Good morning. Good morning, everyone. I'm Ed
Kroll, Head
of Investor Relations for Centene. Thank you for joining us for our June 2018 Investor Day. Momentarily, we will post slides from today's presentation on our website at centene.com@theinvestorssection. Those of you who are joining us by webcast today can follow along with the presentations in the room using those slides. Today, we'll have 2 question and answer sessions and we'll have microphones as always available here in the hotel.
So those of you with us can ask a question, just raise your hand. And for those of you on the webcast, as we always do, that want to ask a question, you can e mail me, ecrollkrollsentine.com and I'll get your question into the queue. Now the obligatory forward looking statements. Please note that various remarks we make today regarding future expectations, plans and prospects constitute forward looking statements under U. S.
Securities laws. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the slide you see in front of you, which I will not read today, and risk factors noted in our most recently filed reports with the Securities and Exchange Commission. Centene disclaims any obligation to update this forward looking financial information in the future. Additionally, during this presentation, we will be discussing certain non GAAP that is generally accepted accounting principles financial measures. A reconciliation of those measures with the most recently with the most directly comparable GAAP measures can be found in the slides you see in front of you, which are available of course on our website at centene.com for those of you not here with us.
Please mark your calendars for our next Investor Day, which will be held right here at this hotel on December 14, 2018. Finally, before I turn it over to our CEO and Chairman, Michael Neidorff, you'll find a gift at your place setting, a Centene International adapter and charger. So hope you enjoy that and think of us when you're traveling. With that, I will now turn the meeting over to our Chairman and Chief Executive Officer, Michael Neidorff. Michael?
Thank you, Ed. I was worried that he was looking for a bigger speaker product that was going to read the whole thing. And I'd also suggest if you like the gift, thanks Cindy because I charged it to her international budget. I want to we want to welcome you all to this, but I would like to start with a short video this morning and then we'll pick it up from there.
I lost my job, and I got pregnant. Some friends that offered to help me out with my rent and ended up not being helpful. And I was just about to lose everything, really. I couldn't really figure out what to do and how. I looked for help through, the Nevada Health Care Services, and they connected me with Silver Summit.
I needed to get checkups. I hadn't been to the doctor.
We contacted Silver Summit. They helped us to pinpoint at least 3 providers in our area that we could choose.
Because I had lost my job in Texas, I was about a month and a half without income.
She was struggling with some of the issues with relocating, not knowing anybody in the area. She came through our behavioral health case management team and we're looking for some guidance on how to access services and just how to navigate the healthcare system. So she got linked with one of our case managers and after the case manager got our member referral for behavioral health services, help get her medication in order, things of that nature, was having a hard time finding a job. She was having a hard time just kind of getting on her feet.
Initially, he wanted to help me get my resume in order. He helped me get a little bit more information about transportation, the bus system.
After we created a resume, we did the proofs and she liked it. We set her up with a job fair and within 2 days of the job fair she was hired and then a week after that she had gotten a job. So within the span of a month she had gotten a lot of her issues under control. And then she was fully employed, working 35 to 40 hours a week.
We had an outline of things that she needed to help with. And each of those things, she asked Silver Summit, and they provided those things for her.
I think overall that's the general approach is to is to treat the person as a whole and not just the disease. We're looking at a person based on what is what's going on with them. Is it their housing that's an issue? Is it that they don't have clothes on the back? Is it the fact that they have legal issues and we got to work with the legal center?
We don't just treat just a single disease, we treat the person as a whole. And that's a great part about it.
With Silver Summit, I feel comfortable reaching out for resources if I need them.
Now that she's stable again, she's looking to go back to school. She started her online classes. So she's really excited for all the things she's got in her future. So we were able to do a whole bunch. It was nice to be able to help somebody and go the extra mile.
I didn't have a job or anything. I didn't know anybody. Silver Summit was there to help me. I was able to get 3 job offers that I was able to accept. Silver Summit is there to help no matter what.
Down this one light, a little bit, please. So you see people. It's getting better. Thank you. I'll start this morning by saying Centene is in a very good place.
Through a combination of organic growth and strategic acquisitions and investments, Centene has become a transformative leader in the government sponsored healthcare sector. We are no longer just a Medicaid company, but an industry leading 60 $1,000,000,000 multinational healthcare enterprise. We have maintained an industry leading growth rate and still are very much a growth company demonstrating our leadership within the industry. Our success continues to be driven by strong balance sheet results in each of our business segments and reflects the strength of our foundational diversification strategy. Just last month, we were ranked number 61 on the Fortune 500 list of America's largest companies by revenue, advancing our position by 5 spots over the last year.
We also ranked number 1 on Fortune's list of the fastest growing companies based on growth in revenues over a 10 year period and number 4 over a 5 year period. As a matter of fact, our 5 year compounded annual growth rate using the midpoint of our 2018 guidance range is 41% for total revenues and 36% for adjusted diluted earnings per share. The growth in our revenues and earnings has rewarded our shareholders with a 5 year compounded return on our stock price of 38% as of June 12, 2018. Clearly, we continue to deliver value to our shareholders. And this has been recognized outside the sector as well as we were also ranked number 18 on Fortune's list of best investments based on total shareholder return over a 5 year period.
Centene's success continues in 2018 with reported strong first quarter top and bottom line growth. On a year over year basis, revenues grew approximately 13%. The HBR improved 3.30 basis points and adjusted diluted earnings per share increased 94%. Our enterprise is bringing approximately 300 solutions to 31 states covering 12,800,000 U. S.
Members and approximately 650,000 individuals in 2 international markets. We are proud also to be ranked number 19 on Fortune's Change the World list, joining companies recognized for innovative strategies that positively impact the world. Centene is the largest Medicaid managed care organization in the country. We continue to win Medicaid RFPs in new and existing states, as evidenced by our recent wins in Iowa, New Mexico, Arizona, Washington and all 11 regions in Florida. Our 5 year overall win rate in Medicaid RFPs is industry leading at over 80%.
The acquisition of Fidelis Care will put us in a leadership position in New York, the 2nd largest Medicaid program in the country. Along with Texas, Florida and California, this will position us as the leader in the country's 4 largest Medicaid states. Fidelis will also expand our reach into both Medicare Advantage and exchanges. I will share more on Fidelis in a few moments. Centene is the largest provider of managed long term support services.
Ambetter is a national leader in the health insurance marketplace. This business continues to perform well achieving its targeted margins. We successfully navigated a difficult enrollment environment, gaining market share and exceeding our growth targets. We ask Kevin offering Medicare Advantage and DSNP's brand in 8 states, Centene Medicaid states specifically. These plans were launched under the Allwall brand and are still eligible for a premium bonus under the 4 star parent rating in 2018.
Going into the next decade, we expect this business to be a significant driver of our annual growth rate and therefore remain focused on building a successful Medicare business. Over the last 12 months, Centene's market cap has grown from $13,000,000,000 to just under $26,000,000,000 Our evolution into an enterprise of this scale enhances our ability to maintain positive operating performance despite transitory issues that can occur in any business. Our scale improves our purchasing power. It permits investment in systems and increases earnings power and helps us to expand and protect margins. But be clear, ours is not a story of scale for scale sake.
Our growth has been made with deliberate intent and strategic execution. We continue to add expertise and systems capability across the enterprise to better combine our assets, improve quality and outcomes and drive to our purpose of transforming the health of the community one person at a time. We speak often of our diversification strategy and have shared with you our portfolio approach. As standalone businesses, products and service lines, these are performing well and continue to be a central part of our growth engine as you will hear throughout the morning. I'll also point out that within that portfolio are 17 subsidiary companies that are over $1,000,000,000 in estimated 2018 annual revenue.
Our portfolio is and always has been consumer centric and built to support our local delivery model. From day 1, we have been in our community side by side with the populations we serve, the providers who serve them and the states who contract with us. This local approach is a differentiating factor for Centene. We understand that not only the healthcare needs, but the psychosocial needs of the most vulnerable in our communities. Because of this, we are able to create and provide programs often collaborating with others to empower our members to get and stay healthy.
Addressing social determinants of health is an inherent part of our business and has been a key factor in the ongoing success of Centene. Understanding our communities and applying our portfolio view has always enabled us to identify gaps and trends across a continuum of care and create pathways for whole health integration. For example, having access to a relationship with a provider is essential to our membership. Also, understanding that providers need to best manage a patient's health drives better collaboration and outcomes. As such, we are making targeted investments to strengthen our providers' assets and services that are specific to our membership.
One investment is MHM Services, a national provider of healthcare and staffing services to correctional systems and other government agencies. MHM serves over 250,000 patients in more than 300 correctional, juvenile and other facilities across the country. This acquisition adds 6 new states and expands our existing 7 state correctional footprint to a total of 13. We plan to leverage this larger platform to pursue additional opportunities in both new and existing states. The second addition is our acquisition of Community Medical Group, a leading at risk primary care provider in Florida.
CMG is a nice strategic fit as the company focuses on serving individuals enrolled in government sponsored healthcare programs. The company covers approximately 70,000 Medicaid, Medicare Advantage and Marketplace recipients and has a unique clinical care model. In addition to primary care, it provides access to specialty care, transportation and a suite of social and other support services. As you have heard me say before, the integrating threat accelerating growth and innovation throughout Centene Enterprise is our tech and analytical capabilities. Mark Brooks, our CIO will highlight this morning our 3 pillar interoperability approach to technology.
You will see we are strategically leveraging Sensing's IT capabilities in partnership with our own technology assets such as CaseNet, Interpreter and now RxAdvance to build cutting edge next generation programs. Our recent equity investment in RX Advance, a full service PBM has made a complement it was made to complement Centene's internal PBM. Rx advances transitory and transparency, disruptive technology and PBM cloud platform will enable us to drive change across the care continuum. In addition, we expect to realize savings by significantly reducing both administrative and drug impacted medical costs. I've asked John Sculley, Chairman and Chief Marketing Officer and Ravi Eicher, President and CEO of RX Advance to share more with you during our 2nd panel.
For both the short and longer term, our analytical capabilities and the resulting provider and critical programs are ensuring we have the platforms and systems necessary to capture the best geometrics, biologics and other advances coming from medical science. Via interpreter, the integrated nature in real time speed at which our systems can interpret large volumes of data from multiple sources supports the rapid innovation and implementation of programs specifically designed to address immediate high cost health issues. Doctor. Ahmed Goury, President and CEO of Interpreter will speak to this later in the program. I'll highlight here one example of a program developed by leveraging big data, advanced analytics and machine learning.
Through our methodology, our machine built algorithm can predict which members are either at high risk to become addicted or those early in their dependency on opioids. With this information, we are able to target members to the most effective use of our various processes and our integrated care management process. I've asked Ken Yamaguchi, our Chief Medical Officer to speak more on OPEND program later this morning. I'd also like to point out that we continue to see international opportunities and interest due not only to our public sector and population health expertise, but also our capabilities. You will hear more about international from Cindy Brinkley during our first panel.
Centene continues to have a solid track record of partnering with states to provide budget predictability and measurable return on investment. And we're looking forward to bringing this to the state of New York. In May, through an equity and debt offering, we raised $4,700,000,000 to finance the acquisition of Fidelis Care, pay down our revolving credit facility and for general corporate purposes. This stock offering was the 2nd largest follow on in history. With yesterday's approval from the Attorney General, State of New York, the path has been cleared for a July 1 close and we are ready.
Not surprisingly, Padelis continues to demonstrate a strong operating performance and we have been working closely during the approval process to ensure that we are able to hit the ground running upon the close of the deal. I'm extremely pleased with how the integration process is going. We are actually aware that Centene's entrepreneurial, innovative and agile culture is a key competitive advantage. As we have transformed into an industry leading enterprise, we are undergoing efforts to ensure we preserve that entrepreneurial culture, capture the best of our expanding capabilities and talent, streamlining for efficiencies with a view to protect quality and outcomes and lastly, position ourselves for further growth, diversification and increased profitability. We recently announced leadership rotation that added additional capabilities and better capitalizes on Centene's management depth and culture of excellence.
This announcement is consistent with our previously shared policy of rotating executives and included members of the Office of the President, which I announced in December. This office includes Cindy Brinkley, Jeff Swanicky, Jesse Hunter, Brent Laney and now Brandy Burkhold. I'd like to provide additional clarity regarding the position of President. We originally planned to rotate through this position. However, we found this approach does not allow for the full strategic collaboration of the role.
Because of this, we have made the position of President non rotational and it will remain vacant until filled in a permanent capacity. In closing, we have a lot to cover with you today. Centene continues to be a growth company with long term expectations of double digit growth in the top and bottom line. We have clear sight into our growth drivers and M and A will continue to play an important part of our growth story. We have proven our ability to acquire and effectively integrate acquisitions of all sizes.
We remain well positioned to continue to capture larger shares of the almost $1,900,000,000,000 addressable healthcare market, whether by organic growth or acquisition. Our targeted pipeline remains robust and the runway long. As managed care penetration across the government sponsored healthcare sector remains below 50%. We are positioning Centene for the future by continuing to invest in systems, people and capabilities to ensure we can sustain our ability to provide the highest quality healthcare at the lowest cost. I thank you for your attention and I will now turn the podium over to our CFO, Jeff Schwanerke.
Thank you, Michael, and good morning. We had a successful year in 2017 and carried that momentum into 2018. Total revenues for 2017 were $48,400,000,000 representing growth of over 19%. And as Michael mentioned, we are now the 61st largest company by revenue in the U. S.
As ranked by Fortune. Our adjusted diluted earnings per share grew 14% over 2016 to $5.03 per diluted share. Additionally, we saw improvement in our HBR primarily as a result of the changing membership mix, which we will discuss in a minute. Now on to 2018. We had a strong Q1 of 2018 adding approximately 700,000 members between years, primarily driven by growth in our health insurance marketplace business and product and market expansions in 2017 2018.
Revenues grew by 13% to $13,200,000,000 for the Q1 of 2018 and our adjusted diluted EPS was 2.17 dollars representing a 94% increase from the prior year. We are focused on improving margins through process efficiencies and lower medical costs and have improved our net income margins significantly since 2013. Our adjusted net income margins have increased almost 100 basis points since 2013 at a time period where our revenues increased from $11,000,000,000 to $60,000,000,000 Going forward, we expect to continue to leverage our scale to drive further margin improvement. The execution of our growth and margin improvement strategy has led to a 5 year compounded growth rate of over 36% for adjusted diluted earnings per share when including the midpoint of our 2018 guidance range of $6.75 to $7.15 Not only do we have an industry leading revenue growth rate, but our shareholder returns have also been strong. We have outperformed our peer group and the S and P 500 Index over the last 5 years.
