Introducing Humana. Humana is one of the largest health insurance companies focused on the senior population. Also has a Medicaid business as well as a growing senior-focused services business. Presenting today we have Bruce Broussard, who is the President and CEO, as well as Susan Diamond, who's the CFO, and Lisa Stoner from investor relations is in the room as well. I think we're gonna just jump right into questions.
One of the things that I'm trying to get a strong answer to throughout this week in asking everybody is just about Q1 utilization, because we've seen really strong volume numbers from the providers, from the med tech companies, broadly speaking, and the managed care companies routinely say, "No, everything is fine." We'd love to kinda hear your view about how we can square those two, you know, seemingly, you know, incongruent concepts.
Sure, happy to. As you mentioned on our first quarter call, you know, part of this is obviously how is it performing relative to what you expected. We've been saying, you know, throughout the back half of last year that as we priced for 2023, we did contemplate that we would see normalized trend development, in 2023 off of our 2022 baseline.
We did plan for a normalized trend, and you can think of that as just sort of typical trend that you would apply for utilization and unit cost on top of your starting point. The other thing that is specific to the first quarter is that if you remember this time last year, we were experiencing in January, in particular, a COVID surge, so actually had the highest level of COVID hospitalizations than we had seen through the pre-pandemic.
What was interesting is that surge came down much more quickly than we had seen in prior surges. As we commented this time last year, we did not see a rebound in non-COVID utilization at the same pace that COVID declined. In the first quarter of 2022, you did have some overall depressed utilization that we experienced.
As we thought about 2022 trends, on a percentage basis, we would have said you should anticipate a higher trend in the first quarter of 2023, particularly if you're referring to non-COVID utilization trends. Over the rest of the year, if the absolute utilization level stays similar, that would translate just to a lower percentage increase year over year on that same utilization base.
I think the other thing that you should keep in mind is when you hear commentary from the provider systems is sometimes it's not clear if they're referring to commercial versus Medicare or overall trends, and so parsing out the differences sometimes can be difficult. The other thing to keep in mind is if they are referencing Medicare.
In particular Medicare Advantage trends, because of the continued adoption of Medicare Advantage and the penetration increases, just the sheer numbers of individuals that are in Medicare Advantage is increasing, and so the absolute level of utilization and the composition of that within the provider system is going to be larger, and the trend is going to be much higher. When you hear us talk about our trends, we are typically commenting on admissions per 1,000 on the inpatient side. How many events per 1,000 members?
It's normalized, you know, so that membership growth is not part of that utilization metric that we will refer to. That's where you may see us talk about things that would seem to be inconsistent with one another or have different outcomes, when in fact we anticipated some of those higher trends in the first quarter, and if you actually included volume, overall volume in our numbers, the trend would obviously be much higher as well.
For us, as we commented on the first quarter call, we have the greatest visibility at this point into inpatient utilization. That has you know, emerged favorable for the first quarter. Some of that was lower COVID than we expected. Some was lower flu. We had anticipated lower flu given the peak in December, but it still did come in somewhat lower.
Even after accounting for those two pieces, the residual hospitalization rates were still lower across both new member cohorts and our concurrent population than we had anticipated. Some slight favorability. We view that very positively. When you think about non-inpatient, we have much less visibility because we're dependent on the claims that come in.
On the inpatient side, we have authorization requests that prove very predictive in terms of the overall utilization. We are dependent on claims. That takes more time to develop. We have some visibility to January, and we would say again, we did anticipate some higher trends in January in particular, you know, and but we would say that early indicators suggest that that is coming in as we expected as well.
Based on what we know, we feel good, but you know, it is still very early in the year, and we'll certainly continue to watch the trends develop over the rest of the year. So far what we're seeing is, again, slightly favored expectations on the inpatient side, and overall, we would say consistent, if not slightly positive for the first quarter.
Just to be clear, what you're saying is that if utilization on an absolute basis kind of stays at these levels, that's what you assume. If the year-over-year growth rates hit at these levels, that's when you might have a problem.
Yeah. If we would continue to stay on a percentage basis, that maintain across the subsequent quarters, then that could create some pressure relative to what we would have expected.
I guess like as we think about so far, you talked about what you see in Q1, is there anything in Q2 that you can kind of tell us about how utilization is trending?
Yeah. What I would say, what we will comment on is just how to think about second quarter MLR, which I know we got some questions in our follow-up meetings after the first quarter. As you look at where consensus is today on a consolidated basis, it's about 86.2%, 86.3%, and we would say that's in a good spot relative to our internal estimates.
When you think about the insurance segment in particular, you can think of once you account for intercompany and eliminations, that tends to run 40 to 50 basis points higher than the consolidated. If you guys take a look at that versus your models, then you should be in a good spot.
Okay. Just to 86%-83% consolidated MLR, but insurance MLR. When you say insurance, just to make sure, because you've got going concern MA, Medicaid, is that excluding commercial, you're saying?
