Coventry Health Care, Inc. Earnings Call Nuggets: Medicaid MLR, Kansas Medicaid Award

On Friday, Coventry Health Care, Inc. (NYSE:CVH) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with investors and analysts.

Medicaid MLR

Thomas Carroll – Stifel Nicolaus: I have a high level question on Medicaid. If I back out Kentucky, it seems that your other Medicaid markets are operating in the high 80s in terms of an MLR and if I combine that with the comment you made today, is the high 80s MLR level we should think about for Coventry’s Medicaid business in kind of 2013 and beyond? Secondly, more of a smaller market question. I know it’s a small market for you but the Maryland Medicaid plan has seen some slowing growth. Is there opportunity to maybe divest that business and focus elsewhere or try to improve it? I will stop there. Thanks.

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Randy Giles – EVP, CFO and Treasurer: As far as our target for Medicaid MLR, long-term we think that can be right in the mid high 80s, so that would be our target for long-term to answer that question. As it relates to our Maryland operation, we really don’t discuss our outlook on M&A activities around our existing businesses, but we are looking to grow all of our existing markets, we’ve actually in some of our smaller market had some good recent expansions. We were actually expanding in one of our smaller markets. In Virginia recently we’re expanding the Southwest Virginia. We’re looking to grow those businesses and evaluate each one on a standalone basis.

Kansas Medicaid Award

Josh Raskin – Barclays Capital: Good morning, I appreciate all the comments both Randy and Allen on Kentucky. I understand, Allen, you effort to sort of avoid talking about the negotiations with the state, but I was just wondering if you could help us just from a technical standpoint, when did you realize that this was an issue? You’re locked-in for a three year period from a perspective, but their ability to just simply cut bait and walk at any point? And then I guess the other issue in my mind is just, it looks like you’re already implying, just from a financial standpoint, it looks like you’re already implying improvement in the next couple quarters sounded like you didn’t think there would be immediate impact on your actions so I’m just curious what’s driving that improvement as you move forward?

Allen F. Wise – CEO: I think as to the when, so far reserves and November and December are consistent with my comments. We knew that going from a dead start, cold start to manage the population was going to take some time. I think that as we started getting data in the first quarter and I would characterize that as being late February. We became aware of the disproportionate membership in high cost regions, both high utilization and high cost regions. So, in the light part of February, we became much more knowledgeable about what our problems beyond this managed population was. When you go from a dead start, I think the lessons learnt here is that I would be reluctant to participate in any new initiative that’s pushed through 90 to 120 days with only 60 days or so to prepare for the population. Those are lessons learned. I think that the 50 initiatives that we have on the health care management front are beginning and will begin to show some improvement which is part of the reason for guidance for the rest of the year. I think the number of providers that have more data on who is more efficient as opposed to less efficient, we will be refining that process. That will bring improvement through the year. Ultimately, consistent with my prepared comments, I think that we will be successful in reaching in a combination with the Commonwealth consistent with the contract that we signed. So, it’s ugly, but it’s going to get better and that’s about what can I say about it.

Josh Raskin – Barclays Capital: Just one quick question on the Kansas Medicaid award, did you hypothesize your current exposure there in terms of revenues, and I guess if you might give some commentary around profitability relative to the overall book?

Allen F. Wise – CEO: We’re in the middle of the discussion process with the State of Kansas now, and I think there will be some clarity on where all that leads in the next 30 to 60 days. We don’t have anything today that’s remotely definitive. We’re in the middle of discussions.

Josh Raskin – Barclays Capital: I was just asking, how big is it currently?

Randy Giles – EVP, CFO and Treasurer: It’s about $350 million in revenue and about 150,000 members.

Josh Raskin – Barclays Capital: The profits on that business are similar to your overall ex-Kentucky?

Randy Giles – EVP, CFO and Treasurer: It was a brand-new acquisition through FHP and it’s performing to our expectations. It’s not where it’s going to be I think long-term.

Allen F. Wise – CEO: For what we know after 90 days.