $0.05 is really driven by what Michael mentioned as Centene Forward, which we're reinvesting in the back half of the year. And then you would have another, call it, $0.05; $0.03 from the Ribera Salud gain and call it $0.02 from operations if you're comparing to consensus. And so I would say the guidance raise was in line with that. It's the $0.03 from the Ribera Salud gain plus $0.02 from operations, again, if you're comparing against consensus that we increased the guidance by.

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Kevin Mark Fischbeck, BofA Merrill Lynch, Research Division - MD in Equity Research [12]

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Okay. That's helpful. And then I guess just the second question being it looks like you raised the MLR guidance by 10 basis points. Can you talk a little bit about what was driving that? I would have thought that'd be better exchange enrollment and retention might have helped bring that MLR down a little bit.

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [13]

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Yes. So if you're comparing to year-over-year and specifically for this year, I think Michael commented on the higher member retention. So what we did have in the forecast was the margin normalization. And we talked about that at our December and probably Q1 earnings calls that we anticipated that exchange margins would be similar to 2017 and prior, and that '18 was a very good year. And so Michael commented on the membership retention and that members are staying longer. And so it's increased in the HBR, at the margins just a little bit. And that's why we did the tenth on the increase in the HBR guidance.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [14]

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In other words, Kevin, they stay longer so they reach the max amount of profit sooner. It doesn't mean that their health conditions have deteriorated. If anything, over time, we'll see improvement the longer we keep them. But that's really why you see that jump. It's a normalization of the business. And the good news is I like the fact we're retaining people because as I said, longer term, we're going to have a very strong base there.

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Kevin Mark Fischbeck, BofA Merrill Lynch, Research Division - MD in Equity Research [15]

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I mean actually I can see why the higher MLR versus a normal exchange person. But I thought a normal exchange person had below-average MLR. So even if it was higher than an average exchange person, it might be lower than your consolidated MLR. You're saying that if you keep them longer, it's actually higher than your consolidated MLR, which pulls up your consolidated MLR?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [16]

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No. No. It's just higher than our previous expectations, Kevin. I mean we had -- right. I mean if you look at the Q1 and Q2, how we raised guidance at the top line, that's over -- almost $1.4 billion of additional revenue. And what we're saying is, is that, that MLR is higher than our expectations that we originally had. So the members are staying longer, which is outside of our expectations as well. And we're adjusting the forecast for that.

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Operator [17]

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The next question comes from Josh Raskin with Nephron Research.

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Joshua Richard Raskin, Nephron Research LLC - Research Analyst [18]

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Just want to ask on the $0.05 that gets reinvested. I guess the first question is on the $0.05. That reinvestment in Centene Forward, does any of that go into the MLR line? Or is that all G&A?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [19]

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The bulk of that would have been in the G&A line.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [20]

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It is, Josh. It's a lot of investments. In other words, we will continue to update our systems. And we've said for you back when, we're going to be investing in that, and that's going to deliver longer-term, real efficiencies. And so this whole effort on reducing our G&A costs and reinvesting that money without affecting our earnings stream, that's expected, that's what it's all about. It's recognizing that growth.

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Joshua Richard Raskin, Nephron Research LLC - Research Analyst [21]

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Now that makes sense. And then my real question is just from a strategic standpoint, Michael, you alluded to the potential to close WellCare slightly earlier than, it sounded like, by the end of the first half of next year. It sounds like you're seeing some progress on the regulatory front that gives you some comfort there.

So my question on that is does that do anything strategically as you think about the Medicare Advantage line or any other investments or branding or your M&A strategy, or anything along those lines that change based on your ability to potentially close the transaction faster.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [22]

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Well, I think that -- okay. One, I mean your first statement was right. We're seeing a lot of success with the states. They understand it. We've had good discussions with Justice. We understand their role and what they have to do and providing them all the material on an expeditious basis. So I would -- and I want to just cautiously let people know it's going well enough that it could close earlier.

Now the sooner it closes and we get the company integrated, the sooner we're prepared to move ahead with some accelerated activity we have in mind. But we're going to be patient and manage it through -- carefully after we've demonstrated this is fully integrated. We're not going to bite off more than we can chew. And we know how to integrate companies. We've demonstrated that. And so anything that picks up that speed just puts us in a position to do something sooner.

