Centene Corporation (NYSE:CNC) Q1 2024 Earnings Call Transcript

Centene Corporation (NYSE:CNC) Q1 2024 Earnings Call Transcript April 26, 2024

Centene Corporation beats earnings expectations. Reported EPS is $2.26, expectations were $2.09. Centene Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the Centene First Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today’s event is being recorded. I would now like to turn the conference over to Jennifer Gilligan, Senior Vice-President, Finance and Investor Relations. Please go ahead.

Jennifer Gilligan: Thank you, Rocco, and good morning, everyone. Thank you for joining us on our First Quarter 2024 Earnings Results Conference Call. Sarah London, Chief Executive Officer; and Drew Asher, Executive Vice President and Chief Financial Officer of Centene will host this morning’s call, which also can be accessed through our website at centene.com. Ken Fasola, Centene’s President will also be available as a participant during Q&A. Any remarks that Centene may make about future expectations, plans and prospects constitute forward-looking statements for the purpose of the Safe-Harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in Centene’s most recent Form 10-K filed on February 20th, 2024, and other public SEC filings.

Centene anticipates that subsequent events and developments may 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. The call will also refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our first-quarter 2024 press release, which is available on the company’s website under the Investors section. With that, I would like to turn the call over to our CEO, Sarah London. Sarah?

Sarah London: Thanks, Jen, and thanks everyone for joining us as we discuss our first quarter 2024 results. This morning we reported first quarter adjusted EPS of $2.26, ahead of our previous expectations for the period. As a result of this strong start to the year, we are increasing our full year 2024 adjusted EPS guidance to greater than $6.80. Drew will cover the quarter and our updated financial outlook in further detail in a few moments. While there is still more work to do, we are pleased with the first-quarter results and will look to harness the positive momentum we are generating in our core businesses as we move through the balance of the year. In 2024, Centene’s focus remains on our work to streamline and modernize the underlying infrastructure of our company and to assemble the people, processes and tools necessary to deliver best-in-class experiences to our members, providers, regulators and state partners.

Let me share a couple of examples of progress here. During the first quarter, we completed an important initiative to simplify our prior authorization process by automating our real-time source data. This simplification improves the timeliness of authorization decisions, ensuring our members get the care they need quickly and removing friction from the process overall for both members and providers. Q1 also saw the accumulation of months of thoughtful and thorough go-live preparation in Oklahoma. Our team obtained perfect scores in our readiness review from the state, and we are thrilled to be serving Oklahomans statewide as of April 1. Finally, our improved operational agility also allowed Centene to mobilize quickly in support of our members and provider partners in the wake of the Change Healthcare cybersecurity incident.

This included launching a national provider outreach campaign that spans Centene’s provider network across all products, Medicaid, Medicare and Marketplace and has included targeted efforts to support those disproportionately impacted by the outage, including FQHCs, safety net hospitals, rural health clinics and behavioral health providers. We appreciate the focus on and support for last-mile providers from HHS and CMS throughout this process as these clinicians represent a critical component of the infrastructure through which our members access high-quality healthcare. Now on to our business lines. We are roughly 90% of the way through redeterminations and our Medicaid franchise continues to demonstrate resilience as we navigate the complexities of this unprecedented process.

As you can see from today’s release, our first-quarter membership tracks slightly higher than our expectation at Investor Day in December. Overall, we continue to be well guided with respect to membership and rate by the projection model we built state-by-state more than a year ago and that we continue to refine as we move through the redeterminations process. As we’ve noted before, 2024 represents an important year for blocking and tackling through acuity shifts and corresponding rate discussions with our state partners to ensure we are positioned to provide high-quality services for our members. We are actively engaged in that process and are seeing solid results thus far with opportunities still ahead. As we move through the remainder of the year, we expect these discussions to increasingly represent the regular back-and-forth dialog we maintain with our state partners in the normal course of managing the dynamics around each individual Medicaid program we serve.

