UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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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 7, 2019 (January 7, 2019)
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MOLINA HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
1-31719 |
13-4204626 |
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(State or other jurisdiction of |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
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200 Oceangate, Suite 100, Long Beach, California 90802 |
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(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)
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Emerging growth company |
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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 Section 13(a) of the Exchange Act. |
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Item 7.01. Regulation FD Disclosure.
On Monday, January 7, 2019, the Company’s management gave a presentation followed by a question and answer session at the 37th Annual
J.P. Morgan Healthcare Conference in San Francisco, California. During the presentation, the Company presented and webcast certain slides. 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 Company’s presentation will be available for 30 days from the date of the presentation on 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:
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Exhibit |
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| 99.1 |
Slide presentation in connection with the Company’s presentation at the 37th Annual J.P. Morgan Healthcare Conference on January 7, 2019.
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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.
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MOLINA HEALTHCARE, INC. |
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| Date: | January 7, 2019 | By: |
/s/ Jeff D. Barlow |
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Jeff D. Barlow |
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Chief Legal Officer and Secretary |
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EXHIBIT INDEX
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Exhibit |
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| No. | Description |
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| 99.1 |
Exhibit 99.1
Molina Healthcare, Inc.J.P. Morgan Healthcare Conference Joe ZubretskyPresident & Chief Executive
OfficerJanuary 7, 2019
Cautionary Statement 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 business, operations, turnaround, plans, guidance, projections, and longer-term outlook within the meaning of
Section 27A of the Securities Act of 1933, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, or Securities Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with such safe harbor provisions. All statements, other than statements of historical
facts, included in this presentation may be deemed to be forward-looking statements for purposes of the Securities Act and the Securities Exchange Act. Without limiting the foregoing, we use the words “anticipate(s),” “are confident,”
“believe(s),” “estimate(s),” “expect(s),” “guidance,” “intend(s),” “may,” “outlook,” “plan(s),” “project(s) or “projection(s),” “will,” “would,” “could,” “should,” and similar expressions to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. We cannot guarantee that we will actually achieve the plans, intentions, outlook, or expectations disclosed in our forward-looking statements and, accordingly, you should not place
undue reliance on our forward-looking statements. Anyone viewing or listening to this presentation is urged to read the risk factors and cautionary statements found under Item 1A in our Form 10-K annual report, 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 caution you that we do not undertake any obligation to update forward-looking statements made by us.
Today’s Agenda Today’s presentation will provide management’s perspective on the following market
misperceptions: Misperception 1: Much of the profit improvement previously disclosed by Molina has been harvested in 2018 Misperception 2: At 2.4%, Molina’s after-tax Medicaid margins have peaked Misperception 3: Because Molina’s
current Marketplace margins are unsustainable, Marketplace profit declines are inevitable Misperception 4: Once Molina’s margins are restored and sustained, the company will be challenged to grow revenues
High quality 2018 earnings create a solid baseline for growth Molina: A Solid Start in 2018;
Significant Opportunity for Future Growth All amounts are estimates; actual results may differ materially. See the Company’s risk factors as discussed in its 2017 Form 10-K and other reports and filings with the Securities and Exchange
Commission, and the statements in this presentation after the heading “Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995”Medical Care Ratio represents medical care costs as a percentage of premium revenueAfter-Tax
margin represents net income as a percentage of total revenueSee reconciliation of non-GAAP financial measures at the end of this presentation Revised Guidance on October 31, 2018 ~ $18.8B ~ 86% ~ 4.7% ~ 3.2% $1,105M - $1,125M $8.80
