MGLN - Earnings call transcript Q2 2018

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Operator

Welcome and thank you for standing-by for the Second Quarter 2018 Earnings Call. At this time all participants are in a listen only mode. [Operator Instructions] Today’s conference is being recorded.

If you have any objections, you may disconnect at this time.

Now, I will turn the meeting over to Joe Bogdan. ahead. go Please

Joe Bogdan

The was XX. A replay thank distributed XXXX in and Chairman joining Health’s access replay Jon The be numbers call of the of the Magellan CEO, our morning. the Good are after Call. you With Quarter to Rubin. CFO, shortly our conclusion Earnings Smith; this earnings Magellan’s call release me earnings Second announcing Barry second morning and for press this will today quarter and available through release. August the are

call. presentation, listen remind herein For the Friday, have the those who to of earnings updated as that rebroadcast July made of remarks been this XXXX, and to not we the XX, today, you subsequent are initial

can make including our generally are statements of uncertainties, our call, factors XXXX which control. statements, risk to our and from we are or our advise the and the These related and review prospects to Listeners and risks and this press listeners to statements are morning and beyond that During furnished cause actual current release outlook. with, difficult many certain risks expectations, our SEC. growth documents to we’ll in we our cautioned to materially discussed filed subject these forward-looking predict differ results to, uncertainties

results. our addition, In financial non-GAAP please note that financial certain when describing Magellan measures uses

expense of defined to in on of special is excludes the which reflect Smith. I filings goods cost revenues costs, refer compensation and consideration restricted adjusted the to income will from recorded website profit relation adjusted income from EPS of operating purchases reconciliation for the by net interests morning’s cost contingent acquisitions. as or fair sellers, as made fair of SEC profit, identified for as profit of to in intangibles. this intangibles after other segment measures. non-GAAP by net X, resulting well which expense, benefits turn segment our service press of acquisition other identified value from net in certain non-controlling completed Specifically, direct our parties, changes And unconsolidated Adjusted January to GAAP the subsidiaries, CEO, XXXX, Please release, contingent included held acquisitions includes less Barry but stock of are over charges to in is tables and the release. to expenses. with and as of we compensation today’s income call and sold, Chairman and acquisition equal Segment stock press our impairment refer these care, sum value in amortization consideration, to financial adjustments measures available adjusted stock non-cash exclude corresponding now well changes Barry? a EPS,

Barry Smith

This you thank our focus and morning, Good comments us joining Joe. you, areas. today. a on will Thank morning, for all few key

from prices. a give a of First, of including provide our Then blueprint prescription RFI Dip] [Audio HHS to response our healthcare update quarter the our and guidance. business, by on summary business of lower key areas you some the to summary I’ll followed an the drug on revised I’ll

Jon on color revised our results Finally, will year guidance. full put the second additional quarter and

million reported of billion, XXXX, of income For we the and share. net net of of per second revenue quarter $XX.X $X.XX $X.X EPS

profit or per of $X.XX we adjusted $XX million share, net $XX.X and million. was income segment Our received

Virginia. York and due further the later were new pressure as For well delays termination to in details lowering on Jon as guidance business carve-out New recent specialty and in healthcare in guidance our provide will our the update full year, earnings they call. business

Complete portfolio. developments in current Magellan Care some with you provide me let Now our

implementation Virginia, in of We slower currently completing Senior the while a Health and integration our of acquisition. progress expected. are know, implementing In successful on the members care Medallion to you to was RFP remain managing also implementation-readiness this team Whole quarter profitability area on couple healthcare during second increasing the week. program make the while are markets we effectively leadership live X.X on Virginia under a progress than focused wins as to As services the our of in at ramp having they continues spend go next we provided. for work quality The the scheduled of

Virginia of are Senior will are on beginning In In passed legislature New additional XXXX. our with provide Medicaid AlphaCare York, Health. growth with This that in and pleased included the track expansion. Whole addition, membership us that January a with budget we we in integration

system, claims We one our result coordination the updated a to the as first of year the over anticipated care and less moved of growth have consolidated than the policies. integration. network We slightly experienced half

outlook Our guidance. year full in less growth previous membership updated included our that includes was

rate year. Finally, the lower care rate portion effective initiatives, continued impact balance we the the state effective released changes annual management quarter, were which second the Through expected. were able of to over a than offset of we

recall, to markets. As strategy has build of a portfolio through you diversified will scale been our MCC

region. We’re a Managed pleased the us and program acquisition entry covering it participate New with new in our further scale enhanced for us a Care contract York to Massachusetts. in In state the in Health the awarded reminder, the as Senior market as a recently Arizona, central position Whole Medicaid the and created

October the five X meet the for completed the in We had demo positions. IT and effective leadership We state key continue week staffed recently testing date. our to preparing readiness-related milestones with

Magellan, of block auto-assign to members they will there initial until be an members not While a existing to XX,XXX smaller plans assignment of new the state will reach lives.

specialty financial not in or foundation we modest, believe plan will the We expecting be a XXXX. will XXXX future. are Arizona are membership in creating plan us position Arizona for initial the material a the that in the contribution from Given opportunities we

developmental a RFP persons XX. disabilities released Arizona example, and For on Medicaid Care June for with intellectual Managed

you Now on update let me Florida.

illness, you or MCC January mental Administration serious SMI AHCA or at for effective Care Florida XXXX. not as health Florida’s recall, Agency operating continue plan, specialty may As a did to Health X, choose