Our 5 year compounded annual growth rate on our stock price has been 38%. This has been driven by growth in revenue and earnings. To put some historical perspective on the revenue growth we have achieved, this slide shows the revenue growth over the last 10 years. In 2,008, we operated in 8 states and had almost $3,400,000,000 in total revenue. Today, our run rate by the end of this year will exceed $60,000,000,000 This growth has been achieved in numerous ways including M and A, new states, product expansions in existing states and growth in coverage categories such as the exchange in correctional healthcare.
More recently, the growth in the last several years has been in 2 primary products, traditional Medicaid through product and market expansions, particularly in complex care membership and growth in the commercial membership through the acquisition of Health Net and the strong performance in our marketplace offering Ambetter. The growth has continued to diversify the business since 2015. At the end of the Q1 2018, we served over 2,000,000 commercial members in 16 states. This growth was primarily due to the addition of Health Net and our significant growth in the marketplace membership over the last 2 years. We served over 1,600,000 marketplace members at the end of the Q1 2018.
This growth was partially offset by the performance initiatives we executed on the Health Net large and small group business in 2016 2017. The result is a more diversified healthcare enterprise. In 2015, our non Medicaid products represented approximately 17% of our total revenues. In 2018, our non Medicaid products represent approximately 34% of total revenues, an increase of over 1700 basis points. As a result of our revenue diversification, our HBR and SG and A ratios have changed over time as well.
Due to the higher mix of commercial and Medicare business, our HBR has decreased while our SG and A ratio has increased. This is due to the higher SG and A and lower HBR ratios typical of commercial and Medicare products. We continue to expect the largest drivers of our HBR and SG and A ratio will be the change in business mix going forward. However, what is also important is that while the HBR and SG and A ratios have changed, we have improved our adjusted net earnings margins over that same time period. As I mentioned earlier, our adjusted net income margins have improved almost 100 basis points since 2013.
Now for the balance sheet. We have always been balance sheet managers and have reduced our debt to capital ratio post the Health Net acquisition ahead of schedule. On a pro form a basis, our debt to capital ratio post the Fidelis financing transaction is 37.5%. This represents an over 500 basis point reduction since the Health Net transaction a little over 2 years ago and we expect to maintain the debt capital ratio in the mid to upper 30% range on a long term basis. In order to provide more detail, this slide highlights selected financial information at December 31, 2017 March 31, 2018 and the pro form a balance sheet reflecting the effect of the Fidelis financing.
As of March 31, we had total assets over $25,000,000,000 including cash and investments of almost $12,000,000,000 and our debt to capital ratio was 40.3% at the end of the Q1 of 2018. Additionally, as mentioned earlier, on a pro form a basis, taking into account the Fidelis financing transactions, our debt to capital ratio decreases to 37.5%. Note that the pro form a information is as of March 31 for the financing transaction and not the acquisition of Fidelis. This improved leverage profile has been recognized in a small way by both rating agencies with Moody's upgrading our debt rating to BA1 and S and P changing our outlook to positive. While we were pleased with the improvement in our ratings, we are not done.
We will continue to manage the business to achieve an investment grade rating in the near term. A quick update on debt. We have over $6,400,000,000 of debt outstanding at a weighted average interest rate of 5.28%. As a reminder, as part of our balance sheet management strategy, we have swapped $2,700,000,000 of our fixed rate debt to a floating rate of interest at the 1 or 3 month LIBOR. This was done to match our asset and liability exposures to short term interest rates.
As illustrated here, dollars 5,700,000,000 of our investment portfolio at the end of the Q1 2018 was invested in short term investments highly correlated to a LIBOR rate. Given our higher mix of short term investments versus our floating rate debt, we continue to benefit when interest rates rise. As this slide illustrates, if short term interest rates were to increase by an additional 100 basis points, it would benefit our pre tax income by $30,000,000 This is just the short term cash and investments and does not reflect the increasing yields we would receive as interest rates reset on our long term portfolio. We would expect to benefit over time as our long term portfolio matures and is reinvested. The growth in revenue and increase in net earnings margins continues to drive adjusted EBITDA growth.
For the full year 2018, we expect our adjusted EBITDA to be in the $2,300,000,000 to $2,500,000,000 range. Additionally, adjusted EBITDA represents approximately 4% of total revenue at the midpoint in 2018. Operating cash flow is expected to be in the range of 1 point 5 to 2 times net earnings on a long term basis. As always, the timing of rebate and premium payments from rate for the rate overpayments and minimum MLR associated with the Medicaid expansion business. This payable in total is in excess of $1,000,000,000 and was accrued on the balance sheet.
As a result, we expect our operating cash flow to be negatively impacted by the payment of the rebate over the remainder of this year. Note that this is regulated capital and has no effect on our total debt or earnings. Next, I would like to highlight the reporting change that Michael mentioned on our year end earnings call. We are enhancing how we report revenues going forward. We will begin disclosing total revenue by Medicaid, commercial and Medicare and MMP.
These categories represent 94% of total revenues for the company. We have shown the Q1 2018 as an example here. With the increasing scale of the enterprise, we will discontinue the membership reporting by state. Next, I would like to highlight 2 potential retroactive changes in the California Medicaid expansion business. First, last week the State of California notified all of the health plans participating in the Medicaid Expansion business that CMS did not approve the premium rates for the period from July 1, 2016 through June 30, 2017.
It is the requirement of CMS that the rate period include a risk corridor similar to the risk corridor that was affected for periods prior to June 2016, which contained an 85% MLR minimum and a 95% MLR maximum. It is still early and the state is determining what actions to take with respect to the rates. The potential effect of a minimum MLR if it were to apply through 2018 would be a reduction to revenue and pre tax earnings. 2nd, the state continues to refine the minimum MLR calculation for periods prior to June 30, 2016. The most recent revision, it reduces our liability under the program, resulting in an increase to revenue and pre tax earnings.
If you recall, this is the same calculation we recorded $195,000,000 of pretax earnings in the Q4 of 2016. In the spirit of full transparency, we have provided the potential effect of both of these items on 2018 and prior periods. As illustrated here, the total effect of both items would reduce revenue and pretax earnings between $10,000,000 $40,000,000 Note that all the effect relates to periods prior to 2018. This is the result of rate decreases in each year since the minimum MLR ended. As a result, we don't expect the minimum MLR to have any effect on 2018 or future periods.
However, any adjustment for prior periods would be recorded in 2018. Again, this is early in the process and we are providing as much as we know. We will keep you updated as things progress. We are updating our annual guidance today excluding these two items as they have not been finalized. Lastly, we have revised our guidance for 2 items.
1st, to increase our total revenue guidance range to $59,200,000,000 to $60,000,000,000 to reflect additional pass through payments we received in May. And second, to increase the shares outstanding to 198 point $7,000,000 to $199,700,000 as a result of the upsized equity offering completed in May. We continue to expect adjusted diluted earnings per share of $6.75 to $7.15 This includes the Fidelis acquisition, which we expect to close on July 1, 2018 and does not include any potential adjustments associated with the California Medicaid expansion items that I previously discussed. Thank you. Now I will turn it to Chris Bowers, who will provide an update on our markets.
Thank you, Jeff, and good morning. 2018 is on course for another year of membership growth, expansion in the new states and successful retention of our current health plan business. This morning, I'll update you on our experience so far this year. I'll also review 2 health plan case studies on membership and growth and quality improvement. And I'll finish with examples of how we leverage our analytical and physician assets to drive health plan improvement and quality.
I want to start by highlighting Centene's leadership position across the country. 8 of Centene's health plans are rated number 1 in their states from a revenue standpoint. Once Fidelis closes, Centene will be the market leader in the 4 largest Medicaid states of California, Texas, Florida and New York. Next, I'll review this year's health plan growth through expansion. Arizona Complete Health successfully re procured its Medicaid business and was selected in the maximum allowable 2 out of 3 regions.
This procurement integrated behavioral health and physical health into a single product. We estimate the membership at 170,000 220,000. While the state consolidated physical and behavioral health, we did retain some behavioral health members only. That membership will be reduced to an estimated 30,000. Our revenue will remain at current levels and the program is scheduled to go live on October 1, 2018.
Next, Sunshine Health, our Florida subsidiary was recently selected to provide MMA and long term care services in all 11 regions in the state. Previously, those two products were awarded and managed separately, And we serve 9 MMA regions and 10 long term care regions. Now we will serve all populations across the state. In addition, Sunshine Health will remain Florida's sole foster care specialty plan in all 11 regions. With some protests still ongoing, our early membership projections show an incremental 100,000 to 120,000 additional members and a total membership in a range of 600,000 to 700,000.
The new contract is scheduled to be implemented next January. Centene will be entering 2 new states next year. First, New Mexico. Western Sky Community Care won a statewide contract effective January 2019. The program includes TANF, SSI, Long Term Care Services and Supports, and Integrated Behavioral Health Services.
We estimate our membership between 100,150 out of approximately 700,000 eligibles in the state. Our new contract in Iowa is also starting next year. Iowa Total Care was tentatively awarded a statewide contract to provide services to all Medicaid populations beginning on July 1, 2019. Our current 1st year membership projections are between 180 and 200,000 members. Lastly, coordinated care of Washington was awarded 5 regional service areas to provide integrated physical and behavioral health and will continue to serve as a sole source statewide foster care provider.
The implementation of the new program will be phased in by region over the next 2 years. Once fully implemented, we estimate our membership will be between 180,200,000 with a slight reduction from current levels. As you can tell, Centene continues to win procurements in our existing markets and in new markets. Once we are established in a market, we tend to see significant growth and I have 2 health plan case studies to illustrate how this growth occurs. The first is the growth story of Align Eyecare, our Illinois based health plan.
We have seen remarkable growth since we entered the market in 2011. In 8 years, our membership has increased from 16,000 to over 400,000. This expanding scale is a testament to the discipline and success of our all products in all market strategy. Over the course of the 8 year period, we have worked in partnership with the state of Illinois to expand managed care to all Medicaid populations and to launch the dual demonstration program in the marketplace product. Quality is also a driver of our growth, delivering the best possible outcomes for our members is a top priority at Centene as reflected in our comprehensive quality management program across the enterprise.
Buckeye Health Plan has been particularly successful with our quality initiatives. We believe that every person in the organization plays a role in delivering high quality care to our members. To that end, in Ohio, we have seen significant improvement in 6 key quality measures monitored by the state. Buckeye is currently the top ranked plan for state quality assignment, which means that we are assigned additional membership through the auto assignment algorithm. Buckeye is also number 1 in the state These at risk payments are tied to performance and selected HEDIS measures and other state quality based measures.
Over the past 3 years, the plan has seen these payments increase by $19,400,000 or 400%. Lastly, Centene is leveraging our analytic and physician assets to drive quality and risk adjustment improvement in the health plans. These capabilities have the ability to differentiate us in the marketplace. Sunshine was the first health plan to integrate with Interpreta, our data analytics company, to provide continuous real time prioritization of clinical gaps to clinicians and providers. Every day Interpreter refreshes the quality data on Sunshine's 1,000,000 members in order to provide current gap information to health plan employees and to providers.
Sunshine's Concierge team saw a 16.25% improvement in the GAAP closure rate when members are engaged using the data coming from INTERPRETA. This project will have meaningful impact on our quality scores and we are currently in the process of rolling out INTERPRETA in 8 additional states this year. Doctor. Amit Gurry will go into further depth on INTERPRETA's capabilities later in the program. The second example of driving value into the health plans is the integration of US has helped Sunshine Health in several ways.
First, VPA providers service primary care providers to Sunshine's members who are typically homebound and who have 4 or more chronic conditions. These visits improve the health of these members and result in significant savings each year. The routine primary care visits result in a decrease in emergency room visits and inpatient stays. Quality scores for these patients are typically high and USMM has also helped Sunshine with quality scores for the broader membership by launching products like Lab2U where members can mail in kits to test their A1C and microalbumin. Finally, USMM now provides gap closure visits to members across the state.
And these visits help ensure that Sunshine's members have appropriate risk adjustment scores. The number of visits has steadily increased since that product was launched in 2016. Sunshine and Buckeye are just two examples of how we are improving outcomes for our members, saving monies for the states and growing our business. No two markets are alike, but our diverse array of tools and approaches position us well for ongoing success. Now I'd like to turn it over to Kevin Coonahan.
Thank you, Chris, and good morning, everybody. As Michael, Jeff and Chris have mentioned, we're off to a very strong start in 2018 and very pleased with our results. We're also very pleased with the performance of our products and what they're doing in terms of crafting that support and performance. Many of these products you may be familiar with already. For example, Ambetter, of course, is our marketplace product.
Allwell is our Medicare Advantage product. Involve is our suite of specialty products and services such as pharmacy, behavioral health, dental and vision and other kinds of services. Federal services represents a core group of products we administer for the DoD in its TRICARE program as well as for the VA in its Choice program and Centurion is our suite of managed care products for the correctional services industry. The purpose of my presentation this morning is to summarize the performance of 2 of those products, the Marketplace and Medicare and better in Allwell, as well as to provide a profile of Centurion. So let me begin first with our performance in the marketplace.
As Michael mentioned, we had an outstanding start in open enrollment in 2018 in the marketplace. We enrolled over 1,600,000 members, which represents a 35% growth over last year and that does not include 1 100,000 members that we'll be receiving as part of the Fidelis acquisition. So our total enrollment obviously in Ambetter is going to be 1,700,000. Dollars So in addition to that, we're very pleased that we had 80% retention and a 90% effectuation rate. And the effectuation rate is a key metric because that's a leading indicator with respect to future retention.
So very, very pleased with how that performance is going. We expanded into 4 new states in 2018. They were Kansas, Missouri, Nevada and New York with the Fidelis acquisition. And we have plans to expand into other states in 2019, including both new states such as North Carolina and expansion into new markets in existing states. We now are present in over 50% of Centene markets and as I said with additional expansion plans for 2019.
Please note that we were the lowest cost silver plant in 85% of the counties we serve. Our key demographics are very similar, irrespective of whether we're offered on a total replacement basis or on a slice basis. So for example, our average age remains consistent at 43 and the relationship of females to males in our enrollment is also consistent at 55% 45% respectively. Again, this is consistent irrespective of whether we're offering on a total replacement or slice basis. Now we did experience some slight increase in bronze enrollment and a slight decrease in silver enrollment, which we largely credit, as I think other industry experts do, to the lack of funding of the CSRs and the corresponding increase in tax subsidies.
