Centene Corporation (CNC)
Q4 2012 Earnings Call
February 5, 2013 08:30 a.m. ET
Ed Kroll – SVP-Finance and IR
Michael Neidorff – Chairman, President and CEO
William Scheffel – EVP and CFO
Jesse Hunter - VP, Operations
Chris Rigg - Susquehanna Financial Group
Josh Raskin – Barclays Capital
Ralph Giacobbe – Credit Suisse
Justin Lake - JP Morgan
Carl McDonald – Citigroup
Peter Costa – Wells Fargo Securities
Scott Fidel – Deutsche Bank
Brian Wright – Monnes Crespi & Hardt
Scott Green – Bank of America Merrill Lynch
Melissa McGinnis - Morgan Stanley
David Sagalov - Jefferies
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Thank you, operator and good morning everyone. Thank you for joining us on today’s call. Michael Neidorff, Chairman and Chief Executive Officer; and Bill Scheffel, Executive Vice President and Chief Financial Officer of Centene Corporation, will host this morning’s call. The call is expected to last about 45 minutes and may also be accessed throughout our website at centene.com. A replay will be available shortly after this call’s completion also on our website at centene.com or by dialing 877-344-7529 in the U.S. and Canada or in other countries by dialling 412-317-0088. The playback number for both of those calls is 10023301.
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 recently filed Form 10-Q dated October 23, 2012, 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. As a reminder, you can find our 2013 earnings release dates on our website in the investor relations section. Also our next investor day is June 17, 2013 in New York City. Please mark your calendars.
With that, I’d like to turn the call over to our Chairman and CEO, Michael Neidorff. Michael
Thank you, Ed. Good morning everyone. And thank you for joining Centene’s fourth quarter and full year 2012 earnings call. In general, fourth quarter results were consistent with our guidance provided at the December 14’s investor day when excluding higher than expected flu costs.
I will provide more color on the flu epidemic shortly. My comments today will include an update on the key issues and other topics discussed at our investor day. I will also talk about our recently announced acquisition Acaria, a strategically important specialty pharmacy organization. I will then turn the call over to Bill for details on our fourth quarter and full year 2012 financial results.
At our December investor day, we noted higher than expected medical costs associated with a much earlier than normal and more intense flu season particularly in Texas, which is our largest market. At that time we took down our 2012 guidance by approximately $0.15 to $0.18 per share to account for additional flu costs. However the flu hit even harder in the fourth quarter than originally anticipated. The fourth quarter included an incremental $0.30 flu costs compared to the fourth quarter of 2011. That was $0.11 above our expectations.
Our initial read of January indicates a flu costs are similar to the levels experienced in December 2012. Our original planning anticipated higher flu costs in the first quarter of 2013 compared to the fourth quarter of 2012. Flu related costs are just one component of our total medical costs. Additionally, the most recent CDC data suggests that the flu season peaked in mid-January. Recognizing this we have not changed our annual guidance.
Next Kentucky, we believe the state’s Medicaid program is not sustainable in its current form due to structural and policy flaws. The Kentucky loss was $1.71 per share in 2012. In October of 2012, Centene notified the Kentucky cabinet for health and family services that it was exercising a contractual right that it believes allows the company to terminate its Medicaid managed care contract effective July 5 2013.
Centene has also filed a formal dispute with the cabinet for damages incurred under the contract. That dispute is currently on appeal to the finance and administration cabinet. In addition, Centene has filed a lawsuit in Franklin Circuit Court against the Commonwealth of Kentucky seeking declaratory relief. On January 23, 2013 the Franklin Circuit Court denied the Commonwealth’s motion to dismiss the case and retain jurisdiction of the lawsuit. The court stayed proceeds pending a formal written determination by the finance and administration cabinet, which is expected in late March. Recognizing that this case an administrative appeal and litigation we will make no further comments.
On the Texas, as we discussed at our December investor day, we experienced higher than expected medical costs in the fourth quarter in Texas. This was related to the off-cycle transfer of high acuity members in Hidalgo service area from (inaudible). In addition, we experienced higher than anticipated utilization in in the in-patient category in the rural service area. The 4% state-wide rating increase effective September 1 did not reflect the impact of these two issues. The Texas legislature is currently in session and supplemental funding for the Medicaid program is expected to be passed in the first quarter. We continue to work with the state to obtain and ensure premium adequacy.