X. protest May on a we with AHCA result, a As filed

to Magellan selected been progress We the as Life delivers AHCA we to healthcare as and are process. MFLC, continue protest Program, with serving In has for have federal continue our which counseling federal non-medical Military through the the pleased Counseling services Family contractor business, we worldwide. discussions or that

to nation’s of this unwavering branches We contractors of of The improving a XX-year contract. military. our the one this three to serve in selected our commitment of families award are contract their wellbeing is of all servicemembers the and recognition

Now pharmacy. to turning

pressure in opportunities. specialty new delays We as business as business of a pipeline contract are as carve-out earnings at seeing closing our well losses result our in

to In and our submitted remains strong. Part XXXX with XXXX. and from PBM core order regions well business greatest business, bids bid we perform reduced D opportunities Our on continues pipeline we month. in our focus the concentration our In XX membership profitability, four footprint our geographies last current regions in a those of very to to

past, business strengthen care we’ve for Medicare in PDP As to primarily our in compete operating the the our PBM successfully in experience participation is mentioned managed business. to in order

perspective leverage unit some we of success marketplace. how the on to offer has drive differentiate cost PBM the to PBM in ourselves for ability savings. down The been industry scale me Let the historical measure

a the no longer of drugs, important, the Care specialty that Affordable of changes With result as measure Act, prescription explosive delivery sufficient. of and the is system cost in drugs the of success, the healthcare rising growth while

three programs, buying We clinical from to differentiated some discounts, our proven analytics continue our the to industry and We drive members. lowering we start. used for for leveraging Health and in powerful the response, been traditional the reducing engagement Human to recently strategies, expertise complex We principles. Magellan by to we management pharmacy outcomes improved solutions. through comprehensive out-of-pocket vision specialty RFI savings prescription payers cost While submitted targeted industry-leading Rx’s our consumers, deliver drug our has In move different Services volume-focused and value-driven our market deliver solved and savings blueprint. expertise advanced and beyond players pricing understand challenges role true cost drug and response for member highlighted

drugs utilization specialty alternatives of factors limited market. seen they be makers. overall specialty drugs clinical for drugs high large to pharmacy needs are The and not the increases. largest face managed, price as have specialty the in Advancement of often increases the launch trend these driving prices cost drug First, these, Of primary by new high-cost price new priority. drugs of to a biosimilars is competition and

lowering public environment drug decision-making drug Medicaid prices. drug and forward the pharmaceutical consumers to to a with prices to quality improving PBMs private a sector lower policy to ways solutions in key lower practices. Secondly, find through action create consumers support and overall role And the on to market-based focus and payers costs pharmacy call prices and deliver an access solutions cost of and thirdly, solutions while evidence-based working We lower focus for improve healthcare for lowering on stakeholders and helps drive to impact to Magellan solutions innovative care. clinical practices. should create Medicare, companies benefits. and high innovative national like rising list and curb for to to Magellan cost administration’s commend cost-effective market-driven for look play promote solutions competition, commercial These better encourage

Jon, trajectory. about to been MCC few and improvement a optimistic than has our our We confident am add our that expected. continued me over comments let acknowledge Complete business. call growth in I the about turning Magellan Before strategy earnings Care slower

levels people our as right XXXX long-term unchanged. with the MCC for place a to and in shareholders. our revenue industry-competitive the continue Magellan, for have strategy execution value business matures, will margins of and to be strong year remains combined to focused our drive growth We create meaningful, which plans will

turn Jon the Jon. I’ll call Financial Rubin. our Chief Now over to Officer,

Jon Rubin

the the good morning, outlook Thanks, my quarter this full review our discuss comments results everyone. In morning, second Barry, and and year. for I’ll

to was XXXX. quarter $X.X million same net revenue income was XXXX. represents income million period $XX.X the net by revenue EPS and in and compares second EPS of quarter, $XX.X the for the was annualization This was an and income respectively driven Whole $X.X increase the the which and of acquisition Net EPS over mainly adjusted year million of was was of $X.XX of Adjusted and net Senior For business Health. growth XX% $X.XX. This prior $X.XX. billion, from increase

million XXXX. Segment second the was $X.XX per $XX income of compared million segment $XX.X the For quarter profit of second net the of quarter quarter XXXX, profit was adjusted share. for $XX.X to for million or

quarter is acquisition; our rate of $X partially offset business, XXXX; the Virginia. operating favorable and out-of-period net relates which in commercial healthcare for by quarter, second year. of XX% for the same the first profit in of million following business, year-over-year the last the over $XX.X increase Senior contribution losses an to Now Florida which segment in development million, the majority the segment Whole current Health increase the XXXX quarter was in incremental This by improvements represents in of period our driven of the of profit factors: reduction