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Operator [23]

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The next question comes from Sarah James with Piper Jaffray.

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Sarah Elizabeth James, Piper Jaffray Companies, Research Division - Senior Research Analyst [24]

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The DoD has talked about TRICARE moving to risk on the next RFP. Can you help size what that would mean for Centene if you retain the same region? And are there any quality metrics for that contract you can share with us that give us insight onto how Centene is performing from the DoD's viewpoint?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [25]

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Kevin, you want to take that?

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Kevin J. Counihan, Centene Corporation - SVP of Products [26]

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Sure. We've been working very closely with DoD for a while about this potential new arrangement and also with the House and Senate Armed Services Committees. There's -- to your point, there's a variety of different thinking going on within DHA as well as in House and Senate Armed Services Committees about what that final new benefit plan might look like. The risk arrangement that you're talking about is one of the things that they're considering. But there's a lot of different things they're considering too with respect to care management, with respect to value-based contracting, with respect to network design. We're very pleased to be at the table and providing a lot of different recommendations and ideas to them.

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Sarah Elizabeth James, Piper Jaffray Companies, Research Division - Senior Research Analyst [27]

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Got it. And when do you think that you'll know how the contract will evolve and potential difference in size of the new contract versus what it's contributing to Centene now?

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Kevin J. Counihan, Centene Corporation - SVP of Products [28]

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Well, as you're probably aware, there's a leadership change that's going to be taking place over the next couple of months. And so our thinking is probably after that takes place, which is probably in the late summer, early fall, we'll probably know more. So I would imagine over the next 3 to 6 months.

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Operator [29]

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The next question comes from Lance Wilkes with Bernstein.

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Lance Arthur Wilkes, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [30]

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Could you just talk a little bit about Medicaid medical cost trend and the components of that? I was interested in what the implications are for Iowa in the latter part of the year and maybe as a contributor to MLR guidance just given the withdrawal of one of the competitors in that market.

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [31]

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Yes. This is Jeff, Lance. I think what Michael said, we continue to see stable cost trends in the Medicaid business. And as far as Iowa, it's -- nothing has changed, I would say. Our commentary around Iowa has been that we don't have that forecasted or projected to be a contributor to earnings in the first 6 months of operation for this year. And I think Michael had reiterated in his commentary, his prepared remarks, that we do see kind of a normal, what I'd call, Medicaid margin profile on a going forward basis.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [32]

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Yes. We typically have said that we always book at a higher level for the first 3 quarters or so, sometimes 4. But it doesn't mean it's losing. It's just -- it may be breakeven. But a new business -- we work with our providers on evolution, not revolution. And so it is an educational process as we work through it, they learn our systems and things. So we see it performing normally as all new markets do.

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Lance Arthur Wilkes, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [33]

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And is the membership you're getting there kind of above what your original expectations were? Or is it in line with those original expectations in your guidance?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [34]

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Chris, you want to comment on that?

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Christopher Donald Bowers, Centene Corporation - EVP of Markets [35]

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Sure. Thanks, Michael. We, as -- I think Michael mentioned in his remarks, we're at about 254,000. We do expect to come in close to our anticipated membership of 300,000 by the end of the year.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [36]

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So we do see it growing and being a very effective market for us.

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Operator [37]

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The next question comes from Matt Borsch with BMO.

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Matthew Richard Borsch, BMO Capital Markets Equity Research - Research Analyst [38]

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If I could just ask a first question on the Texas RFP, the Texas contract award. Is there any visibility on the timing at this point?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [39]

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They've indicated the end of August. But I have said historically, I think my quote is, I don't put my hand in fire for any state on their timings because -- as they do what they want, we're still confident that's it's going to continue to be a good opportunity for us.

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Matthew Richard Borsch, BMO Capital Markets Equity Research - Research Analyst [40]

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Okay. Okay. And if I could also ask because you talked about supporting price transparency. Do you -- should we take that to mean that you would support the initiative to have hospitals and insurers essentially open up their books in terms of their negotiated rates? And if so, do you think that would be something good for pricing and good for Centene?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [41]

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I think -- I don't think that -- everything I've read about it historically, where they've tried those kinds of things, it tends to have a negative impact on pricing. All prices seem to rise to the highest level, not drop to the lowest level. So I don't think it -- I don't think that would be good. What I'm talking about is particularly in pharmacy. I think there's been an absence because of rebates and things, on transparency there. And we are working aggressively to move to net pricing on the pharmacy products.