Now last February, I think as many of you know, President Trump signed several executive orders and one of them was for the creation of short term limited duration plans. Now these plans, as you know, represent a trade off between lower premium and significantly reduced benefits. Now as you can see from this slide, there is tremendous value for our target market of individuals at or below 2 50% of the FBL in our marketplace products. Now that is in such things as comprehensive benefits, plan maximum, out of pocket costs, guarantee issue, community rating and a lack of pre existing condition qualifications. So our broad sense is that the creation of these and the introduction of the STLD products do not represent a material impact on our target enrollment.
Now there is a provision, of course, in the introduction of this and the fact that the DOJ is not supporting the statute, which we can talk about later, which does have some broader implications. For example, over 130,000,000 Americans have a pre existing condition, which represents roughly 40% of the country. When at the most recent NBC News Wall Street Journal poll, which came out about a week or so ago, it showed that 63% of registered Republicans and 75% of registered Democrats supported the elimination of pre existing condition clauses. When national polling is done, that percentage is even higher. And I think as you may recall, the elimination of pre existing conditions was always the most popular part of the ACA in national polling.
So this again has some broader implication that we'll see how things work through. As a result of these results, we believe that we're extremely well positioned moving forward in our marketplace product for both future growth and profitability for many reasons. First is that we retain our focus on the uninsured and underinsured. The second is that we have products that are focused on consumers that promote consumer engagement. Thirdly is that we facilitate culturally sensitive delivery of care.
Fourthly is that we have benefit designs and innovative networks which meet the needs of our markets. And fifthly, we are priced appropriately with the appropriate discipline. Now let's talk about Medicare. At present, we have we are projecting roughly 420,000 enrollees at the end of 2018, which includes enrollment from the Fidelis relationship. We've expanded into 9 new markets in 2018, including New York as part of Fidelis and our projected revenue this year is at $5,000,000,000 We continue to offer a broad range of products and we have a core group of DSNP individuals that we believe can serve as a catalyst for future enrollment.
Our projected 2018 membership is on track at 90,000 and the percentage of enrollment by product remains essentially the same with a higher percentage of DSNP eligibles. Our Medicare strategy is in 3 parts. The first is to focus on existing markets with the best opportunity for growth. The second is continued attention to individuals below 400% of the FPL with particular opportunity in that DSNP category that I mentioned before. And the third is to continue to create benefit plans and have networks that meet the needs of that targeted population.
Now as many of you know, we've had STAR's policy issues with CMS and these have largely been corrected in the most current call letter. However, we've also had STARZ performance issues of our own and this is our responsibility to correct and we've corrected many of them and we're in the process of correcting more. Our Crosswalk application for 2019 has been deferred by CMS and while this decision will have de minimis impact on 2019, we are focused more broadly on correcting the systemic issues that impact the STARS ranking in the 1st place. Now as you guys all know, the timing of STARRS and the sequencing of HEDIS and CAPS results have a sequencing effect that could that dribble down through a year or 2 before they take effect. So these actions that we've taken are going to take a couple of years to get resolved.
However, Centene remains highly committed to Medicare Advantage, as Michael said, and its role in our future. Now in February, we also announced the acquisition of MHM, as Michael said, and for which 6 new states were added for a total of 13. We now are in 13 states and this has enhanced our relationship that we have already with our existing states. MHN has multiple products such as medical, dental and behavioral health to correctional facilities, courts, state hospitals, juvenile facilities and community clinics to more than 250,000 patients. Our Centurion product now has approximately 400,000 patients and we are confident in its role in our portfolio as a to fuel our growth.
So in summary, we feel that our core products are priced appropriately, are performing to plan and are positioned to maintain our growth. Now I would like to introduce Brandy Burkhalter, our Executive Vice President of Operations. Brandy?
Good morning, and thanks, Kevin. Over the past 5 years, we have seen significant growth in our operational transactions. And as this slide shows, I'm highlighting a few of these significant activity increases in our service centers with the number of calls we receive, the number of network providers we interact and the volume of medical claims we are processing. Earlier this year with the increased volume, increased membership, migrations from our recent acquisitions and our desire to continue to grow, we knew it was time to enhance our processes and systems. As Michael had mentioned in his opening remarks, we are focusing on transformation through reengineering of processes, building additional capabilities and capacity, all in an effort to improve our service and identify efficiencies to support our existing business and position us for further growth.
I wanted to share a few of these enhancements that are already in flight as we design and invest in next generation capabilities that Mark will share with you later in the program. First, with robotics, we are implementing numerous robotic initiatives in our service centers to increase productivity and improve the member consumer and provider experience with our organization. For example, we'll be utilizing robotics in our claims adjudication and also with our member and provider call centers. As it relates to provider data, we are using data analytics in conjunction with some of our partners and then backing that data up with an audit process to ensure we not only receive, but also consume and then provide the most accurate provider data in the form of directory. We are working to further reengineer and reengineer our processes with both provider data and claims processing to drive additional efficiencies.
And finally, we have added incremental bilingual staff to eliminate some of the reliance on translation services. And we are utilizing multiple shifts to expand the processing at current service centers to slow the rate required to create new ones. We are excited to make these investments and others to better service our existing business and to take on new opportunities in the future. Now, I'd like to introduce Sandeep Brinkley.
Thank you, Brandy, and good morning, everyone, and I hope you enjoy the chargers as well. As a national leader of government sponsored health solutions in the U. S, we have unique insights on transforming the health of the community one person at a time. Recently, our diversification strategy has been extended to investments outside the United States, where we have identified unique opportunities for us to apply our core competencies such as public sector expertise, IT systems and technologies, and population health management capabilities. Now the logic for exploring international opportunities begins with the fact that the same health challenges that we see here in this country are also being experienced by individuals globally.
For example, care around the world is increasingly complex as a third of the adults now live with more than one chronic condition. Now at the same time, societies are rapidly aging. By 2,040, 30% of the world's population will be 65 or older compared with just 8.5% today. These trends are contributing to significant investments in the rebuild and the modernization of outdated medical infrastructure. For example, spending on new hospital facilities in India is expected to reach US200 $1,000,000,000 by 2024, while China is going to add about 89,000 new hospital beds by 2020.
And healthcare systems still remain highly fragmented and inefficient with the World Economic Forum recently reaffirming that 30% of health care spending is wasted on unnecessary treatments. So these factors are leading to unsustainable increases in the cost of health care and as a result heightening interest on the part of global policymakers and value based integrated models of care. And this is where we see Centene fitting into the picture. We're bringing to bear Centene's unique government experience in combination with our managed care expertise, our data analytics capabilities and our local approach to markets to position our company as a strategic partner to governments in addressing the healthcare challenges that they face today. Now our initial focus has been Europe.
And there, we've got Centene U. K. And our Ribera Salud affiliate, advising local governments on care management and integrated health care. I'm working on coordinating care for services so that they are provided in the right clinical settings and offering EMR solutions with predictive modeling and care management capabilities and providing primary acute and specialty care services as well as lab and imaging diagnostics and managing healthcare services for regional governments on a full risk capitated basis. Let me give you a little bit more detail around what our efforts are.
First, integrated healthcare. Now in the U. K, the current care model is fragmented. It's got limited integration between different categories of care. So we're pursuing opportunities to leverage our objectives are really to align the interest of the regulators and the providers around the needs of the local citizens to blend general practitioners, the community based services and hospital capabilities into a single risk bearing entity, which manages the entire continuum of care, and initiate a sustainable system transformation centered on the principle of value based care.
2nd, coordinating care. Now in Spain, our Ribera Salud affiliate has developed a complex care plan integrating medical care and social services for elderly patients who suffer from more than 2 chronic diseases. This is resulting in better health outcomes at lower cost by improving care for those who need specialized attention by integrating different lines of services by improving support at the primary care centers with the shorter wait times and extended hours and reducing emergency room utilization as well as lowering hospital admissions and readmissions. Next, predictive modeling and care management. Now, Ribera Salud has implemented TruCare, and that's a tool developed by our CaseNet subsidiary to create personalized care plans for its members and improve overall care coordination.
This technology has been reengineered to pull data from Ribera Salud's EMR system and automatically share care treatment plans with patients and clinical professionals leading to meaningful reductions in in person consultations. In addition, the enhanced EMR system improves the coordination of care by multidisciplinary care teams, which has the very practical benefits of decreasing the time prior to intervention, improving member engagement, obviously leading to better outcomes and increasing efficiency and reducing overall cost. Now primary, acute and specialty care services. Ribera Salud operates 83 primary care centers and 3 university hospitals covering 450,000 citizens in Valencia, Spain. In addition, Rebera is the leading lab provider in Madrid, serving 1,200,000 citizens, and it's also a provider of radiology and nuclear medicine services in Slovakia.
Its specialists are utilizing integrated healthcare processes and algorithms to age in diagnostic rather and therapeutic decisions, thereby leading to early diagnosis for their patients. And finally, managing capitated healthcare services on a full risk basis. Now as part of its public private partnership arrangements, Ribera Salud receives a fixed capitation payment per person per year to cover all primary and hospital care services in a given geographic region. Governments who own these treatment facilities rely on Revera to manage delivery of services, recruit and employ physicians and maintain the property within the network. Integrated care models in Spain are truly about right care, right time, and our investment has resulted in reducing health care costs by 20% to 30% versus the other operating models, and this is by the government's own analysis.
These are the results that are driving the increased request Ribera Salud is receiving from governments all over the world that are looking for proven models of improved outcomes at lower cost. So in summary, we continue leveraging our unique government experience and expertise to position Centene as a trusted strategic partner around the world, and we view these early investments as a platform to launch into other markets around the world. So with that, I'll turn it over to Michael for Q and A.
Thank you, everyone. I think you can see why I'm I'm proud of the team. This is 1st class at every level. Open up for any questions. Josh, do you have a microphone?
Sorry, we're coming.
Two questions. The first one, maybe starting, Kevin, with the individual market and some of the proposed changes. It sounded as though there was limited impact from your perspective, but just thinking longer term, if pre existing conditions is eliminated and there's an ability to underwrite and do you think that attracts competition? Do you think other larger maybe even national plans would start thinking more seriously about the exchanges?
I want to make sure that I'm responsive to the question. So if I didn't get it all, please just repeat it. First, with respect to the short term limited duration plans, they're going to serve a niche market. And the real issue for us is, does it impact our market? And the answer to that is going to be no.
The reason for that is because those products are designed in a way that they don't provide the value that our products design. And the other thing I would tell you and I can base this on my CMS experience is that consumers have become far more sophisticated about how to buy coverage. And I'll just give you an example of this. So 5 years ago during the first open enrollment period, there was a lot of time that needed to be spent to educate people on deductibles, coinsurance, networks, all those types of things. The 2nd year, so this is open enrollment too.
That type of question was not asked so much. It got people started asking the questions about how do I find a good doctor? What kind of online tools can you get me? So between that, the prevalence of social media, so people can understand how to buy, consumers are far more savvy than they were 10 years ago. They're far more savvy than they were 5 years ago.
So if you look at our market, which is 2.50 and below the FPL, we provide significantly more value. It's just not a good value prop to get into that. Now with respect to the pre X issue you're raising, that's a really interesting question. And as I said before, I think it's unclear how things are going to play out there. If the DOJ takes the position or the administration takes the position that they de facto support the reintroduction of pre existing conditions, It feels both from a policy and political perspective to be a bit of a risky proposition.
I think also remember 250% below they have full subsidies. So no, there's no price benefit they can give anybody, except lower benefits and I mean 90% of our population is protected from that standpoint.
Some of the healthier folks that are not buying insurance, there's still a huge chunk of uninsured to come into the market and maybe it's above 250 and maybe it's even above 400 of FPL. But I guess you guys just don't see a big impact there.
So let's address that, right? So as you know, roughly 95% of our population is subsidized and 10% is not. So the 10% that are not is selecting in part because we've got narrow networks and so they're selecting in part because of our value proposition and price. So our susceptibility to the impact even in our unsubsidized population is very different than perhaps some others.
Got you. And then just a
separate question, just Washington and I hate to ask a question about Washington, but it kind of sticks out against all the other successes. But it seems like there were some lawsuits and provider issues and things like that. Could you just give us a little bit more background on kind of what happened in that re procurement and how we should think about the factors that drove that?
Sure.
I guess, Josh, what I'll do is I'll start with the situation that took place in Washington last December was unfortunate. And we've been working very closely with the Office of the Insurance Commissioner in Washington to correct those issues over the course of the last 6 months. We continue to work very diligently to close out the corrective action plan that we have with the state. And I would say right now that things are going really well at this point in time in terms of getting things cleared up with the state of Washington.
Also those states, those suits, Josh, they were 3, 4 people. And it's just not a big issue.
Yes. My question is for you, Michael. If you could just talk about the in the context of the recent Virginia Medicaid expansion, what are your expectations for potential Medicaid expansion in other states?
I think it's going to vary by state. And I think it's going to become a very political issue in the States due to conservatism and or lack of it. And an awful lot of where it goes going forward is going to be a function of the outcome of the November of 2018 election and what happens in the House and the Senate. And so it's I see right now that there are some states, I think Virginia is talking about expanding as we speak. There are states we're talking to about expanding.
There are some states that where we would like to expand, but they're concerned about where they are. I think of Texas, which is covering 50% of the federal poverty level to try eating up just to 100% is going to be material. And we have been working quietly and effectively with our Washington office with both sides of the aisle to with some recommendations on how to improve the situation and create an ever more viable product.
Thank you. If I could just ask a follow-up, this is on a but it seems that you have deepened your commitment now to the group commercial business, if I got that right. And I'm just wondering how you see the strategy from here?
Well, I think we said going into it in California, we had a group business and we were committed to it. And we're going to continue to build it and we renewed a significant contract out there this year, which we're glad to see and it speaks well and it really gives them a position to continue to grow. We worked very carefully with Commissioner and successfully with Commissioner Jones. He was very objective in going at it, working carefully with us to improve the PPO product and others, make it competitive. They will lose a lot of money and now it's virtual break even and making a little bit.
So yes, we're committed to maintaining that business. It's been plateaued. It's been corrected and now I want to see it continue to grow. Yes.
Thank you.
My question regards the Medicare star scores for 2019. You talked about not being able to crosswalk those members or that being deferred and also not having an appeal approved. Can you quantify the revenue impact of that for us as well
as talk about why you think
it's only a minimal impact in 2019?
Yes. There we go. Yes, a couple of things. I'm not going to quantify the exact revenue impact. We're not here talking about 2019.