Turning the specialty management, lost to segment resulting in from XX% year-over-year of which was reported was carve-out for of pharmacy XXXX, decrease in management our decline from This quarter quarter by we ended decrease the primarily XX, XXXX. second of contracts. million $XX.X business, formulary driven profit earnings a June

quarter. acquisition well quarter decrease expense million, part a tax of compensation expect is of $X as We tax and costs operating ended This to contingent as decrease was was other current but issued stock $XX.X changes This vested the expense, prior XX%. effective approximately XX.X% primarily reduction the full of the effective primarily compared and million Regarding in of decrease expenses. the as mix quarter year’s and due fair Senior service $X.X This versus compensation is of quarter benefit million due million the Stock excluding a CDMI prior The in in in from expenses, six to largely eliminations, corporate June excluding Health. due stock financial growth XXXX. restricted current XX, quarter. discretionary expense Whole were the income results, acquisition XXXX. year value the rate $X.X XX.X% for the rate in lower XXXX, consideration, second compensation Total inclusive stock of to year’s that to was months direct the income XX%. revenue now totaled business of of for

of flow Our favorable a working period. cash operations for ended in from months tax changes. million net prior mainly other the compares the payments XXXX $X.X cash attributable was for change $XX.X million. from is capital year and June decrease The operations to six This XX, to flow

versus $XXX.X versus our $XXX program, June Board the XX, at XXXX, regulated approved is cash relation related Directors capital until $XXX for XXXX, June and earnings XXXX. to XXX,XXX XX, $XXX.X May XXXX. approximately of XXXX, XX, the an Restricted The million In to investments million repurchased the million Year-to-date, $XXX cash was we’ve authorization undistributed held million investments million program our on the XXXX, unrestricted which XX, $XXX.X at company’s excess repurchase unrestricted and June and an As cash share this million, $XX.X million. XX, million. additional and date two at XX, through of million. entities. $XXX.X to XXXX, December our for investments total $XXX.X XXXX. remaining December of at at totaled Approximately October years The extended under shares XX, Board end authorization repurchase July increased increased additional for also XX, was

Virginia, formulary to the action lost pharmacy specialty our profitability and annual for items: mentioned, contracts These rehabilitative the primarily delays community contract Barry reflect continued hours pressure initiatives. of updating our cost impact we’re admissions, we labor in appropriately pipeline personal manage implement receiving We’ll In of impact on experience care our focused impact includes health of services. of carve-out in our and care the services following improvement management the closing work mental XXXX. and As the members guidance inpatient as to in losses to full specialty business, opportunities.

haven’t plans. rates as growth of in yet impact improvements impact the seen membership as capitation in effective we’re New second in by lower-than-anticipated the these making York, implementing results, management. we quarter, While progress the offset care partially lower-than-expected well In

the to $XXX between in $X.XX adjusted factors: in we’re million; rate $X.X $X.X same-store we as margin of and the million; due three $XX range the and profit first of in As range businesses; for $X.XX; the of of million the year a segment expansion adjusted profit to to remainder to net EPS to million segment healthcare and due following to expect following: $X.XX. $XXX revenue earnings revising increase income and segment; the in to million our $XXX healthcare result, of range Compared income run pharmacy half both to our $XXX business $X.XX guidance EPS the of initiatives and to seasonality of million; the new billion of billion; $XXX our growth. net to XXXX,

we to a anticipate impact have impact greater quarter. While fourth impacts we expect these a quarter, in favorable in third the

Now, long-term we year emphasizing strategy be healthcare operator back to earnings our grow we’re and And in I’ll continue to balance focused for execution of questions. now in both the very I and to close improve profitability that, on as growth. core businesses. by I’ll achieve confident that over successfully the our the with our ability turn call the over Operator? to pharmacy

Operator

Thank question Jefferies. from now line from Dave is Instructions] Speakers’ our Styblo open. your you. comes [Operator first Dave

Dave Styblo

is you know what pharmacy effective? I And the Thanks. did starting and become contract there don’t of that think that the better more just in in out did morning. guys suddenly in a had formulary contracts talk this material have side And to just loss, bit good happening? carve-out get specialty Is When and on the especially a think does wanted Hi you understanding why about of start guys that I a back second can if little you quarter? time. lose. when you going I that?

Jon Rubin

start. Then ask Barry, to some me you additional Let add I’ll color.

of line. it concentrated a in couple pressure, terms the One, is again Dave, management the In of specialty pharmacy formulary things.

Again, pressure sustainable there. that medical in and it’s not pharmacy. think settle What we’re but results more in see not accounts, seeing temporary. cases, term we progress rational. continuing It’s out pricing things. feel about the some And to as being and way. of become continue, the good your short-term things believe good just term, seeing, answer in we Barry, the We’re on know, some begun competitive. long that we a to we’re question, seeing good expect pressure. short second deem about are And late you pricing the is do But side. large really to in pressure And But we’re to it have. pricing adding. quarter if XXXX, the capabilities the we seen very that short where I we very don’t based – feel is value have we will anything But has the has until in again, some XXXX, meaningful. term, it number a sequencing more on is began We of the play we in will early pressure yes, least again, we’ve see at yes, We add?

Barry Smith

just just add Jon��s appears contracts thing larger will is large this. think like We’ve from have these Good of to offered very to to large, also It was the same it We Dave, to morning. seen comments. extent, that impact accounts, those And in in do this very This that but that normalize we contracts add. these would things I hasn’t a I quite past. few specialty payers takes a And recent large just very we that negative kind a to development. over think PBMs, a would normalize the irrational. over the us, time. past impacted really be see to of time. kind pricing the

you today. going in kind marketplace understand the of So what’s

great that this And that so expect be stickier space. capabilities, further we’re medical been opportunity. in makes specialty do still over unimpacted, trend. it pharmacy specialty capabilities long-term That formulary management, we We which very don’t our we successful combine time. think contracts have really medical a And these offers with to these as us

we’re what that’s So – doing. and essentially

and company. top a at both to term to that few volatility volatility, this bottom the line sure we bridge that really don’t looking contracts longer initial period creating, are make of with also have on maybe for We’re concessions, price

Jon Rubin

new pipeline strong. formulary is I’d last standpoint, business Yes. management, one remains even The that add in only from a thing our

the on of have book, within opportunities some So the business pressure high-margin market. seen we to continuing we even good see our are some existing in though

