MGLN - Earnings call transcript Q1 2019

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Operator

Welcome and thank you for standing by for the First Quarter 2019 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.

Joe Bogdan

Good morning, and thank you for joining Magellan Health’s first quarter 2019 earnings call. Magellan’s Rubin. CEO, are our Smith; today Jon CFO, me Chairman Barry and and With release our press The announcing this was morning. distributed first quarter earnings after call of conclusion replay this will available A call of June through shortly the Xnd, XXXX. be the can the release. to in found replay numbers the be The access earnings

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

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

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

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

Barry Smith

remarks, and on In perspective will an billion, good with summarize prepared Joe plan. improvement results the current for and EPS the the revenue comment everybody. on and our income $X.X morning I Where settlement today’s first $X.XX. update of our reported financial you, Share provide Thank on the margin recent net Starboard. environment the of million we net XXXX of regulatory $X.X of quarter quarter agreement

were timing net results Overall and achieved impacted $X.X and profit to our period quarter by for results were adjusted network we EPS and items pharmacy million. solid $X.XX unfavorable was Our $XX.X of of was segment adjusted our related costs. income the some out the and healthcare million

earnings Given quarter still achieve the this we’re on of pharmacy target. the track full believe affecting non-recurring we our nature to year items

details $X.X guidance quarter results XXXX our We provide a range modestly are earnings $X more guidance affirming of our will ranges, in the on to billion. but John first revenue the our to call. XXXX lowering guidance later billion and

initially improvement margin focused plan As past a Company, multi-year on our as this December. we outlined remain

at the enterprise the initiatives we pharmacy made During progress major each in in healthcare, of quarter, our three level. and

while of by net our appropriate including health over improving lowering we quality. continue managed utilization segment, income of Magellan increase our to initiatives goal is X%. Within to our fundamentals Care with term care the progress services. of strengthened healthcare made Virginia, behavioral Our we inpatient adjusted In and our care health outpatient care to margin our Complete long cost physical

recovery anticipated in and also Action payments Medical improving Plan. the posted with the mid reported quality we quarter profit further in the for Overall, payment we opportunities. Complete we claim XXs, we the benefit incentive of of as consistent initiatives. providing realize reviews management the care MLR Our and a small expect remainder margins In year integral Care increases, York, of are our Magellan New rate

year of adjustment As fiscal with fourth in to state call quarter the at potential are the mentioned dialogue for XXXX. risk March XXst, we continuing we a retrospective and state the regarding

well behavioral and our lowering with our to our of retention growing pharmacy Finally, segment, carve-out our our line the and on in goods continue with specialty we In specialty performed management health PBM focus care of our contracts, sold. portfolio cost expectations.

depth Let these each additional me provide on of some you with items.

market Our our deeper our medical new management. build savings resonating This and disease the management bundling network expert such comprehensive helping more services clinical specialty customers. and create approach sales support us as to with formulary rare leveraging is and with includes pharmacy relationships to for in carve-out pharmacy solutions selling clients

We’re solidify the on work carve-out is specialty to our book track. business that pleased of

at the PBM a XXXX. of new our addition through record In start number posted members of sales

total resulted plan our Part to decline D of continue due While flexibility planned the an expertise PBMs sequential growth. and our membership. the believe customer in to a loss reduction level in previously in fuel that net in service, clinical of We will announced Medicare acquisition health

are enterprise the administrative improve perspective, major our economics. remain we supply effective to our an From sold driving Xst continuing wholesaler pharmacies cost operational chain pharmacy continuous for to and goods are customers. committed of network to a with improve for executed retail we We negotiations recently deal Finally, drug finalizing improvements the April new efficiency.

optimization. both savings these realizing redesign process are We and through organizational

also care we example, leverage to perspective, the active. best customer flatten by and From consolidated been control of span scale. a technology organization increased For a practices increasing teams we’ve

providers also management system planning for systems first and promote resource and rework support our monitoring call both quality improved resolution areas. eliminate workforce enhanced members. to and self-service forecasting we’ve example, calls on our and Web for and increased For We’ve tools in

efforts will We but help the and our but plan. are an of multi-year to likely campaign, for start issue, that to margin confident remain to remain we improvement legislative all, contribute competitive presidential believe With us a not these Medicare congressional initiative.

significantly insurance. disruption future. to are proposals issue and drug the drug pricing. White address Congress access drug of over costs attention issue impact cost and some would any on We will We the of high and common result current a estimates of but of point, high proposals do in At expect operations the House on have concerned the believe share should also the which CMS’s comprehensive material faced the this the Americans given based that a not for objective great our deal we all we do difficult foreseeable have fundamental increased that not affordable in health legislative prices, cause, to the process.