You'll see the total 2019 number in aggregate. But one of the reasons why it's it's a sizing issue, right, how big our Medicare business is. And the other thing is we have delegated contracts, a lot of delegated contracts in California. So any revenue impact is substantially mitigated by that. And the other thing you have to remember from a margin perspective heading into 2019, you also have the removal of the health insurer fee, which we had commented on in our December Investor Day was about a 0.2 dollars issue, so coming back into play in 2018.
So for all those reasons, we don't see it having an impact in 2019.
I think what's important, what I've said at various conferences is that this is an important product to us. We've asked the team, Kevin and his team and the Chris and his health plans to say, what is your plan to grow it? And let's look at what cost and then we'll sit down with Steve and Jeff and others and we'll plan on how best to do it. But we're not going to back off our commitment to growing the Medicare business. It's going to require some investments, so we're going to make the appropriate investments to keep it going.
That's part of being this $60,000,000,000 company I talked about before. You have the kind of resources you can do that. Thanks. Lance, Will?
Hi, there. A question on the public exchange market. I was interested in how much of business right now is on provider contracts that are tied to Medicaid rates and with greater stability in that market, what do you see as any sort
of risks associated with that?
Well, I think we I'm not going to get into specifically 3 pay providers. There are competitive aspects of that and it's antitrust and other aspects of it. We were paying rates that our providers continue to work effectively with us. And so I'm comfortable we'll be able to deal with any of those kinds of issues.
And then one question on the Medicaid side. What sort of price pressures if at all are you seeing in the low acuity markets? We're hearing some commentary from others that that was becoming a more competitive market in sort of the kids and adults or the kind of the traditional non high acuity markets?
You have any exchange products?
No, I was talking about in the traditional Medicaid products.
Yes.
Yes. That's we're not we haven't seen that. So I mean we give our annual I guess our expected rate adjustment for the year. So again, it's closer to 1% this year. So we haven't seen and you're aware that the states obviously price that and they look at historical experience and historical utilization.
And so that's what they're using to effectively trend that forward and price that business. So we it's not a that's not a bid type business. So we haven't seen anything out of the ordinary there.
And we also our systems are such real time that the states have a lot of confidence in the information we give them when they look at. I'm not taking something that's 3, 6 months old and turning it forward. We're saying this is what we're seeing as
Great, thanks. Maybe just to build on that last question about trend. There were some questions after Q1 about how trend was coming specifically on acuity. What kind of visibility do you have into trend right now? I think you've talked about it being under control, but real time data, how is that looking right now?
I'll start off and others can add to it. We see no significant change or any change in our trend. We're calling it flat as we've seen it. Jeff, you add anything to it?
No. Stable. That's what I would use.
Okay. And then just going back to the Medicare Advantage point, I guess I want to understand the messaging a little bit about Starz because it seems like initially you were saying that the Starz issue was relatively fixed already and you're well positioned even if you did see a drop in Starz in 2019 to get it back in 2020, but then it sounded today a little bit like, hey, there's investments we have to make that will actually take a few years to play out. I mean, how comfortable are you that 2020 will be back to where it was? Or is this really a multiple issue? And I guess, Jeff, you mentioned that HIF going away was a positive for 2019.
Obviously, it's coming back in 2020. So if it's not coming back, how should we think about that?
I'll start off and others can add to it. But we're taking all the steps to correct the issues over there. And some of it was a retro adjustment that they had done, that they would not do even though going forward they've corrected some of the evaluations. Now stories are relative to other plans and we also have some experience where CMS changes things with great frequency and how they go about it. And so based on what we know now, we were cautiously optimistic.
We'll continue to work through it. But it's something that I'm not going to put my hand in power and say it's guaranteed at this point until we see some more effort. Anything you want to add
to Kevin? Yes. I would just echo what Michael has said. We had policy issues. Those policy issues have been essentially corrected in the current call letter.
But more broadly, we've had performance issues that we're correcting now. And we've made corrections, significant corrections and improvements and we're continuing to refine those.
Hi, thank you. So you gave earlier in the presentation, you gave a couple of kind of case study examples of benefits from INTERPRETA and USMM in Sunshine Health and talked about scaling those. I'm curious, one, kind of what investment and how long do you think those capabilities can be how long it would take for those capabilities to be scaled? And then Michael, as it relates to some of the competitor plans have become increasingly interested in home health, Is USMM Centene's solution for that? Or do you think about that differently relative to home health and homebound service provision?
Thanks.
I think there are 2 aspects to it. We're taking very targeted approaches when it comes to dealing with network needs and whole health and how we go about it. It's going to vary in terms of ensuring that we have access. And relative to what you saw with USMM and the things that Chris talked about, he can add to it, but that's here and now. That's not futuristic.
That's things we've been doing. I'll comment on the particularly on the Interpreta integration.
As I said earlier, we're going to we're rolling out into 8 additional states this year after Florida. And 2019, we should be fully implemented on the interpretive side with all the states. On USMM side, we continue to work a little more targeted with that particular product to tailor to the states that we feel that we can have the greatest impact on. So it's moving both of those are moving along well.
It's probably a cost issue, it's a time and capacity. And I can tell you the biggest issue I think Chris is facing, as the plans have learned how this is working in Florida, they're all screaming, can I be next? When you have 31 plans, it's going to take a little time.
I might just broaden that last question out first of all and just ask about interest in provider assets, obviously with the focus on MA long term, DSNP, LTSS more and more. Some of the other competitors are making a bigger push across the board in different types of provider physician assets, etcetera. What is your what are you guys thinking about that?
Well, I think what the medical group we brought, it gives us the capacity that where we need access to be able to put a medical group in there. Now we're not out there saying how many doctors can we buy, how many physician practices, how fast. I've done staff models historically and some of this the category of doing some things once. But we have the ability to go into a market, add a group, so that if the populations don't have the access or you have a snip or something else where you need that capacity, they can do it for you very quickly. So it's a very targeted approach.
We have broad capable networks. We pay our physicians fairly. We pay them quickly. The average payment is paid in 98.6% of them are paid in 7 days or about or less with 99.6% accuracy within that backup. So there are other factors that keep a network together.
But it's nice to be able in the valley of Texas, if that was some place, we don't have enough pediatricians and enough obstetricians to be able to open up clinic and get access. That's really the intent.
And then the other question was around, I guess, Jeff's comments about the California millR. Do we know anything about when you might hear a resolution on that? And then is there any update on the Pennsylvania TANF situation and what's going on there?
Yes. I can handle the MLR question. I mean literally it just happened last week. So I think it's something that came up late breaking news. We've done our best here I think to quantify what the potential impact is for us.
So I think right now it's in the state's hands figure out what their next steps are. So we'll keep you up to date as soon as things obviously progress.
I think I don't want to answer that. I've said this many, many, many times that the nature of this business is that CMS or somebody can do something of that nature. This is retro. It's nothing going forward. It's not current.
It's if there is some adjustment required, it's going to be a one time thing. And it's and we're very careful to point it out because I think what important point Jeff made when it was what, dollars 2,000,000 close to $200,000,000 of positive gain, we just called that out as a one time thing and didn't attribute a whole lot to it. So this business has those kids and this one, I think, I don't know if any words or not, but the state is not particularly happy. I guess, the CMS came back and started talking 16, 18 hours. It's based sometimes late in getting fees.
It is a combination. But as you saw, it's not a we don't anticipate to be any big number. But when we see something, we have had a practice as always for transparency purposes say, this is something we've learned about and we'll let you know what happens. In fact, our whole compliance business, if we suspect somebody is that there's some fraud in the market, we'll call the state and say, look, we're not sure if there's any here yet. We're investigating it.
But we want you to know that we have this. And so you build up credibility that way. So it's really nothing more than saying, this is here, the state's working through it. There's nothing we can or can't do about it. We're supporting information they need.
I'm comfortable it's not a big deal.
Okay. And is there any update on the Pennsylvania TANF?
Well, Pennsylvania hasn't told us what they're going to do yet. If they do an RFP, a third time should be the charm.
Thanks. I just want to
go back to the exchanges quickly with the you talked a little bit about the short term plan impact, but with the individual mandate going away next year and again the Justice Department not defending or seemingly not going to defend the ACA. Does your approach change at all or do your expectations change in terms of sort of what you see as enrollment? Do you have any sort of target? Do you think overall exchange enrollment could still grow? Do you expect it to decline?
1. And then 2, I think you mentioned you yourselves are expanding in the exchanges. You mentioned North Carolina specifically. Are there more states or is it just North Carolina? And if at all, you can give us a sense of how much more expansion there is in the territories you already
are President.
Thanks for that.
I want to be part of the first part of it. Kevin, pick up on this. I want to emphasize again, loss of mandates, short term, all these products do not impact at 2 50% of the federal poverty level and below. This is our population. The people are signing up because it's not costing them anything and that's built into the legislation.
Premium subsidies are built into the legislation. Now when they took the CSRs away, all they did was increase governmental costs. The CSRs has cost them $7,000,000,000 and the premium subsidies are now costing $20,000,000,000 okay? It had an impact on us or the states and the government because we're going to use Maricopa County as an example, we're going to drop rates 9% for the CSRs. When they did it, when they changed it, we had to raise rates 2%.
So my point is mandates, short term association things on that does not impact 95% of the population we attract. We own up to other states, Kevin. We can't we're not certain for the fair reason to disclose the algorithm, but Correct.
That's right. We're prepared at this point to talk about the expansion or the going into North Carolina as a new state. There are other new states we're going to be going into. As Michael said, we're also going to be expanding our footprint in existing states. We remain very bullish on the exchange and with very, very good reason.
Just to amplify what Michael said for a second, if one looks at all the tactics that were taken last year at open enrollment to discourage open enrollment, whether it was cutting back the outreach by 90% of $100,000,000 on 10,000,000 dollars whether we're shutting down the exchange for maintenance on Sunday, which is the most popular time for people to enroll, the impact on enrollment was 7%. This is a product people want. People want to have insurance. They want to have protection for themselves and their families. So we feel very good about where we are.
And then one more if
I could. Just Jeff, just
want to understand sort of the California minimal impact. If finalized, just to
be clear, you'll have sort of
or you'll approach it as including in the guidance or you'll continue to sort of provide sort of adjustment without? And then I just want to understand on a go forward basis, I understand it's retro. But on a go forward basis, is the impact not going forward simply because you've made the adjustment for what's allowed? Or how do we think about that relative to kind of the baseline that the states put it?
Thanks.
Yes. Two things.
We haven't finalized this yet, right? It's late breaking news as of last week, but we'll probably treat it consistent with what we did at the end of 2016 when we had the $195,000,000 good news. We'll probably carve that out of adjusted earnings, but it has to go into GAAP earnings, right? So when we give guidance, we give two numbers, we give the GAAP and the adjusted. So as that gets finalized, right now, that's our current thinking of how we would treat that.
The second question is that there's been rate decreases since the minimum MLR ended back in 2016. So at this point in time, we're running above what that minimum would be. That's why it doesn't have an impact on 2018 and going forward.
Thank you.
I can't emphasize. You can't plan for something that when they decide to go back 2 years and do something. Something. And so this is a it's not a fundamental problem with the business. It's not something we've done wrong.
It's not something there's a miscalculation. It's a it's the federal government talking to a state. And I mean, some people speculate that are they doing the same with red states and blue states? We don't get in the middle of all that. Stay far away from it.
It's a fact and we'll deal with it. As Jeff said, it's not a big deal. It's a non issue in my mind. Michael,
following up on Jeff's comments regarding the rating agencies, the residual of all this tremendous hard work that you and your team have done over many, many years is a company that generates enormous free cash flow and has demonstrated an ability to allocate very efficiently with huge returns. What are the credit rating what are the credit agencies missing? And what more can you do to get you to your goal of an investment grade rating and what will that allow you to do once you have that?
I think some of the agencies are here. So I'll tell you what I've told them. We are a $60,000,000,000 enterprise, highly diversified, a debt to cap that's close to industry best at 37.5%. Growth international businesses has balanced very strong balance sheet, okay? And you look at the kind of rates we got that from my perspective, they become irrelevant in many investors' minds because, I mean, when you have all the factors that dictate being investing greater than you're not And when we were able to get that 4.3eight percent 5.3eight percent interest rate on the bonds at a time when rates were going up, they told me all I needed to know that it's irrelevant anymore.
It's they have their reasons, which I don't understand. We've discussed it with them. And I'm not saying to if they aren't here, I think I saw one of them that I haven't said to them.
Thanks. Jeff, maybe this one is
for you. Since you guys increased the size of the debt and equity financing since the last guidance update, how should we think about what the offset is to that? Is there any like implied operating upside? Or is that the contribution of some of the smaller recent transactions you've done?
Yes, a couple of things. So first thing we so you're right, we increased the share count because we upsized the equity offering. So what we did with that is we paid down the revolver, so we have a little lower interest expense. The other thing was that both the debt and equity offering were assumed May 1st in our last guidance. And so I think those were May 4th May 23rd.
And then we've had increased investment income. So you kind of push all that together and we're comfortable keeping the guidance where it is.
Yes. Can you give us an update on the Texas contract as far as retention and growth? And there was something in the media about network adequacy and so on. And what sort of competitive dynamic are you seeing with community health plans and whether they're likely to take share or
lose share? Chris, you want to take the Texas?
Well, since we're in active procurements in Texas on both of the RFPs that are out there right now, it'd be inappropriate for us to make any comments around that.
They are moving ahead with VV2. They
are moving ahead with the 2 RFPs, the current STAR plus RFP has been submitted. The star and chip RFP is going to go in July and both of them are scheduled or at least projected right now to be effective on January 1, 2020.
And we can also say there
was one that they Yes, that's true. There was one
that was canceled, the chip rural service area RFP was canceled, I think in March and that has been included as part of the star and chip RFP that is currently in process right now.
The second question just I understand it's mostly all on subsidized membership, but any thoughts on the DOJ 25 pager around to offset the mandate, taking out community rating and introducing medical underwriting. I mean, is that a positive for at least the unsubsidized membership for plans?
Well, obviously, this is a court case, right? And court cases take time. This is going to be working through for a period of time through the courts. So where that's headed is, obviously, we don't know except I read the brief I read the case last night. I'm not an attorney.
It seemed to me that the it seemed to me again like the decision or the position to eliminate pre existing conditions is one that's got a lot of broad implications. Again, it impacts roughly 40% of the country. I have a pre existing condition, for example. Maybe some of the folks in this room may have one. It's one I would think that anyone would want to take think about carefully.
By the way, I'm glad you're not an attorney. But I think it's a fair question, Anna. But the biggest thing is the population in total did not one of the preexisting conditions eliminated. Them. That's a big issue in people's mind.