Dave Styblo

have total specialty much the of right now? business, or pharmacy the how And earnings carve-out this Okay. exposure do you segment being affected revenue from that’s

Jon Rubin

Well, if I $XX in XXXX, business, think, look the about I management million for mean, you formulary in numbers. total in at it ran the revenue round

Now, some have attached pharmacy gives that could at you medical again, or that But the least, PBM other that not of business, it. – meaning it’s of all picture. whether is to total standalone, we

Dave Styblo

but I the sense details much a then from just broadly, administration’s have all how get your and profit we with more And yet, PBM comes to drug you Okay. So rebates rebates, guess, $XX it when don’t your PBM about XX-K, proposal, in the look of at rebates? was I pharmacy the your million profit management And looks of segment $XXX million. like XXXX, generated right?

that of million? in $XX much $XXX million how So that is

Jon Rubin

me rebates also don’t let It’s PBM have side the there the But I So it. rebate hand, of you’re the are business. question the I’m that a in also but $XX think make the of I impact, the profitability in sure number the business, traditional terms in is rebates still, at But it’s answering business. carve-out there to million specialty number. – are rebates There largely correctly. – are referring smaller

I just make to want So again, that sure we frame accurately.

Barry Smith

that a than these of understand X,XXX the this just there would coming received. and we of just received now. out Monday. comments add HSS to – lot are received more comments I comments on is of Department said last proposed this, rule-making they that, last just And the The they

safe we impact contracts, protection our those don’t likely will know impact states, public that harbor is would and business. rebates. certain on are don’t a commercial the the any, more difficult of Medicare passed-through we sector there’s with the we executive receive District of think which terms legislative plus yet Most rule-making implement, work that, the do focused, Medicaid that be will for XX-plus order it we think fee Interestingly, states if where of state. much sector, we of really contracts business, in do but the the not for be will we or particular, contracts action, do for work We in with given removal fixed public the the this to that So the fee on what Columbia. an think contracts and of be

the one guess my within don’t price. But can we it’s I make comments be, while is hard really here sector exposed comment so no really to is So rule-making a just pricing fixed does, the will on what until we it. point that, public it is already lot and know the of

Jon Rubin

magnitude plans And and rebate even relationships we’ve on programs. virtually Yes. any other health we Dave, got all with no have, exposure government of

with is I piece, that So can confidence, immaterial. say

Dave Styblo

Right.

So of the flips right? commercial, to all over effects

Barry Smith

Right.

Dave Styblo

to and let get over is side. moving Okay. in, And healthcare others I’ll last then one, just

you at ramped enough of costs, the the costs last So January like lines the year? year not an you this really along run it’s expected. cost Can has initiatives are understand, implement than new is Or starting seems you had the in to that have visibility to expected? medical obviously this that’s It Virginia than higher on one and Do issue. it MLR implementation August longer a population continuing us point? is of on this just more issue some help just taking

Jon Rubin

Yes, – have in the good ABD last now MPLSS mostly on both population meaning latter, the that came the a on ph that and January. population came year handle on we

have plans assumptions appropriately good the the to of the the achieve to as we a the got impact handle action haven’t run meet developed also on rates. And pricing yet detailed initiatives results. But required we’ve care seen contract. very in savings under So we now managed those

are executed. to But being second emerging significant impact this prepared been than see Barry again, remarks, and expert begin both bit to slower as So while and we’ve people got, in hoping were a resources in it’s his we detailed actions expected. quarter, little said place in that we

we’re of of in optimistic to that a book business get half to being of second loss ratio year. the kind of terms this in able beginning mature So much very more

Barry Smith

of Kate been on business, an just these will target. thousand. Massey would I on Virginia capable our Commonwealth Manager managed MCC to the and ago, Jon’s people. one August everything that incremental be General But we very Dave, right we fact comments, coming few team, a have year just plan started exceptional of Virginia. add is But have about experienced, have care lives it had we We And the a – and are is, X.

got on the January. haven’t a initial on did as very individual implementing, of members that that lives understanding properly in in. those managed learning mentioned, think as these we’ve pretty these place those We Xst as appropriate quite about now. So we’ve And for But medical that locked them, we But well, action well give the bolus been get individuals. to we’re larger individuals actively Jon care plans we’re got care, year. the cost of of and that’s

So and medical with we underlying traction are think plans. that we’ll those seeing action see

I the we’ve by mentioned The that Virginia, the that fact additional of other received very awards incremental populations. factor, the fortunately, received the for Commonwealth by well though, is we’ve last And been state. call in

the Now January. Xst this Medicaid the Medallion happens next population week, week, And goes on the of expansion then live X.X. next this

implemented, winning we have we’ve states unlike where where and again, we’re this implementation, So and winning one we’re in yet again. implementing business yet business other case, – implementing

a trifecta. some Magellan. state. sense you a views gives to of how So It the growth this problem I high-class this is It’s say, within the about would have, have level you where state great

in the only We’re new the entrants market.

start dead-on this with the able has state. that we be sure the have table. as ready very pleased to to to at And make been implementation so goal to be we’re we and our the And hit

both that pressure those and of it terms state caused the pleased of it plans. timelines in that’s is sure resources achieve us. make and But I And well ultimately. time, we’re required and state do action very, meet we those. with us implement underway very But has same well think some we’ll at level the all these gives implement implementation-readiness, with fully why the to for the again, confidence in medical the

Dave Styblo

Thanks. Okay.