Yes. Commercial, we have non-GAAP, so this is the reported insurance segment that we're now reporting, which excludes group commercial.
that should be 80, 86, 7.
40-50 basis points higher.
Okay. Okay. All right. I think that all makes sense. I guess the other thing, though, that kind of confused people was that a lot of the reserve metrics kind of didn't look right. Companies were beating, but the reserve metrics looked bad. I guess the first couple of times people looked at it and said, "Oh, wait something's wrong here," but it seems like everybody's doing it at the same time. Is there something that explains why claims are just being paid faster or anything? How would you describe that?
Sure. The reference is to the DCP or days in claims payable metric. As we've explained, I think in the past, there are a variety of things that run through that calculation, both on the expense side and also the liability side, the IBNR, some of which don't run through both.
There are a few things we've consistently called out as items that could create disproportionate impact in any given quarter that you'd want to make sure you understand to appreciate the change you might see year-over-year or sequentially quarter-to-quarter. Those three things tend to be pharmacy, is one of the largest. Pharmacy claims have little to no IBNR because the claims are paid in near real time.
You will have changes in terms of the days in claim and expense related to pharmacy, and that's a result of the way that the program's structured and the plan responsibility and the seasonality of that as you go through the year.
The beginning of the year, the plan has the highest responsibility, but as members work through the coverage gap and then the catastrophic phase, in the fourth quarter, in particular, CMS bears a much higher portion of the responsibility, and that results in reinsurance being recognized. From fourth quarter to first quarter of every year, you're going to have a natural impact related to reinsurance resetting to zero, and that would have a decline in Days in Claims Payable, all other things being equal.
For the sequential quarterly change this year, we mentioned that three and a half days of the decline that we experienced was related to that dynamic. Now, if you go back historically and look at that, you won't always see that same exact change materialize in each first quarter. Again, that's because other items may be offsetting it in the other direction.
The two other items that tend to be contributing to that are, one would be, provider payables or in capitation in particular. As we continue to increase the number of members supported by risk-based providers, the way that capitation works, it doesn't pay like a typical claims payment, and the cycle times are different. You will contractually pay any surplus amounts out at certain time periods based on the contractual arrangement.
As the number of members grow that are supported by those arrangements based on the provider performance and the timing of those payments, it can have an increase or decreasing effect to days in claims payable. That does not impact the strength of the reserves, nor does it impact the income statement in that period.
The last thing that tends to have some impact is just pure sort of inventory levels, and that can be impacted just by as simple as what day of the week does the quarter end on. Based on our just normal claims payment cycles, that can result in more or less inventory being held at the end of a particular period. As we explained, our sequential change in three and a half days was related to the reinsurance dynamic.
The rest was attributable to just that inventory levels and natural timing of claim payments. That latter fully explains the year-over-year change. What we said is, look, you can continue to look at that metric. Just recognize it is not a core metric as far as we are concerned for all of those reasons.
We did point you to another metric that you can also look at, which is the trend in membership versus the trend in IBNR, which, you know, no metric is going to be perfect in terms of what you guys are trying to assess, but I do think is probably more stable and should be more consistent in terms of how those two things trend. As we mentioned on our first quarter call, if you do look at that for the first quarter, both of those trended about 10.5% in the first quarter for us.
Okay. If we think about the 2024 MA rate, we got a MA rate that the final rate was a little bit better, but overall a pressured rate. How are you thinking about pricing for 2024 and your ability to grow at or above, you know, the industry average?
Well, first, we are happy that it's a phase-in because we believe a phase-in will allow us to adjust accordingly, both with CMS and within the company there. I think the phase-in really allows us some flexibility.
As we think about the going to adjust the benefits, they will be decreased or the, our premiums will increase. That is a given. The question is, how much does each of our competitors change their benefit plan and how aggressive are they? For us as an organization, we continue to believe that we are in the preferred spot, as a result of our star scores, and that will benefit us quite a bit in 2024.
At the same time, we're coming off a great year, from a brand point of view and our relationships with the brokers. The combination of those two, just without any changes to the benefits and the positions as well. As we look at our benefits, we are continually looking at what is the most valuable from the customer's point of view and ensure that we maintain those, and then over time, we'll adjust the ones that are less valuable to them.
That might be different than an actuarial value, because what we do see is perceived value versus a number of our benefits are much greater than the actuarial value. We're going through that analysis. We weren't gonna spend a lot of time on giving all the different ways we're looking at the market, but we are looking at it from a customer point of view.
I do wanna emphasize for our investors that it is a market-by-market dynamic. In places like South Florida, you'll see different changes than some place in the Midwest area. As a result of the penetration of value-based providers, we see in those markets there's more need to adjust the benefits as opposed to in a more fee-for-service environment.
you know, even with your stars advantage, you think that Humana would have to cut benefits to some degree.
Yeah.
to the rate update?
Just on that, Kevin, what we do believe is that over a three-year phase in, you wanna do this in a way that is incremental as opposed to just waiting till the very end. As we think about it is that we are trying to do it in a way that is more gradual for our customers.
