Drew Asher: All right, a multi-three-part question there. On redeterminations, some of the mechanics on that. So when we went through that process, as Sarah described, of really looking at subpopulation by subpopulation, looking at the data that we had, what was shared by the state actuaries, you’re triangulating a bunch of data points. And now we’re starting to get data, which is great. We concluded that it would be prudent to have a provision of 50 basis points for the timing mismatch. And we do believe it’s just — it’s merely a timing mismatch in 2024. And so as you heard on — in my script, we’re doing about 10 basis points better than we expected to for 2023. And we previously had 10 basis points of degradation built into our modeling.
So we needed an additional 30. And so that’s what’s embedded. That’s part of the driver of the $0.55 drop for 2024 earnings — adjusted earnings target. The second question you had was on Medicare. I’ll answer the financial question and then pass it to Sarah and Jim Murray here on more color on Medicare and Stars and whatnot. But yes, we expect to lose money despite the amortization of the $200 million into 2024. So we’re looking at — and we were able to look at a number of things, including how we were performing in 2023 as we’re thinking about setting the bids and, obviously, getting the final rates was a pretty important factor in that equation. But yes, the Medicare business, we expect to lose more than that amortization of PDR.
Sarah London: And then on the Stars piece, I do want to be clear that we’re obviously not taking our eye off the goal of maximizing 4-Star membership, but the previous target of 60% in 4 Star or three cycles is really no longer relevant for two reasons. One is our adjusted 2024 bid strategy and the intentional decision to double down on our core membership, which is inherently more complex from a quality standpoint. And then the second is change the rules. And so introducing the Health Equity Index adjustment, which we are very supportive of, will actually help account the management of that complexity over time. But we need to make sure that we invest in the short-term around the health equity program in those contracts where that’s going to matter in order to have that lift take those contracts to 4 Star in the long term.
And so in some ways, we’re sort of slowing down speed up and the near-term objective of getting more of those contracts into 3.5 Star is really based primarily on operational execution and some of the investments that we talked about around not just HEDIS but also the customer experience, which will influence caps. But let me let Jim Murray talk a little bit more because he is watching this day to day.
Jim Murray: Thank you. Hi, Josh. How are you? What we’ve talked about in the past is we’ve been a very transactional company as it respects some of what we do in Medicare. And Sarah has pointed out, a number of times around five strategic areas of focus in Medicare. And I’ll reference some of those as I go through that. The end goal is to try to create relationships with our members and with our providers and where we’re able to do that I think it’s going to have some positive impact on Stars, and I’ll try to introduce that to you here. There’s a lot of things that are going on, and I’m going to be agnostic as it relates to either revenue year 2024 or 2025 or 2026. But Sarah talked earlier about some of what we’re doing around the improvement in CTMs. Obviously, we’re doing a lot of work here to reach out to our members and try to create a better relationship with them.
But one of the five areas of focus is rebalancing our distribution channels. There was a significant movement this past year where more of our members came to us with our W-2 and our direct-to-consumer and broker on the street selling channels, which is significantly stronger for us from a lifetime value than some of the other channels we had used in the past, and that’s having a significantly positive lift on CTMs. Sarah also mentioned, we’ve really focused on service. We’re starting to get back some of the cap survey early returns, and we’re seeing that there was a nice lift in the cap question related to service. And so that ultimately will help us with caps, and we’re happy about that. Appeals is another admin measure. We’re seeing some good results in 2023 relative to appeals.
And our HEDIS scores this year were in the final week of chart chase. We are improving year-over-year. If I were being brutally honest, I would say it was done more with blunt force trauma as opposed to having an elegant infrastructure in place, and that’s where Sarah talked earlier needing to be in more value-based contracts, and we have a team of people who’s focused on that, and then creating value-based enablement tools. We need to do a better job with our providers in showing them where we are and where they are relative to the risk-based contracts and the quality that they’re delivering so that they can take proactive action to help us with HEDIS scores. And we’re in the process of building those tools, and I expect some really good results from that.
So I think we’re making some nice progress. I think you’ll see a nice lift in our 3.5 in October. But I’d like to say around we’re miles to go before we sleep.
Operator: Thank you. And ladies and gentlemen, our next question comes from Stephen Baxter at Wells Fargo. Please go ahead.
Stephen Baxter: Yeah, hi. Thanks for the question and all the detail. So when we look at Medicaid margins either industry-wide or state by state, we see margins that are fairly elevated relative to historical norms and by an amount that would exceed, I think, what you’re talking about around the 50 basis points cumulative impact you assume, which I think is at least in part thought to be temporary. I’m curious, how you respond to that, for example, if industry level margins went from, say, 3% to 2.5%, and that’s still above target margins or what the industry has historically earned. I guess, why do you think states would respond to that? Thank you.