And I think we have all we have in the Medicaid side have never really had preexisting conditions and done very well with it. So I think the only thing it's doing right now is just creating additional confusion. And I think what Kevin said, this is going to have a long way to play out.
Thanks. Thank you.
Good morning, guys. Thanks. I just wanted to clarify a couple of the numbers on the California items. So it sounds like the $10,000,000 revenue impact and $40,000,000 pretax impact is the net of the minimum MLR reduction and favorable calculation. So if you could just confirm that's the case and if possible maybe give us a sense of the impact of each separately.
And then the other piece of this on California is just if you wouldn't mind again, I think you gave the number and I made a missed that just sizing the rebate payment drag to operating cash flow in 2018 and the
timing of that? Yes, sure.
We'll wait for this to pick up. Here we go. So a couple of things. The 10 to 40 is kind of the range of the pre okay? It's a revenue and pre tax number.
You're correct, it is the net. The reason why we're giving a range is because it's not done. It's not final. The calculation number there's 2 things that aren't final. Number 1, the state just received this information.
They have to work through it with CMS. Number 2, the actual mechanics of the calculation of the MLR for the prior period and if the MLR is applicable for the current period to that calculation as well is all still subject to change. So what we've tried to do is give you our best estimate, if this were to apply and the calculation were to happen as it's currently drafted of what the pre tax impact would be and that's between $10,000,000 $40,000,000 So more to come on that. It's not final and we'll let you know when things change. The second thing on the cash flow, it's about $1,000,000,000 $1,000,000,000 If you recall, most of this was generated prior to us buying HealthNet.
It was 2 things. Number 1, the rates were the California state overpaid rates on the Medicaid expansion business. The other thing was there's a minimum MLR beginning in January 2014 when that business started. So we inherited almost $1,000,000,000 of this, which was on the balance sheet as a payable back to the state. The state has begun collecting that in May.
I think they will probably start in May and finish it out by the end of this year. So I would expect $1,000,000,000 operating cash flow drag related to that this year.
Perfect. Thank you. And just Tommy,
back to California, I would say one more time. Sure. We could have made a case and not saying anything, so much in doubt. I was really trying to save a lot of phone calls ahead if ever we got out, because it's not it's $10,000,000 could be $10,000,000 could be $40,000,000 But once again, smaller plans is probably a bigger issue because we've been we had some money booked for. And so it's folks, a 10% of teapot.
It's really just something that's not even defined yet. But we wanted to get it out. So you heard it from us and it was transparency. Let's take a little break and we'll come back afterwards. Michael?
Yes.
That came in online here. Following up on the investment grade discussion, someone asking what would be the approximate impact on interest expense if we did go investment grade?
It would be pretty minimal in my opinion. I mean, as I said, we had other people told us we attracted rates that reflect that. Jeff, do you want to comment on?
I think, I mean, that changes daily, right? There's a you can find that market information. Investment grade trades is a spread to the treasury typically and you can look at the high yield index. So you can find that out there in the markets.
And then I've got a 2 part question from Gary Taylor of JPMorgan. On the increase in revenue guidance, was the $1,000,000,000 boost to 2018 revenue guidance entirely related to California pass through payments or something other?
A big piece of that is California. So we've mentioned this before, California's pass through payments are kind of lumpy. You don't really have a lot of visibility on them. And so the bulk of that was related to California, but there are other states as well. But all of it just to be clear, all of it is
pass through payment. And then finally, can you talk about your visibility at this point in the year on total marketplace risk adjustment payments? What is the risk of a material increase in required accruals?
Yes, we can I think obviously the business has grown and I think our risk adjustment projections for the year is somewhere around $700,000,000 of a payable? Remember we're on the payable side. And that changes obviously as we continue to get risk information on our population. So we've had a very good track record. I think if you look at how we've accounted for the risk adjustment payable, we've had a very good track record.
So I would just leave it to that.
Just wanted to understand, just on the Medicare Advantage expansion, the 8 new states, how different are those networks from Medicaid? And how should we think about the investment required, if any, to stand up those plans?
Obviously, you're going to put some geriatrics in there. You're going to have probably more orthopedic surgeons, fewer obstetricians. So it is fine tuning of that nature.
Generally pretty similar. Got it. Thank you.
Thank you. Thank you. Let's take 15 minutes or so and get back together, warm up.
We're going to resume in 2 minutes. Centene's Investor Day 2 minutes. So please head back to your seats now. Thank you. Okay.
We're going to resume now. This is our technology panel. Our CEO, Michael Neidorff likes to say that we're a technology company that happens to be in the healthcare business. And hopefully after you hear these esteemed speakers, you'll agree with that. We've got I'm going to introduce Mark Brooks, our Chief Information Officer, but we're also very pleased to have 2 people from RxAdvance, the PBM that we now have an investment in and are collaborating with.
John Sculley, that's a familiar name to many investors, formerly of Apple and Pepsi. He's the Chief Marketing Officer and Chairman of the Board of RxAdvance. And then Ravi Aika is the President and CEO. And finally, Doctor. Amit Guri is the CEO of Interpreter, which is another company that we have an investment in.
So without further ado, I'm going to turn it over to our Chief Information Officer, Mark Brooks.
Thank you and good morning. Transforming the health of the community one person at a time is both the Centene purpose and the cornerstone by which we buy, build and integrate technology. Our technology program has 3 distinct categories: day to day operations, incremental digital improvements, and next generation technologies. Day to day operations focuses on leveraging our scale to drive cost and quality in the right direction. Incremental improvements leverage digital technologies to drive efficiencies to existing processes by leveraging artificial intelligence, robotics and big data analytics.
Our next generation initiatives focus on partnering with our own technology companies to build differentiating member and provider solutions. This combination sets Centene apart from our competitors in truly driving better outcomes at lower costs. Regardless of how we develop our new technologies, we always focus on integrating them into our core competency model for all of our customers. This makes Centene's technology program truly unique. It's our intention today to highlight examples of our capabilities and introduce our technology partners that help us bring our vision to reality.
Our member centric view starts with the capabilities embodied in our TruCare product offered by CaseNet. The CaseNet organization continues to grow and thrive with over 32,000,000 installed members in 33 states and now a substantial international presence, winning the best in class award for Care Management Systems in 2017 2018. Technology is the catalyst to a lot of day to day care. By leveraging our TruCare solution, our care managers administer millions of assessments, authorizations and care plans annually, resulting in whole member health. In terms of incremental improvements, we continue to build capabilities that differentiate with our customers.
As an example, we have the ability to enable mobile assessment tools that are catered to the specific needs of populations and more importantly, the specific needs of the individuals we serve. We call this product TruCare Anywhere and have used it to improve assessments and care outcomes in most Centene states. Our next generation of TruCare will further integrate parts of the care management process, such as EMRs, mobile apps, member and provider portals and Internet of Things technologies for the purpose of home monitoring and pharmacy adherence. Our partnership with interpreta gives us the ability to perform continual clinical interpretation of our members. This is a new capability implemented at Centene Health Plans today, which Doctor.
Gurury will further explain in his remarks. Deep fact based relationships with our provider partners are a key part of our care delivery model. On a day to day basis, we leverage data analytics to supply providers with performance dashboards via our CintelliJ platform. Syntelligence catalogs data from over 100 diverse internal and external data sources processing it in excess of 100,000,000 daily records. This enables thousands of users to access the data from a single tool, delivering actionable insights into member care as well as incentives through pay for performance and shared risk value based contracts.
That day to day capability is important, but changes in our members' daily living circumstances have a direct impact on our providers' ability to deliver care. As Chris discussed earlier, we are actively making incremental improvements in our population health management capabilities, leveraging our data science teams and big data platforms to develop a predictive view of risks created by factors outside of our current care continuum. These population health analytics tools are being leveraged by our clinical teams to address such societal issues as opioid abuse, which Doctor. Yamaguchi will further expand on later. Our partnerships are taking us further in our next generation initiative.
With INTERPRETA, we have the ability to do what we call real time clinical analytics, evaluating very large data sets and generating outputs such as care gaps in real time. Leveraging the partnership with INTERPRETTA, we have built the channels to distribute those gaps to care managers and provider partners even in a clinical setting. We believe this next generation initiative is a game changer because it allows for real time continuous interpretation of each patient's past, present and future care needs. We further differentiate ourselves in our specialty areas such as pharmacy. With our owned pharmacy benefit management business, U.
S. Script, we process millions of pharmacy transactions and authorizations on a daily basis. Prior authorization management is a very labor intensive process. By implementing artificial intelligence in our internal pharmacy platform, we've been able to accommodate an 80% increase in transaction volume without increasing staff. Our partnership with RxAdvance is another next generation opportunity.
RxAdvance is a highly innovative organization with culture for building disruptive platforms. In our partnership with Rx Advance, we've begun next generation programs that will realize significant synergies where all key functions of pharmacy benefit management operate on a single flexible platform rather than a series of cobbled together applications. The complex clinical rules for prior authorization determination can also be invoked within the RxAdvance claims adjudication process as part of their smart process automation approach. As we engage staff beyond the PBM resources for clinical decisions, peer reviews, appeals and benefits management, They will have access to the same functions as those within the PBM. This collaborative environment will enable better coordination and efficiencies across the management and care delivery for pharmaceuticals, providing true alternatives to health plans struggling to build and maintain their own PBM Ravi Aika and John Schooley will further expand on these capabilities.
The capabilities we have discussed today are just the beginning. Centene's focus on technology has helped us to become the partner of choice for upcoming entrepreneurial healthcare technology companies. That combined with our focus on integration gives us a unique value proposition to continually improve quality and reduce costs for all Centene customers. I hope my remarks have been helpful in better understanding Centene's technology strategies and capabilities. I will now hand it over to Doctor.
Ahmed Gurry to further discuss Interpreter.
Thank you, everybody, and good morning. Thanks for the introduction, Mark. INTERPRETA is an example of 1 of Centene's advanced initiatives and technology in which we are intelligently synchronizing healthcare. INTERPRETA is the leader in clinical continuous interpretation. Latent analytics is not fast enough to be acted upon as healthcare unfolds.
Member clinical events like new lab results can occur daily and need to be acted upon without waiting days to weeks for a report. In addition to the member data changing, scientific knowledge bases are growing rapidly and guidelines are becoming deeply personalized. Episodic clinical reports on a weekly or monthly basis will not take us into the future. INTERPRETER is changing this paradigm with real time data aggregation, real time interpretation and real time syndication of results to multiple users across numerous We refer to this as intelligently synchronizing healthcare. Our powerful ability affords great benefits to members and providers by enabling information coordination combined with non latent interpretation for the first time.
We're very proud of this achievement. This slide shows the topology of our advanced ecosystem. As you can see, we are centralizing data as it unfolds in real time from disparate sources including the insurer, the EMR using the latest protocols for interoperability such as fire, ambient sources which include data from retailers, grocers and wearable devices and the whole genome from high quality sequencing labs. Interpretation occurs in the cloud where there's great computing power in real time and the results are syndicated using single sign on technology to reach all the key stakeholders you see at the bottom of the slide. These include the treating physician, the care manager and the member, each of which may be using a different application for their daily workflow.
Member access to non latent and a personalized future care calendar can also significantly improve the experience of care and member satisfaction. This slide shows what our real time clinical navigator actually does. It is a multipurpose future view of the single member, which can course correct just like a GPS system. For example, this enables doctors to plan ahead proactively to prevent gaps in care such as HEDIS gaps in care because there are no surprises that
could have been reasonably
anticipated. Contemporary analytical reports are a rearview mirror in comparison whereas Interpreta is a forward guidance system. As new data arrives, the future plan recalibrates and adjusts to meet the needs of the member. This capability substantially improves the quality of care by anticipating needs and recommending clinical resources proactively rather than reactively. Our interpreter is not limited to a single dimension of care.
It is clinically comprehensive. It combines historically disjointed knowledge bases in the practice of medicine ranging from FDA, molecular genomics, NCQA quality measures, all the way to AI driven member prioritization. All of these knowledge bases are applied simultaneously and in real time. The ability to achieve this within a single engine is an industry first and is one of the reasons we believe INTERPRETTA recently won the Gartner Cool Technology Award. This slide is an example of a precision medicine workflow we are piloting in pharmacogenomics.
It is a continuous closed loop system that optimizes drug impactable clinical outcomes and addresses key problems in the clinical workflow of precision medicine. This ecosystem enables significant improvements in patient care. In our now operational system, we are identifying members who have a high safety risk in the physician portal or appear to be a treatment non responder to an important drug. We then deploy a licensed physician to the member's home using the U. S.
Network of doctors who visit the member, educate the member and obtain informed consent to perform gene sequencing. The clinician gathered sample at home is processed in the USMM CLIA and CAP compliant laboratory. The results are analyzed by INTERPRETTA and drug change, drug discontinuation or dose adjustment recommendations are made in real time to the physician who's carrying a tablet based EMR can take action. This system is holistic, It runs continuously. It is not specific to one drug, one gene or one type of medical condition.
Because birth DNA does not change, a once obtained sequence can be reused repeatedly to test innumerable drug therapies over the lifetime of the member. So in summary, from genomics to condition management to risk prevention, our system is broadly generalizable to the comprehensive needs of the member and runs continuously to safeguard health using real time speed. We are excited about being a pioneer in continuous clinical interpretation and look forward to sharing many new innovations with you in the future. Thank you. And on that note, I would like it is my great pleasure to introduce Mr.
John Sculley. Thank you.
Thank you, Amit, and good morning, everybody. I would like to first tell you why I decided to get involved with RxAdvance. Since leaving Apple as CEO, I've been a serial mentor and investor in platform based disruptive transformation companies. And I believe that the business architecture of platforms is really the defining disruptive innovation model for the 21st century. I was a founding investor and on the Board of MetroPCS And we grew MetroPCS to a $9,000,000,000 market value by the time we sold it to T Mobile.
I was also an Intralink founding board member, which was the 1st Fintech B2B company and we grew that to a $1,400,000,000 market value when we took it public on the New York Stock Exchange. And I was a Rally Health founding board member and for 3 years ago we sold Rally Health to UnitedHealthcare. And today Rally is about $1,000,000,000 revenue and very profitable part of UnitedHealthcare. And each of these examples is a successful cloud platform business model company. Each was led by a talented Founder CEO and each was a success story in a highly regulated industry.
Now RxAdvance is the most exciting company that I've been involved with since I left Apple. And what we do is called smart process automation. It's not just automating millions of tasks that embrace thousands of regulatory rules. RX Advance is a platform that completely reimagines how avoidable drug impact medical costs can be reduced with innovation, better outcomes, much lower costs, significantly improved patient experience. Now, Ravi Eicke, the Founder and CEO of RxAdvance has built a disruptive innovation platform based PBM.
