Centene downgrades expectations based on Medicaid redeterminations and MA changes

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Centene downgraded its 2024 adjusted earnings per share target this week to greater than $6.60, reflecting its view of Medicaid redeterminations, its Medicare bid strategy and business investments, according to its Q1 financial results.

This compares to an earlier forecast of $7.15 per share, according to Reuters.

WHY THIS MATTERS

CEO Sarah London talked about building a more conservative view of its managed Medicaid business, driven by Medicaid redeterminations. 

"Over the last 1.5 months, with the benefit of finalized implementation plans and early data feeds from our state partners, we have refreshed our state-level models and projections to inform an updated view of the potential impact to membership and acuity of the redeterminations process across our 31 health plans," London said during the earnings call. "Based on that analysis, 2023 progression looks slightly better, but we now believe it is prudent to build in a more conservative view of the potential disconnect between rates and acuity that could manifest in some of our states in 2024."

Any disconnect is a temporary one, she said. 

"We fully expect that states will ultimately provide sufficient rate adjustments to reflect any changes in acuity of the Medicaid population, but we are building a provision in our 2024 target in case there is a gap in timing in some of our states," she said.

Another factor in its 2024 growth outlook is based on lower Medicare Advantage rates from the Centers for Medicare and Medicaid Services and changes to the MA Star Ratings program.

"As we evaluated the final 2024 CMS rates, our view of potential 2025 program dynamics and the strength we saw in 2023 performance, we decided to use 2024 as an opportunity to more aggressively rightsize our membership and focus on our core member base," London said.

The managed care plan WellCare, which is owned by Centene, will return to its roots in serving lower-income, diverse and complex seniors, according to London, as the fastest-growing subsegment of the Medicare Advantage market.

This will move the company away from some of the membership that resulted from a growth at all cost pricing mentality during the 2021 and 2022 annual enrollment periods, she said.

"Our focus over the next few years will be to maximize contracts that reach the 3.5 Star threshold and to begin laying the groundwork for the Health Equity index adjustment that CMS will measure starting in 2024 and 2025," London said. "For the upcoming October results, we are trending pre-caps between 14% and 18% membership in 4-star plans. But we have one large contract on the bubble that represents 10% of our members.

"For those still watching that metric, we are conservatively assuming the downside scenario and therefore, expect minimal 4-star progression year-over-year but we expect to see solid overall contract improvement reflecting the operational progress we have made, and we have baked a conservative view of these results into our overall assumptions."

Centene will also be making investments in infrastructure to consolidate systems and simplify its technology ecosystem, she said.

THE LARGER TREND

Centene had four plans which ranked a low two stars in the October 2022 star ratings.

Only four plans received this low rating, compared to none the year before in the one- to five-star rankings. All were Wellcare plans by Centene. Executives at the time said they had a lot of work to do to turn around that ranking.

Twitter: @SusanJMorse
Email the writer: SMorse@himss.org