Drew Asher: Well, states, they want a successful program, and they want payers such as Centene to deliver quality and savings, quite frankly, help them manage their budgets as well, especially with the complex populations. And so I wouldn’t dug out going back in time, to get to the essence of your question, what was the HBR for both WellCare and Centene over an extended time period, meaning you don’t sort of — any year, you can have a little bit of a mismatch in trend and rate. But over an extended time, and let me just read you how consistent this has been. WellCare 2015, 89.8; 2016, 89.5; 2017, 88.8; 2018, 88.9. Centene, 2015, 89.5; 2016, 89.8, 2017, 89.3, 2018, 89.5, really consistent. And so we expect — if we tick up into the, let’s say, low 90s, we would expect to get that mismatch that we’re building into guidance for 2024 sort of back into that high 89s.
Obviously, mix of business will adjust that to some degree with complex populations having a little bit higher HBRs and lower SG&A. But we think that’s the sweet spot, and that’s what we expect to be able to achieve as we look out over the back half of the decade.
Operator: Thank you. And our next question today comes from Nathan Rich at Goldman Sachs. Please go ahead.
Nathan Rich: Great. Thanks for the question. Going back to the Medicare business there, you had talked about fully membership growth to focus on your core members. I’m curious how that impacts your view of Medicare revenue growth longer term relative to the high single-digit to 10% revenue growth guidance you laid out at the Analyst Day. And on margins for that business, can you maybe talk about the investments that you’re making in 2024 and how significant those are? And is there any change to the way you’re thinking about the longer-term margins for that business? Thank you.
Sarah London: Yes. Thanks, Nathan, for the question. So in some ways, I think, to your question in terms of rate and pace, of revenue growth, it’s not dissimilar to how we’re thinking about the rate and pace of Stars, which is going a little bit slower in the short term in order to ramp up in the long-term. And so as we looked at all of the moving parts relative to the starts headwind we have in 2024. And obviously, the work we’re doing to sort of rebuild the business given the decentralization of the WellCare operations in 2021 and 2022 AEP bid strategy as well as the rates from CMS, we looked at 2024 as an opportunity to kind of do a hard reset on that membership and that to create a pretty solid foundation for us to grow earnings off of — over the long-term.
And obviously, the shorter-term view of that would be more around margin and then driving membership growth in the long-term as we start to feather in the tailwind from Stars. And again, the revenue from getting to 3.5% and then that health equity adjustment and then normal course program investments that we’ll get more of those contracts and that membership up into 4 Stars. And then relative to investments, let me talk about some of the investments that are more specific to Medicare. But again, they really do fit into the broader category of investments around customer experience, quality and then sort of underlying infrastructure, particularly around data. The idea of — Jim talked about leveraging an own distribution channel to maximize the acquisition and onboarding experience for our members making sure that we have the right provider enablement tools so that we can expand and optimize our value-based relationships and then increasing our self-service tools for members as well as the quality investments around HEDIS and Health Equity.
We think those are there’s going to be some upfront investment, obviously, to set up those capabilities, but I think will also layer into the overall P&L for Medicare. But because each one of those investments is high impact in terms of driving long-term value of customer, driving down the cost to manage a member that we ultimately think that they won’t have an impact on long-term margins, long-term target margins in Medicare.
Operator: Thank you. And our next question today comes from Scott Fidel at Stephens. Please go ahead.
Scott Fidel: Hi, thanks. Interested just to get your input into the debate that’s going on right now just around core healthcare utilization trends and how those are tracking, excluding COVID just looking at non-COVID, how those are tracking relative to pricing expectations. And maybe you could give us some input into certain areas where you may see utilization running a bit higher and what some of those offsets may be in terms of what seems to be trying to get a bit better than expected? Thanks.
Drew Asher: Thanks, Scott. Trends look stable in the quarter. We look back to pre-COVID time periods largely back to normalized utilization. For instance, screenings are fully back or a little bit soft on cervical, but they changed the — I think they changed the guidance on that in 2020. We keep on looking for signs of acuity increase and aren’t finding any. Looking at the first few months after initial cancer diagnosis or the cost per cancer diagnosis, those are all in check, so pretty stable. Mean there’s always watch items. Specialty pharmacy, obviously, is always a watch item. It has been for probably the last decade. We’re watching behavioral health costs. They’re up a little bit year-over-year with some substance abuse.
And some of that’s the waivers or the — some of the prior auth rules that were curbs were put in during the COVID era. But really, really pretty stable trend as we look at the quarter. And a little bit positive, as I mentioned in my script in Medicare. Some of that was the flu was more heavily weighted Q4 versus Q1 and inpatient is slightly better, probably a Venn diagram with the flu, less inpatient flu, but as a whole is a little bit better than Q1 of last year.
