UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 8-K
______________
Current Report
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 8, 2018 (January 8, 2018)
______________
MOLINA HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
Delaware | 1-31719 | 13-4204626 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
______________
200 Oceangate, Suite 100, Long Beach, California 90802 | ||||
(Address of principal executive offices) | ||||
Registrant’s telephone number, including area code: (562) 435-3666
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. | |
¨ | |
Item 7.01. Regulation FD Disclosure.
On January 8, 2018, the Company presented and webcasted certain slides as part of the Company’s presentation at the 36th Annual J.P. Morgan Healthcare Conference in San Francisco, California. A copy of the Company’s complete slide presentation is included as Exhibit 99.1 to this report. An audio and slide replay of the live webcast of the Company’s presentation will be available for 30 days from the date of the presentation at the Company’s website, www.molinahealthcare.com.
The information furnished herewith pursuant to Item 7.01 of this current report shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement or other document filed by the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits:
Exhibit No. | Description |
99.1 | Slide presentation in connection with the Company’s presentation at the 36th Annual J.P. Morgan Healthcare Conference on January 8, 2018. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
MOLINA HEALTHCARE, INC. | |||
Date: | January 8, 2018 | By: | /s/ Jeff D. Barlow |
Jeff D. Barlow | |||
Chief Legal Officer and Secretary | |||
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EXHIBIT INDEX
4
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I .
Joe Zubretsky
President & Chief Executive Officer
January 8, 2018
San Francisco, California
J.P. Morgan Healthcare Conference
The Plan: Margin Recovery and
Sustainability
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 2
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This slide presentation and our
accompanying oral remarks contain “forward-looking statements” regarding, without limitation, our numerous margin and
performance improvement efforts, our repositioning of revenue, re-procurements, our capital position and balance sheet, and
various other matters. All of our forward-looking statements are subject to numerous risks, uncertainties, and other factors that
could cause our actual results to differ materially. Anyone viewing or listening to this presentation is urged to read the risk factors
and cautionary statements found under Item 1A in our annual report on Form 10-K, as well as the risk factors and cautionary
statements in our quarterly reports and in our other reports and filings with the Securities and Exchange Commission and
available for viewing on its website at sec.gov. Except to the extent otherwise required by federal securities laws, we do not
undertake to address or update forward-looking statements in future filings or communications regarding our business or
operating results.
Cautionary statement
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 3
Molina Healthcare: An accomplished franchise
focused on government sponsored programs
1. Revenue based on the trailing twelve months (TTM) period ending September, 30, 2017
2. Membership based on enrollment as of September 30, 2017
3. Measurement period based on the nine months ending September 30, 2017
$19B 4.5M 13
revenue1 members2 markets
156
ranking
3 year revenue
CAGR of 31%
3 year membership
CAGR of 23%
No market >15% of
revenues3,
staggered
reprocurements
Began as a single
clinic serving
Medicaid patients
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 4
…but shareholder returns have been unsatisfactory
Operational infrastructure and effectiveness
Lack of execution on managed care fundamentals
Profit drag of new growth areas including the
Marketplace
Challenges managing high acuity populations
Capital management was not a focus
....and as a result
Margins are below peers and earnings are volatile
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 5
Inconsistent performance
Focusing on underperforming business will alone improve margins
1. Profitability and target margin based on internal estimates by line of business and geography for the nine month
period ending September 30, 2017
58%
17%
25%
At Target Below Target
but Profitable
Not Profitable
Profitability by State: All Lines of Business
(Based on Premium Revenue)1 Multitude of options for addressing
underperformance
Improving specific markets and lines
of business will improve margins:
Florida, Illinois, Puerto Rico,
New Mexico
ABD, Marketplace
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 6
Building a plan to improve and sustain profitability
What gives us the confidence that we can succeed?