- $9.00 Total Revenue Medical Care Ratio (“MCR”)(2) Pre-Tax Margin After-Tax Margin(3) EBITDA(4) EPS (1)
Profit Improvement Opportunity
Profit Improvement Opportunity Reality Misperception 1: Much of the profit improvement previously
disclosed by Molina has been harvested in 2018 2018 earnings benefited from early identifiable initiatives focusing on managed care fundamentals Most of the more complex initiatives with high value are still in process We have increased many
of our initial profit improvement estimates We are highly confident in our ability to harvest additional profit improvement
Profit Improvement Opportunity Margin Recovery Area Original MidpointEstimate Medical
Costs Utilization and High-Acuity Care Management $90 Pharmacy $60 Provider Contracting $100 Claims and Payment Integrity $25 Sub-Total $275 Admin Costs Corporate
SG&A $125 Revenue At-Risk Revenue $100 Total Estimate $500M Margin Recovery Area Original MidpointEstimate HarvestedEstimate Medical Costs Utilization and High-Acuity Care
Management $90 Pharmacy $60 Provider Contracting $100 Claims and Payment Integrity $25 Sub-Total $275 $140 Admin Costs Corporate SG&A $125 $30 Revenue At-Risk
Revenue $100 $30 Total Estimate $500M $200M - Pre-tax improvement amount has significantly expanded, even with approximately $200M already harvested Margin Recovery Area Original MidpointEstimate
HarvestedEstimate Revisions Medical Costs Utilization and High-Acuity Care Management $90 Pharmacy $60 Provider Contracting $100 Claims and Payment
Integrity $25 Sub-Total $275 $140 Admin Costs Corporate SG&A $125 $30 Revenue At-Risk Revenue $100 $30 Total Estimate $500M $200M $250M - + Increased
Original Estimate Dramatically Increased Original Estimate $550M Remaining at the Midpoint ~ Similar to Original Estimate $500M - $600M Remaining Opportunity ~
After-Tax MedicaidMargins Can Improve
Reality Misperception 2: At 2.4%, Molina’s after-tax Medicaid margins have peaked Our Medicaid MCRs
are 100 to 200 basis points higher than “best in class” Some of our operating metrics in many of our plans are still “under market” The remaining profit improvement described previously inures primarily to Medicaid We assume a continued
stable rate environment where rates are slightly lower than the medical cost trend After-Tax Medicaid Margins Can Improve
After-Tax Medicaid Margins Can Improve There is substantial room for improvement to bring our current
operating metrics in line with “best in class” Metrics We Have Targeted For Improvement Utilization Hospital AdmissionsER UsageHigh-cost Outlier CasesShort StaysObservation Days Pharmacy Scripts Per 1,000
MembersSpecialty Rx TrendFormulary Management Can Dramatically Improve Can Improve Payment Integrity Claim EditingCost Avoidance Enhanced COBPost Payment Recovery At-Risk Revenue Risk Score Data CaptureQuality
ScoresHEDIS Third-Party Partnerships Announced
After-Tax Medicaid Margins Can Improve By approaching “best in class” operating metrics, Molina’s
Medicaid MCR can improve by 100 - 200 basis points Pure performance excludes the impact of the retroactive California risk corridor adjustment MCR and After-Tax Margin Opportunity Year to Date Pure Performance(1) 88-89%Medical Care
Ratio 2.8->3.0%Medicaid After-Tax Margin 89.9%Medical Care Ratio 2.4%Medicaid After-Tax Margin with Upside ~$550M Profit Improvement ~75% Medicaid Portion Tax Rate ~25% Trend/Yield Deficit ~1.5% - ~2.5% Incremental
After-Tax Impact Up To ~40 - ~100 bps Illustrative Model
Marketplace ProfitDollars Can Grow
Company perspective following the ruling Recent ACA Court Ruling ACA will remain in effect for 2019,
and we expect that through appeals process ACA will remain in effect in its present form thereafter Given strong consensus that recent ruling will not survive on appeal, it is premature to comment on potential impacts to our businessThe ruling
does not change our previously outlined strategy
Reality Misperception 3: Because Molina’s current Marketplace margins are unsustainable, Marketplace
profit declines are inevitable For Molina, the adjustment to our reported MCR for federal purposes is securely above the minimum Our future profitable years do not rely on prior unprofitable years to protect their MCR floor A margin decline,
if one occurs at all, will be due to competitive pressures and growth, not the MCR floor Marketplace profit dollars can grow off the 2018 base on revenue gains over the next number of years Marketplace Profit Dollars Can Grow
Marketplace Profit Dollars Can Grow Illustrative full year 2018 Marketplace pure performance
financial metrics Pure performance excludes the impact of the 2017 Marketplace risk adjustment and CSR subsidiesExcludes the impact of the Health Insurance Fee (HIF) and utilizes a tax rate of ~25% for comparative purposes Full Year Pure
PerformanceNormalized for HIF and Taxes(1,2) ~ $1.8B ~ 70% ~ $245M ~ 17% ~ $180M ~ 10% Premium Revenue (Net of Risk Adjustment) Medical Care Ratio (“MCR”) Pre-Tax Income SG&A Ratio After-Tax Income After-Tax Margin % 5th
largest Marketplace plan~30% of full year EBITDAExtension of MedicaidNetwork priced off Medicaid ratesSpecialized broker channel serving working poor~20% full subsidy~70% partial subsidy~5% market share Our Marketplace is Unique
Marketplace Profit Dollars Can Grow Our reported MCR for federal purposes is securely above the 80%
federal minimum ~70% Approximate Marketplace Full Year MCR 80-82% Approximate MCR under Federal Rules
