Medicaid managed care rates on state chopping blocks; Centene, Molina at risk

As states weather the economic hits from the coronavirus pandemic, some are setting their sights on Medicaid, in particular the rates paid to private managed care providers.

California, Michigan and Ohio are among those with plans to cut rates to these payers, and more are likely to weigh that possibility, particularly as big Medicaid players like Centene and Molina post large profits as members delay care. 

Ohio cut its Medicaid funding by $220 million, according to the Ohio Capital Journal, largely cuts that private payers will bear. SVB Leerink analysts expect Molina and Centene to be hit the hardest of the MCOs in the states that have announced the cuts, including Ohio.

These rate cuts were heavily discussed on earnings calls this week as analysts peppered executives with questions about the potential headwind. Centene executives declined to quantify how reductions may impact financial performance or guidance, while rival Molina detailed the financial impact so far.

“We’re currently in active discussions with the states and the starting point is rarely the ending result,” Jeff Schwaneke, Centene CFO, told investors Tuesday during the company’s second quarter earnings call. “It really isn’t constructive for us to publicly discuss our individual state expectations. We continue to believe that we’re on a path in many states toward finding actuarially sound solutions toward the budgetary strain.”

Centene reported net earnings of $1.2 billion for the second quarter, more than double its profit from the prior-year period.

“That lack of transparency is understandably frustrating for investors as they contemplate potential cuts from states tightening budgets. It also begs the question, is guidance at risk?” Jefferies analysts commented in a recent note after Centene reported its second quarter results.

Centene CEO Michael Neidorff attempted to assuage investors’ concerns by detailing the discussions with states as they contemplate cuts. Essentially, Neidorff said Centene is encouraging states to take a longer view of the public health crisis, not just making decisions based on a single quarter.

Neidorff seemed to be trying to dispel the narrative that insurers are gaining from the pandemic as they take in per-member-per-month payments, but pay fewer claims as care is prolonged either voluntarily or as a result of stay-at-home mandates.

Centene’s Medicaid segment is its largest with 12.5 million members spread across 24 states, including Ohio and California. 

“The states’ issue, when they saw the reduced utilization, [was] ‘Oh, you’re saving all this money’,” Neidorff said during Tuesday’s call.

Neidorff maintained that utilization will come back in the second half of the year. And even though utilization may be down, it’s being offset by COVID-19 costs. Centene has spent $550 million on COVID-19 related claims through the end of June.

Rival Molina also has benefited from the pandemic due to lower utilization and reported its second quarter profit increased more than 40% to $276 million.

https://www.healthcaredive.com/news/medicaid-managed-care-rates-on-state-chopping-blocks-with-centene-and-moli/582521/