Barry Smith

Dave. bet. You Thanks,

Operator

you. Thank

Our now Michael James. open. next from Raymond Baker line Michael from question is comes your

Michael Baker

be work I Yes. and wondering the there opportunity what for expansion, give thoughts Thank membership impact Virginia requirement. you on you. might us can the updated was on

Barry Smith

fundamental part them Well, also funding as Medicaid find there social expense health a issues population work incremental as services and for allow both some is, of life in and are that a helping expansion, rise of of the but and do Medicaid the there requires, some there’s for up to roles. well, to social the a affect them helping quality out job for

by a the robust, very Commonwealth of is out, very designed it thought Virginia. well plan So thoughtful

initially, of are terms by our the number increase Medallion will going of Medicare in which enrollees, region this about the lives, and region. this program, numbers In region initial – implementation, live in that by X,XXX X.X week Virginia,

first the includes again – – time, they’re – out all the how there. expansion that’s the labeled XXX,XXX allocated Medicaid on XXX,XXX current which players. we’ll up is to proper see chassis to current implemented our this six our And The one to additional next lives, will be likely we of week. roll lives. The just over lives Clearly, it but number think will yield

Now, again, newer a the state. in there we’re player

business add goes live expansion, our would January happen XXXX. course, there a our share, reasonably, expect That on get, it’s business to as but we So X, the over that to prorated of time to might nice well. for of need Medicaid Virginia. in starting But book

Michael Baker

give you bit And a on. on obviously, kind the you, on you then going talk little – – come and or color won to can – a bit that’s that. that there you in color little sounds how of had pharmacy of the some side on specialty delays like are business Maybe

Barry Smith

the comes Clearly, is a – our both it’s manufacturers issue to of a interesting. system. a we in health properly we a within from pressure the the the in plans, political ultimately. It’s real PBMs. are sure consumers make how drugs for by view, it there largely, manufacturers work and very pharma to from the real put we the where on utilization a sophisticated valued emotion and are Health lot most impacted finger-pointing of There’s drug that of lot issue Well, cost system, have escalation. plan. And

said and that concession the well. by But And and effectiveness think applied we manufacturers that are for for have back, it effective. well the that programs think the The works very, others course, clinical PBMs is as PBMs very – works we problem. doing been pushed clinical both and cost So pressure and we’ve very years. of like as

stand would important we that So the a PBM plays role. very

the new management. health earlier kick as we the can Now for as be, We blueprint, sector a will We within call have process I is if it there on commercial as mentioned has focus the we likely legislative think we’ve talks Rx. safe cost. well that list proposed well think, have do much, And talks board would historically. they focus, The And any putting rebate We it’s order. programs, go introduction be far that concerned, We on working about that market. about important think harbor, increases it don’t the to as administration a Medicare prices. think both in Dave, because the in the the Medicaid, pharma list more price, as that is as validity. We less commercial to list see and of however, focus on likely. executive plans. launch it’s that public great across for on pressure Again, is think blueprint in seen the and prices existing it done think – issue to to by the that much

to those now final the come suggestions that blueprint XX finite comes have our to So they’re period. for we public Rx, HHS rule we Once another those. a for HHS understand that we given no just PBMs. out, there rule. over X,XXX comments that We’ve the they’ll review and And it. typically think as time as comments be take Again, They understand just they will limit, days up of comments commented But were reviewing. there’s XX the the that had other the for as proposal with comment blueprint, in.

So we be answer. do don’t an there That process. more might and anything think and fast. happen overly But that think will quick a been thoughtful have we’re very of hopeful will we

Jon Rubin

on opportunities in little this other that hard we’ve think to is it year, specialty second in we seeing had be delays side, and that. there. decision Yes, the around trajectory slipped be think that it’s terms to attribute question tied of well, I part of the I good – timing. the mentioned, how confident hoped bit know new Mike, very exact the on to industry. was still we business of some your tied the Again, and in have opportunities, of going closed as business process still we’re Barry opportunities. are might new the But to hard a that been stuff long-term But of well on as the much implemented It’s seeing, cause would

Michael Baker

more, then one time on just decision protest in Florida And timing sense on terms had any I of line the of that?

Barry Smith

Well, gave some of we kind of you story This kind is developing here. a long parameters.

process mentioned current And the of. then which with We we’ve moved with I on August. now and And through dialogue. and went – of They announced I the we and those which health AHCA administrative was were through Xth Xst they plan, the had think end of – our for on we of the a between the We and they discussions of We with hope general of settling. to SMI as As we capability productive. the plan, We are discussions, initial law April, an do forward, May, then, going the to reengaged of AHCA we one specialty, were you May comments, X. late we’re focused our know, prepared the told plans, then June. and in that plan. part needs discussions has in AHCA on, we on filed spoke weren’t that were have it concluded And AHCA protest during May, XXth specialty because judge on hearing my them. special the

not really the for good say We’re We fact outcome. clearly can’t law judge definitively August for that an scheduled just it’s is, X. But because that a administrative sense things quickly, hearing given is resolved. will happen relatively hopeful our that, is

Michael Baker

Thanks a lot for updates. all the

Barry Smith

Thank bet. Michael. You you,

Operator

you. Thank

next Ana, Our Ana Leerink question now from open. Partners. comes is your from Gupte line

Ana Gupte

morning. Good Thanks.