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Matthew Richard Borsch, BMO Capital Markets Equity Research - Research Analyst [42]

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Okay. And I'm sorry, just last -- one last one, which is do you think that you'll see a substantial impact from the -- you've touched on the HRA, the ability of employers to use HRAs for employees to pay ACA premiums. Do you think that's going to have significant follow-through?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [43]

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I think that there's an opportunity there. I have not quantified it yet, but -- or the team hasn't. But I think we see it as potential upside having no downside risk to it, I think. It's only good but we have to also see how it's reacted. And hopefully in future calls, we'll be able to give more guidance on it.

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Operator [44]

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The next question comes from Steve Tanal with Goldman Sachs.

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Stephen Vartan Tanal, Goldman Sachs Group Inc., Research Division - Equity Analyst [45]

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I just wanted to dig into some of the specifics, as much as you're willing to share, on risk adjustments. So in the Q, it sounds like a $238 million favorable reduction in payables but then a net pretax benefit of $131 million. And so 2 questions. I think, first, the offsets sound like minimum MLRs and RADV. So I would love it if you could quantify those.

But then getting back to the $0.05, it sounds like that number could have been a lot higher. And I want to understand if there's any -- if there's been a change that's sort of permanent in nature in the way you'll accrue for this going forward. Does that -- does this mean that the marketplace business is more profitable essentially now that -- than you had been accruing for it? Just how should we think about all that?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [46]

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I'm going to turn that over to our resident expert on risk adjustment. Jeff?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [47]

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Yes. Thanks. So we previewed this obviously at the Investor Day, said we thought at the time it was going to be more than $200 million. So $238 million is the number. I would say I would size the minimum MLR and the RADV as the 2 largest components of the offsets and primarily of equal magnitude.

One thing to highlight just about RADV specifically is it gets finalized in August of this year. And this is the first year that they're doing the RADV adjustment for the marketplace. And they decided not to collect the funds with the RADV adjustment until 2021. And as a result, there's really -- there was no ability for us to offset the RADV adjustment in our minimum MLR calculation. Meaning, usually the MLR calculation is the last, right? So you would have a RADV adjustment that would then be calculated into the minimum MLR. But as this was the first year for the RADV adjustment, we were unable to do that. So some of the RADV adjustment would have been mitigated in our minimum MLR calculations, but it wasn't for this quarter because of the unique circumstance. But I guess what I would say is the Centene Forward program delivered good value and it continues to do that on the risk adjustment side. And I think that's a good thing long term.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [48]

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I just want to add -- I want to remind everybody that there's 2 elements to risk adjustment. One that we control, and that's how well we do our medical expense and others. But if somebody else has a negative or has a different than expected result, that impacts us and that's outside our control. So when you look at this, it's not just how we're doing but what the total market in a particular product's doing. I think I'm telling you what you already know.

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Stephen Vartan Tanal, Goldman Sachs Group Inc., Research Division - Equity Analyst [49]

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Yes. Absolutely. And I guess just the $238 million, though, it's pretty sizable on a percentage basis, so just the last sort of follow-up piece is, do you guys expect to make any changes to the way you accrue? Or is it going to be consistent going forward?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [50]

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Again, I mean we're following GAAP, right? So our job is to make the best estimate at the end of each quarter and at the end of each year. And that's what we'll continue to do. So yes, if we have historical information that indicates that we're performing better, then we would absolutely include that information into our estimates.

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Operator [51]

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The next question comes from Dave Windley with Jefferies.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [52]

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I wanted to follow up on MLR just with a cadence question.