to and four As Committee a independent result, board toward share value composition the the committee working agreement Strategic incremental the new Board joined an goal expect to announced Value any in shareholder On directors of Magellan creation an creating we the be changes – the Relative value. under The with of the Health terms of board regarding Starboard is agreement modest. we management of composition March. near-term with board. XXth, of directors a the our March of

decrease intends the XX From board directors. annual the to also Following size XX meeting to its down

contributions. that new their already were four from Our complement experience board benefiting operation, and financials, and are technology and our perspectives directors, in healthcare we existing believe we

from directors Matt our service on thank June of the progress our Simas, Eran to the of financial and in leadership retire In for remain addition and dedication term. the of John. Eran ability Magellan. our company Agwunobi call as plan. team margin over to to now John Matt, John growth quarter. mission notified Magellan XXst. their want XXXX multi-year creation sustainable Company’s I meeting upcoming over to team a the focus our review continued and I’ll and turn the board with confident their I’m John value provide I of our detailed the the annual pleased long and to more intention improvement Broshy personally the our and date to our deliver to on

Jonathan Rubin

everyone. good and morning, Barry, Thanks,

quarter quarter decrease adjusted the was previously X.X% of $X.X first of and prior Adjusted was over net quarter income Florida was respectively a compared net same billion Part and million PBM profit income in discussed higher lower Medicare due for was million million income EPS and offset $XX.X an employer the footprint $X.X in of an MCC $X.XX net acquisition, from income $XX.X well was EPS partially a revenue the of as period segment for rate. decrease mainly $XX.X healthplan to This due year first million EPS quarter to in tax which mainly million adjusted and effective XXXX D $X.XX. the contract decreased a was our first of profit XXXX. was and compares Segment as income by MCC Net business. The new $XX.X XXXX. to reductions represents this the $X.XX, quarter. the PBM loss and Virginia For $X.X by million driven growth the

York reduction driven segment business Florida $XX partially by offset $X.X XXXX margins Virginia. by the first margin for decreased in of Segment in quarter the healthcare million versus lower our and MCC profit New XXXX For of million. footprint profit first was improvements quarter the

Part of Turning March primarily specialty that which million decrease PBM first was to seasonality profit million contract expect the quarter $X in for which D of accruals of management pharmacy prior and the $X million year. million network guarantees and pharmacies non-recurring we first This will segment in from formulary reverse for membership. was quarter by for management our we $X XXst, guarantees XXXX ended of network year lower of later $X.X normal profit XXXX had segment note losses, includes unfavorable year-over-year million items, $X.X a accruals the business, quarter driven decrease reported XXXX. of I

in excluding totaled corporate quarter. was largely in $X.X This to results other prior discretionary compensation the eliminations, Regarding million change of prior stock lower year benefit costs year’s inclusive quarter. $X.X financial due to compared expenses expense but million the

year’s tax compared to rate statutory for rate rate full year X% with the $X The XX% first quarter compared for with ended and service XXXX March tax issue for than XXXX. changes This benefit discretionary Excluding also anticipated XXst, percentage XX% higher expenses stock due was prior XXXX quarter year the was year’s million a equity were for Total a in the compensation options considerations. tax growth compensation book-to-tax quarter. timing smaller become Income is first the year The and impacted in Stock ended of prior materially the revenue by The tax year’s for was stock to a quarter. be certain to largely in We quarter. XX.X% is quarter quarter expense stock related $X.X primarily change exercised increase operating of of earnings. March current in the differences an proportionately quarter compensation during XXst, the the of vesting of expenses prior the as the due the effective the expense income state primarily anticipate awards. as fair the prior stock book-to-tax tax rate will in XX.X% approximately and the increase lower million prior to differences value benefit XXXX from contingent direct compensation of rates expense. to XXXX in quarter. in federal

favorable from capital. quarter prior $XX high flow first ended million was Our $XX.X unusually XXXX due in operations of versus the quarterly working quarter was timing million the The cash XXst, year’s the cash XXXX. March of to flow for

the due As increase of March unrestricted $XXX.X XXXX and excess XXXX investments represents balance is XXst, at the investments timing. of approximately of to a of at XXst, XXst, million of XXXX, December regulated cash to million million $XX.X $XX.X March and $XX.X due XX, collection at March entities. from XXXX XXXX XXst, decrease $XXX.X of of outstanding to which December cash undisputed and at capital the receivables certain from the unrestricted primarily reflect investments the an related totaled Restricted million cash Company’s million earnings balance held

for During $X.X the approximately quarter shares XX,XXX dollars. we million repurchased

million we’re of million of and $XXX range Adjusted $X.XX income $XXX million the a As XXXX EPS adjusted $X.XX range our diluted of guidance $X.XX in the which net to to $XX segment EPS million. range as in of to million of noted, Net $XX income $X.XX. to XXXX earnings $XX Barry maintaining range equates and $XXX in for profit million and to follows. the between then range

context to our additional earnings some provide to bridge year profit results I’ll the Now segment XXXX first guidance. quarter full

first our prior network items impacted profit guarantees of D normalized million. first for in quarterly pharmacy accruals XXXX year. for the that would for a the result and previously, $XX network segment was we quarter earnings seasonality by accruals segment later Part reverse to approximately Adjusting guarantees quarter discussed in profit As year in rate run expect these in

to addition of growth rate run segment due adjusted to XXXX items. balance we in to In this see the pharmacy throughout steady for the expect profit following