loss, winning contract are? on the carve-out, you? you exposure gaining the you that on price for what hadn’t season? any there this had in the who really. I more is drivers contracts selling even And at here? some us losses the the specialty of bid on a And what give can Is share And up contracts realized Following criteria point, it are of here? for color who’s

Jon Rubin

add small And this contract. I’ll color. additional Barry Again, start, is a can of and number Yes.

can So any in we have to standalone. from to are on the it it is that who who And formulary really sense a trend. sustainable, plan in relationships hold we management not the health talk think the aggressive be consolidate way of health would pricing again, about But respect and pricing it’s of not I pricing with could not sort we about larger pricing is PBM that can plans, because see rational aggressively standalone not it’s market. relationships. in clearly as from if ways large the are seeing the the from It’s business PBMs, PBMs, some

is, look competitors, reasons seeing trying parts the may And as the a potentially to relationship they and But on revenue, for this other profitability but to the into people grab there a at maybe we’re – what part in it of I business. on the lot, loss want it. in don’t obviously, So and a of leveraging industry. be again, necessarily sense specific I going the would number take in a go have there’s of willing to

stabilizes. for from as wait those that it the standpoint. we’ll at until financial reasons, not again, a market chase we’re So look temporary and something going to we But

as seeing earlier I in opportunities still business mentioned area. As this well, new we’re

But market look the means. if the do we at up as not it is as drying business. to short-term it’s any challenge So a by

Barry Smith

they’ve that relationship as these always had they add sophisticated Jon’s some only with us of have very at I’d being and appreciated comments us. Ana, look accounts, the And to clinically

is so price And think do we it pressure.

very plans many health and economically. some plans And health – pressured are

sustainable. appealing. do we – we view. that shall We – pricing And term, think of our very it’s it’s a so That’s a level that long temporary But think, points is Jon as it’s see. not out,

Ana Gupte

where you’re clients. – plan your losses So health with contract the losing

employer with it organizations clients, this PBM-like standalone last your get economically, pressured but I or point? So from into plans wasn’t are your at this you comment is I health guess? more captive and can’t coming And specific around with know competitors, then

Jon Rubin

the health it want mean, vendor specific are, on But plans full-service short-term there these and PBM I again, be, want you’re be out to may Well, PBMs I lot to I get put specialty a of terms – again, there’s formulary on the the said on way. be may the earlier, we industry, are. in be me pressures guessing retain have I don’t they revenue. could in think certain PBMs carve-out I games large competitors. grow this – think relationships again, going I or who to and for don’t dynamics that I Ana, aware, playing like But there where some the that into let with management. And And there.

Ana Gupte

guess, the mean, be you I two a large of the better? things the deals then, on but might I forward, get big mergers going And assume as, integrated very is going this as for they big why we PBMs Next – closing with because gain now market, But in year, end state just side. in make what potentially mega lot closed. let’s go Three to medical of are the a disruption any got potential to you’ve are share fighting year. of by better?

Barry Smith

think would the buy not get we also is from that’s competition that. that I And a that that direct they that I markets. with this, players offer rather Ana, are channel is if certain prefer significant, a and need certain to there great. issue And people I to conflict demonstrate them success. in would think

to that each of think terms out the other we are So market. likely two those elements cancel in

players that does pricing ultimately it so as will rationalize all long just see virtually in don’t And term, market. and in we it for that any aggressive sense, makes the marketplace

Jon Rubin

I’d if look you management pressure add, accounts. some accounts, Ana, that this is thing accounts purely are seeing some and are our where book, formulary the formulary other we’re of at there of The some standalone

bundles to much relationship, have we’re market, in, high management but rather Our are is, we’re necessarily really, products. bundle product pharmacy product. And going have which selling strategy sold or to of one stickier. when formulary that medical multiple Like often capabilities degree not clinical a in

that at some of management, So which and formulary truly is just I’d of much term, more also, being legacy look sort standalone long to is absolutely that this, create our stability. multiproduct have strategy, stickiness we’ve bundles, business where had

these through. exposed or short we’re wouldn’t that managing homogenous we I it to the challenges degree. as look the So But at being same have book again, do, being term,

Barry Smith

management is And Number on the plan, isn’t drugs. employers, commentary of it focused number is not entire that, the formulary again, last color two, more on necessarily this health one. array

it might the or of competitors drugs a or – will couple drug You class. one that after be are going a

competition entire drugs, one think. it’s the country. we’ll on as classes. so And with certain we a battle, And do monolithic regular the not as might certain And compete a basis, formulary for across for

And it. so the it granular, we go competition isn’t, again, monolithic. about very and It’s very, how

Ana Gupte

And a all And that? And on The issues this a that quick is what’s one, me trend? next can that and color driving what capitation just on Okay. the you it? this? saw care color. helpful. Thanks more on. for Is one rates management you That’s just give

Jon Rubin

York. to you’re I on that comments referring talked… New Is think we Ana, after

Ana Gupte

of as release is management press this New and yes. only Yes, part your It’s York point At your elsewhere? or commentary well.

Jon Rubin

to growth growth combined have entity, a membership the we originally reignited now our seeing as expectation But that that temporary we we’re of see a synergies the we we in the little is the have marketing. the integration where restraints period, have in are York. year. separate yes. we as really some a the that, And operating through entities Okay, went on second we’ll came in did consolidated as we through that through Whole with year. being of quarter Senior that specific to And were doing during transition had One, ramp-up it competing successful. market, and integrated a And getting Health than two the that and from we was go we as now did Whole Senior the expected. AlphaCare we York, very growth in period business New New membership we But Health, to were in because was No, market. bit and had couple But things. we slower which

So that piece smaller was that’s it. the And one of piece.