At the same time, we have been executing on important reprocurements and the early months of 2024 delivered notable data points. Most of the key RFP results are now public, positioning us well to generate continued Medicaid growth in a post-redeterminations world. Centene reprocured one of our largest contracts with the recent announcement of intended awards by the State of Florida. Although the protest period is ongoing, Centene is well-positioned based on Florida’s determination that Sunshine Health is among those that will provide best value to the state. In Michigan, we were thrilled to be selected to continue serving the vast majority of our existing membership with some opportunity to grow, and we look forward to our continued collaboration with the state.

In Texas, our protest remains ongoing. We are honored to have served Texans for 25 years and intend to defend superior health stability to provide access to affordable and high-quality healthcare for our members in the Lone Star State. We are proud of the way our health plans and business development team have delivered so far during this critical cycle of reprocurements. The Centene value proposition remains a powerful one, built on more than four decades of experience serving Medicaid communities, an unwavering local approach and a commitment to innovation in the services and support we bring to our members. We are honored to provide access to care as well as community-based support to improve the lives of those we serve in 31 states across the country.

Moving to Medicare. The Medicare Advantage macro landscape remains challenging. Consistent with our prior view, we see final 2025 funding levels as insufficient with respect to general medical cost trend expectations. Drew will provide some early commentary around our strategy to navigate Medicare in 2025 as a result. Medicare Advantage Star Ratings remain the single most powerful lever to drive performance in this vital business and continue to represent a top priority across the organization. As we drive to our goal of 85% of members in 3.5 star contracts by October of 2025, we continue to see improved progress and stability in our performance and expect those to be reflected in our results come October. We are tracking year-over-year improvements in our core operations, as well as in the ways we support our members as they receive care.

And we are carrying forward this positive momentum into 2024 as our teams are clearly focused and aligned on quality. Longer-term, Medicare Advantage remains an important business for Centene. The strategic link between Medicare and Medicaid has only become more explicit since our last earnings call. Recent CMS rulemaking included final requirements to better coordinate Dual Special Needs Plans or D-SNP participation with important milestones beginning in 2027. By the end-of-the decade, a Medicaid footprint will be a prerequisite to D-SNP growth. Centene is perfectly positioned to gain positive momentum from this growing bond between Medicare and Medicaid. Finally, Marketplace. This business continues to represent a unique and powerful growth segment for Centene, and our teams are executing well against the opportunity.

With approximately 4.3 million Marketplace lives at the end of the first quarter, Centene’s Marketplace membership has more than doubled in size compared to just two short years ago. This exceptional growth has been accompanied by consistent margin expansion as our deep product knowledge and staying power in the market enable us to forecast pre-tax margins well within our targeted range of 5% to 7.5% for 2024. We are pleased with the traction our Ambetter Health products are generating and see additional room to expand the reach of health insurance marketplace offerings overall. In 2024, the source of our membership growth is widely diversified. Based on a survey we conducted following open enrollment, nearly 40% of new members identify as previously uninsured.

Approximately 25% joined us from another marketplace carrier and approximately 10% chose Ambetter after losing access to an employer-sponsored plan. This is in addition to those members who selected Ambetter after losing Medicaid coverage. As we look to the future of Marketplace, we expect new member growth to be driven by an increasingly addressable and accessible uninsured population and the evolution occurring as employers consider alternative options for providing employer-sponsored insurance. Centene has been rapidly evolving as an organization over the last two years. We have been resolute in creating focus, trimming the organization down to the core strategic assets that give us the strongest platform for future growth. We are executing against our strategic plans, fortifying and modernizing our infrastructure and successfully delivering access to affordable, high-quality healthcare for millions of Americans.

Our strong first-quarter results demonstrate the power of our diversified earnings drivers as we deliver on our financial commitments, maintain our posture of disciplined capital deployment and continue to invest to support long-term growth. As always, we want to thank our nationwide workforce of nearly 60,000 for showing up every day committed to improving the lives of our members and transforming the health of the communities we serve. This [CEN] (ph) team is the engine that ultimately powers our results and amplifies our impact. With that, let’s turn the call over to Drew for more details around our performance in the first quarter and our updated financial outlook for 2024. Drew?