Based on publically available financial filings
0.0%
1.0%
2.0%
2013 2014 2015 2016
Molina Peer 1 Peer 2
After-Tax Margins
MOH vs Peers
Peers are profitable and growing
Our portfolio is similar to our peers,
same products, same geographies;
different mix
Molina will reestablish margins and
reduce volatility before participating
in growth opportunities
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 7
Molina’s Margin Recovery and Sustainability Plan:
2
3
1
Restore margins through operational
improvements and managed care fundamentals
Optimize revenue base for profitability and
future revenue growth
Enhance balance sheet and capital
management discipline
Goal: sustainable 1.5% - 2.0% after-tax margin in line with peers
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 8
Molina’s Margin Recovery and Sustainability Plan:
2
3
1
Restore margins through operational
improvements and managed care fundamentals
Optimize revenue base for profitability and
future revenue growth
Enhance balance sheet and capital
management discipline
Goal: sustainable 1.5% - 2.0% after-tax margin in line with peers
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 9
Margin recovery and sustainability
Significant cost rationalization commenced and will continue:
Organizational spans of control and
management layers
Implement salary bands and job families
Eliminate or combine under-scaled
operations
Implement rigid productivity standards
Realign field structure
Open up inflight procurement contracts
to reduce unit costs
SG&A
Network
Utilization
and Care
Management
At-Risk
Revenue
Risk
Adjusters
Claims
Excellence
IT and
Information
Management
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 10
Margin recovery and sustainability
Reconfiguring the organization
Reduced headcount by approximately 1,750 employees or
12% of the total workforce
Reduced the number of management layers across the
organization from 12 to 8
Increased average span of control from 6 to 7
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 11
Margin recovery and sustainability
Restructuring savings executed to date
SG&A and Admin savings based on internal company estimates through December 31, 2017
1. Approximately $100M of 2018 annualized savings from org redesign is classified as medical costs for financial reporting purposes
Org Redesign Contract labor HR benefits Procurement Savings Total
2018 Annualized SG&A and Admin Savings Achieved through 2017
$200M $10M
$10M
$15M $235M
$100M1
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 12
Margin recovery and sustainability
Opportunity to simplify networks that are too wide, too costly, and not tightly controlled
Terminate or renegotiate high cost
providers
Narrow network in certain
geographies
Stop-loss thresholds and carve-outs
Value-based contracting
Ancillary services
PBM pricing and operations
Exited Direct Delivery business
SG&A
Network
Utilization
and Care
Management
At-Risk
Revenue
Risk
Adjusters
Claims
Excellence
IT and
Information
Management
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 13
Margin recovery and sustainability
Utilization review and care management must be more effective
Specialist referrals
Pre-authorization
Effective concurrent review
High acuity populations and high
utilizers of service
Emergency room utilization
Behavioral and medical integration
SG&A
Network
Utilization
and Care
Management
At-Risk
Revenue
Risk
Adjusters
Claims
Excellence
IT and
Information
Management
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 14
Margin recovery and sustainability
Membership acuity and morbidity must be properly reflected in risk scores
More effective engagement in state
rate setting
Improve STAR ratings
Increase retention of Quality
Revenue Withhold
With proper focus on coding and
documentation we can achieve risk
scores that are commensurate with the
acuity of our population
SG&A
Network
Utilization
and Care
Management
At-Risk
Revenue
Risk
Adjusters
Claims
Excellence
IT and
Information
Management
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 15
Margin recovery and sustainability
Our claims payment function must be significantly improved
Areas that can be significantly
improved:
Provider experience
Payment accuracy
Oversight of fraud waste and
abuse
SG&A
Network
Utilization
and Care
Management
At-Risk
Revenue
Risk
Adjusters
Claims
Excellence
IT and
Information
Management
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 16
Margin recovery and sustainability
All opportunities for operational efficiencies and margin improvement will be considered
Standardize instances of administrative
platform
Streamline operations and procedures
Evaluate potential co-sourcing and/or
outsourcing operational components
Consolidate data warehousing and data
mining capabilities
SG&A
Network
Utilization
and Care
Management
At-Risk
Revenue
Risk
Adjusters
Claims
Excellence
IT and
Information
Management
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 17
Molina’s Margin Recovery and Sustainability Plan:
2
3
1
Restore margins through operational
improvements and managed care fundamentals
Optimize revenue base for profitability and
future revenue growth
Enhance balance sheet and capital
management discipline
Goal: sustainable 1.5% - 2.0% after-tax margin in line with peers
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 18
Focus on defending existing revenue
May 2017 August 2017
Expected
1Q 2018
Submitted Submitted In Process
June 2017
Strong track record of winning
reprocurements
Continue to invest in RFP team
and capabilities
Ensure successful launch of
Mississippi TANF contract and
platform
Awarded
Upcoming
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 19
Focus on defending existing revenue
May 2017 August 2017
Awarded
Upcoming
Successful retention will require:
Excellent past performance
Value-based contracting
Ability to manage high acuity
populations
Managing substance abuse and
other behavioral conditions
Expected
1Q 2018
Submitted Submitted In Process
June 2017
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 20
Profit is our main focus, not additional revenue
We will consider opportunistic revenue growth only if specific parameters are met