I think the first half MLR is up about 120 basis points year-over-year. The guidance implies that the second half would be up a little less than that. Your update on exchange sounds like that drags the back half of the year up a little bit. So I wondered kind of what's the offset that makes that year-over-year change smaller in the second half. Is it Fidelis? Is that it exclusively? Or are there other factors?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [53]

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Well, I think if you're comparing year-over-year, first half to second half, obviously Fidelis is a change. Meaning, we did not have that in the first half of last year, right? And we do have Fidelis in the first half of this year. And as we've commented, they were running a higher HBR than the Centene base business when we did the acquisition. So that is definitely a driver.

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David Howard Windley, Jefferies LLC, Research Division - Equity Analyst [54]

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And then just a quick follow-up on a separate topic. There are, Michael, some enrollment moving parts sequentially in both your TANF and SCHIP and ABD, LTSS categories. Could you describe what some of the moving parts are there? And then is the international line now, just the change in the ownership base in Ribera Salud, is that what drives that addition?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [55]

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I'm going to -- I'll start and let Jeff can pick up on it. Obviously, TANF, our -- long-term care, et cetera, we've got a new business in the east side of Pennsylvania and other things. So there are moving parts affected by new businesses coming in, in all these categories. And so that's going to move it, it's going to move it up, down, and around but could -- over time will smooth out. Jeff, do you want to pick up on the second part of that?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [56]

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Yes. On the second piece, you're spot on. When we took control of the Ribera Salud, we've included those members now in our membership reporting table. So that's the change there.

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Operator [57]

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The next question comes from Peter Costa with Wells Fargo.

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Peter Heinz Costa, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [58]

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Most of my questions have been asked and answered. But I would like to understand a couple of details. First off, what are the incremental startup costs in the fourth quarter from Oregon? And second, what are the changes to your reported earnings, revenues, MLR and minority interest line for Ribera Salud and the change in ownership there?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [59]

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Yes. So first question, there were -- there are costs obviously associated with the Oregon startup. And we had a placeholder in our original startup cost guidance. So it fits well within what we'd already previously communicated.

And then the second thing, when you're talking about the consolidation now, obviously we would -- the net earnings impact is, in theory, the same, other than we have more share of those earnings. But now we will include the revenue. And we had that in the guidance because we had a -- we knew this was -- the acquisition was coming. So we'd already had that in the previous guidance.

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Operator [60]

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The next question comes from A.J. Rice with Crédit Suisse.

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Albert J. William Rice, Crédit Suisse AG, Research Division - Research Analyst [61]

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First off, just ask about the -- an update on the PBM side of the business. I think Mississippi and Nebraska, you rolled out RxAdvance. Any learnings from that? Maybe you can talk about the cadence of further rollouts there. And I know RxAdvance is talking about additional capabilities that they have, care management help, operating efficiency help. Are you exploring any of that? And what kind of opportunity might that be?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [62]

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I'll ask Brandy and Kevin to pick up on that. Brandy?

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Brandy Lynn Burkhalter, Centene Corporation - Executive VP of Operations [63]

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It's Brandy Burkhalter. So we are currently live in 6 states with just over 1 million lives on the RxAdvance platform, and very pleased with our progress and what we're seeing to date. And we look forward to, I guess, exploring the new things that the RxAdvance platform allows us to do. And so we'll have more to come in future calls but very pleased with the progress to date.

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Kevin J. Counihan, Centene Corporation - SVP of Products [64]

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If I could just amplify a little bit what Brandy had said. This is Kevin. I think one of the core learnings that we've had is the importance of engaging independent pharmacies very early on in the process. So we get out to the IPA, the independent pharmacy association, early. We talk about what we're doing, why we're doing it, what the new website is going to look like, get in their newsletter, things of that sort. So that's been a core learning.

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Albert J. William Rice, Crédit Suisse AG, Research Division - Research Analyst [65]

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Okay. Great. Now you're coming up on a year with Fidelis. I know when that deal was originally struck, there was an expectation of improving the medical loss ratio trend but also maybe giving a little bit back in the G&A area but net positive. Can you talk maybe as you look back over last year, has it developed as you expected? Are you ahead of plan, a little bit behind? And how much is there still further things to do once you anniversary this?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [66]

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Yes. This is Jeff. And it's -- I think Michael has mentioned this previously, but it's been a very good deal for the company. It's performing in line with expectations. We're capturing the synergies that we thought we would. And I would say the initiatives and what we expected at the beginning where we were going to invest more G&A dollars to lower the medical costs have occurred. And so we're pleased with the performance. And I think there's still more opportunity for continued improvement. And we're working on those actions as we speak.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [67]

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I've commented before that if we could find more Fidelises, I'd do one in the morning and one in the afternoon.

