One year after barely breaking even, new Medicaid contracts help propel Centene's revenue and earnings in 2013, leaving the St. Louis-based company optimistic about the year ahead.
In the fourth quarter of 2013, premium and service revenue grew 31 percent over the fourth quarter of 2012, and for the full year 2013, revenue grew 37 percent, to $10.5 billion, the company detailed in its latest financial report.
On all of that, with Medicaid managed care contracts in 18 states, Centene posted $2.87 per share for all of 2013, or about $165 million in net earnings -- after barely breaking even in 2012.
"We are pleased with the strong financial performance and development of our organization and business in 2013," Centene chairman and CEO Michael Neidorff said in a media release. "This sets the stage for continued positive momentum in 2014 and beyond."
Centene's guidance puts it on track to seek a 1.6 percent margin this year, by the estimates of Citi Research analyst Carl McDonald.
The company's medical loss ratio has improved over the past year, falling from 89.6 percent in 2012 to 88.6 percent in 2013, while general its general and administrative expense ratio hovered at 8.8 percent for both of the past two years.
Much of Centene's revenue stream is flowing in from Medicaid managed care and Medicaid-Medicare dual eligible contracts, existing and new.
Last September, its Sunshine State Health Plan won a contract to cover Florida beneficiaries, including TANF and dual eligible patients, in 9 of the state's 11 regions. In November, a Centene subsidiary was awarded a contract for coordinated dual eligible care in South Carolina, and in December another subsidiary started a new managed care contract for Medicaid beneficiaries in 18 rural California counties.
Also last December, Centene signed an agreement to buy a majority stake of 68 percent -- valued at about $200 million -- of Fidelis SecureCare of Michigan, a home care management company that was recently selected to provide integrated care to dual eligibles in the greater Detroit region of Macomb and Wayne counties.
In 2012, a year that "had its challenges," as Neidorff said, Centene was looking like it might be an acquisition target. Now the company is set to ride a wave of government contracts, but its profitability isn't guaranteed, as the dispute with Kentucky's Medicaid program and subsequent pull out and losses suggests.
In a conference call, Wall Street analysts lobbed a number of queries at Neidorff and other executives, many relating to the Affordable Care Act industry fee that Centene and other for-profit managed care plans are hoping to recoup from states.
Neidorff said there are only "three or four" states that have signed agreements, "but we see nothing that is a barrier" in the long-term.
It's still not clear how the fee will be recouped; it could be blended into rates or paid in a one-time sum. Although, if states build the fee reimbursement into rates, as Goldman Sachs analyst Matthew Borscht wondered, they may end up overcompensating not-for-profit managed care plans that are exempt.
"Some states," Neidorff divulged, "have said 'We'll wait until the end of fiscal year and we'll reimburse you.'"
Either way, it's something that's going to have to be worked out over the course of the year. "At this point in time, it's overly optimistic to think we would have it done by March 31," Neidorff said about completing the agreements.
Another issue on analysts' minds, given Cetene's patient population, is the new Hepatitis C drug Sovaldi, a treatment with a 90 percent success rate and a cost of about $84,000 for a 12-week course.
"We're always focused on rigorous review with new requests," said Centene's chief medical officer, Mary Mason, MD. "Since the approval of Sovaldi, we've had 22 approved requests and we're focusing on those patients in case management," she said.