Andrew Asher: Thank you, Sarah. Today, we reported first-quarter 2024 results, including $36.3 billion in premium and service revenue and adjusted diluted earnings per share of $2.26 in the quarter, 7% higher than Q1 of 2023. This result was better than our expectations and we are increasing full-year 2024 adjusted EPS guidance by $0.10 to greater than $6.80. This quarter is a good example of the benefit of a diversified business with multiple levers to drive results. Our Q1 consolidated HBR was 87.1%, which is right on track for our full-year guidance. Here’s an example of the benefit of that diversification since we provide you with transparency into the line-of-business components. Medicaid at 90.9% was a little higher in the quarter than we expected as we continue to work through the appropriate matching of rates and acuity in the short term.

Redeterminations are certainly front and center in the acuity rate match process, but getting the right match for other circumstances, such as states changing pharmacy programs or behavioral health practices are also important initiatives in a handful of states. On the other hand, our commercial HBR at 73.3% was a little better than we had planned in the quarter, driven by the continued strength of our marketplace business and our Medicare segment at 90.8% was right on track in the quarter, all of this netting out to 87.1%, a good result. Going a little bit deeper into each of our business lines, Medicaid membership at 13.3 million members was slightly better than the 13.2 million members we forecasted as of Q1 — for Q1 as of our Investor Day.

Drivers of membership for the remainder of the year include: one, new wins such as Oklahoma and Arizona LTSS; two, the return of slight growth in-markets once redeterminations are complete, plus the rejoiners dynamic, net of three, the substantial wind-down of redeterminations over the next three to four months. Upon re-forecasting the sloping of membership and revenue for 2024, including Q1 membership being a little bit higher than planned, we added $1 billion of Medicaid premium revenue to our 2024 guidance. The overall composite rate is running a little above the 2.5% we last referenced, and we have over 75% member-month rate visibility into the 2024 calendar year. Regardless of the temporary work to match rates and acuity, our long-term goal remains to return to the high 89s HBR as we look out over the 2025-2026 time frame.

All things considered, we are pretty pleased with the performance of our Medicaid business one year into a very complex redetermination process. And as Sarah covered, we cannot be more pleased with our performance in recent Florida and Michigan Medicaid RFPs. The Texas protest process still needs to play out. Our commercial business performed very well in the quarter in terms of both growth and HBR. Consistent with previous comments, we grew from 3.9 million marketplace members at year-end to 4.3 million at the end of Q1. For the past two years, we have consistently delivered a combination of growth coupled with improving margin. Our guidance assumes that we stay at 4.3 million marketplace members for the rest of 2024. If we can grow during the special enrollment period, which we’ve been able to do in the past two years, there would be upside to our premium and service revenue guidance.

So stay tuned. Our current 2024 guidance assumes about $16 billion of Medicare Advantage revenue, representing 12% of total premium and service revenue guidance and approximately $4 billion of PDP revenue. I previously mentioned at a conference that Medicare inpatient authorizations were higher-than-expected in January and February. March authorizations ended up being lower than February, though still elevated from Q4. And Medicare outpatient trend continues at the elevated level we first saw in Q2 of 2023, though reasonably steady. Nonetheless, the performance in the quarter for the Medicare segment was in line with our expectations and our full-year view has not changed. We had good performance with our new pharmacy cost structure and executed well on other operating levers.

As we look ahead, I feel like we are making 2025 decisions with our eyes wide open, in-patient and out-patient trends, complex pharmacy changes from the Inflation Reduction Act, an insufficient 2025 rate environment based upon the final rate notice and a risk model being phased-in beginning in 2024 that is punitive to partial and full duals. It also seems like many of our peers should have more religion in setting benefits at sustainable levels given these headwinds. I’ll repeat what I said on the mic at a conference in March. To accomplish our strategic goals with our Medicare Advantage business, it doesn’t matter if we ultimately level off at $14 billion, $15 billion or $16 billion of Medicare Advantage revenue. What is strategically important is the alignment with Medicaid and those complex populations we want to serve, especially given where the puck is heading with regulations pulling duals and Medicaid closer together.

