Cigna Corp Earnings Call Nuggets: Utilization Trends, HealthSpring

On Thursday, Cigna Corp (NYSE:CI) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Utilization Trends

Matthew Borsch – Goldman Sachs: Could you talk a little bit more about what you’re seeing on the utilization and cost trend side? Did it come in below your expectations, in terms of utilization trends in the first quarter? Was it up modestly from last year or are you just expecting that going forward, and any differentiation you can make between commercial and Medicare would be interesting?

David Cordani – President and CEO: It’s David. I’ll start and I’ll ask Ralph to expand and explicitly also deal if there is any difference between commercial and Medicare. First off, as indicated with our favorable prior year development, results continue to develop favorable to our expectations. Secondly from my prepared marks, we noted that we did not see a meaningful uptick in utilization in the first quarter. I would note that our expectations coming into the year, we plan for an increase in utilization for it to ramp throughout the course of the year, so we weren’t projecting a large step function in the first quarter, and the point is we did not see that. So overall results continue to be somewhat muted from the utilization acceleration. Final note before I turn it over to Ralph is, also as I noted in our prepared comments, for our book of business specifically, we continue to see targeted increases in certain prevention, wellness, diagnostic, procedures as well as even higher medication compliance around evidence-based care for people in chronic programs which is more of the right utilization happening which benefits our clients and customers.

A Closer Look: Cigna Earnings Cheat Sheet>>

Ralph J. Nicoletti – CFO: Matt, I guess the only thing I really add to David’s point is on the Medicare side; essentially the trends are the same, so we haven’t really seen a difference some on the Medicare side of the business as well.

Matthew Borsch – Goldman Sachs: Just one follow-up, on the commercial pricing side, as you noted nearly all of you gain you expect is coming from the ASO segment. How are you seeing the risk pricing environment develop at this point relative to I think fairly competitive environment that you saw last year or at the later part of last year that caused you to step away from market?

David Cordani – President and CEO: Just from a macro standpoint, your recollection is correct. As you’re seeing our results, we didn’t post growth in the risk portfolio. I mean as we look to our outlook at least into 2012 we’re expecting to planning to see some additional pressure there. So maybe a little dampening in the volumes offset by the continued success in ASO, so with the competitive landscape out there, we’re not saying a uniquely competitive, but a competitive landscape and we’re picking our spots and maintaining our pricing and underwriting discipline which is showing through in our MCR, showing through in our medical cost trends and it’s showing through in our continued ASO growth.

HealthSpring

Charles Boorady – Credit Suisse: The acquisition of HealthSpring looks especially timely in light of where you know the commercial business is headed and how well Medicare Advantage continues to do, but that said you seem to be doing really well holding your own in the commercial side despite some of the noise we heard last year on pricing, so congrats on that. What I want to ask about HealthSpring is, they as a company have been sort of best in class at the vertical integration how they handled that and how they’re able to achieve a high star rating notwithstanding the government moving the goalposts on them last year little bit, but with VADBe rules now defined, what have you been able to do to sort of assess how the new VADBe definition would impact the business either positively or negatively and have you accrued anything for VADBe in the quarter?

David Cordani – President and CEO: It’s David, appreciate your comments in just one item relative to the commercial side before I get to HealthSpring. We continue to be pleased that the marketplace buyers in a variety of segments continued increase and they look for what we call health improvement engagement and incentive-based programs, which are not all consumer directed, it’s how to get more engagement with the individuals within an employer’s base, how do you align the incentives and then how do you bridge that across to the physician alignment which carries us across to HealthSpring. Broadly speaking, as you noted, HealthSpring is innovating for over a decade and the innovation is heavily around integrating with physicians, aligning incentives, using information and then integrating care coordination et cetera and the objective there is to get the highest possible evidence-based care compliance. So when you pierce through with the star ratings VADBe audits, et cetera, the macro objective is to get to the highest level of engagement with the physician and individual and highest level of evidence-based care compliance. You can look at the national averages, for example within MA, you’ll see national averages in the high 30% to 40% range in terms of compliance with evidence-based care; and you will see in the most mature HealthSpring markets, percentages approaching the high 80s. So about twice the national average.

Charles Boorady – Credit Suisse: Is that scalable David?

David Cordani – President and CEO: To your concluding point, we expect that will continue to perform well through the evolving Star system as well as the VADBe environment.

Charles Boorady – Credit Suisse: Can you scale that across to your commercial lives and how much of that is technology-based that can be rolled out versus just you know, knowhow in the marketplace that might take longer to transfer those skill sets to other markets?

David Cordani – President and CEO: Appreciate that very much between in terms of your framing of it. First and foremost, a part of our acquisition strategy here was to believe that we can indeed leverage. You used the term scale, I will say leverage, leverage the capabilities. I would suggest you Charles, it starts — before you get the technology and otherwise, it starts with kind of an attitudinal orientation. The HealthSpring team philosophically and fundamentally believes that by partnering with physicians, putting the customer front and center and using information on targeted basis you could yield better results, and it’s an environment of continuous improvement. They have been able to demonstrate that in a variety of markets. So it’s not just in a single market like certain other models might be. It’s not solely in the most developed integrated care systems like in Southern California. They have been successful in a variety of markets and have it functioning in 12 to 15 major cities. I would compare that across, Charles, to our experience in 2009 in collaborative accountable care, where we have been able to see traction for commercial customers. So along with answering your question, yes we believe we could scale it, because we’ve seen success improve in our commercial business. It’s not an overnight. It’s market by market and its collaboration with the targeted physician groups. But they’ve been able to successfully expand that to a variety of geographies, and we are excited because the marketplace is evolving in that direction.