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [68]

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Absolutely.

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Albert J. William Rice, Crédit Suisse AG, Research Division - Research Analyst [69]

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Okay. Maybe just the last question. This got raised by one of your larger competitors that already reported, the question of prior period development, you don't specifically put that in the press release, at least overtly. Any comment about relative to a normal quarter or prior period development and -- that you realized this quarter relative to last year or first quarter?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [70]

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It's been normal. But Jeff, you can...

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [71]

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Yes, it's been normal. I mean A.J., we've talked about this before. I mean what we really focus on is the consistency, right, of development. Meaning, we have a consistent process. We use claims received. We use an inpatient validation methodology. So our methodology is a little unique compared to others in the industry, but we look for consistency. And I think ours has been consistent for a long time.

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Operator [72]

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The next question comes from Gary Taylor with JPMorgan.

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Gary Paul Taylor, JP Morgan Chase & Co, Research Division - Analyst [73]

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Most of my questions were answered so just 2 quick follow-ups. It sounds like from the commentary that this is correct, but I just want to confirm it. So on -- in Spain, it was 50% ownership before, but it was not consolidated in the financials and now at 90% or wherever you are, it will be. Is that correct?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [74]

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Yes. That's correct.

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [75]

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That is correct. Yes.

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Gary Paul Taylor, JP Morgan Chase & Co, Research Division - Analyst [76]

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Okay. And then just my other one, just going back to the exchanges and certainly acknowledging your commentary that you thought margins would normalize to some degree after 2018. We saw in the first quarter when we look at the stat filings that the loss ratios in exchange is up about 300 basis points. So when we get a chance to see that again for the 2Q, is that going to be a pretty consistent trajectory? Or should we anticipate, based on some of your retention comments, that maybe that's up a little more?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [77]

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No. I guess what I would say is I think it will be up. The other thing you have to realize is when you're looking at -- there's a difference between the statutory and the GAAP HBRs that we talk about. So that's all I would highlight. But yes, it will be up on a year-over-year basis.

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Operator [78]

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The next question comes from Justin Lake with Wolfe Research.

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Justin Lake, Wolfe Research, LLC - MD & Senior Healthcare Services Analyst [79]

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First, just a question on exchanges. Appreciate the comment on the 2020 membership growth. I wanted to ask about margins. Should we expect margins to normalize lower again in 2020? Or do you see the current margin as sustainable into next year?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [80]

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I think when you look at margins, it's going to be a function of the business you continue to attract. How are you retaining your existing membership? There's multiple by variables there. And what's important to me -- and I said this. We talked about a 5% to 10% range. We see nothing that's going to change that. It's going to move up and down within that range, based on retention, on the membership you attract, a series of things. And that's to be expected in any insurance business.

As it grows and as you keep people longer, you'll see some leveling off of it because they're being managed or under control but -- and the law of larger numbers starts to apply. So I guess going into -- as we look at 2020, we'll give more guidance in December, which is our standard practice versus trying to get into too much at this stage. And we'll have more history at that point to understand what our retention is, what the membership is. I'll remind you, every year we've retained 80% of the previous year's membership. So all those factors come into play, Justin.

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Justin Lake, Wolfe Research, LLC - MD & Senior Healthcare Services Analyst [81]

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Sure. That make sense. Maybe another way to ask it is just if you're saying 5% to 10% is a reasonable range for margins, and obviously we could pick the midpoint of 7.5%, is this year -- if we think about 7.5% as the kind of midpoint of normal, would this year be below or above that midpoint?

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [82]

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Well, we don't -- I'm not going to get into that level of detail because, once again, it's a very large business. And it's a growing business. And if we start getting that finite, we're losing sight of what this total $75 billion, soon to be $100-plus-billion company is. So you have to look at it in totality. And we don't look at it and say is it going to be 8%, 8.2%, 8.1%. We've got the totality of all our businesses and we beat from operations by $0.02. And that's kind of the way we look at it, Justin.