We’re still in the process of making 2025 county-by-county decisions and will finalize and submit Medicare bids in early June. So we’ll provide you with more 2025 Medicare commentary on our Q2 call. We expect Medicare to be a good business for us in the long run and it’s an important part of our overall portfolio. We need to deliver on STAR’s improvements, clinical levers and SG&A actions over the next few years, and those efforts remain on track. Going to other P&L and balance sheet items. Our adjusted SG&A expense ratio was 8.7% in the first quarter consistent with our updated mix of business, including growth in Marketplace. Cash flow used in operations was $456 million for Q1, primarily driven by net earnings, more than offset by the timing of risk corridor payments, a delay in March’s premium payment from one of our large state partners subsequently received in early April and slower receipt of pharmacy rebates as we transition to a new third-party PBM in January of 2024.

From January 1st through mid-April, we repurchased 3.4 million shares of our common stock for $251 million. Our share repurchase goal for 2024 is unchanged at $3 billion to $3.5 billion. Our debt-to-adjusted EBITDA was 2.9 times at quarter-end, consistent with year-end. And during Q1, we were pleased to maintain our S&P BBB minus rating under the updated S&P rating model. Our medical claims liability at quarter-end represented 53 days in claims payable, down one day from Q1 and Q4 of 2023. DCP was actually up due to change healthcare claims receipt delays, then backed down due to an acceleration of state-directed payments to providers and lower pharmacy invoices outstanding at quarter-end. You’ll see in the reserve table that our 2024 Medicare Advantage PDR is up $50 million in the quarter.

This progression in the 2024 PDR was expected and planned for due to quarterly seasonality in Medicare Advantage. Though it’s early in the year, we are comfortable adding 1 billion of premium and service revenue and $0.10 of adjusted EPS to our 2024 guidance. You’ll also see some mechanical changes to total revenue driven by pass-through premium taxes and the GAAP effective tax rate due to the Circle divestiture. We also expect investment income to be a little bit above our previous forecast of $1.4 billion, while still providing for a few rate cuts in 2024. Q1 was a quarter of momentum. We put another quarter of redeterminations behind us. We reprocured one of our largest contracts and are well-positioned in Florida. We executed well in the marketplace annual enrollment period and put up a strong quarter of both growth and margin.

We delivered on the January 1st PBM conversion and our businesses and customers are benefiting from an improved cost structure. We continue to advance our multi-year operational improvements and Centene continues to attract talent. And all of this resulted in strong Q1 results and increased 2024 guidance. While there’s plenty more to achieve, we are off to a good start in 2024. Thank you for your interest in Centene. Rocco, please open the line-up for questions.

See also 40 Perfumes Celebrities Actually Wear (but aren’t paid to) and 20 Biggest Oil Producing Countries in Asia.

Q&A Session

Operator: Yes, sir. [Operator Instructions] Today’s first question comes from Kevin Fischbeck with Bank of America. Please go ahead.

Kevin Fischbeck: Great, thanks. I just wanted to go into your margin commentary on the exchanges, because I guess from our expectations, too, it came in a little bit better. I guess that’s the fastest growing part of your business, which always potentially lowers the visibility into claims receipts. And obviously, you have change going on at the same time. So, I mean, I guess, how comfortable are you or what points do you look at to give you comfort that MLR outperformance is true and durable, rather than potentially some issue around rapid membership growth or change disruption? Thanks.