X. cost lower as was our First, and agreements of finalize implement on goods our pharmacy which negotiated April wholesaler we recently network agreement effective

negotiated of January the improvement recognizing of were actual value lag in this to term is implemented Xst. Second The the majority in three which improvement rebates. changes significant due months

continued in has already quarter results behavioral seasonality sold our business. new and specialty business to expect implemented we expected and the reporting year. fourth, our unit healthcare, to margin posted nearly emerging the MCC, after metrics a health these consistent PBM which Third, the first reflecting In of and throughout based experience strong maintain normal ongoing performance been and our impact with quarter of through XX% be of our improvements In in past results plans. we on membership revenue medical expected as the changes, of expect initiatives midyear quality a year growth rate action incremental anticipated margins result

have our increases from Virginia by an example, MCC initiatives improved partially to in XXs these the currently. approximately already offset mid XXX% As targeted XXXX are These investments. MLR

business a the booking on XXXX impact billion revenue $X.X record confident focused in PBM net margin fundamentals remain no turn closing We now be entire for impact. revenue our our our continuing gross related and to for long-term As a to material balance to improvement strategy for growth remain our range accounting mentioned, to includes has year. the we’re Barry on segment you call look contract. In previously plan next of the to we’re I’ll customer Barry of which a progress a portion lowering profit Barry? the new for a the This over of we’ll $X comments. basis This forward updating revenue to billion. summary, large the the and expected of our to execute strong I on guidance basis. quarter. some on back

Barry Smith

significant progress sold consistent are results while maintaining the guidance seasonality quarter implemented earnings from plan. that already the place year many I’d first mentioned In I’m and or John through quarter supply you, healthcare, the pleased XXXX achieving implemented. either with strong we or that Contracts which John. quality norms. progress the are margin items goods for Thank historic of in bridge during have initiatives of our toward our first industry with of emphasize experience to year Virginia cost represent the be in actions to the already we’ve full scheduled cost members. our our this completed the we’ve improvement network, of chain represents entire care we made wholesalers reducing the in In significant pharmacy, including and manufacturers.

benefits segment. in the months leadership in last that We’re the put our particularly six place place the strong over we MCC seeing team of

clear our to We path year Operator? the guidance the for our to full have the execute. confident achieve I’ll earnings and and a in over questions. I’m now ability team call operator turn to

Operator

sir. Styblo go first Our Instructions] [Operator you. comes David ahead Jefferies. Please with question from Thank

David Styblo

business year. from quarter thanks start color Wanted the appreciate first for and the the morning ramp bridging to Good as there. out and to rest Hi the in you the pharmacy questions. of there the up

two understood I were those think are trying new rest both but it buckets. what for and want I to that – make you the you on – more in Can those and Can and to that that’s mechanics for the bit million of is I year? you of sense think how $X the PDP fully reverse, of accruals the true say a of is work the of items I I – those million what little elaborate makes the seasonality think $X us. sure

Barry Smith

and The for the described we’ve David. this overall I question. Yes, previous Thanks I in picture quarters. the discussed way think is

both we’ve network to past and capitalize negotiate quarters we’ve and past and that been as favorable PBM position successful year a as in pharmacies been we’ve talked about a better increasing grown in in more markets. to put penetrating with on scale mission larger really those we’ve a us It’s and improve As deals this contracts.

the but On largely little the talked this the we’ve – negotiated renegotiate process of at somewhere – they’re you negotiated we in time. timing took of as that point in – of that we than point about expected, those finalizing – but a longer contracts vast still the bit the majority of at tapering us this

that but in or past network being got more the of also we again stages and settled. final they’re at guarantees settled have least forward, part negotiation, them going favorable As of rates negotiated some

that And course and some in there’s relates some when negotiating trade-off between is disagreement XXXX. of years. past items where XXXX you’re to there some years settling past And of

that of one guarantees settling wouldn’t So and that million is that the to network obviously $X repeat that in years time. we’re process the literally of three past that’s relate

Secondly, quarter another record expect what over we’re to that million be we implemented benefit Max the implement is to fully identified guarantees, retroactive the first business. retroactively it on Many but capture in timing would the it we’re of of is the the able timing schedules through quarter first X/X, to to the but and manage of that we rates network year. $X the capture quarter, relative of are balance and year even able spread negotiated and earn the the the and terms literally the when in effective

million. $X the of out million $X other the that��s So

David Styblo

disclosed looks been of trying there you to economic update continuing if your you especially so putting And see especially accounts but the Seems to in business pressure competitors your that sort in That’s stabilized, on last more it’s helpful. such guys pricings quarter few like really us landscape. pressure, pressing pharmacy competitive you’d Are Obviously hasn’t lost pharmacy what are that carve-out. the pharmacy. environment renegotiate year any an then having the the you there, a second to own own Okay. is that and you that staying curious like. Can over give in on business?