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Justin Lake, Wolfe Research, LLC - MD & Senior Healthcare Services Analyst [83]

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Totally reasonable. Okay. And if I could just ask a quick follow-up on the MLR. You took up the guidance as you mentioned by 10 basis points. I'm just trying to figure out where that is coming from. The consensus was 86.3% this quarter. But I know you don't guide quarterly. So we could have clearly gotten it wrong. I'm just curious how the quarter -- that MLR looked versus your internal expectations. Was it -- was the 86.7% in line? Or was it a little bit higher? Or are you taking up the back half of the year because of the higher retention rate, and really the second quarter was fine relative to your expectation?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [84]

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No. It was -- yes. I mean versus our expectations, it was in line. I mean the marketplace business was in line. I mean that's our view.

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Justin Lake, Wolfe Research, LLC - MD & Senior Healthcare Services Analyst [85]

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So 86.7% is pretty much where you were expecting it and the 10 basis point guide-up for the year is really just taking up the back half of the year for higher retention. Is that the way we should think about this?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [86]

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Yes. That's correct because remember, Michael explained this at the beginning. Remember there's deductibles and maximum out of pockets, right? So the longer -- you can do the math there.

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Justin Lake, Wolfe Research, LLC - MD & Senior Healthcare Services Analyst [87]

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Sure. Maybe you could just tell us what is -- the member that drops off in the middle of the year that you typically see, what's the MLR on that member versus the MLR of someone else...

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [88]

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Justin, we have 1.9 million members. You want to tell me which one you're thinking about? I mean seriously, and I'm not doing a little bit of a -- I'm being little bit of a little bit of a smart a** here. But how -- excuse me. But I mean when you think about it, when you have 1.9 million members. One could have an MLR of 72%. One could have an MLR of 85%. I mean it's just -- there's no way of doing it.

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Operator [89]

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The next question comes from Ralph Giacobbe with Citi.

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Ralph Giacobbe, Citigroup Inc, Research Division - Director [90]

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I just wanted to clarify quickly. The incremental benefit from risk adjustment comes through the MLR, right? So it benefited the ratio by about 20 basis points this quarter. Is that fair?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [91]

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You're correct. It does come through the MLR as a component of revenue, right? It's a revenue adjustment.

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Ralph Giacobbe, Citigroup Inc, Research Division - Director [92]

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Right. Okay. All right. Fair enough. And then second question. Maybe just back to the exchanges here but a little bit of a different angle. Can you talk about the provider networks on the exchange at this point, how it's kind of evolved over time of you sort of adding or narrowing offerings?

And then I guess more importantly, can you help us -- in terms of the annual rate bump to providers, is that similar to kind of a composite Medicaid rate that you typically see in that low single-digit range? Or is it more like a pure commercial rate bump that may be more in the CPI-plus level? And maybe more importantly, how has that trended over time? Can you give us a sense for that as you've obviously entered into new markets?

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Jeffrey Alan Schwaneke, Centene Corporation - Executive VP, CFO & Treasurer [93]

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Yes. That's a lot there. So first, we're not going to get into the provider -- specific rate increases for providers, right? But the other thing is I would say is we've continued to manage our provider network to offer competitive product and be successful and grow the business. And so that's what we continue to focus on. That's what we continue to do and make sure that our members have access to the highest quality care.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [94]

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And I just might add, I've commented we're moving more and more to these risk-based contracts and providers that manage the business. And it goes back to the old fashion of managing your patient and doing incredibly well with that because it puts them in control of how they're practicing medicine. So we think there's real opportunities for providers who do very well in our business.

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Operator [95]

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That concludes our question-and-answer session. I would like to turn the conference back over to Michael Neidorff for any closing remarks.

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Michael Frederic Neidorff, Centene Corporation - Chairman, President & CEO [96]

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Thank you. I want to -- I just want to emphasize that as we sit here as a group today, we feel very good about the business and where it is. It's performing well. It's firing on all 12 cylinders. And I'm balancing -- as you can see, there's the growth. There's a beat from operations. We're dealing with all the issues. And so we look forward to continuing to report what we consider to be very successful quarters. Thank you for your time. We look forward to seeing you.

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Operator [97]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.