Sarah London: Thanks. Yes, thanks, Kevin. I think two important points there. One is just the confidence in the overall HBR. And I think as we look back over the last two cycles, we have seen rapid growth in the market overall and obviously growth in our book it’s more than doubled in the last two years. And I think we’ve tracked very well to the HBR implications of that. So understanding where SEP growth may have pressured margins in year, but then the fact that the sophomore effect of that growth that we accumulated last year starts to play out this year is consistent with our expectations. So again, I think the team has demonstrated a really solid ability to track the moving parts, which gives us confidence in the performance of that book.

We’ve also, as we’ve talked about in the past implemented really strong program around clinical initiatives. And so, that has continued to mature, which I think also helps overall management of the book. And then relative to the visibility on change, maybe I’ll just hit that sort of broadly, because I think that question probably applies across lines of business. And as I said in my remarks, just incredibly proud of how the teams mobilized here in our response demonstrating operational agility, prioritizing member access to care, and then a huge push around getting out to providers and finding every way possible to get them reconnected as fast as possible so that they could get paid and they can support our members, which is priority number one.

And then, of course, we can have the visibility that we need. And on that point, throughout that process, we had very solid visibility from an inpatient perspective because ops were not disturbed at any point during that process. Centene also has a longstanding practice of using received claims, not paid, which Drew has talked about before. And so, outpatient visibility was good coming into that incident on a relative basis and then being able to catch up quickly as a result as providers reconnected. So the highest point, we were missing mid-teens percentage of our claims. So by the time we closed the quarter, the impact was very modest and we accounted for that in our financial processes.

Kevin Fischbeck: Okay. Thanks.

Operator: Thank you. And our next question comes from Stephen Baxter at Wells Fargo. Please go ahead.

Stephen Baxter: Yes. Hi, thanks. I wanted to ask about the revised premium and service revenue guidance first. It seems like based on what you saw in the first quarter, that you would annualize to something closer to around $145 billion versus the revised guidance of $137 billion. So wondering if there’s anything we should be keeping in mind just as another call out, the Medicaid premiums in the quarter were well above our model. So I don’t know if there’s anything there that’s influencing it. And then from the Medicaid MLR perspective, how are you thinking about Medicaid MLR progression through the year from the starting point and the factors that are influencing that? Thanks.

Andrew Asher: Yes, Stephen, in Q1, we did have a fair amount of state-directed payments. In fact, some states, we believe, in response to the change incident accelerated a number of those. That actually also had about a 20 basis point impact on our Q1 Medicaid HBR, relative to our expectations of a normal level of state-directed payments. So, that also showed up in our premium revenue, so you can’t quite annualize Q1. And there could be a little bit more — we expect a little bit more redetermination attrition through Q2, maybe a little bit into Q3. But then on the flip side, we’ve got some growth coming in as well. So that would be the progression of Medicaid revenue throughout the rest of the year. Medicare, probably a little bit more attrition throughout the year as we prepare for our 2025 bids and the bid decisions we’re going to make in terms of where we want to emphasize, where we want to de-emphasize products, PBPs, states, age contracts for 25.

So we will probably have a little bit more attrition in Medicare Advantage as planned throughout the year. So those are some of the things to think through. Marketplace, we’re assuming flat at 4.3 million members. Hopefully there’s some upside there to your point in premium and service revenue if we can grow during the SEP, but we just didn’t want to bet on that in guidance. You also asked about Medicaid HBR. Yes, so we came in at 90.9% for the quarter. We definitely expect with 20% of that sort of being pressed on by the state-directed payments above our expectations. But we’ve got some work to do. We’ve got initiatives to drive down the HBR from the Q1 level. Remember, that half of our rates — about half of our rates show up in that [7.1 to 10.1] (ph) time frame.

I think that’s a little bit higher distribution than the industry broadly in Medicaid. But so far, so good there in a number of cases. And there’s always states where we’ve got to make sure that we’re presenting the data, whether it’s a PBM carve out or behavioral health costs and changes in state practices, that we’re getting paid for that. But that’s more normal course stuff. So we do expect to drive down that 90.9% throughout the rest of the year.

Operator: Thank you. And our next question today comes from Justin Lake with Wolfe Research. Please go ahead.