Barry Smith

for the Dave. question, thanks good Yes,

more if to seen, an we’ve the it we is We of pricing. we’ve course, anything needs seen out haven’t there. escalation rational haven’t a competitive been, post But market seen be of

no specialty business. a several contract to last lose longer-term providing did tried further the larger We we’ve too, to better for and losses terms the go Over clients, quarters of particularly on proactively our some large clients cases had renegotiate in those contract. we’ve our each

XXX,XXX So particularly. the of a very We’ve PBM longer large about and incremental a continue in employer success over even business largest of gained we see some so with this of talked gain within that more And effective life progress and of we’ve population. side business gaining implementation great employer a year. lot traction of could secure the recently you specialty lot made we having contracts lives term been we we employer the our as had first to the

have competition on in PBM pressure the pressures degree. and to that or of and saw, the has end over some lot fact in so MCO seen six about and they saw – specific historically pricing. on say We call months We That would I CVS heard last, the pricing. the a lessened

see level wise. negative below these others deals. same to some aggressive think in We are of going on the pricing in of very the go marketplace on We CVS. margin and our that the that’s terms the aggressiveness remain out solid of being seen quick haven’t very just on in still not on commitment, We we part

it’s So our specialty again bit. haven’t competitive while a been and seen of side. lessened deterioration It any little probably the contracts on pricing the we competitive, has remains

David Styblo

a That’s operations? initial an to in just that initiatives of on board. strategies some coming And great. with to that them at this sort any might new of update to on mind or expect together with cost relationship and board that we update obviously Okay. for curious some should sort of planning hear, perspectives than And adding – tackling then I’m the they’re Starboard and point operationally the be you savings action, they of share. in might the the have or blocking improving with on maybe help be going just either guys what is coming and execute core outlining the and or new and more

Barry Smith

shareholder working and just individuals, to that call both as committee the lot industry we’re general our financially quality hard Starboard Well with pleased perspective we to think add think quickly the realize looks the board they of the I committee in they’re just I with additions the very mentioned team all how on experience. is board do that We’ve a quality the more can that brought operationally, management and a and at high very I that and the established front. like and the strategic work value of

members strong And later shareholder But participation talent. launched very us. year. so and really that we’re grateful the value. we’ve that trying We kinds initiatives the and perspective to with all would continued was last the we��ve is we by so to for some of is talent There some to same their Starboard had brought see things expect operating been think helpful assistance right their very, build incremental already very do in that we operating

and the you very we think changes kind see strong recall out be continue of to today made team – effective us we’re the we changes which the results play particularly side, we to to pretty healthcare and senior on think over As to seeing benefits our some XXXX. that’ll allow

achieve us goals we think addition a that for the XXXX. So and our great we we’re they’re to to incrementally team, they’re that’s grateful directors think going in Starboard, help

David Styblo

much. Okay. so Thanks

housekeeping John. the for Just one last

is the Or previously out? a that have in about the to with is true? being XX% that first mixed still earnings see, I’m that curious landing talked about seasonality all guys result You XQ half. change now

Jonathan Rubin

XX bounce high and that I’d before low around bit, see you still but XX’s it expecting Dave, as we’ve change pick to not – certainly where a XX’s, range. we’d talked say are can about significantly, is We little so

David Styblo

Okay. Thanks. Step back.

Barry Smith

Thanks, Dave.

Operator

you. Thank

Our of Kevin with Lynch. next question comes from Bank Merrill America Fishback

Kevin Fishback

to to since coming Great. side, where about savings pace the from little a me margin that improvement? a Thanks. Can just exactly the you progress you you’re additional some sounds Medicaid about like making get Wanted more it on little Virginia. on think and bit how talk are

Jonathan Rubin

that Let XXX% year, in – color. the certainly in think me been most last Barry can and hundred through take as quarter we add Kevin, we Virginia first just we’re running quarter. lost we’re below fourth ratios had about of mid XX’s on

progressively see readmissions forward. and we a an improvement been fourth areas, year. year, this have of the inpatient So as the as significant levels seen we improving to results are we’ve payment expenses from we’ve seen have turned those improvement good behavioral through recovery, really most emerging good have health and but and gone care Outpatient appropriate claim of been area into come ones has we claim to continued quality different – the come in on managing the and number in been results go to the initiatives as over quarter we lessen we’ve corner integrity saw that

the and that’s this up and something term of think improvement managing have through long care also as go demand really we We will initiatives tighten consistency the year. drive incremental as that we appropriateness benefits to

– again that year and that to we saw the improvements, through really mid toward of in on XXs those where key by the we’re first believe we’re the seeing a below where do but think we’re yes to back gradually be we are to improve the good path. the targeting areas quarter profitable. Virginia, and need we the We be continue year So, will end

experts put I help said know, on some the add need in that. see initiatives So drive again the Barry good progress you to ground the team real as of Barry the to don’t there good to there is yield you’re leadership anything starting very and place need that, and else we’ve we

