St. Louis-based Centene announced reduced earnings in its third quarter report, citing losses associated with retroactive member assignments in a Kentucky Medicaid managed care contract it's now seeking to terminate.
The firm's third quarter profits dropped 87 percent from this time last year, with net income dropping to $3.8 million, or 7 cents per share, compared to $29 million, or 55 cents per share, in 2011. Centene also reduced its annual earnings forecast, to $0.56 to $0.66 a share.
"The third quarter results demonstrate our commitment to addressing issues identified in the second quarter," Centene CEO Michael Neidorff said in a press release. "While progress has been made, there is more work to be done to achieve and sustain our targeted margins."
The company also said it is suing the Kentucky government, seeking declaratory relief, for allegedly providing incorrect information leading to some $120 million in losses in the first 11 months of the company's managed care contract.
Centene said retroactive assignment of members in Kentucky was a large drag on its earnings. In the program, uninsured patients are assigned to a Medicaid managed care insurer after they first receive care, with the MCO responsible for those claims. Centene executives said the system has led to unsustainable risks and claims-premium ratios.
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Several analysts brought up Kentucky in a conference call. A Susquehanna Financial Group analyst asked whether the termination could be drawn out in court. Declining to comment on that question specifically, executive VP and CFO William Scheffel later said,"We had hoped the state would sit down with us and resolve it the way any other state would have done."
Centene said its third quarter health benefits ratio was 93 percent, compared to 85 percent in 2011. Without the Kentucky members, the ratio across its various managed care firms in 14 states was 88 percent for the third quarter of 2012.
As of September 30, the company had about 1.9 million Medicaid members, with an additional roughly 550,000 members in CHIP, Medicare and long-term managed care.