Justin Lake: Thanks. Good morning. First, just wanted to ask, given your update here, where do you expect your exchange margin to come in this year relative to your 5% to 7.5% target? And then more broadly, on your PBP strategy, they’re getting a lot of questions here. There’s a ton of changes coming in 2025. We would love to understand kind of how you see the moving parts for 2025. And maybe you could just tell us — you’re going to take on a lot more liability. You’re going to have to price up for things like that. Can you tell us if even if your membership didn’t change, how much more premium would you have? Like, how much premium do you have in 2024? And then how much would you have in 2025 in terms of Part-D premium, just so we could think about the order of magnitude at flat membership. Thanks.

Sarah London: Thanks, Justin. Yes, as we said before, our expectation for Marketplace is that, we will be well within our target of 5% to 7.5% range in 2024. That has not changed. And then I’ll let Drew get into the details on PBP.

Andrew Asher: Yes. Ao PBP and I hit this at the Barclays Conference, for which the replay is available. But let me go over more of this, because it’s a really good question. And you’re right, the impact of the Inflation Reduction Act, we had some of that this year in 2024. But the real larger changes come in 2025, to your point, Justin. So for 2024, the direct subsidy went up for the first time since 2010, and it went from $2 to $29. And to your point, that drives revenue yield, because the direct subsidy is what the federal government pays to the payer based upon all of the payer’s bids. And so for 2025, we actually think now that we’ve gotten risk scores by member since that March conference, we can rip through the mechanics of cost share and the changes around how quickly the members can get to the maximum amount of pocket, it’s likely more than $100, more than $100 increase to that $29.

And that’s driven by, to your point, the catastrophic phase going from 20% to 60%. So we’re underwriting that now. And the good news is, we’ve been in this business since 2006. We’ve got all the data. So we’re just taking a slice of risk that we’ve been administering anyhow. I mentioned the member out of pocket, you have to think through that and any behavior changes in the members. Very good point on the bad debt. Hopefully, people are thinking about that, the [MPPP] (ph) program, where the members can essentially smooth out the cost share. You do have to assume some bad debt. We’ve got data from our marketplace business that we’re using to triangulate where we think that should be bid. And then manufacturer behavior with all the changes to the [IRA] (ph) impacting manufacturers, thinking about what they might do with some of their behavior.

So you’re right. All of that goes into the bid process, and it should drive the direct subsidy up significantly, which will drive the yield up. And we will think about the balance between membership retention in PBP, because, you’re right, naturally that business is going to grow a fair amount from a revenue standpoint based upon the direct subsidy going up. Thanks for asking about that.

Operator: Thank you. And our next question today comes from Josh Raskin with Nephron. Please go ahead.

Josh Raskin: Thanks. Good morning. I want to go back to Medicare Advantage and 2025 bid strategy with an understanding you’re not going to submit your bids for another couple of months here. But with that allusion to $14 billion, $15 billion or $16 billion, a suggestion that you would expect membership to be sort of flat to down based on what you know today. And then do you expect to book another PDR in terms of where you think margins would be for next year? And then lastly, I heard some commentary, I don’t think we’ve heard this before sort of defending the idea that Medicare Advantage is still an important segment, but is there a scenario where MA is not a core operating business for Centene? I understand the advantage with the Medicaid footprint becoming more important, but is there a scenario where just contribution to earnings and even revenues is not large enough to justify the infrastructure.

Sarah London: Yes, thanks, Josh. Maybe I’ll take the last question first and say that as we look at the landscape today, again, the tie between Medicare and Medicaid and what that produces in terms of long-term growth opportunity, we see as very compelling. And so, we’re always evaluating how the landscape changes, but we’re very committed to rebuilding our Medicare franchise focused on the low-income complex members and using that to drive growth across both lines of business, obviously, see opportunity for earnings contribution and then longer-term growth in that business. Relative to 2025, certainly a more challenging rate environment than I think most might have expected. But again, we’re really focused on building a high quality, durable franchise that will allow us to remain agile as the landscape shifts.