And Ravi is a serial entrepreneur and is a very talented leader with 17 years of cloud platform experience in the healthcare industry. Ravi built and scaled his previous company, Eicosystems, to 34,000,000 health plan members. And when I first met Ravi IQOSY, RX Advance was less than 2 years old. We were pre revenue. And yet in 2018, our Xfance platform is fully built and in the process of being broadly deployed.
This year, we have $10,000,000,000 of contracted revenue. So I'm really impressed with Ravi and what he has built at RxAdvance and that in addition to investing in his company and serving as his Board Chairman, I also agreed to join Ravi's management team as Chief Marketing Officer. Ravi's recruited an extraordinary senior management team. Each one has deep healthcare domain expertise and each is experienced in cloud platform technology. So PBMs are in the government spotlight, and RxAdvance has solved the major criticisms that have been spotlighted on PBMs using their disruptive breakthrough technology.
So
I really wanted to be a
part of this. Now the second thing I'd like to tell you about is why did we believe at Rx Advanced that Centene was the right strategic partner for us. Well, Robbie and I were really impressed when Michael Neidorff, who had done a lot of background research on RxAdvance before he personally flew to meet Robbie and me at RxAdvance's headquarters. We're based in Southborough, Massachusetts, and this was back in late August of 2017. Now it's very unusual in the payer industry to meet an entrepreneurial CEO, who's actually built a company from $40,000,000 of revenue and just 120 employees into a $60,000,000,000 revenue company with 35,000 employees.
Centene is a mission driven company and has had great success providing affordable health insurance and other health services to a typically lower income population who depend upon government insurance. And now that we are in a deep relationship with Centene, we're in the onboarding phase of working with Centene. Robbie and I are really confident that Centene is an excellent strategic partner for RxAdvance. We're excited that Centene wants to adopt our cloud based platform driven PBM as a transformative and very differentiated solution for the future. And in addition to our PBM work together with Centene, RxAdvance and Centene see many additional opportunities for strategic cooperation.
And now I'd like to introduce my partner and good friend, the CEO and Founder of RxAdvance, Ravi Aika.
Thank you, John. Good morning, everyone. As we all know, there has been a lack of innovation in the PBM industry for decades. Existing PBMs today use decades old platforms. As a result, PBMs provide just commoditized transaction services with very little clinical value resulting in various avoidable drug impact medical costs that are resulting in avoidable medical costs, drug impact medical costs are comparable to overall pharmacy costs and taking we are really taking the PBM function beyond their current offering, what's our noble cost.
It is well established fact that there's about $900,000,000,000 wastage in the healthcare ecosystem. PBMs have optimal opportunity to control half of this waste. Reducing a portion of this wastage is more than enough to cover uninsured, underinsured and reduced premium for all Americans. This is our noble cause. To reduce these avoidable costs, RxAdvance launched 3 solutions, 3 solutions, Nirvana Rx Cloud to reduce overall pharmacy costs Nirvana Specialty to convert specialty from buy and bill to value based and outcomes driven model and Nirvana Accountable Care to manage the unmanaged portion of managed care population.
You will hear more about these solutions in the later slides. Next slide please. As you can see the PBM's ecosystem even in this simplified diagram is very complex with many stakeholders and touch points. Next slide. So, RxAdvance has simplified this ecosystem to provide one single platform for all case stakeholders.
A typical full service PBM will have about 10 departments and over 500 function points. In legacy PBMs. These 500 functional points are handled by cobbled together dozen systems cobbled together and lots of people. And we have built 1 enterprise PBM platform from ground up. Through the platform, we have integrated all these 5 departments and over 500 function points and through a cloud based robotic process automation and have eliminated a human being wherever a personal touch is not adding any value.
This leads to 50% reduction in touch points and substantial administrative cost reduction as well as system driven compliance is achieved through the platform. Next slide please. Revenue distribution, here is the revenue distribution in a typical health plan. If you apply RxAdvance transformative solutions to this business through nirvanaRxCloud, Overall pharmacy spend can be reduced significantly. This includes unit cost reduction, enhanced rebates, admin cost reduction, increased generic substitution, duplicate therapy reduction, adverse drug inventory reduction and others.
Through Nirvana Specialty, health plans can convert their specialty utilization from buy and bill model to value based outcomes driven model through a 9 step process to reduce specialty drug spend. Thirdly, as we all know 5% to 7% of the most chronic population currently cost close to 50% of overall medical spend. We have a comprehensive program to manage these chronic care patients at home through an integrated process and platform driven solution, which replicates hospital like care at home. At a very high level, this program eliminates ADE's adverse drug events at the point of care, streamlines prescription delivery through electronic disposable pill trace, improves adherence and vital sign monitoring through dynamic care plan using Nirvana Smart, a robotic smart patient coach and provides a timely care coordination through physician, nurse calls and address avoidable hospitalization. Additionally, This allows gaps in care, continuity of care and diagnosis optimization.
During the same house call, we addressed all these things. Next slide please. How is this partnership Centene and RxAdvance partnership is different when you compare with other mergers? Recently, we have received many questions how RxAdvance and Centene's partnership other than address the rest of the mergers. In all these mergers, I want to point out one thing here.
In all these mergers, these recent and past mergers, legacy players with old fragmented platforms have merged together. Vertical integration could bring improved quality and lower cost if at least one of the partners is very innovative and technologically savvy, whereas in Centene and RxAdvance case, Centene is a proven high quality and low cost health plan which has partnered with RxAdvance, a nimble, highly entrepreneurial and proven technology player in the market. As we all know, optimal quality and financial results are possible if both parties in the merger should embrace transformation. This has been the ultimate commitment from both RxAdvance and Centene Management. Additionally, Centene strongly believes that a substantial net income improvement opportunity exists organically through transformative enterprise platform and process reimagination.
This partnership not only sets a standard of excellence in the industry, but also provides a true alternative to other large health plans that are thinking of building their own PBMs. Next slide please. RxAdvance and Setteen partnership brings I think for those health plans who are struggling to build their own PBMs or internalize their PBMs. So as we already talked about it, RxAdvance, think you have a different slide, yes. Okay.
All right. Thank you. So the difference here is between legacy PBMs and RxAdvance is basically RxAdvance legacy PBMs bring about 6 to 7 services whereas RxAdvance brings about 13 core services. Legacy PBMs also spend about 2.5 percent of the total drug spend on operating costs whereas Rx Advanced spends less than 2% of it. As you can see through Rx Advanced payers can capture 2% to 3% of net income without building their own PBMs.
Additionally, RxAdvance brings full financial, operational and compliance transparency to payers. So far, we have seen solutions to reduce pharmacy and pharmacy related medical costs through RxAdvance. There is a significant opportunity for RxAdvance and Cetine to expand breadth of their partnership to extend beyond the pharmacy space. Stay tuned for more to come in future. Now I introduce Doctor.
Ken Yamaguchi, CMO of Centene. Thank you.
Thank you, Ravi, and good morning. I'm excited to follow-up on that previous discussion and give a clinical example of how our unique systems and technology have been leveraged to improve our member health. At Centene, we've employed a multiple proven strategies for addressing a wide range of healthcare concerns. All have the overall objective of reducing the burden of disease. These include thoughtful clinical policies based on the best clinical evidence, a care management program which has been revamped to employ population based analytics, the innovation of application of Tencentene tools and then predictive modeling, which employs the latest developments in artificial intelligence or machine learning.
These have been employed with particular effectiveness in our targeted clinical programs, again with the overarching goal of disease prevention or episode limitation as the cost of avoidance is far less than the cost of disease treatment. Our clinical programs are data based and measured and award winning with the latest recognition being achieved by our OPN program aimed at reducing new opioid addiction. It was the recipient of the 2018 Decision Health Platinum Award, which in partnership with the Case Management Society of America recognizes organizations for success in the overarching healthcare continuum. The importance of the opioid epidemic in the United States has been well recognized. What may not be appreciated enough is that the issue is disproportionately more severe in the Medicaid population with opioid related inpatient and emergency room visits as well as deaths being strongly correlated to the number of prescriptions dispensed.
Accordingly, the healthcare industry shares a role in the development of the problem and it needs to be part of the solution. Centene thus initiated the OPN program in 2016 to improve our members' health with the objective to help put an end to opioid misuse. The program employs 4 major arms of intervention and these include the targeting of high risk members through our machine learning tools used to develop something we have termed the ORCA score or opioid risk classification algorithm. It also includes thoughtful pharmacy policies, partnerships with the provider community in the form of education and other pilots and then great and general community outreach mostly in the form of awareness campaigns and booklets. 1st, the development of the ORCA score represents a novel, proprietary and highly predictive method to help our members.
Not surprisingly, opioid dependent members are substantially more costly than otherwise similar cohorts. They are very difficult to treat once chronically affected. However, preventative or early treatment measures can be highly effective. We thus employed machine learning to used multiple statistical inputs including prior cost history, pharmaceutical history, demographics, social determinants, lab data and clinical inputs to test for statistical and correlative patterns. A highly predictive algorithm was developed to determine a risk score that would then help us to target and identify those members most at risk for becoming dependent on opioids or who may have been come newly addicted and were still undated to find.
The ORCA score is leveraged through incorporation into our integrated care management program. It is embedded into our TrueCare software for use by our care managers on a daily basis. Using our comprehensive and extensive member database, our high ORCA score identifies members who can be most impacted. They can then be appropriately guided into the right treatment pathway within our new analytic based care management program. We then can monitor results for refinement of the protocol.
In addition to ORCA, our pharmacy policies were placed to target most specifically those people who are opioid naive and thus vulnerable to becoming opioid dependent. The main emphasis of our policy was to focus on opioid misuse prevention in preference to treatment because the yield from this approach would be far more consequential and immediate. Accordingly, limits were placed on how much morphine could be dosed per day and how long members may have morphine without authorization. Any sustained use would be monitored for 28 days at a time up to a 90 day period and no more than 2 opioids would be able to be used concurrently. The early effects of the opioid program have been promising.
The percent of opioid prescriptions have dropped 20% in our population. The percent of opioid utilizers have dropped 20% also. And then most importantly, people who have utilized opioids for greater than 30 days, in other words, those people who are at the highest risk opioid misuse have dropped almost 30%. People using multiple prescribers or pharmacies for opioids are at greater risk for addiction. As shown here, both of these populations have also decreased substantially.
Finally, from a peak level in 2016, both emergency room visits and inpatient admissions from members with opioid diagnosis have dropped significantly. The effect is more dramatic when you consider that both ER visits and inpatient admissions have been increasing prior to 2016. In addition to our direct intervention with members, our provider partnerships have included CME support for pain management programs, a push for buprenorphine waivers from training focused specifically to OB GYNs treating neonatal abstinence syndrome and then the monitoring of providers for outreach to deter excessive prescribing. The final point of our discussion of our OPN program is regarding our community involvement. It consists of a multitude of public awareness initiatives including 2 Centene produced information booklets.
The first co developed with the NCADA focuses on educating adolescents about substance abuse. It received the Hermes Gold Level Award in 2018 for Creative Communication in Print Media. The second is a newly developed Centene publication for reading by both care managers and members and is designed to support high ORCA individuals by reducing the stigma of early opioid dependence. To date, the development of the OPN clinical program has been a rewarding experience that illustrates how unique our system capabilities coupled with multi dimensional approach can be to achieve a meaningful impact for our members. With Opiant, important early reductions in the burden opioid dependency have been achieved by combining our ORCA algorithm with thoughtful pharmacy policies, provider engagement and then finally community outreach.
Thank you. Now, Jesse Hunter will discuss our growth strategy.
All right.
Thank you, Ken, and good morning. Those of you who followed Centene for any period of time know the Centene story well. It's a purpose centered story with an authentic commitment to transforming the health of the community one person at a time. It's also a growth story. And not only does Centene have the leading growth rate in the healthcare industry, we're also the fastest growing company in the Fortune 500 over the last 10 years.
This morning, I'll share our 2020 vision and help connect the dots between our purpose and the continued execution of our growth strategy. In previous Investor Day presentations, we've talked about Centene's leadership across specific government programs, Medicaid, Marketplace, LTSS, Foster Care and others. Our experience and expertise across these programs as well as our understanding of the remaining opportunity has helped us develop our 2020 vision to be the leader in government healthcare. This vision represents our continued aspiration to grow across the government health programs that we know best, but also provides the opportunity to expand and diversify our portfolio into products like Medicare, federal services and correctional health, technology and tech enabled services that support both internal and external customers, and selectively pursuing provider opportunities that are focused on government programs. The 2020 vision will leverage our deep understanding of how to help governments execute on their policy objectives by providing high quality services at an affordable cost.
As you heard from Cindy this morning, this applies to our international opportunities as well. We also recognize that leadership isn't just about being the biggest, but also about being the best, and we'll continue to differentiate Centene as an agile thought leader across government programs. They've already heard this morning about some of the key strategies that we are pursuing to achieve the 2020 vision. Chris and Kevin discussed the progress and continued focus of diversification of markets and products. Mark in the technology panel talked about the importance of enabling technology and integration of platforms across the Centene enterprise.
I want to further discuss one of the key success factors Michael talked about this morning, our commitment to a strong local approach. This has been a hallmark of the company from the beginning and we put significant effort into preserving this important part of the culture. We understand that there's a benefit to having local leadership with the autonomy and authority to make decisions that are in the best interest of our members, providers and regulators. But there's an additional benefit to our local approach, the opportunity to go above and beyond to meet the holistic needs of our members. The interest in addressing social determinants of health has reached a tipping point over the last 18 months.
You can't go more than 24 hours without an article, anecdote or direct encounter that highlights the complex and interrelated challenges faced by underserved populations across the country. Virtually every healthcare organization now has new programs to address the holistic needs of the consumer and there are a number of startup organizations that have been created to address these challenges as well. For Centene, we've had a commitment to addressing social determinants of health for over 30 years. It's foundational to our care management model, our culture and we couldn't preserve our local approach without it. Every Centene market has some form of social determinant initiatives.
And you heard one of the success stories from Nevada earlier this morning. I'm pleased to say that there are countless stories like the one we heard from Patrice. We want to provide a broader perspective on the types of social determinant activities that we have in place across the country. The primary categories of focus for Centene are housing, food, education, employment and transportation. What you see here is a representative subset of examples across Centene markets and products.
