WellCare Health Plans, Inc. (WCG)

WCG 
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WellCare Health Plans, Inc. (WCG)

Barclays Global Healthcare Conference

March 13, 2013 1:00 pm ET

Executives

Alexander R. Cunningham - Chief Executive Officer and Director

Thomas L. Tran - Chief Financial Officer and Senior Vice President

Analysts

Joshua R. Raskin - Barclays Capital, Research Division

Presentation

Joshua R. Raskin - Barclays Capital, Research Division

Are we ready in the back? So we're going to start with the audience response system question, give these guys a minute and then we'll do the introductions. So why don't we take the first question? So everyone's got their handhelds. I think we know how they work by now. Do you think -- simply speaking, do you think Health Reform will be a positive or negative for WellCare, specifically in 2014? Let's start with 1 being very negative, 5 being very positive and everything else in between.

You'll enjoy the music.

[Voting]

Joshua R. Raskin - Barclays Capital, Research Division

Now that's very telling. I've been into -- we haven't seen that yet. So let's take Question #2. This is not applicable. Let's go to Question #3. Utilization trends. Do you think that medical costs will be up significantly? Down significantly? Or somewhere in between?

[Voting]

Joshua R. Raskin - Barclays Capital, Research Division

Wow, everyone thinks a slight increase. Okay, number three, what would you like to see the company do? Let's give you time. You're here for this. So I was going to -- these people are going to tell you what to do this year. M&A? Repurchase shares? Increase in the dividend or pay dividend? Repay your debt? Or invest in the core business?

[Voting]

Joshua R. Raskin - Barclays Capital, Research Division

So a huge consensus there, obviously, as well. Next question. At least repaying debt. So now there's agreement. So do you think the company will grow earnings? We've been defining it as EPS. Do you think we're going to see growth in earnings per share in 2014 for WellCare?

[Voting]

Joshua R. Raskin - Barclays Capital, Research Division

Mostly yes, okay. And then do you currently own -- so 2 more. Currently own shares in WellCare?

[Voting]

Joshua R. Raskin - Barclays Capital, Research Division

All right, that's the opportunity flag. We've been calling it. It's Jim Bloom's [ph] term. And then what's your current bias on the stock? So [indiscernible].

[Voting]

Joshua R. Raskin - Barclays Capital, Research Division

Neutral. Then all right. So interesting. All right. So we shall see. Let me introduce, to my immediate right, Tom Tran, who is the CFO of WellCare. He's been in that role for several years. To his right, Alec Cunningham, the Chief Executive Officer. And to his right, Gregg Haddad. The team has actually been here presenting as a team for now a couple of years. Not exactly a home game but hopefully not that far of a trip for them. And I've already taken up almost 4 minutes of your time. So let's jump into it. I'll ask you the first question that sort of everyone has been asking, which is the 45-day notice came out February 15. Maybe you could give us some comments around what you thought of the rates when they came out. And then also, if you could talk about what the levers are that you'd be willing -- that you guys think you could pull to reduce some of the impact potentially. And then do you think there's any change on April 1 when we get the final notice?

Alexander R. Cunningham

Sure, Josh. The way we've characterized those preliminary rates is the various inputs to that equation, a number of them, I think, were already known and understood by us and others in terms -- in particular, things like the changes that came from the Affordable Care Act, some of those step-down in funding over several years, the industry fee and other things. I think the part that was more of a surprise to the industry and the analysts was the negative trend assumption, the 2.3% negative one. The majority of people were anticipating, I think, a slight positive. So in terms of what we got versus what we expected, that's the primary difference. In terms of how we react to that, as I think you pointed out, we are a 100% HMO, 100% coordinated care products. So it's somewhat different than some of our competitors that have exposure to Private Fee-For-Service for the PPO products. And by being 100% HMO, we do have a number of different levers that can take the forms from addressing benefit design, both in terms of what's broadly known as the extra benefits, the dental division, the chiropractic and other things. It can also be the economics of the product design in terms of premium, co-pay, cost sharing, those sorts of design features. We also can use risk transference, capitation, selective network contracting. So a net negative reduction in revenue, of course, will create challenges and pressures. But by having 100% of the HMO product, we do have a number of different levers that we can deploy. And the way we manage the product is not singularly as a national Medicare product, but each of our states as a state leader, each of those people is accountable for knowing what's going on at a local market, county and product level, beneficiary preferences, competitive behavior, the network dynamics so that we understand exactly what those levers are by product, by county. And so currently, Tom's team is working with the markets to say, this is the outlook mathematically. And now it's the responsibility of each of those people to really understand what they need to do at a localized level by product to adapt to that.

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