What hasn’t changed for us is, and the things that we can control are SARS, as Drew said, the biggest lever being two-thirds of performance improvement for Medicare, and then SG&A and clinical initiatives, which we remain focused on and are on track. Obviously, too early, as you said, to discuss bid strategy, but we do continue to see volume as the lever as we sharpen the focus of the book, position to support those quality improvement efforts, and make county-by-county decisions to improve profitability. I think it’s also too early to weigh in on a PDR, but we’re obviously taking into account all of the factors as we think about the guidance that we set and sort of the balance of the year as we come through finalizing those decisions over the next six to eight weeks.

Operator: Thank you. And our next question today comes from Andrew Mok with Barclays. Please go ahead.

Andrew Mok: Hi, just wanted to follow up on the Medicare MLR and just given the strong growth in PDP combined with the strong MLR seasonality of that business, can you give us a sense for underlying trends there and how that’s supposed to impact the balance of the year on the Medicare MLR? Thanks.

Andrew Asher: Yes, you’re right on seasonality of the PDP business in our Medicare segment. So unlike a commercial business where you’ve got deductibles in the beginning of the year and your HBR goes up through the year, it’s the opposite in PDP. So we still feel good about the range around 90% for our Medicare segment HBR for the full year. Underneath that trend, outpatient is still elevated, but consistent with that higher level since Q2 of 2023. And we’ve got assumptions of that perpetuating throughout 2024 embedded in our forecast. Inpatient, as I said earlier, a little bit of a tick up in authorizations in January, February. It’s good to see a little bit of relief in March relative to February, but still elevated relative to Q1.

So we’ve thought about that going forward as well. And then we’ve got good performance in Medicare. There’s other clinical initiatives that we’ve been able to execute on, and getting paid the right amount of revenue as well that have helped sort of curtail some of that inpatient authorization. So I feel pretty good about Q1 and expect that to sort of carry on through the year.

Operator: Thank you. And our next question today comes from Nathan Rich at Goldman Sachs. Please go ahead.

Nathan Rich: Good morning, and thanks for the question. I wanted to stick on Medicare Advantage. I guess, I think duals are about a third of your membership right now, and obviously, you highlighted the opportunity there. I guess, could you give us a sense of maybe where margins are currently on that population relative to non-duals and when you’re thinking about changes that need to be made in terms of bid design for 2025, how you’re approaching that population given the prioritizing and serving this population longer term. Thank you.

Sarah London: Yes, Nathan, thanks for the question. So we talked about this a little bit earlier this year, but we intentionally came into the 2024 cycle redesigning our product offerings with the dual population, again, low-income complex population more broadly in mind, and we’re really pleased with how the team executed during AEP. And that is inclusive of product design, but it’s also being really thoughtful about what distribution channels best reach those members and the experience that really drives loyalty among that population. And so, saw an uptick in the concentration of duals in our overall population in this AEP consistent with what we were looking for. And I think that bodes well in terms of our team’s ability to really understand that population, to leverage the local knowledge that we have and that synergy across the Medicaid and Medicare population in serving these members, those local community resources that matter in terms of driving health outcomes.

So all that is to say, I think it bodes well in terms of being able to design products as we go into the 2025 cycle and drive further focus in the book on that population to continue to yield those members to whom we feel like we’re going to deliver the best value over the long term.

Operator: Thank you. And our next question today comes from Sarah James at Cancer Fitzgerald. Please go ahead.

Sarah James: Thank you. I wanted to go back to Medicare. So given where rates came out in your evolving strategy around overlapping footprint, do you still think the couple hundred basis points of SG&A leverage on Medicare is the goal point? I think you guys rolled that out at I-Day. And then how do you think about the SG&A framework for your Medicare business overall? Typically, I think about it being a couple percent higher than Medicaid would run, but given the scale that you’re targeting, is that still a fair ballpark for where the overhead costs would run for that business unit?