Barry Smith

Cooper a Yes, things. to on with Medicaid experienced about very say kind her about enough just who’s just just stellar job is brought I who team. a a leadership. I Chrissie John’s us. her operator, of couple of done We I entire just, comment and good underscore can’t

to terms sense for to those health make further lot want but of as the us health is months that to COO great over just people came of another great top, Sudarshan, ability organization level beds far metrics short to and mental a continue in talent we’ve more some where the granular does sure and that the that this status, reduce enhanced We’ve taking services led who health reduce benefits teams able but management operations not specific costs we’re cases. medicine, Ashok We services. again to the behavioral manage have monitor had that for only – we’re consistently. of to progress admissions make building make in the again of very so on throughout physical we at in the to skill we’ve observation and historically, this on healthcare execute care we and people, implemented but whole stay if place XX them been really them have detailed more within more be gives someone’s in inpatient

from thing, fact things detract to these state. all in kinds the quality our the cases all increased that Just cost but doing quality, of at service effective virtually more the don’t also the in right making

So to thing do. it’s the right

there. year, to million balance collect. in got million the the expect the we was $X XXXX of XXXX, we’ve made cover, another over On some and we also I In course progress think of $X.X recoveries, we tremendous integrity claims it

fundamental there some again in very that our been that and tremendously. So engaged tackling we’ve blocking have game really upped

what about you quick still basically the asking just growing. I us. We’ve of about membership We So, the That’s know people give were had a update. expansion members. meant in just XX.X that terms to Medicaid saved – expansion,

for prolated specifically not from receiving about XX,XXX And us but are expansions. market per membership max expect month. the in the We those they

year our So in place. a Virginia, with we the again that was incrementally implemented got and difficult three platform us We’ve year grow operations revenues plans. different because Last overhead. will there new in that helps

total be we but so versus be, about XX,XXX about total feeling in lives pretty they to about would basically on clearly much for plan how year, at we membership and overall XXXX. this are things we’re and hoped good target the XX,XXX last year where So out rolling pretty are lives, we’re things earlier,

Kevin Fishback

achieving Okay. York, about York you’ve increase increase there a update can is New I and benefit as that’s those little already dynamic at then, there? MLR rate the rate a April to from as as talk quality New get right improve rate guess you to to that was see guess X, expect what into visibility you performance Or you happen levels? that far visibility And that got still bit now your talked into has I about so you improving that is the

Jonathan Rubin

Hi, John. take that. shot Kevin. at a I’ll It’s

through don’t of We’ve market update. put expect of from we continued data the sort versus metrics we’ve we’ve have with the of improve second York, Normally, where rates risk past have New do those, as change risk yet our we the in state many York. one for rates April adjuster are – therefore the has adjusters. on practice biggest of our is as What if part come of as have final the New not and until place. rates adjusted the quarter, we out the don’t the we’d things April So to indicated update November, into we the what been the in component and of the so initiatives do assumption built risk

So we then forecast based have shouldn’t from as the what’s the worse built and our that data be shouldn’t – into forward. November we go we believe that’s on assumption

to obviously, quarter we’d think of get we’re hopefully got retroactive to but of from that thereafter we the within So we’ve we terms that, is don’t we have April. would we’ve final a be how rates, York we’d to expect data expect New indicator and got – trying again good measured but shortly forecast in what be or which that second rates

going to future be were issue when that rates now the based adjusters had in we is updated sort working put and data dealing come what you the thing in year state it other on a near out that freeze The remember the working if with from York XXXX on of November. retroactive is piece not are They they’re through the The inconsistencies. data before understand to out. some finalize also risk New last came the

built there’s forecast. potential not into that’s there, our So upside

through fact If the fourth recall impacted that the was update you negatively didn’t pending. is in and quarter something go still that that

since of quality is terms of are in quality the is seen have materially in sort assumed on we’ve the issue the get last tier metrics our can and the What quality level we’ve tier we the seen next just results you I the York on to that’s believe the and and year, a New our what’s the measured of missed – really and metrics In then you’re date to quality is into improve say – based we’ll put again earn tier. in metrics next and we then year forecast based confidence. incentive

Kevin Fishback

And the a then you have a number us Do maybe side? on just guys I think, PBM heard, – last question. retention for

Jonathan Rubin

would and we number mentioned at ever the we’ve that know retention least XX% don’t I XXXX. – any retention see for expect a to range don’t We

Barry Smith

Yes, the XX% we as we’re more is which lower year we largely side market we’re normally, talked lower to market. little of to we’d which middle we in employer of the little retention on a for the that’s of see to typical what but range, the end the a of larger than XX% sort at bit about is as entered year be saw in range, this the XX% always market in likely the it’s bit so that pricing last sort XX% competitive be

Kevin Fishback

Yes, retention make I levels. both deals came today, to used better it lower bit but some guess than sense interesting lower was Cigna to little CVS than was given still previously, you’ve – going little CVS, but a than lower with there, the maybe a maybe it’s that retention bit out know we’re got on

interesting then, leave you as share So competitor at one that this that just Or the any gaining market highlight? it’s does point? the there united I guess who’s other is in

