We are currently, as I said, planning for membership losses, so we would be proactively anticipating that. The variable is certainly much easier to address than normal course. We would just have to be very mindful of the targets we set across some of the nonvariable items, but certainly are anticipating that and we’ll have strategies in place, should you see differences in the membership that we’re currently thinking. And then finally, I would say, generally speaking, the largest CenterWell business that’s impacted by any net members to change is the pharmacy just given the penetration within the Humana pharmacy. That also is fairly sensitive to mix, less sensitive to dual changes who use mail order at a lower rate and be more highly sensitive to consumers who were shopping on value in terms of those co-pays.
So that’s something we’ll continue to monitor. But I would say mostly, we would be looking at the impact of pharmacy. But impact will be much smaller across primary care and home and primary care, in particular, because they continue to have work on contracts with other providers such that even if we see a member just on a health plan side, hopefully, they’re positioned to retain them on the clinic side through their other payer contracts.
Operator: Our next question will come from the line of Stephen Baxter with Wells Fargo.
Stephen Baxter: Just to clarify the TBC commentary, our understanding is there are a lot of benefits that are not governed by TBC like flex cards. And it seems like you’re suggesting that you’re not comfortable making up the incremental rate headwind by cutting benefits that are outside of TBC. I was hoping you could elaborate a little bit on this dynamic and how you’re thinking about the sensitivity of benefits that are outside of TBC thresholds.
Susan Diamond: Yes. Sure, Stephen. So I would say on the non-D-SNP side, as we talk about the , most of the benefits are to TBC. So even things that are technically supplemental things like dental, Part B givebacks and for those are for purposes of TBC accounting tools. There are some items that fall outside of TBC, some things like transportation, OTC, fitness and a few other things, but are relatively small versus those things TBC. We will be considering changes across both categories. Certainly, and in some cases, we will be going above TBC. In other cases, not. And that will be — as we evaluate just the current financial performance of the plan. Even post some of these impacts and whether we believe it’s situated in a way that can drive profitable growth in a sustainable way.
For those plans, as we said, that are not, we will go to the maximum that we can in order to ensure that the products are properly positioned. On the D-SNP side, technically, they don’t apply TBC to the D-SNPs and most of those benefits are going to be the supplements, right? You’ve got the healthy options card because it covers food, OTC, transportation. So technically, there is no limitation on that side. And so that is more thinking through how are those plans financially performing, what’s the opportunity for further growth in those markets. Those are all things we will be considering. We do expect benefit changes on the D-SNP side. And the dual plans will see more impact from the IRA as well. So those are all things we’ll consider, but technically don’t have the same literal TBC limitation.
Operator: Our next question will come from the line of Ben Hendrix with RBC Capital Markets.
Benjamin Hendrix: I was wondering if you could provide a little bit more information on a previous utilization question. You mentioned earlier some measures you took to address the higher mix of short-stay inpatient volume versus observation stays. You saw earlier in the year, and I believe you’ve noted some training and other measures to bring those inpatient avoidance rates back in line. But just curious to what degree those measures impacted your APT performance for the quarter. And if there could be, that could be a source of some outperformance through the balance of the year versus your 90% guidance.
Susan Diamond: Yes, Ben. So you are correct. So as we said on our fourth quarter call, we were anticipating in light of the 2-midnight rule changes that we would see an increase in short stays and things that under the old rules were built as an observation, they would now flip to an inpatient’s stay. And we saw that in the fourth quarter start to emerge and did continue to see that in the quarter incrementally. . As we said at the Cowen Conference, initially, we did see the avoidance rates fall short, a bit short of what we had expected. But as we said, as the providers and our staff were sort of trained and became accustomed to the new rules, we did see those rates improve week over week, such that by the time we exited February, they were much more in line with what we expected.
So as I said earlier, we did see some unfavourability in APT’s January to lesser degree in February, but then March, as we saw those rates come in line, we’re actually slightly positive such that for the full first quarter, largely in line on a utilization basis. One thing we want to continue to evaluate is what the resulting unit cost is on those higher incremental APTs. In theory, they should be lower. That could provide a tailwind for the year. But as we said before, we’re relying on the claims coming in and being paid to fully assess that. So we did not take that into our first quarter results and something that we’ll continue to evaluate over the second quarter. But I do think potentially could be a tailwind relative to our expectations.
The only thing I’ll say is that, if you think about the 90%, if you remember earlier this year, we did acknowledge that the changes to the physician payments that were implemented in February did present a headwind to our internal plan. And that was worth about $150 million for the year. We did not change our MLR guidance this morning. And so you can assume that, here now we’re assuming that we will cover the impact of that physician fee schedule change. And so some of this positivity would certainly help do that. But if for some reason, we didn’t see that emerge, obviously, with the admin cost favorability that we delivered in the first quarter, we certainly have confidence that in any event, we’d be able to cover it through admin savings.
