ST. LOUIS, Oct. 25, 2016 /PRNewswire/ -- Centene Corporation (NYSE: CNC) today announced its financial results for the third quarter ended September 30, 2016. The following discussions, with the exception of cash flow information, are in the context of continuing operations.
For the third quarter of 2016, we reported diluted earnings per share (EPS) of $0.84 and adjusted diluted EPS (Adjusted diluted EPS) of $1.11 when excluding Health Net acquisition related expenses and amortization of acquired intangible assets. The third quarter of 2016 includes a $0.05 diluted EPS charge related to a revised reconciliation of the 2015 risk adjustment in Arizona. During the third quarter, we received information from the Centers for Medicare and Medicaid Services (CMS) that some of the participants in the Arizona risk adjustment program were unable to pay the amounts owed to the Federal government associated with the 2015 risk adjustment reconciliation. As a result, the uncollected risk adjustment was pro-rated to all insurers in the market. Accordingly, we recorded a charge of $0.05 per diluted share recognizing our portion of the risk adjustment that will not be collected, which reduces the $0.19 diluted EPS benefit recorded in the second quarter. A summary of diluted EPS is highlighted below:
GAAP diluted EPS | $ | 0.84 | |
Health Net acquisition related expenses | 0.12 | ||
Amortization of acquired intangible assets | 0.15 | ||
Adjusted diluted EPS | 1.11 | ||
2015 risk adjustment charge | 0.05 | ||
Total | $ | 1.16 | |
During the third quarter of 2016, we continued to make progress on resolving the issues associated with the Health Net premium deficiency reserve. Specifically, we took the following actions:
- We reduced our estimate of the costs associated with the substance abuse claims from $50 million to $35 million for the period from March 24, 2016 through December 31, 2016. We continue to review substance abuse claim submissions and have lowered our estimate based on our experience through the third quarter. This adjustment had no impact on earnings.
- As previously disclosed, we finalized our 2017 product design and premium rate filing with the California Department of Insurance associated with the individual preferred provider organization (PPO) and exclusive provider organization products. We believe the final product design and rate adjustments will attract a balanced mix of membership to ensure the product is competitive. Additionally, we continue to identify medical management and network initiatives to further improve performance.
- We will exit the Arizona individual PPO business, effective January 1, 2017, which represents approximately $32 million of the $70 million 2016 Arizona individual premium deficiency reserve. Additionally, we will be the only carrier in Maricopa County and will continue our presence in Pima County for 2017. For 2017, based on our product designs and rate increases, we expect the Arizona Health Insurance Marketplace to operate within our normal marketplace margins.
- We have taken various rate and product design actions in the small group business and continue to expect our Medicare and Arizona Medicaid business to be profitable in 2017.
As a result of the above actions, we believe we have resolved the issues associated with the premium deficiency reserve for 2017.
In summary, the 2016 third quarter results were as follows:
Total revenues (in millions) | $ | 10,846 | ||
Health benefits ratio | 87.0 | % | ||
General & administrative expense ratio | 9.2 | % | ||
General & administrative expense ratio, excluding Health Net acquisition related expenses | 9.1 | % | ||
GAAP diluted EPS | $ | 0.84 | ||
Adjusted diluted EPS | $ | 1.11 | ||
Total cash flow provided by operations (in millions) | $ | 480 | ||
Michael F. Neidorff, Centene’s Chairman and Chief Executive Officer, stated, “We remain focused on successfully integrating Health Net and positioning Centene to continue its track record of achieving profitable growth.”
Third Quarter Highlights
- September 30, 2016 managed care membership of 11.4 million, an increase of 6.6 million members, or 137% compared to the third quarter of 2015.
- Total revenues for the third quarter of 2016 of $10.8 billion, representing 86% growth compared to the third quarter of 2015.
- Health benefits ratio of 87.0% for the third quarter of 2016, compared to 89.0% in the third quarter of 2015.
- General and administrative expense ratio of 9.2%, or 9.1% excluding Health Net acquisition related expenses for the third quarter of 2016, compared to 8.4% in the third quarter of 2015.
- Operating cash flow of $480 million for the third quarter of 2016, or 3.3x net earnings.
- Diluted EPS for the third quarter of 2016 of $0.84, or $1.11 of Adjusted diluted EPS. Both third quarter amounts included a charge of $0.05 associated with a revised reconciliation of the 2015 risk adjustment. In comparison, diluted EPS for the third quarter of 2015 was $0.75, or $0.87 Adjusted diluted EPS.
Other Events
In October 2016, our subsidiary, Home State Health, was selected to provide managed care services to MO HealthNet Managed Care beneficiaries.
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