Jonathan Rubin

think I was is given the Yes, market price sensitive mix competitive what is the pricing. the particularly year this that say – I’d in

see lower than retention typical the losing may are is think what some meaning business. business I to everybody same folks So, more like you having that of moving move

I’m there’s person churn usual. that I bit one just – it. not any don’t little than a from sure I benefiting higher think

Barry Smith

very, don’t that very the just change down it’s on actually every unfortunately Yes, the up a go like to sticky benefit level, It’s a next settle is the benefit. the competitive employee people over trading and year Normally true entity. been providers environment. likely and It’s the state employers for to sector, Medicaid. we true are also clients it’s impacts true would benefit single expect I pricing all over think at in of for particularly PBM see that terms you’ll in I public retention everybody. a changing

So you’d see a of normally lot churn. don’t

to in more probably but over expect see measures, far XX% back XX% seen that to we more normal-ish time. that how it XX% see we’ve So range we’ll out. to But than to go would – plays normal,

Jonathan Rubin

just been so – actually I’d year thing had retention, is very competitors. but underscores sales from while on that note again new just other focused is successful The a more bit quickly also we’ve business positive very your we little while business question this Kevin, in winning a churn, a

Kevin Fishback

Thanks. helpful. That’s

Jonathan Rubin

Thanks.

Operator

Thank you.

Fidel next comes Scott Stephens. from Our question with

Scott Fidel

Good morning. Thanks.

here just question results be in business you how the initial D or retrenchment the this early the with Part quarter? that tracking interested just year the for to First in in first seemed had

Jonathan Rubin

what the year. Yes, had Scott. initial into forecast literally The are right on results we coming

So we XXX% the script seasonality that talked about in seasonality. normal

between a income margin. results, So within and voluntary, the and our low the auto the forecast and literally of mix in very assigns very, on terms members spot the is membership small of

where at about we this in the good feeling are we’re point So year.

Scott Fidel

risk the the around risk party the you gave could for market the for the rebate in they the about participation HHS for views Part year you on and proposal. And in then that thinking adjusters guys context that, updated much for up some D maybe year in risk your related on are mitigate just and next guidance tightening corridors Okay. the CMS proposal latest how and the to of think follow that next that how to a market

Barry Smith

right Everybody’s Those the impact are harbor with and impact we’re be rule year. guessing we out for ways, possible without that proposed likely great. It’s pricing been trying now be. two the next think that there in to Obviously safe how have will figure they’re all clear that modes preparing implications. going with will there participate exactly what we’re and to

Safe and out. down corridors see of risk being associated of will this party with of take pricing we’re to going new some the Harbor very how so mode kind the kind the anxious all retracted So ultimately risk a into plays and then the

likely see that that will something a is it’s and change. feeling will Our we happen that

very see We one one two risk right help corridors just are plays that that without. the bids how now preparing think And will mitigate do out. with we’re and anxious to We risk forward. going

Scott Fidel

did network that and earnings offsets revenue, headwind on ? million of drop the in there guarantees, or flagged the that the Okay, all terms you $X just on any that were

Jonathan Rubin

profit segment impacts, were Those Scott.

that So bottom is line.

Scott Fidel

Okay.

So both profit. revenue segment and

Okay. Thanks.

Jonathan Rubin

Great, [indiscernible].

Operator

next our you Leerink. thank Gupte Please Ana ahead. And SVB comes go from with question

Ana Gupte

Thanks, good morning.

here, in about benefits to talking mid-market talking into the following the as seems to market. Just are on a the integrated And some up the coming quite it’s the a and that of Do but fully employer pricing the discussion and with extent kind now was into brokers of you Ingenio, well it on beyond market, dent whether perhaps, like have had coming Humana and fully a won do play see – you beyond and smaller deal perhaps, we heard them been care Ingenio – Anthem competitive have anyways Optum, we the the pharmacy about with landscape. here? to cost or In – anthem business, anything – have making it bit aggressively a say see I not. hard a Cigna what’s maybe of of

Barry Smith

great capacity. very Well anthem Humana a it’s clearly capable are and both the MCOs with the

course, of – into business. the with getting Ingenio of we’ve launching Anthem seen, We have a kind

you them it’s just Cigna, then they’re clearly it’s But in has clearly Optum marketplace. the more this less offering know that a and launch in – be in Humana and way environment there and mid-market, get is markets the any have the way that material competitive this seen but of a in as with than future, Blue’s a great think although of be expect in because nature in capable competition so for interesting and overtime will express their them. of the to kinds possible difficult within Humana as player of very we respect in the these happen. really because market conflict never see what they entirely we that although not played they’ll way within substantial channel population CVS would played an major haven’t but I And more well. ongoing of because would own Typically, the see in We to material impact more again we from

we the but again, materially So there’ll landscape. we introductions, think that, don’t be change think will competitive that

