As we pointed out in a prior post, Wall Street has viewed the positive third-quarter results at Centene Corp. as something of an outlier given the poor performance of other pure-play Medicaid plans such as Amerigroup and Molina. That characterization has clearly gotten under the skin of Centene chief executive Michael Neidorff, who defends the company’s performance and prospects. “We call it as we see it….We’re a managed care company. We’re not a victim,” Neidorff told attendees at the 20th annual Oppenheimer Healthcare Conference in New York, adding, “I think there are a couple of other people that are outliers, not us.” Centene senior vice president of finance Ed Kroll noted, for example, that the company is doing a good job of projecting flu costs, which tripped up Amerigroup and Molina. He also said the company has done a better job than its peers in accruing for experience-related rebates in Texas. While he acknowledged the tight environment for state Medicaid reimbursement rates, he said the company has visibility well into 2010 for 2% to 3% rate increases in Texas, Florida and Georgia. “The word out there seems to be that we’re in denial,” Kroll said, adding, “Not all health plans are created equal.”
Centene Comes Out Swinging
November 4, 2009
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Posted by Carl Mercurio
Gorman Tells Medicare Advantage Plans ‘Don’t Panic’
November 4, 2009More from the 20th annual Oppenheimer Healthcare Conference in New York. Top Medicare Advantage consultant John Gorman of Gorman Health Group spoke this morning about the future of the program given looming funding cutbacks. His overall message to plans and investors, “Don’t panic.” Here are some other key comments from his presentation.
On industry consolidation: The total number of Medicare Advantage plans could easily fall by a third to about 500 from 750 today, Gorman says. “There’s some significant consolidation coming.” But Gorman said government projections that Medicare plan membership will fall by half to under 5 million are too dire.
On industry profit prospects: “These plans got fat and happy.” Gorman remembers that cutbacks in the early 1990s brought Medicare Advantage reimbursement rates to about 95% of traditional Medicare, as opposed to 100% under proposed reforms. “There were plenty of companies making money at 95%.”
On membership growth prospects: “Private fee for service is sinking like a rock,” special needs plans are “unsustainable,” and Medicare HMO is flat, Gorman says. However, he sees gains in Medicare PPOs and group enrollment as employers off-load retiree coverage. “The group business is going to be a monster one-time opportunity for this industry.” Gorman also sees big growth potential in managed long-term care.
On Medicare Advantage benefit design: “You will start to see a lot of zero premium products go away in the out years of this legislation.” Plans that pay providers largely on a fee-for-service basis are raising premiums or cutting benefits $40 to $80 per member per month, Gorman says. Plans that pay largely capitation, however, were able to jam through provider payment cuts, he says.
On the best strategy for success: “Plans now have to justify their existence,” Gorman says, by proving they can manage costs, coordinate care and engage physicians.
On Congress’ attitude toward Medicare health plans: “Right now, they hate us.” But he adds, legislators need to remember that “this is the industry that delivered Part D for $100 billion less than Congress thought it would.”
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Posted by Carl Mercurio
Aetna “Somewhat Insulated” from Reform, Bertolini Says
November 3, 2009Speaking at the Oppenheimer healthcare conference in New York today, Aetna president Mark Bertolini said his company is “somewhat insulated from reform” because 85% of the company’s membership is in large groups (i.e., 50+ employees). Most of the impact of reform will be felt by companies with lots of individual and small group members, such as Blue Cross Blue Shield plans. About 6% of Aetna’s membership is in small groups (2-49 employees) and 2% is in individual. This backs up an argument put forward in The Wall Street Journal (see prior post) suggesting that the varied interests of health plans has caused an indudtry rift over whether to support or oppose reform. Bertolini also pointed to some challenges the company faces in 2010, including the potential for additional in-group attrition and COBRA uptake related to the economy, medical cost and pricing pressures, uncertain risk membership, lower Medicare reimbursement and increased selling, general and administrative costs. The company maintains a “bias toward profitability over growth,” he said, meaning Aetna will sacrifice membership for margins.
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Posted by Carl Mercurio
Status of Healthcare Reform, Per Fried
November 3, 2009I’ll be posting today from the Oppenheimer healthcare conference at the Waldorf in New York. First up, an excellent assessment of the status of healthcare reform by Bruce Merlin Fried of Sonnenschein, Nath & Rosenthal. Some key comments:
On the likelihood of reform passing this year: “Unlikely.” Fried notes the Senate bill probably won’t go to the floor until Nov. 19 and then will be debated three to four weeks, which takes us close to Christmas. More likely, legislation will be ready “in time for the President’s State of the Union speech.”