New did, – is that, of York, which de beginning the we annual sort retroactive And process quarter, process, little noted capitation The every second an bit again in rates, which than retroactive. we expected. in were were after get the comes there’s And often and X/X, item X/X again, quarter, we year. second lower is a of the to rating what facto

good specific offset actually on But rates. York, was a the running been we’ve the it us to of lower again, allowed in again, York. And New so management picture. to Now, that’s capitation, that part care capitation favorably New the

Ana Gupte

Then to helpful. pricing drug Okay. Thanks that’s reform. back

Medicare a you is So it’s more the the in In what executive now? rebates said, any carve-out? you likely and right on profit Medicaid, at order, money all, the you business Medicaid. Are as model for for making

Barry Smith

And account-specific a all. I have the Medicaid we of information a state, They negotiate I We we fixed you contracts. will typically particularly, model pay characterize Medicaid, through talked The for and pick the to at then for world administer to will a risk will contracts. contract. they traditional, discuss kind again, we about we how mechanisms that number really wish, and that choose of And in these tell the contract the and but of state, or where they typical state – a state fee of they or claims And is share of any the adjudication management we commercial drug whatever don’t us will on manage the share their fixed-price But In that are more formulary. can risk. the formulary. we formulary whole prices state. side, those states, behalf the typically, the clients nature

the all. And of by contract. the fixed-price It is so drug at doesn’t a state vary the profitability

for – price high – it’s very It’s of contract. a profitability it’s per claim terms lower a total a not fixed in the a So there’s payment.

there which exposure majority way. no cases, We the to get the compensated vast the management particular those little that is in of very don’t is or our So drug. of on world, really formulary

Jon Rubin

XXX% Right, faster. the are rebates

Ana Gupte

sense. Make Okay.

can – you your Medicare, also us would And much right, Or any then pretty in Okay, give passed-through? I think? exposure and immaterial, there? is they color

Jon Rubin

right. That’s

Ana Gupte

this that – to Congress, you much but of that’s know what the you? entities? of the And Okay. do investors. that getting without percentage advantage to stretch from color And keep any can through give is will rebates And does how for is helpful them are probably I we commercial, different profit for be that a it passed – question comprise

Jon Rubin

– the number. to of customers and It XXX% don’t does be But rebate. somewhere vary. the that customer we It portion to the have pass-through and there we want I vary somewhere are contracts that or is us does of Yes, customer. of some And disclosed a paid it. through have fee all a

of do it vary a point I’d make, we bit. compensated become is transparent, ways. and contracts were disclose the be So different does quite a number that all The the in of make to we can extent though, nature the contracting to those And adjustment relationships.

So it’s a not, term, to us. long concern

Barry Smith

combined we with formulary clinical Ana, services rebates. And typically and management have

certain the And this provide write and whole of of and us not some check, compensated have mechanism we’re through a the rather percentage services would a folks rebate. rebate series

clients. with So the up them But our work as host to different a there of the however them. And and Jon like select give are ways points out, arrangement. that we we’ll it’s just make to can they menu, they

Ana Gupte

road, for I’m May impacting the the buy-and-bill drugs that then It thing plus rule other – drugs really X% model, in you? but the they’ve rebate than that that’s them to new different two starting and means down rule. seems plus AWP of assuming January, things on that It’s Medicare. Then a first and the Okay. one AWP That’s talked out potentially, came before. of I thoughts for came on mean, X% far what like adoption the out from any the

Barry Smith

view. a that know, don’t we really, I Yes. necessarily have

can I think are managed, of ways. done how and that our in it compensation these for number services, drugs a terms be of

work And we through so such it’s way formulated. can believe we that any

view this we that don’t could know at give point. specific a you I So

Ana Gupte

rule that’s responding. everyone. acquisition, outpatient going prospective with that? I two payment got on then this mean, third ago they’ve with are And RFI, part rule. believe proposed the to as And competitive days the of an it’s they you the out they’re out I there,

Barry Smith

in comment really I at respond. We this can’t time. I would point typically this can’t at comment time.

Ana Gupte

last with Then call, telling PillPack not in their quite not? we order your fulfillment. thoughts. Okay. how And the been has on spoke been which and hospital-based on is thoughts you’ve coming Amazon, And any helpful us PillPack, to on or since really do decision Amazon’s

Barry Smith

pills smart the interesting very gives very PillPack a does ability way, a move to and smart been are. many it in good now. a challenge consumers, Amazon. user-friendly institutional Well, is There And with PillPack PillPack I way people customized by consumer pack in that of – pharmacy for has with the kind the think that work this particularly elderly, are there. pharmacy to the it��s institutional is in a years pills, the that have who for are they taking way done In because

PBM the PillPack, so dispensed, the are doesn’t the standardized And PillPack terms predictable programmable, special there our and still this by require it’s solution administration. within from that standpoint capability, but and it’s then changed very they very It a medication. – in patient. world. construct having often, clinically – good smart of chronic the And that it’s that move. think it will were – in the would from sophisticated work. Amazon Amazon-esque, medication pick it’s I wouldn’t is in it’s up view, not I was And of thirdly, a If that drugs fit if It say, overly

