Molina 'disappointed' by $1B Texas contract loss, weighs protest

Samantha Liss Oct. 30, 2019

Dive Brief:

·         The results from a major contract award in Texas seemed to overshadow Molina's third quarter results on Wednesday. CEO Joe Zubretsky said he was "very disappointed" to hear the results. The company was not selected to return to five of the six regions it has served in Texas through the Star+Plus program, a Medicaid managed care program for those 65 and older and with disabilities.

·         Molina's total revenue and net income slipped during the third quarter compared with the prior-year period, but was in line with company's expectations. Molina beat analysts' estimates for its earnings and medical cost ratio.

·         The medical cost ratio was a bright spot for the Long Beach, Calif.-based insurer. Molina's MCR was 86.3% compared with 87.4% during the third quarter of 2018. The ratio measures cost of care for patients as a percentage of premium dollars. Some peers, including Centene and Anthem, reported increases in their MCRs for the quarter.

Dive Insight:

Molina's shrinking footprint in Texas is likely to create significant pressures for the company moving forward.

David Windley of Jefferies estimates the smaller footprint there will mean a loss of potentially $1 billion in premium revenue, a hit to earnings, decline in membership and an impediment to Molina's cost reduction plan.

However, Zubretsky said the company is reviewing the awards and trying to determine why it lost ground in certain regions it previously won. The company is weighing its options and will have 10 days to file a protest, he said.

Currently, the Texas Health and Human Service Commission contracts with five separate plans including Molina to provide care throughout the state to seniors who qualify for Medicaid and also have a disability.

Molina's Texas plan serves about 87,000 Star+Plus members throughout six regions as of Dec. 31, according to its most recent annual filing.

Still, Molina did win contracts for two regions in the Star+Plus program, one of which is new to the company.

The payer raised its guidance for the year. The company now expects earnings to be between $11.30 and $11.55 per share, compared to the previous guidance of between $11.20 and $11.50.

Windley said the company's third quarter results were fine.

"Without the [Texas] announcement, we would have expected a small reaction to these results," Windley said.

https://www.healthcaredive.com/news/molina-disappointed-by-1b-texas-contract-loss-weighs-protest/566108/