Centene Posts Solid 3Q Results Despite Wall Street Concerns

Centene Posts Solid 3Q Results Despite Wall Street Concerns   by Peter Johnson   Centene Corp. managed to beat Wall Street’s earnings expectations in the third quarter of 2022 while also reporting lower-than-expected Medicare Advantage Star Ratings and MCO contract struggles in California and Florida, two of the Medicaid-focused carrier’s largest states by enrollment. Reviews from Wall Street analysts were mixed, with financiers praising Centene’s continued efforts to spin off its PBM business but raising concerns over the contract disputes and the looming resumption of Medicaid eligibility redeterminations.  The insurer reported $1.30 in adjusted earnings per share (EPS), beating the Wall Street consensus projection of $1.24. Its total revenues reached $35.9 billion in the quarter, up 11% compared with the third quarter of 2021. Cigna will take over Centene’s PBM business Centene awarded Cigna Corp.’s Express Scripts division a contract to manage Centene’s PBM business, deposing CVS Health Corp.’s Caremark PBM. Centene had previously operated an in-house PBM, Envolve, but announced plans to spin off and outsource the business in 2022. The strategic shift away from PBM and specialty pharmacy follows multiple settlements with state attorneys general regarding allegations that Envolve overcharged those states’ Medicaid programs for prescription drugs. Analysts were positive about the PBM deal. Barclays analyst Steve Valiquette views the “PBM savings from new vendor” as a “bright spot” for Centene. That said, Barclays is cool on Centene overall, rating its stock “overweight.”  Similarly, Jefferies analyst David Windley wrote that the new PBM contract is one of a few “incremental positives” that has the potential to “offset meaningful headwinds in FY24.” However, Jefferies is more bullish on Centene overall, with Windley writing that the stock “remains cheap” with the company demonstrating “improved execution and serving as a recession play” — Medicaid enrollment tends to spike during a recession.  California, Florida decisions dent profitability Some of those headwinds include lower-than-expected Star Ratings in Centene’s Medicare Advantage business. Also, the firm will lose millions of enrollees in California unless it is able to successfully challenge that state’s latest round of Medicaid contract awards. During an Oct. 25 conference call to investors, CEO Sarah London said “we intend to exhaust all available avenues of appeal” — including a potential lawsuit, which would follow ongoing bureaucratic appeals — to reverse the decision. In addition, Florida recently cut its reimbursement rates by 4.5%, effective this month. Merrill Lynch analyst Kevin Fischbeck was just the first of several financiers who asked executives about the rate cut, but Chief Financial Officer Drew Asher downplayed it.  “In Florida, they never put in a COVID-era risk corridor,” he said. “So I'm sure that was a consideration for them. But believe me, we pushed back on that.”   From Health Plan Weekly   Subscribers may read the in-depth article online. Learn more about subscribing to AIS Health's publications.