1. Trailing twelve months (TTM) total revenue is for the 12 month period ending September 30, 2017
$6.6B
$9.7B
$14.2B
$17.8B
$19.5B
2013 2014 2015 2016 September
2017 TTM1
Total Revenue
Regulatory environment
Competitive forces
Network viability
Meaningful margin opportunity
Leverage existing scale &
operations
Scalable population
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 21
Diverse revenue base with opportunity for significant
performance improvement
1. Geographies and lines of business as of January 1, 2018
2. Revenue based on annualized premium revenue for the 3 months ending September 30, 2017
Geographies by Lines of Business1
Texas
Washington
Florida
Ohio
California
Michigan
New Mexico
Puerto Rico
Illinois
Utah
Wisconsin
S. Carolina
New York
Medicaid ABD Expansion MMP SNP MarketplaceState
~$2.5B
~$1.5B
~$0.8B
–
~$0.4B
<$0.4B
Revenue Identify underperforming
geographies and lines of
business
Re-position the portfolio and
allocate capital to optimize
returns
Each subsidiary must
contribute to parent company
cash flow or grow
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 22
Decisive action taken with Marketplace
Reducing our Marketplace exposure and volatility
1. The 2018E average premium increase includes an increase for the removal of CSRs in 2018
2. Beginning membership and annual revenue for 2018 are estimates
Molina Marketplace
2018 Operating Assumptions
Average Rate
Increase1
Exited Utah and Wisconsin
Marketplaces in 2017
Reduced the scope of our 2018
participation in Washington
In remaining Marketplace plans,
increased 2018 premiums by 55%
Adjusted broker commissions to
market rates
900K
1Q Beginning
Membership2
300K
400K
15%
55%
Annualized
Revenue2
$2.0B
$2.4B
$3.0B
2017 2018
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 23
Molina’s Margin Recovery and Sustainability Plan:
2
3
1
Restore margins through operational
improvements and managed care fundamentals
Optimize revenue base for profitability and
future revenue growth
Enhance balance sheet and capital
management discipline
Goal: sustainable 1.5% - 2.0% after-tax margin in line with peers
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 24
Enhance balance sheet and capital management discipline
Reserving accuracy
Increase tangible net equity
Reduce cost of borrowing
Maximize dividend capacity of subsidiaries
Maximize parent company liquidity and cash flow
Deploy excess capital in a balanced manner
Reduce optionality in capital structure
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 25
Enhance balance sheet and capital management discipline
1. Average risk based capital (RBC) includes all health plans including those that do not file with the National Association of
Commissioners (NAIC) – California and New York
Building Subsidiary Capital
330%
350%
Average
RBC1
Target
Ratio of Debt to Total Capital
63%
58%
Pre-Exchange Post-Exchange1
45%
Target
1. Reflects debt for equity exchange effective December 6, 2017
Debt Rating
S&PMoody’s
Rating
Outlook
B2 BB
Negative Negative
Composite Rating: B+
Target: BB
Total Debt and Weighted Average
Cost of Debt (Pre-Tax)
Weighted Average
Cost of Debt
Total Debt1
Total debt and weighted average cost of debt based on total debt as of September 30, 2017
1. Total debt includes the principle amount of the notes and the amount outstanding on the credit facility
$2.2B
5.1%
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 26
What we are doing today
Focus on operational improvements and SG&A levers
Evaluation of all lines of business in all geographies
Review balance sheet quality and capital structure
Evaluation of operating model, organizational structure and
talent
Review non-core businesses
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 27
Re-baselining our business
The 2018 plan will include underwriting margin and administrative cost improvements in
addition to these one time items
One-time adjustments for the nine month period ending September 30, 2017
1. Prior period medical cost impact estimate is based on period ending fee for service IBNP as of December 31, 2016
2. See following reconciliation of GAAP financial measures to non-GAAP financial measures
($296M)
$186M
September 2017
YTD Pre-Tax
Loss
Pro Forma
September 2017
YTD Pre-Tax
Income
$161M Restructuring costs
$201M Impairment losses
$40M Marketplace PDR
$47M Out-of-period Marketplace risk transfer and CSRs
$108M Prior period medical cost impact1
($75M) Transaction break-up fee
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 28
What you can expect from us
Three-year high level preliminary assessment
2018
re-baseline
Year
1
Year
2
Year
3
Revenue growth
Reduction in
Marketplace
footprint
Stable;
implement
portfolio
decisions
Accretive
expansion in
select new and
existing markets
Margin profile
Staff rightsizing
benefit; managed
medical cost
Improve medical
and network
management;
nearing target
margins
Stable earnings,
manage medical
costs at target
margins
Capital structure
Improvement
to capital
structure
Grow capital
through margin
expansion
Grow capital
through margin
expansion and
redeploy excess
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 29
Molina’s Margin Recovery and Sustainability Plan:
Focus on operational improvements and SG&A levers
Evaluation of all lines of business in all geographies
Review balance sheet quality and capital structure
Evaluation of operating model, organizational structure and
talent
Review non-core businesses
Will provide 2018 guidance in our February earnings call
Details to follow at our Investor Day this spring
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 30
Thank you
© 2018 MOLINA HEALTHCARE, INC. 2018 LI L , I . 31
Reconciliation of non-GAAP financial measures
One-time adjustments for the nine month period ending September 30, 2017
1. Prior period medical cost impact estimate is based on period ending fee for service IBNP as of December 31, 2016
YTD September
30, 2017
Pre-tax loss ($296M)
Adjustments:
Restructuring costs $161M
Impairment losses $201M
Marketplace PDR $40M
Out-of-period Marketplace risk transfer and CSRs $47M
Prior period medical cost impact1 $108M
Transaction break-up fee ($75M)
Pro Forma Pre-Tax Income $186M