So and benefit, come if PBM. the covered someone would by a PillPack, product that a through from they’re orders

just retail would. they like So pharmacy a any act pharmacy –

it’s taking very And for So think Amazon interesting a step. that concept. I I commend

how – it’s interesting out. that plays it be see think I to will I think

Ana Gupte

– only either whatever. on. or you combined up coming will But or have so PillPack and that platform existing think been with through don’t some renewal try so contract they contracts think for that to they Amazon-PillPack PBMs, you the Because

they do PBM? do you try So think control they Or way go? that’s the to the

Barry Smith

does sold it’s or Amazon think the is consumers what dictate is, And PBM covered what question doesn’t that is the have to the or a with model, by? so – PillPack PBM payer the have directly. does think, they does. Then consumer. PBM consumer Because PillPack I the difficult is to employer I

So I play. that’s the don’t think necessarily that,

that’s they their dictated the PillPack by initiative, normally be their employer. have primary But the own own clearly, again, for payer a or provider Although, services. in could

And just or to was so turn I consumer, existing whatever into from I my order if essentially plan. and reimbursement, would PillPack, I’m cost insurance the PBM a that

We’ll necessarily that as I don’t that such. into develops. So know world how the crosses see PBM over

Ana Gupte

All was Okay. right. Thank helpful. you. That

Barry Smith

Great. Thank you, Ana.

Operator

Thank have line open. you. And question Dave follow-up speakers we Dave is from from a Styblo now your Jefferies.

Dave Styblo

back to profit Virginia come of for reduction. want the understand again. Thanks and much segment part I are implementation how costs just

was I this for million million $XX think $XX it guidance quarter. reduction or segment

of much is attributed think was how Virginia? to $XX – how million, much So it I of that

Jon Rubin

at $XX Well, I I reduction, think, if about is look million. about round you it’s Virginia, say would the third numbers. overall, a in guidance roughly Dave,

Dave Styblo

look happen, say more all another in us you January. that of August? I with enough that to can our especially do road that you just out – doesn’t And what to guys arms coming since taken guidance and Okay. an make this, you’ve up got could like implementation the expansion And get what around in the what gets happen feel gives to one that bumps investors a you’ve ahead Medicaid time? that mean, you’ve identified third in – comfortable this sure then

I helpful happen, through, arise for again what so issue in bumps future. road think you this that us understand in should to thought that this assumptions could the doesn’t the

Jon Rubin

takes the implementations One, And Virginia, run vast as the Dave, January handle I coming and members of – couple it came Yes, good as a on. to revenue of talked again, of majority relates a in X year. quarters get Virginia, things. it guess with by this members a on rate, now past few we’ve we’ve on about, got new to onboard

run on the balance visibility and a taking of affect have the of actions to results the the now we So year. to the good implementation also rate over we’re good handle

the and implementation. the is much actual revenue for through one, does third, because, lower-cost to for immaterial that we a be lower phases program right, the Virginia they’re in start acuity relatively members; XXXX Medallion lower two membership that two, book January, exposure phase the expect on the to you’re of and August first population. And it’s while on So

counting much arena. we’re since So in that’s on the not as already savings managed care

that view year. there taken and volatility, the over now positive Virginia think – of relatively see not negative, but prudent of we a isn’t that balance we’ve So population we some the

of really in So We’ve Medicaid for the relative start for we implementation the again, And and fourth but good third that. early feel about implementation cost exposure readiness quarter till got built largely this of predictable. doesn’t stages and the the in expansion, year, the to that XXXX. is

Virginia, always of we different to the we we and for So the again, view relative prudent pretty we’ve positive the balance over the of into potential the the business, the think again, see, negatives be. facets really And same guidance could level built don’t look as year, while volatility there’s volatility. what of a all on of some ahead

Barry Smith

very seriously. this We that want in I here. of disappoint you very prudent. we serious is And we not to Barry guidance sure and way. But want say be know – that want feel our truly We take about just how to we respectful. we make all that this. Dave, let and feel want investors I any And is to just to deliver

you and don’t feel we guidance. to having give reforecast so good have And as about we

we that convinced The like we’re tell, can again, do go-around. so say this I it And we’ll but to is don’t will pretty all again. we future And never hope well do it.

Dave Styblo

is tally what’s I assumed this seemed all quarter – total of I and $XX adding another million Is million for in cost year comments going Okay. I Arizona, guidance think, it if if or start-up $XX $XX across by right? first of up, start-up from tally, upwards Virginia both the is million that $XX or guess, this million about my That’s helpful. And is back then Virginia costs year.

Barry Smith

Yes.

Dave Styblo

down in you was the profit got that broadly help segment other business what contributing it. the magnitude million those cut us quantify a are wanted being I part other break specifically? you $XX of besides of – remaining specialty the mentioned to Obviously, the slice the of that And more third pressure Okay. only New cut? $XX Can York. the part Virginia we’ve Can million to you two-thirds and

Jon Rubin

pretty three pretty actually it’s between just by evenly – Yes, Dave. it’s coincidence, split those

rate of New maybe membership, the it membership it’s lower at X/X split look pretty it’s slightly evenly break the it’s again, you specialty I’d X/X, In impact between both in between if and again, So way million, New the $XX pharmacy York. I reduction in rate York, the New and Virginia York the down. That’s say, issues. the reduction

Dave Styblo

Okay. That’s Thanks. great.

Barry Smith

right. All

Dave. bet You

Barry Smith

And conference thanks, And you call. Dave. thank your participation operator. Well, for thank Take in care. you, today’s all

Operator

That your concludes today’s conference. for participation. Thank you

time. may this disconnect You at

Magellan Health (MGLN) 27 Jul 182018 Q2 Earnings call transcript