Centene Corporation's Strong Financial Performance and Strategic Initiatives
2024-02-08
Centene Corporation recently held its Q4 2023 Earnings Call on February 6, 2024. The call was hosted by Sarah London, the Chief Executive Officer, and Andrew Asher, the Executive Vice President and Chief Financial Officer of Centene. During the call, several important topics related to the company's performance and future outlook were discussed.
One of the key focuses of the management team in 2024 was bottom-line work and disciplined execution. They highlighted significant milestones achieved, including the successful migration of the largest-ever PBM platform and improvements in the pharmacy cost structure. Additionally, Centene announced the divestiture of Circle Health, their last international asset, and mentioned 10 divestitures made since late 2021.
Centene's SG&A initiatives were performing well and were on track to exceed their original savings goals. The company reported robust growth in the Marketplace and stated that their Medicare bids aligned with their strategic focus on lower-income and complex members. The adjusted earnings per share guidance for 2024 was set to be greater than $6.70.
Regarding Medicaid, Centene highlighted important proof points around the power of incumbency and mentioned that they had received some, but not all, of the outstanding 2023 retrospective rate adjustments. Nevertheless, the company expressed confidence in their 2024 Medicaid guidance. They also projected that D-SNP members would represent more than 35% of Centene's Medicare Advantage membership by year-end.
In terms of financials, Centene reported $35.3 billion in premium and service revenue for the fourth quarter of 2023, with adjusted earnings per share of $0.45. The full-year 2023 adjusted EPS was $6.68. Centene's consolidated HBR was 89.5% for the fourth quarter and 87.7% for the full year. They had 14.47 million Medicaid members at year-end and expected to have 13.2 million Medicaid members at the low point of 2024. Centene's Medicare HBR for the full year was 87.1%.
The company also provided updates on its Marketplace membership, stating that they had approximately 4.3 million members at the end of January 2024. The adjusted SG&A expense ratio for the fourth quarter was 9.7%. Centene's cash flow provided by operations was $8.1 billion for the full year. They repurchased 397,000 shares of common stock for $27 million during the fourth quarter. The company's debt to adjusted EBITDA ratio was 2.9 times at year-end.
Centene emphasized its approach to healthcare partnerships, focusing on building long-standing relationships with states to drive significant healthcare outcomes. They mentioned demographic trends in the incremental membership they gained, with small shifts in age, gender, and the Gold tier. The company also highlighted their involvement in bids and RFP awards in Florida, Georgia, and Texas.
Centene stated that they were managing through trends by implementing clinical initiatives, leveraging value-based relationships, and targeting cost-cutting and value creation. They mentioned adjusting bids in response to the impact of advance notice and their focus on driving efficiency through standardizing workflows and automating processes.
Regarding the Medicare Advantage outlook for 2024, Centene acknowledged different views on the sharp fourth quarter MA MLR spike. While Centene and United believed it meant nothing for 2024, Humana saw it as the new baseline. Centene expressed confidence in their forecast and accounted for necessary factors such as the PDR and trend. They also highlighted their accounting principle for marginal loss, which excludes marketing costs and certain investments. The expected reported margin in 2024 was a minus 3.5%, with a target pre-tax margin of 4% to 5% for later in the decade. Centene emphasized the significant role that Stars would play in achieving the target margin. They also mentioned an increase in retention of SEP members and their efforts to manage headwinds in the Medicaid business.
Overall, Centene Corporation continues to focus on delivering strong financial performance, driving efficiency, and providing quality healthcare outcomes through strategic partnerships and initiatives.