Centene Corporation (CNC)

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Centene Corporation (CNC)

Q3 2009 Earnings Call

October 27, 2009; 8:30 am ET


Michael Neidorff - Chairman & Chief Executive Officer

Bill Scheffel - Executive Vice President & Chief Financial Officer

Jesse Hunter - Executive Vice President - Corporate Development

Mary Mason - Senior Vice President & Chief Medical Officer

Ed Kroll - Senior Vice President, Finance and Investor Relations


Daryn Miller - Goldman Sachs

Brian White - Collins Stewart

John Rex - JP Morgan

Tom Carroll - Stifel Nicolaus

Greg Nersessian – Credit Suisse

Josh Raskin - Barclays Capital

Scott Fidel - Deutsche Bank

Carl McDonald - Oppenheimer

Matt Perry - Wells Fargo



Good morning. My name is Christy and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Centene third quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

Mr. Kroll, you may begin your conference.

Ed Kroll

Thank you and good morning everyone. I’m Ed Kroll, Senior Vice President, Finance and Investor Relations for Centene. Thank you for joining our Q3 call today. Michael Neidorff, Centene’s Chairman and Chief Executive Officer, and Bill Scheffel, Executive Vice President and Chief Financial Officer of Centene, will host this morning’s call.

The call is expected to last about 45 minutes and may also be accessed through our website at www.centene.com. A replay will be available shortly after the call’s completion, also on our website or by dialing 800-642-1687 in the U.S. and Canada, or 706-645-9291 from other countries. The access code for both of those is 30957978.

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 the Centene’s Form 10-Q dated today, October 27, 2009, 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.

With that, I’d like to turn the call over to our Chairman and CEO, Michael Neidorff. Michael.

Michael Neidorff

Thank you, Ed. Good morning everyone and thank you for joining Centene’s third quarter earnings call. Before I begin to discuss the highlights of the quarter, as has become our practice, I would like to take a few minutes to provide updates on our view on healthcare reform, overall medical cost trends, H1N1 flu and the rate environment.

Speculation about healthcare reform and its potential impact on the managed care sector continues to dominate investors and analysts discussions and comments. The resulting uncertainty has continued to way on the nation’s consciousness and all stocks in our group. At Centene, we continue to believe that the federal health reform should focus on expanding access to the uninsured and under insured, quality enhancements like DRE and increasing overall efficiencies.

Whatever the outcome, we firmly believe our company is well positioned to successfully operate in a post reform environment. We have a competitive advantage that our multi-line strategy affords us through diversity, innovation and cost effectiveness. Congress still has much work to do to sort through the Marge of various bills in the Senate and House and it is still too early to note what the specific outcome will be.

However, many proposals do read positively for Centene with the opportunity of membership growth. For example, expansion of state Medicaid programs or creation of exchanges in states to help citizens gain easier access to affordable quality health plans are both pertinent to us.

Our extensive Medicaid health plan business and unique exchange or connective experience in Massachusetts should serve as well in any reform scenarios like those. The inclusion of Drug Rebate Equalization Legislation or DRE is another favorable item for us. DRE will allow the MCOs the ability to manage the all important therapeutic side of patient care, while yielding significant savings to both the federal and state budgets by ending the exclusion of managed care from the Medicaid Drug Rebate.

Other aspects of the reform debate are not so favorable, such as talk of a $6.7 billion excise tax to possibly be bore by the managed care industry. It is still unclear if Centene and other Medicaid Managed Care organizations will be subject to this proposed tax, given concerns about actuarial soundness or in fact if the proposal will survive the debate at all. We continue to monitor events in the Washington DC closely and work with our trade groups as well as through our own Washington office.

Next, I would like to address another concern among investors and analysts, that of deteriorating medical loss ratios. At any given time, there will be something that affects or impacts the health benefits ratio and it becomes a function of the severity and how it is managed. One can simply report it or attempt to manage and influence it we prefer the latter.

Our sequential HBR increase is clearly explained in our earnings release. It has been noted that elevated loss ratios are due to the following reasons, pent up demand for healthcare driven by newly unemployed people joining Medicaid health plans. Secondly, revenue enhancement schemes, upcoded or bundling perpetrated by providers in Medicaid that seek to offset their recession related commercial shortfalls.

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