Marketplace Profit Dollars Can Grow Federally prescribed adjustments to reported amounts place us
securely above the minimum with room to spare Numerator Reported Medical Cost Risk Adjustment QAExpense AdjustedMedical Cost Denominator ReportedPremium Revenue Taxes And Fees FederalIncome Tax AdjustedPremium Revenue Risk
Adjustment 70% >80% MCR
Marketplace Profit Dollars Can Grow Marketplace earnings growth scenario analysis (pure
performance) Scenario 1: Margin OptimizationPremium Revenue +40% ~ $2.6B ~ 73% ~ 17% ~ $285M ~ $215M ~ 8% Scenario 2: Market Share Gain Premium Revenue +90% ~ 3.6B ~ 75% ~ 17% ~ $310M ~ $235M ~ 6% Premium Revenue(Net of Risk
Adjustment) Medical Care Ratio (MCR) SG&A Ratio Pre-Tax Income After-Tax Income After-Tax Margin % 2018 After-Tax Income~$180M
We remain very competitive with an excellent foundation for future growth despite our conservative rating
strategy 2019 Marketplace Membership Update Marketplace Enrollment ~360K ~375K Filed rates in April 2018, before the profitability of the 2018 business was certainConservatively filed a 4% rate increase on average and on top of profitable
2018 rates; margin over membershipWe remain competitive in most geographiesWe expect the business to grow off this base in 2020 January 2019(1) Year End 2018 Approximate enrollment as of January 4, 2018. California open enrollment continues
through January 15, 2019 and the payment grace period may cause this number to change
Molina Can GrowRevenues
Reality Misperception 4: Once Molina’s margins are restored and sustained, the company will be
challenged to grow revenues The existing business portfolio is ripe with near term revenue opportunities ready to harvest The longer term growth engine is currently being built The new management team has bid successfully in the last three
procurements Molina Can Grow Revenues The growth potential in our product segments is significant and we have the ability to maintain and expand market share
Molina Can Grow Revenues Near-term growth opportunities in existing portfolio create more than $1.0
billion of revenue lift into 2019 Mississippi Medicaidstartup, full yearmembership and CHIP award IllinoisFull year membership fromstatewide expansion and competitor enrollment freeze IdahoFully IntegratedDual Eligible (FIDE) SNP membership
growth as program expands FloridaRetention of regions and continued Medicaid presence worth ~$500 million OhioFull year behavioralhealth carve-in WashingtonMembership reprocurement growth, offset by Rx carve-out, and BH carve-in Utah and
WisconsinRe-entry into theMarketplaces Puerto RicoReceived top score in island-wide reprocurement
RFP Process Hired new RFP leadership in late 2018Redesigned entire RFP process Deeply engaged executive
management team at all phases of the RFP processRecent successes: Washington, Puerto Rico, Mississippi CHIPPending awards: Texas STAR PLUS, STAR and CHIP (high degree of confidence) Business DevelopmentHighly skilled new health plan leadership
team in placeNew business development leader hire in processLocal “ground game” being strategically developed in prospective RFP marketsDeveloping deep, targeted insights into priorities and issues in key target markets Molina Can Grow
Revenues RFP capture abilities are being built and enhanced for longer-term opportunities
Drivers of Government Sector Growth Molina Can Grow Revenues Government segments are the largest
and fastest growing within healthcare MedicaidUnderlying population growthMedicaid expansion growth and increasing coverage/benefitsDualsGrowing aging populationIncreased Medicaid coverage and integration between Medicaid and
MedicareMedicareGrowing aging populationEnhanced product value driven by strong government supportMarketplaceGovernment subsidiesRelative cost effectiveness of alternatives Government Sector Managed CareSpending Growth (2016 - 2021
CAGR) Source: NHE, Medicaid OACT, Medicaid.gov, Medicare Trustees, CMS, CBO, AHIP, MedPAC, NAIC Medicaid8.0% Duals7.0% Medicare8.5% Marketplace4.0%
Longer term, there are significant embedded opportunities within our existing portfolio Molina Can
Grow Revenues Core Drivers TX STAR PLUS and DSNPMarketplace and/or Medicare expansion in IL, SC, MS, and PRMedicaid expansion in MS, UTIL, and OH LTSS carve-inMI BH opportunity Higher Penetration in Current
Geographies Expansion into Adjacent Geographies Benefit Carve-Ins and New Products New State RFPs Opportunities Underpenetrated state market share in MedicaidRedetermination and reenrollment managementLaunch additional products in over 400
Medicaid only counties$30 billion of Medicaid revenue is expected to be procured in next 3 years
Key Takeaways from Today’s Presentation 3 Our Marketplace business has multiple paths to allow us to
achieve growth in profits 4 Molina’s near and long term revenue opportunities are attractive and we are well-positioned to pursue them 1 Significant profit improvement opportunities remain post 2018 performance 2 We have a path to
achieve after-tax Medicaid margins in the 2.5 to 3.0% range with upside
Thank you
Appendix
Non-GAAP Reconciliation of EBITDA Appendix $585 120 115 285 1,105M Net
Income Adjustments: Depreciation, and amortization of intangible assets and capitalized software Interest Expense Income Tax Expense EBITDA $600 120 115 290 1,125M (in millions) Low End High End 2018 Guidance