Ana Gupte

Okay.

what’s on to Harbor of to that be to a And environment the into be broadly market rebates they’re force visibility market. to? lower. I legislative at but potential or Safe what of adapt to may looking commercial on Optum point point to what’s Okay. the to hard understand that sale of What is on and do evolve just going and trying legislate, going of moving may the to now regulatory you rebates sale in do ahead CVS what your is And anything driven kind just more looking with the going to

Barry Smith

Well, it’s very see interesting on how to evolving. this is

and can open service. at very provide point rebates are do of also and We

matter. help it the of it’s whether dollar paying health – necessarily the that course the health plan number health of coverage this expensive doesn’t the issue certainly became course Of that out counter. political big rebates pharmacy or employer significant of that’s high dollar state it’s plan whether for people these at very medications. of cost became the whole issue a that help they those the But aware And because deductibles that have individual plan, first entire and the deductibles out [ph] for dollar

think out the economic that And actual specifically. the approach political generates to I given being the the a those long it’s there we makes with rebates to that rebates so rebate drug just way have individual buys that reasonable in to relative a pricing sense think goes drug solving go problem and that’s

we’re going have relative really process front the rebate to the of on I to the commercial a market out interesting will roll ultimately impact it think how overall. that

very reality of significant one in that competitive pricing is rebates larger in front of the to on insight, reality come compete. what The see per incremental challenges historically competitive $XX little side XXth tens the here’s the that and that see normal hour the and on of it’s players an specialty we’ve and a is how rebate rebate dollars specialty script. rebate multiples from what then of a of it they this is is MCO at millions The very that’s say checks seen as with fact beyond million $XX check. in the our incremental will and an Just that is some is you’ll relative sometimes you the goes or the they’ll saying far million calculations

rebates a So its introduce of we entire competitive used of employer, do a to by good is so think it’s us. like overly world rebates has whatever distribution to MCO been we the rebate whatever more think that – monitor becomes the that fine pricing the relative it to would rational they’re relative payor, an

in distribute case cases that like And to plan employer membership, in or MCO to they’d they’d able across administer like any the an same some are form way. entire the We to.

that go offer. from the sometimes enrollee for minor that, want and PBM very employers drug. the And the of you can retention rebates. materially will that different then have plans to they total Again, done still impact going with the with notion those rebates It’s don’t a negotiate number with, of need at away the There’s we And They’re the somehow can there we to look is contrast that anyway. price if to have this are a profitability the take still know of the in directly compensate programs going that standpoint manufacturers. will clinical of offer various to us. recipient, the ways need I to plan. the

which negotiation the list believe where list So that’s if just there’s lower manufacturers folks these on pharmaceuticals, rebate prices. need manufacturers, we the the you really no and be simply to take the out enormously. prices And that reduce of has out take assurance will the up with absolutely gone

long-wooded way fully you’re that’s to was very that featured but answer question, helpful. So hopefully

Ana Gupte

That’s helpful.

correct contracts odds fee-based Optum Do preserving to that administrative you going model different the I’m and any other your some profitability and any me million into and at approaches of clinical around so business on that doing least $XX range? Scripts million-ish or other So have bottom you in disclosing wrong, the least at that see Express to as line there are and pilots programs that. if and moving a you are margin odd mid-single-digit low $XX-ish

Jonathan Rubin

the clear rebates is – me segment. are XX the just let of net specialty me for point believe one John, be Let you’re sort outs million on Ana, I it’s referring carve to

queue what – that’s So as identifying the specialty we’re sort in of the rebates.

So providing. that payment rebate formulary services is anything essentially for for is the program we we’re management retain

which of like number success improving significant we seen programs health plans. things a the clinical we’ve driving plans like a through the Medicare It’s we’ve got their effective programs, standpoint the effective great stars to plans drugs So offer health again to upside with the rating that clinical net market to most cost it’s from financial has development for to most share formulary of cost without and these lower drugs. to helping things are

fairs be fees very to we’d or other So are to model find are through the or crux valuable we types reimbursed mechanisms of if get or and other change, the financial compensated. to to your providing the were to the question, of services ways health plans risk

Barry Smith

just margin we business. back the is rebate mechanism at to good just Jon I these have services we didn’t were This and for which is We how days the did any exactly PBM incremental all. think talking with here, services earlier charge high world. my reliance on as Ana,

to lives. more dramatically Jon benefit pharmacy in and it’s advantage that we cover So that services ways, marketplace reduce back pharma which We mentioned, medical services, some think the is be management will in where we spend different going to for world. pretty we a these our huge charge of as the kind because clinical in overall capabilities future the offer, these

pay sometimes negotiate I few gained that the of the a they in services we when us those think pay that sometimes two than net rebates and via people us And anybody us else in the marketplace they we clients just the we extra receive directly. XX.X space. million plus, pay for

to in I real have we’ll which So is world if we think a think we advantage goes place marketplace. that likely the the somewhat think