These efforts typically include a Centene team and a consortium of local and national partners with a shared commitment to making a positive difference in the lives of those who need it most. This is a good example of how we become the leader in government healthcare, and we will continue to innovate and expand our efforts in this important area. And we know that these efforts make a difference for our members and beyond being the right thing to do, it also has a positive business impact for Centene. You'll hear shortly from Brent Layden about the growth pipeline and our continued success on the RFP front. It's not a coincidence that we have both a strong commitment to our local approach and the industry leading success rate for government health RFPs.
But before I turn it over to Brent, I also want to provide an update on our recent M and We've had an active start to 2018 and have executed on investments consistent with our 2020 vision and diversification strategy. The 2018 investments fall into 3 broad categories: core health plan, technology and provider related capabilities. I'll share comments on each of these categories. As you heard earlier from Michael, the Fidelis deal is on track for July 1 closing. The Fidelis business continues to perform well across products and the management team has been fully engaged on our integration efforts.
We've taken advantage of the additional time ahead of closing to progress our integration plans and are ready to hit the ground running in July. You heard from Doctor. Ghuri as well as Ravi and John about our recent technology investments. Beyond the specific benefits of integrating advanced technologies and platforms into Centene, it's important to note that we have established Centene as a partner of choice for technology companies. We believe our track record and approach will create additional technology investment partnership opportunities into the future.
On the provider front, we completed the Community Medical Group transaction in April and are enthusiastic about the additional capabilities to support value based care for government programs and the enhanced ability to address potential access to care challenges. We also include the Mhmm transaction in this category. As Kevin mentioned earlier, Mhmm and Centurion provide a wide range of services to correctional and related programs, but they are in the delivery of care business. Through the combination of CMG, MHM and our previous USMM investment, we've developed a meaningful portfolio of provider assets. On a combined basis, we have over $1,000,000,000 in provider based revenues with nearly 6,000 clinicians delivering care in approximately 400 facilities across 21 states.
When we include our international provider assets in Spain and the U. K, these numbers increased over 9,000 clinicians delivering care in over 500 facilities. Importantly, each of these provider groups are specifically focused on government programs. We believe that this is an important capability and we're actively pursuing opportunities to leverage our efforts across our provider portfolio. Consistent with the comments about technology, we believe there is significant opportunity for provider partnerships across Centene markets and products.
As we have said on multiple occasions, we will be targeted in our pursuit of provider assets that support our focus on government programs. We've successfully completed and integrated over 45 transactions over the last 15 years and we'll continue to include M and A as an important part of our growth strategy. As our business has grown and diversified, so is our deal pipeline. We have more investment opportunities now than ever. We'll continue to pursue transactions across the government, technology and provider categories that We will ensure that future transactions are aligned with our 2020 vision and will consistently apply discipline to our M and A and integration processes.
In conclusion, we're confident that Centene has a strong and diversified platform to drive continued growth and innovation with our portfolio of markets, products, service capabilities and technology. We are uniquely positioned to achieve our 2020 vision of being the leader in government healthcare. Thank you, and I'll now turn it over to Brent to talk about our growth pipeline.
Thank you, Jesse. I'm excited to have the opportunity
to discuss Centene's growth prospects
with you this morning. Let me begin with the overall growth opportunity. This slide continues to show tremendous opportunities for growth. There's a large ceiling and great ability for expansion within the healthcare arena. All of these areas combined address addressable market of almost $2,000,000,000,000 As you'd expect Medicare and Medicaid constitute the majority of this market, combining to approximately $1,500,000,000,000 Yet international healthcare opportunities provide a long runway with an estimated $182,000,000,000 market for Centene.
In federal services, the health insurance marketplace and correctional health gives us strong product growth. Of that roughly $2,000,000,000,000 healthcare space, we have a targeted pipeline which sits today at $270,000,000,000 To better understand Centene's future, it's important to look at our past successes. Between 2012 2018, we've targeted 52 Medicaid opportunities. We're fortunate to win 42 of these 52 targeted contracts, representing a win rate of over 80%. Now let's talk about ways in which we can continue to grow at Centene.
For many years Centene's growth was led by entering new states and helping states transition fee for service programs to managed care. As these new states become existing markets, Centene continues to see opportunities for strong organic growth and expansion. So let's start with existing markets and their growth opportunities. How can we build upon this footprint, our footprint of 31 states? In states in which we currently operate, we seek to continue to increase our membership footprint through re procurements,
service expansions and product expansions.
So far in 2018, we've been awarded 3 contracts in existing Arizona, Florida and Washington. In Arizona, we were awarded the Central and South regions for Arizona's Complete Care reprocurement integrating physical and behavioral. In Florida, we awarded the statewide Medicaid Managed Care Program in all 11 regions as well as the remaining sole source provider for the child welfare program. And in Washington, we were selected for 5 regional areas for Apple Health's integrated managed care program, which adds behavioral health to the current program. All three of these existing market wins represent Centene's strong track record with repocurements, as well as the ability to adapt to program changes such as integration of physical and behavioral health that can result in increased revenue.
As we said earlier, we have a successful track record of RFP wins. We feel strong on the outstanding reprocurements and we're still waiting for the results for the Texas Star Plus RFP and the Kansas KenCare 2.0 RFP. We're currently working on the Texas statewide star and chip RFP, which rolls in all star and chip service areas, included those in accounts of 2017 chip roll service RFP and also the recently released Mississippi chip reprocurement. Looking ahead, our existing market pipeline continues to show opportunities such as the reprocurement of the Florida Healthy Kids program. We continue to look for opportunities to expand our service offerings in existing markets.
As we discussed in December, we were awarded the Illinois Statewide Expansion. From 2017 to 2018, we've grown from servicing roughly 240,000 members in 12 counties to 400,000 statewide. This resulted in our revenue increasing to over $2,000,000,000 Later this year, we'll begin serving foster care members as a sole source provider. Another way in which we further our presence in existing markets is through product expansion. As you heard earlier from Kevin, we continue to expand on our product portfolio through Ambetter, through our Medicare platform Allwell and Correctional Health through Centurion.
For Ambetter, we will build on our platform of 15 states by adding 4 new markets 2019, including such states as North Carolina and expanding in current markets. For Allwell, we are looking to expand within our 19 markets as well adding new Medicare Advantage states to our growing portfolio. And finally, through the acquisition of MHN announced in February, we've expanded on Centurion's state footprint. This expanded platform creates an opportunity for growth in state prisons and also county based facilities as we've seen in our recent award in Arizona for the comprehensive healthcare services for Pima County's adult and juvenile facilities. Now let's discuss our growth and expansion in new markets.
In December, we discussed our interest in opportunities in New Mexico and Iowa. We're pleased we were awarded contract in both of these new markets. In New Mexico, for the Centennial Care 2.0 program, currently this program serves nearly 700,000 individuals. For the Iowa Health Link program, which currently serves approximately 600,000 individuals, both of these contracts begin in 2019. We're excited to partner with these states and begin serving new members.
As we mentioned before, in North Carolina, we continue to build and develop our provider led health plan. Carolina Complete Health, this joint venture with the North Carolina Medical Society and the North Carolina Community Health Center Association or FQHCs demonstrates Centene's ability to work closely with providers to meet the state's objectives for the upcoming RFP. Centene's entrepreneurial spirit never ends, is why we're always looking at future growth opportunities. When we look at the current Medicaid landscape, we view many opportunities for growth and diversification. Of the total Medicaid spend, nearly half still remains in fee for service, representing a $274,000,000,000 opportunity.
Of that $274,000,000,000 fee for service bucket, nearly 70% lies in Centene's markets, markets in which we can build off our existing health plan relationships as more populations become added to managed care. And finally, the remaining $97,000,000,000 in fee for service in non Centene Medicaid markets, 50% of that is in managed care states, while the other half is in states without traditional managed care. We feel there's an opportunity for growth in this space given we've entered 16 managed care states as non incumbents and since 2,006 we've been a part of 10 states transitioning fee for service to managed care. Looking ahead in 2018, there are 36 gubernatorial elections across the country.
Of the 36 states for
the election Centene serves Medicaid members in 22 of those states, while 9 of the remaining 14 are fee for service states. Elections and leadership matter in many ways, including how states decide to manage their Medicaid program. We'll watch closely as these states turn to new leaders and new approaches. But Centene is experienced in state leadership transitions and we believe this will lead to many new organic growth opportunities. After discussing the growth opportunities that exist in Managed Care domestically, I want to just briefly touch on our growth and diversification through international opportunities.
As Cindy highlighted earlier, we have a growing presence in Spain and the U. K. With this international foundation, we believe we can pursue the numerous opportunities throughout the globe. Our approach will be local and regional as health systems look for expertise and technology solution to bring better outcomes and more efficiency. Last December, when we discussed our Medicaid pipeline, we delivered with awards for 3 re procurements in 2 new markets so far.
I hope when we meet again in December, I can show you similar successes internationally. Now what kind of growth conference would this be if I didn't give you a revenue number for 2019? For 2018, the midpoint of our total revenue guidance is 59,600,000,000 dollars Based on what we have won and know as of today, we have visibility into $69,000,000,000 plus in total revenue for 2019, which represents over 15% growth from our 2018 guidance midpoint. Now this includes a full year of recognized and Fidelis revenue, a full year of revenue in 2019 for markets and product expansions that began in 2018, and finally, new contracts will begin in 2019. In summary, we're a disciplined growth company focused on margin expansion, a robust pipeline, total revenue in excess of $69,000,000,000 and a diversified growth strategy across all markets and all products.
Thank you for your attention. We look forward to updating you later this year on our ambitious plan and the exciting growth initiatives happening across Centene.
Thank you, Greg. It's time for our second set of questions, if we have any.
First question, this is on. Is around the RxAdvance and how that relates to what you're already doing on the PBM side. Is RxAdvance provide potential data analytics on top of your own internal PBM operation? Or is somehow you're going to move that business over time to RxAdvance? Give us some update on your Centene's own PBM strategy.
Well, RxAdvance becomes the PBM. And its capabilities go far beyond a traditional PBM. When you see what it can do and some of the things they talked about, it integrates the total healthcare environment and situation. And the for example it helps with the physician. It gives them choices.
It helps them understand it with electronic medical records. It significantly reduces backroom costs. So, I'll probably talk about that. So, at every level, it becomes our PBM, but at a far more transparent, far greater capabilities.
Is that then a is there a transition period where you move your business to them somehow or It gets integrated into our right now, they're currently working with our
specialty pharma companies and our PBM to
integrate it and manage it. Okay. Maybe then just a question on the
Jesse, you want to add something to that? Yes.
I think you covered it for the most part. I think the way I would think about it is we've got there are capabilities that Centene has on pharmacy management. We've got a lot of people, we've got a lot of experience clinicians, including how that pharmacy management is done at the market level. So that's kind of the Centene platform. There are other functions including administrative functions, where we talked about prior authorizations, a number of other things, including network and rebate contracts and the like.
So I think what we're really talking about doing is optimizing the combination of those things over time. And there will be a transition. So each of these these are complicated kind of a complicated operating model and so we'll we have a market by market plan where we will roll out the integration in future. Okay. And then the other thing I was just
going to ask about is on the data analytics platform, Integra. Are you have you is that capability rolled out to all of your members at this point? Is there a focus on sort of the higher acuity Medicare and DSNP type population or tell us
Can you talk about how we're rolling it out and where you're headed?
Can you hear okay?
Yes. So, at the can you repeat the question please?
Just to understand, all that data analytical capability that you were talking about, is that available to all the members? Is it mainly focused at sort of a higher acuity Medicare Advantage type where they're consuming a lot of care and they're having a lot of touch points with the care management system? Give us some flavor for that.
Good question. Yes.
So we analyze every member continuously regardless of product line or their prior clinical acuity, because people are actively get are not or previously sick. So you have to continuously analyze the whole population. We don't selectively analyze just like one product line. The results of that analysis are made available to doctors through portals like Availity to care managers on applications such as TrueCare. And we have a partnership with a consumer company called Hagee that makes it available on a consumer app.
The important point being that you have to analyze every patient every day because you don't know who is about to get sick, not just the people that were historically sick or not just one product line. Additionally, one important point is that everyone's analysis is the same. So because it's non latent, so that means that people are not working on a different roadmap. Everybody is synchronized. That's what we call intelligently synchronizing healthcare.
So that eliminates rework, false positives and redundancies, makes care much smoother with unified targets. Does that help?
Yes. And this is I
mean, you look at how many files in 1 minute?
We're currently processing 12,000,000 medical record transactions per minute on a continuous basis.
Yes. And the second piece of that is the rollout schedule. I think Chris mentioned we have 8 health plans that are coming and I think that was the comment they said the health plans are eager to get their hands on it, right?
It sounded like the focus was on things like gaps of care, but I could see that it would also give you access to information about utilization much quicker than you would otherwise have. Is that true? And what might that be?
So the gaps in care, there's a large knowledge base in our engine. Care, it's drug safety, it's prescribing medications that do not adhere to the FDA recommendation for pharmacogenomics. It's medication adherence, it's prevention, duplicate therapies, gaps in risk adjustment, member prioritization. So it's a very powerful suite. You can think of it as like a Microsoft Office for healthcare.
It's not everything under the world, but it's the core clinical needs that represent the vast majority of actionable opportunities.
The example I've used is, it can pick up somebody's potassium going up from one period to another, which should be an indication, Doctor. Yamaguchi, what kind of diseases? So you can see that there's something looming there, notifies the doctor and they can be proactive in dealing with it, rather than waiting to the condition of peers. And if we're going to get ahead of the curve in cost and improve quality, you need that kind of capability. And we believe those should be core competencies of our company.
Just following up on that point. So as
I get how the data is being made available,
how can you give us
an example of how it's actually being applied and how you're maybe enforcing or just making sure that it's being applied appropriately at least with the doctors in network and maybe some numbers around savings if you have them. I understand it's probably early.
Well, as others can comment on, you can make them aware of it. The physician will attempt to work with the patient to take the necessary action. We do and we look to programs that test drug compliance and that type of thing, but you can go so far. But we have to operate in a basis that most people, if they know they have a condition and they know what can be done about it, we'll do it. Does that help, Steve?
A little bit. Yes, that's
helpful for now. And And just one other question. I know it's early, but maybe just any high level commentary around puts and takes for margins into 2019.
Do you guys have any thoughts on that?
Yes. We're not going to get into the margin discussion. I think that's consistent with what we've done in the past. We give the revenue number now. We'll give you the full guidance in December.
All right. Thank you.
And it's fairly short because that's the guidance. That's the revenue we see. We have clear visibility to this point in time. It doesn't mean that we're done. Understood.