On the public plan: “I actually do presume…a public plan to be in the bill.” But Fried is unclear whether it will have an opt-out, trigger or other fallback provisions. Fried thinks Senate Majority Leader Reid may still be able to get the necessary 60 votes — including possible support from Sen. Lieberman. “It’s all about the endgame,” he says.
On the impact of a public plan on private insurers: “There’s an open question as to whether the public plan can compete effectively.” For example, Fried wonders who will run the plan and how will rates be negotiated. He adds, “There has to be a concern about positive margins otherwise we’re going to be subsidizing this thing forever.”
On the $6.7 billion managed care tax: “Congress, the Senate, needed more money and so voila there’s a fee.” But Fried pointed to the “idiocy of imposing a fee on plans that operate government programs,” which amounts to driving up the cost of something you’re going to subsidize. “If they could tax the end-user they would. They want the managed care organizations to be the bad guys.”
On the animosity of many in Congress toward health insurers: “I’ve been at this a long time. I’ve never seen this level of anger and distrust.” Fried says it’s been building for years: care denials, options backdating, rescissions in California, and finally the poorly timed release of the AHIP-PriceWaterhouse study on the negative impact of reform. “There needed to be a bad guy in this debate, and the insurance industry was deemed to be the bad guys.”
On Medicare Advantage: There will be significant reductions in benefits, Fried says. States with big Medicare Advantage populations, e.g., California, Florida, New York, Pennsylvania, will be impacted. The Democrats have forgotten the lessons of the Balanced Budget Act, Fried says, which resulted in retrenchment of Medicare Advantage plans. Consolidation is likely, he adds.
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Posted by Carl Mercurio
Medicaid, Medicare and the Outlook for Managed Care
November 2, 2009There is an irony in the recent financial results of leading publicly traded managed care companies. Managed Medicaid plans — which are expected to see substantial membership gains following healthcare reform — have performed poorly. Medicare Advantage plans — which are expected to see payments slashed by reform — performed better than expected.
Molina Healthcare, a top Medicaid plan, reported a 48% decline in third-quarter profits, which company chief executive Mario Molina, M.D., blamed on an “unprecedented confluence of factors,” i.e., flu costs were up and state budgets are squeezed. Same for Amerigroup. Its profits were down 41% in the third quarter for mostly the same reasons. Centene did better. Its profits rose in the third-quarter; but Wall Street considers the strong performance an outlier and is watching closely for a slip. Now consider Medicare Advantage. Aetna, Humana, UnitedHealth and WellPoint all posted strong third-quarter results.
So here’s the scenario. Healthcare reform puts the squeeze on commercial business, while at the same time increasing enrollment in struggling Medicaid lines and cutting funds to Medicare, this quarter’s saving grace. And you’re worried about a public plan.
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Posted by Carl Mercurio
Managed Care Executives See Challenges in 2010
November 2, 2009Some initial comments from health plan executives suggest 2010 is going to be a challenging year. Here’s what executives from Aetna, Humana, UnitedHealth and WellPoint had to say in announcing third quarter financial results.
Ron Williams, chairman, Aetna: “We view 2010 as a repositioning year, a year that does not fully reflect the earnings potential of our business.”
Stephen Hemsley, chief executive, UnitedHealth Group: “We expect 2010 to be a somewhat more difficult year than 2009. The loss of commercial risk business over the course of 2009 creates headwind on margin dollars for UnitedHealthcare and OptumHealth for 2010. And H1N1 flu will remain a risk.”
Wayne DeVeydt, CFO, WellPoint: “We foresee a number of headwinds and tailwinds impacting next year such as the economy – including its impact on commercial number of months – expectations for an elevated flu season that will likely carry into the first quarter of 2010, high levels of COBRA membership, higher than anticipated reserve releases in 2009 that are not expected to recur in 2010, and Medicare Advantage reimbursement cuts, these being offset by…operational efficiency initiatives and the sale of NextRx.”
Michael McCallister, chief executive, Humana: “We target an overall Medicare pretax operating margin of approximately 5 percent, which next year will include a significant increase in group membership, a traditionally lower margin business, a moderating margin for our stand-alone PDPs, and an individual Medicare margin that approximates the overall target.”
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Posted by Carl Mercurio
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