Molina Healthcare Inc (MOH)

MOH 
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Molina Healthcare (MOH)

Q1 2011 Earnings Call

April 18, 2011 5:00 pm ET

Executives

Terry Bayer - Chief Operating Officer

Joseph White - Chief Accounting Officer

Joseph Molina - Chairman, Chief Executive Officer and President

Juan Jose Orellana - VP of IR

John Molina - Chief Financial Officer, Executive Vice President of Financial Affairs, Treasurer, Director and Member of Compliance Committee

Analysts

Christian Rigg - Susquehanna Financial Group, LLLP

Brian Wright - Citadel Securities, LLC

Sarah James - Wedbush Securities Inc.

Charles Boorady - Crédit Suisse AG

Carl McDonald - Citigroup Inc

Scott Green - BofA Merrill Lynch

Kenneth Lavine - UBS Investment Bank

Thomas Carroll

Joseph Kuhns - Barclays Capital

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Molina Healthcare First Quarter 2011 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the conference over to Mr. Juan José Orellana, Vice President of Investor Relations. Please go ahead, sir.

Juan Jose Orellana

Thank you, Shawna. Hello, everyone, and thank you for joining us. The purpose of this call is to discuss Molina Healthcare's financial results for the first quarter ended March 31, 2011. The company's earnings release reporting its results was issued today after the market closed, and is now posted for viewing on our company website.

On the call with me today are Dr. Mario Molina, our CEO; John Molina, our CFO; Terry Bayer, our COO; and Joseph White, our Chief Accounting Officer. After the completion of our prepared remarks, we will open the call to take your questions. Our comments today will contain forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act, including statements regarding our guidance for 2011. All of our forward-looking statements are based on our current expectations and assumptions which are subject to numerous risk factors that could cause our actual results to differ materially. A description of such risk factors can be found in our earnings release and in our reports filed with the Securities and Exchange Commission, including our Form 10-K annual report for fiscal year 2010, our Form 10-Q quarterly reports and our Form 8-K current reports. These reports can be accessed under the Investor Relations tab of our company's website or on the SEC's website. All forward-looking statements made during today's call represent our judgment as of April 18, 2011, and we disclaim any obligation to update such statements.

This call is being recorded and a 30-day replay of the conference call will be available over the Internet through the company's website at molinahealthcare.com.

I would now like to turn the call over to Dr. Mario Molina.

Joseph Molina

Thank you, Juan José, and welcome, everyone. We know that many people are celebrating a holiday this evening. John and I will therefore keep our remarks brief, so that those observing the holiday can get to their friends and families.

Just a few months ago, we completed an important year for Molina Healthcare. We celebrated the company's 30th year in business, as well as our success in delivering strong earnings growth in 2010. We exceeded the guidance provided, and the company's financial position was strengthened as a result of our operational results.

Today, I am pleased to report that our first quarter results have given us a solid start toward achieving the financial guidance we provided for 2011. Our financial results improved dramatically over the first quarter of 2010. Implementation of various contracting and medical management incentives resulted in lower medical costs across our Consolidated Health Plans segment during the first quarter of 2011. Inpatient utilization dropped by 7% compared with the first quarter of last year, while pharmacy utilization was flat despite the return to a more typical influenza pattern. Overall, our Medical Care ratio dropped by approximately 80 basis points year-over-year.

Premium revenue per-member per-month increased by only 1% in the first quarter. Our larger and more established health plans fared the best in the first quarter. California, Ohio, Utah and Washington all have lower medical care ratios when compared to the first quarter of 2010. And Michigan's medical care ratio was up slightly.

At some of our smaller or newer health plans, we continued to confront challenges during the first quarter that resulted in medical cost trends that exceeded premium growth. In Wisconsin, our newest and smallest health plan in terms of enrollment, greater visibility into our cost trends due to longer experience and a reduction in premium rates by 11% January 1, 2011, triggered the establishment of a premium deficiency reserve of approximately $3 million in the first quarter of 2011. This is one of the most dramatic rate cuts that we've experienced at one of our health plans.

The medical care ratio in Florida remains elevated. However, there is indication that we are making progress as the medical care ratio declined 360 basis points sequentially. As we've discussed in the past, we expect medical cost to remain volatile and elevated in our smaller markets until we gain additional market share, enabling us to establish better provider relationships with those providers that are the most cost-effective.

We now have about 1 full year of operational experience with our Fiscal Agent business, Molina Medicaid Solutions. During that time, we have gained valuable insights into the business and we have a better appreciation for the earnings and the revenue recognition patterns associated with the design, development and implementation or DDI phase of new contracts. Our efforts in Idaho and Maine to correct issues from the original implementation under Unisys are taking longer and are more costly than we anticipated. On the other hand, the margins in our fiscal agent contracts in New Jersey, Louisiana and West Virginia remain stable.

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