Jesse, were you going to comment something earlier on the other point? Yes.
I mean, just to kind of connect it out a little bit, Steve, on the question in terms of the provider integration. I mean, part of what you heard today hopefully is that there's a whole ecosystem that we are a part of, but not all of. So there's a consumer component, there's a provider component. So I think the integration of information and the incentives, obviously things like value based contracting are all part of the picture here. And I think this is an opportunity for us to actually put our positions in a put our physicians in a position to take better care of our members.
I was going to say, do you think the value based contracting is in a place where those incentives are already adequate to have the physicians acting on the data or does that still have some ways to come?
I would say the information that we're providing is in the next generation category. So there's
Fidelis acquisition, which obviously we're on the cusp of
that closing. I wanted
to ask about the Fidelis acquisition, which obviously we're on the cusp of that closing, and your outlook for the integration process, which I know you put a lot of planning and work into already. I guess the context here is Fidelis is a large scale acquisition. The backdrop of Health Net and that was a very difficult integration in many ways, I'm sure you'd agree. Is Fidelis going to be, do you think, significantly more straightforward? And can you just talk about the synergy realization?
Cindy,
well, we have a lot of muscle memory left over from the Health Net acquisition and the integration planning process there. So our approach has always been very local. So the local management team at Fidelis stays intact and which are highly competent individuals and do very well. And so we have we are just doing a business as usual approach. And so we are well ahead on the integration and planning process in terms of the systems that we will bring in place and a lot around the cultural aspects of it because that's a key component for us.
And so that planning process is well in place. And so this should be an acquisition, I think, and the integration should go very, very smoothly.
Jeff, you might comment on the finance, because that's an important part.
Yes. I
would echo Cindy's comments. I think it's a well run health plan. And on the finance side specifically, we benefited from the fact that they're on the same general ledger that we're on. So we're looking at a day 1 go live on the finance side after transaction. So that's something that we could not have done possibly with HealthNet.
So we're excited about that. We'll get that information in our centralized general ledger day 1. So we're that's good news.
Josh, did you have a question? Okay. Okay.
Thank you. So follow-up to that and A. J. Earlier question, we haven't or you've made it clear that your opportunity for cost synergy in Fidelis is more on the medical cost side. And we had in our that maybe that might even come from pharmacy, particularly in year 1.
So wondering how what your views are on medical cost savings, how that interrelates with a lot of the interpreta and Rx Advanced discussion that we've had in the last hour or
so. Yes, this is Jeff. I would say the synergies that we put out there, I mean, we announced this transaction last year. The synergies we've put out there do not contemplate, I would say, the full RxA interpreter that we're talking about today. I think that's more in the future category.
I mean, the first what we're trying to do is obviously get our existing health plans and our existing business on that. So I think that's future opportunity above and beyond the year 2 run rate synergies that we previously mentioned.
I think what's important on the medical, we said they their HBR is high. We expect that our systems are going to help them manage the medical expense. Their G and A is very low. So I've said at various conferences to expect the G and A to come up, but we expect a medical arsenal down more than the G and A goes up.
Is it right to think that the sequence of the medical cost improvement is kind of pharmacy heavy early? And if so, what types of steps does that entail?
I'm not I wouldn't just specifically call out pharmacy. I would say it's one component. We have a lot of contracts. We have national contracts in lab, radiology, things like that, that ultimately we would look to consolidate day 1. So I'd say to the total medical cost picture, there will be some administrative savings by combining insurance policies and corporate cards and things of that nature.
So I don't want to mean to say like there's 0. There are some that will hit day 1. But if you think about taking, I would say, contracts for other medical costs, combining those and getting the of both worlds, that's really what's driving the early synergies with the medical management initiatives and rolling on our capabilities on analytics, risk adjustment, those things really driving the back half and the following year.
It's case management, a lot of system capability, case management, what have you that will help them with their medical experience. $3 plus
Just one more quick one on the RxAdvance. I guess it wasn't crystal clear on the current revenue model, whether that's more of a SaaS subscription based revenue model right now? And will that change? Will it become maybe in some sort of percentage savings? Just curious if the revenue model need a little more color on what it has been and will that change under Centene?
Thanks. Jason, do you have anything?
Yes. I think the way I would describe without going into too much detail, the way I would describe it is there's a baseline administrative component with this notion of transparency kind of transcending into a shared savings model.
I guess the topic I've got in RxAdvance question as well. And just maybe help us understand a little bit more about is there any exclusivity to Centene? I assume there's an effort to sell this externally. And then what are the benefits to Centene when and if Rx Advanced does sign up other customers of their scale benefits where you get discounts, where your rebates go up. I assume there's a direct investment where you probably have some sort of economic value creation as well.
Yes. I mean, I never discussed in full detail, Josh, the confidential arrangements we have with them. I would say that there are some external sales that the priorities and how we go about it is something that we've agreed to with them and it should be to everybody's mutual benefit.
That's helpful. And then the second question just on the medical management system and the Cintelligence dashboard. You talk a lot about real time data, and it sounds like that's really dependent on your relationships with the providers. So I'm curious what percentage of hospitals or institutions are you guys linked on electronically? What percentage of the docs?
And when you talk about sort of those processing real time updates, those are those just when the claims hit or are those actual like patient encounters?
It's a combination,
So when a new patient data element hits the engine, it recalibrates the risk assessment of the patient regenerates the care plan in about less than 50 milliseconds. So the rate limiting step is how fast can the data source get data to the engine. In some cases for administrative convenience, it's done at midnight every day for like a big insurer. But with some of our other partners, it's actually real time. So for example, blood pressure biometric readings from the Higgie station happen in less than a second.
Our transactions from a PBM or a lab can happen in real time if it's a national lab or a national PBM. And our engine is not the rate limiting step, it's the data
supplier. Okay.
Thanks, Kevin.
Great. I wanted to ask maybe another question on Fidelis. Want to make sure that from your perspective Fidelis, it's a low run company that is actually operating kind of as expected heading into the close. Yes, for a pretty big rate increase on the exchanges for next year. So I wasn't sure if there's anything we should be reading into about their view about this year's performance on exchanges being below average.
Jeff, we're looking at the numbers regularly, so he's a good source to answer that.
Yes. It's been running in line with our expectations.
And any color from about the rate increase
and why it seems so large?
No. I don't have anything to comment on that. Again, we're operating as separate companies, obviously, until the transaction closes. And so that was their rate filing. I know the New York program is designed a little differently than the exchange program in the majority of our states because they have an essential plan that covers up to 200% of the FPL.
So it's a little bit different design than what we have in other states.
And then just a question on MA. I know Jeff you mentioned that you could use the HIF as kind of a way to kind of keep margins relatively stable for next year, but everyone's benefiting from the hip for next year. Does that mean that we should expect Centene to maybe grow below average because you are going to have this headwind from a STARS rating? And then secondly around STARS, you've been using the 4 star rating as kind of this entree into new states. You get that benefit from the corporate level star rating.
If you drop below that, does that slow down how much you want to enter new states in the next couple of years?
I don't I think I stated earlier that our commitment to the Medicare program, Kevin, it's fixed. And I've asked the I've asked Kevin, I've asked the health plans and others to just go at it very methodically, come up with their plans so they grow come up with their growth plans, we'll then look at the cost and make the determination how best to do it.
That's right. And just to amplify that just a bit, one of the things that I mentioned was that we've been working on the foundation of Starz and
performance improvement. We've been making good
progress in that. We've got a little bit more to do. Impact 2020, we're feeling impact 2020, we're feeling like we're making very good progress.
Yes. A question on the several wins you had recently on the Medicaid space. I was just interested in understanding as you do a post mortem on those wins, how much benefit are you getting from things like social determinants of health from having such a broad range of capabilities that you're offering? And where I'm particularly interested in this is you're looking at like an Illinois or Florida and you're seeing a consolidation in the number of vendors. Is this something structural where you're seeing an advantage where perhaps only the largest players or particular capabilities are giving you some additional benefit there.
Thank you.
There is no doubt that social determinants and RFPs over the past 18 months have increased and we see it forward from that standpoint. And just as you saw in patients, we've been using that really in our approach to overall healthcare now ever since we've been a company. So absolutely, I mean, being flexible, being in the community, being local, working those programs has been an advantage and we'll continue to build on it. And I think we're going to see more and more of it in RPs and I think you're going to see it more refined in how they ask for it and demand of it. And do
you have any sense or an anecdote you could share with us as far as perhaps the amount of weighting that some of those things are given as well as is there increased emphasis or weighting on things like high acuity or complex population capabilities?
I would say the weighting, I think you'll see more in the RFPs right now. It's more embedded into questions around quality and sometimes around service delivery. But I do think it's the potential that ongoing RFPs might have its own section of the old points. But so far, it has not been that. But clearly, just as Jesse said in his presentation, more and more states are wanting to know what you're doing about social determinants, so
it's very possible. Got you. And the last thing on it is just, are you seeing incremental revenues associated with it as you're picking up like transportation costs and things like that? Or is it really embedded in the rate in order to drive down costs?
Well, things like non emergency transportation, years ago, if you sat here 5 or 6 years was carved out, now it's carved in from that standpoint. And what we're having to do is work with states, some services that you've seen that might be a part of waiver, whatever is folding in at the same time. We're having to find ways to deliver services that really helps us do social determinants. It's a little of both. Great.
Thanks.
I just want to add that when you were talking about RFPs, the capabilities we've been talking about, we have and continue to develop don't hurt either when it comes to showing what you can do to improve quality.
Yes. Just back on RxAdvance where you've been growing revenue and it seems to be exponentially accelerating with you're competing against CVS, Optum Express, I'm assuming given that you say it's a full service BBM. Can you talk about the mix of your customer base right now? And then do you see these mergers as being a disruptive change and any change in the value proposition of the competition or it might not make a difference?
Rx advances in its early stages. So the revenue mix is something that Ravi and should be talking about as opposed to myself. But so I'm going to kind of talk that one a little bit in. But from a standpoint of where it's going, I think it's so different that we're doing our thing with it. And of course, some of the other PBMs will have more captive customers.
I mean CVS and Aetna and Express Scripts and Cigna and some of the others. But what happens though, we're seeing more and more of an internal. I'd like to believe that this has a lot of appeal external where we have the capacity to to ease it. Jesse, you want to add?
Yes. I would just say, I mean, there's obviously a lot of activity in the industry broadly. I would say from the conversations that are out there, kind of other health plans, other interested parties, there is, a significant appetite for new competition in the pharmacy space.
Thank you.
Well, I mean right now we are focusing heavily on the Centene implementation, but there are a lot of other large payers are doing due diligence on us. So there is a once we have about just to add some one of the points, we have 4 health plans, we are Centene health plans, we are going transitioning them from the current PBM and that we have another 12 or 13 plants next year and 2020 will be completing. And we are in the process of due diligence with other large health plans. So they will you will hear that those news in coming months.
I didn't see you back. You actually have put a lot of questions.
Can I just make one observation to the earlier question? Please. 1 of the big differences between RxAdvance and any other PBM is that we all take the data, which is clinical claims and related lab data for every script and we adjudicate the reimbursement between the pharmaceutical companies, the health plans and the pharmacies. All of us do that. But only RxAdvance because we're the only cloud, BBM, is able to take that data across the entire continuum of care.
No one else can do that. What amazed me when I got involved with RxAdvance was that I saw that the same technology that every PBM is using, remember they were all built 35 years ago, was the same technology that I saw when I showed up in Silicon Valley. It's green screens, it's mainframes, typically IBM AS400s. It's all hardwired. They have no way to take that data across the entire care continuum.
And one of the things that really interested Michael Neidorff was that we can take that data. As you know, 86% of the healthcare costs are chronic care patients, 5% of the population represents 50% of that $3,500,000,000,000 spend. We're the only ones who can take that prescription data out to, let's say, the high comorbidity patients who have 8, 9 chronic care diseases. We're the only ones who can drop automatically into every physician specialist practice management screens and be able to show every medication that that patient has, where is the duplication, there's always high duplication, which is unnecessary costs. We automatically can show the side effects that come from prescriptions that are made by physicians who don't know what the other physicians are prescribing.
It's not that the physicians are incompetent. They just don't have that information. And then we have the ability to be able to track adherence. 50% of people don't actually adhere to their medications. So the implication of cost savings are substantial at every level in terms of lowering the cost of people being over medicated unintentionally, being able to track adherence, being able to track side effects, lowering cost of people going to the emergency department, the readmission of people back into the hospital 30 days after discharge, those things can come down.
So McKinsey Global Institute estimated there's $350,000,000,000 of drug impacted medical costs that are avoidable every year. RxAdvance is in the best position of being able to take literally 1,000,000,000 and 1,000,000,000 of dollars of cost out of the Rx ecosystem and that's what makes it so differentiating. And what's exciting to Ravi and me is that Michael Neidolph runs Centene as though it was still an entrepreneurial company. It's got the culture that attracts people like Interpreter, us, there'll probably be others in the future. So as we looked at joining up strategically with RxAdvance, we said, gee, we saw how UnitedHealthcare built Optum, but Optum's analog.
Optum is very people intensive. We said, wow, Michael is talking about transforming the healthcare system that Centene can offer and being able to use digital platforms. It's all about platforms, interpret as a platform, we're a platform. It's all about taking platforms and being able to impact across the entire care continuum. That's what makes RxAdvance so different than any other PBM out there.
I want to add one more thing to what you said, John, that is while you're reducing the cost, the way you can the doctors can look at drug interactions and the side effects and And that chart that shows where the doctor can look at it and make a determination which is the best drug for that particular syndrome. Absolutely, Michael. Improves quality incredibly. And then
when you look as Centene rolls out INTERPRETTA and the things that Amit talked about, the things that we do are incredibly complementary. Centene has the potential, remember that the government health plan sector is growing much faster than the commercial sector. And the ability to go into the government sector, particularly with the most vulnerable people where Centene has already demonstrated that they can make money on exchanges, nobody can do that. So now you take Centene being able to get the leverage of platforms doing types of things that Michael just described. It's going to revolutionize the healthcare industry in the U.
S.
Fascinating. Thank you.
Good question. You got us really started with one question.
This one's on RxAdvance as well from Gary Taylor of JPMorgan. Can you offer more details on timing, magnitude and source of the substantial net income opportunity cited for RxAdvance?
No, no. It's a little little early for that right now.
Anything else? Well, I want to thank everybody. It's fun for us to be able to share these things with you and talk about it. And we're looking forward to December when we'll talk more politics. We'll talk the advances we're making, how it's coming together and you get the full guidance for 2019.
Thank you. Have a great summer.