Ana Gupte

to side. may who the their response Can chairs pulling smaller Shield don’t more pharmacy be in like How Blue the this up across looking? competitive, on Okay. it in and PBM in that is be of at landscape broader and And become But then is with in-house by in bit, more point how Cigna a PBM you may for what WellCare Anthem started mean, now health just Prime supplier Centene musical back evolving of you looking in to then of And you’ve CVS, supplier landscape value but large PBMs then arrangement a always to segmentation now are competitive be proposition doing is of the – plan with some certain for with approaches. Express the game that on It have completely customized that specific as a Blue there view it that? – regional don’t I I want out. Very arrangement perhaps the PBM large the Therapeutics, same – the And a that’s by moving specifically? feels you others a point also helpful. plans health competitor. is follow all and had has plan that health medical transformed side you’ve future the on it expressed use and

Barry Smith

interesting how pricing a no environment. before it points market it’s it’s competitive that break into evolving. I very is MCOs. There’s the decision Hi, # distinct doubt

is clearly price So important an consideration.

is thing as conflict issue. second The mentioned the channel you

the than service. a I to – an the looked as when on more getting us. third the independent both And relationship so of terms very service with way. friendly in In think the are how customized reporting we both shots helpful I we customer do, ever members a service at mean been about members that’s to our before and in lot to member the the and element and that the player capacity that we’re because goal of great but We plan say has is service, also and

and a to things becomes the most indeed get upon but would the the moment is be and the And side. distinctively that an larger say nod than and I service on are we is to different channel conflict overwhelmingly Jon price the clinical issue and issue The that major the those about that, driver. a customize so typically of – talked if we price an based guys is ago the close, a primary if do that on advantageous conflict of terms driver, side ability is continues it’s work programs on in channel our

of these a oncology on could example, PBM unique of autoimmune the with someone’s means hormones, in a here, for if that AI. a are the through very But way just higher you is growth just human through the It’s much that drugs. great It’s patient. drugs the – level level with physicians of with a of much not We do it PBM working takes on level also a and transaction touch, lot deal and and personal that cost service. family you’re automation office a really network high the just higher or service that

people cost the but cost. think able third for be ordinarily has an It’s to both in do, allows that people wouldn’t so also from us buy impact category, we And and in reducing a service do reason. it they things it’s we’re that industry that important unparallel to

certain So and savings generate to can when many x we We encourage a people very personalized many, cost are the clinical just simply service fortunately high number. and that approach. spreadsheeting on price, given do include AWP this rebate minus them

Jonathan Rubin

pricing sort of you our while just size Jon, in opportunities that lower of is – the you for at thing had is to the us. focus is local of to of middle rational pricing play course plans it’s on I’d or cases health to market. and plans because also Yes, get the and conflict looking sensitivity extent some regional market larger the chase we we’ve to we’re advantage. is predominantly not than the real the our quickly, some some even larger plan. again clinical segment a channel we And service health add more small not the – it approach where where chosen health the the other the the in when And when favorable that segment on health plan end on

Ana Gupte

at changes, you Then there one one of Very how lot clearly a human pharmaceutical as do responding, helpful. I see may flat-footed look With some given have of are that? well most to consternation they loss, with the want and think and impact crosshairs caught to final point been PBMs that was likely the the one. in How industry and like other good entry is PBMs as regulators? and with you

Barry Smith

by a rest see they’d to just the of million prices that the of like PBMs continue they and are can’t that’s it’s that’s industry challenges driven a be the getting being the course have not in will as problem. not and pharma. The Well, out interesting, lobbying because highlighted point I that the industry going so today they’re The Ana, is to money help out economics lobbying, think list from year it spends to pharma And of so lot $XXX true. the be. on and largely

literally issue. Part XX% example than you the the it’s of all if even these did on things total reduced rebate less and D, for So price

So issue. pharma, – the are is prices the list the issues

a must And way responsible so that to value prices. in way a respond list in pharma is relative and ultimately

not their have opposite it in PBM So mechanism if prices. or you, be would completely out the is But again, no list pharma the equation I increase would their reduce prices there that took of the think list direction.

crosshairs that come for some quite large. numbers in likely of just I irrespective because will think the are significant So to time remain too very the the pharma lobbying

Ana Gupte

taking Thanks the Very questions. helpful. for

Barry Smith

call. Ana. we You XXXX again thank quarter today’s where for speaking second our your Well in you in day. We will results. bet. look forward everybody you Thank to conference July, participation Good you, with discuss

Operator

today’s conclude thank your do may you. and Thank does time. We participation This at your disconnect you conference. lines you for this

Joe Bogdan	Senior Vice President, Corporate Finance
Barry Smith	Chairman and Chief Executive Officer
Jonathan Rubin	Chief Financial Officer
Ana Gupte	SVB Leerink LLC
David Styblo	Jefferies & Company, Inc.
Scott Fidel	Stephens Inc.
Kevin Fishback with Bank	America Merrill Lynch

Magellan Health (MGLN) 5 May 192019 Q1 Earnings call transcript