Kevin, I would add to that too that, you know, because of the overall strength of the MA-D proposition relative to original Medicare, even in this environment where we do expect to see some benefit moderation broadly, although as Bruce said, probably more significantly in areas that have disproportionate plan value to begin with, that the strength of the program is still quite strong.
The value proposition to consumer is quite strong. I t might have some impact in terms of the overall industry growth in 2024, but we would still expect that the industry has the potential to grow still high single digits. Maybe on the lower end of high single digits than the higher end that we've seen the last couple of years, but we do feel good about the strength of the program.
For Humana specifically, for all the reasons Bruce mentioned, our 2023 and 2024 advantages, we continue to believe, even if the industry growth moderates a little bit, that we should still be able to deliver on the high single digit growth that we had committed to when we set the targets, in last September. We continue to feel good about that. Even if the industry growth rate moderates, that we should still be able to deliver high single digit growth.
When you think about it from just as investors, there has been so much value that's been provided to when you compare fee-for-service. There's about a $2,400 difference between Medicare Advantage on an average and a Medicare fee-for-service when you look at the benefit side.
That value is not being degraded significantly in this phase in. The second thing is when we saw the significant adjustments in from the 2010 to 2017 timeframe, where rates went down to almost 24%, we saw still really solid growth in the low single digits to the high single digits.
I guess when we think about 2024, you're gonna have a stars advantage. Does that become a headwind relative to peers if they start fixing stars in 2025? They're all talking about investments and improving that and getting back to normal. Is that part of the reason why you're saying, "Well, we're gonna cut a little bit now 'cause we wanna be consistent?" You know, how do you think about the stars dynamic over the next several years?
Well, I hope we have continuing performing stars as we look going forward. Our pricing more is for a customer point of view as opposed to a competitive point of view. It's keeping it being incremental that the customer can manage it as opposed to a big change at some period of time. What we do find is that A, if you're in the market and you're, you know, competitive, but secondarily also trying to keep the benefits as stable as possible in the environment is important. Incremental changes are much easier to manage than big changes.
I would add, Kevin, that I think, one thing we'll just have to see is what level of benefit adjustment do some of our competitors with larger headwinds have to ultimately implement. To the degree they do, then, you know, as their stars improve, that'll allow them in theory to maybe add back and get back to a position that's more competitive..
Then the second is, many have said that they are going to resort to margin reductions and in some cases price the entirety of their book at a negative margin. Again, the improvement will arguably go to backfill that versus, you know, be plowed into the actual product value. A lot we'll still have to see and learn.
I think the other thing that's important and I think we benefited from this year is just the credibility and stability and relationships with brokers, and they value stability. I think this year when they saw some of the potential changes on the horizon with some of our competitors, and given the strength of our offering relative to others, you know, why would you know, enroll a member into a plan that may see, you know, disproportionate disruption?
They selected the Humana plan, given the strength of our plans, our stars performance, and in theory the durability that they thought we could provide. I think we benefited from that. If we can continue to deliver on that, then I think long term, you know, that'll have sustainability.
Yeah. Like when you have a three-year phase in of a cut, I always wonder when this happens, like is it easier to offset the first year because you have low-hanging fruit and there's things you can do, or in every year it gets harder to find the next thing to offset the next part of the cut? Or is it relatively easy now to map out how to offset each year? Or, you know, should we be worried about this?
I mean, obviously it's cumulative, so your last year is gonna be harder. We're oriented to as a three-year plan as we think about the benefits and the changes going forward. We are thinking over the three years, but your point, the first year is a little easier than the second and third year.
Again, I think the industry will continue to adjust the benefits because as I mentioned, there's been so much value that's been provided, especially in some markets. Like if you take South Florida, the MAC value in South Florida is, you know, in the mid three hundreds compared to other markets where it's in, you know, the mid one hundreds to two hundred. There's a lot of value there that can be reduced over a period of time.
Those markets are the ones that are larger, that have the larger hit, because of the value-based payment model.
Yeah. Like the extent you're saying that basically anything that's more capitated is gonna get hit more from this. Has this changed your view at all about capitation? This is a big part of CenterWell growth. I mean, is capitation positions-
No, we continue to believe that the value-based model and the ability to continue to offer a more proactive care model is much more effective than the fee-for-service environment. It, you know, it does impact its profitability in the short run, but in the longer run, we continue to believe that It's a really effective model, both as a plan, but as importantly as a healthcare service company.
You said that before, that you expect this to be a headwind, almost like permanent headwind to the margins of value-based care. How do you think about how you would mitigate these things? If it is a permanent headwind to margins, why doesn't that make it a less attractive business?
A few things there. I, one thing is just adjusting the benefits will be a mitigation, as I mentioned, in a number of areas. Those benefits are much higher than other parts of the country, and therefore you have the ability to adjust them over a period of time. That's one. We're working with the providers to help in that mitigation with them, including CenterWell there.
First, the benefits will be an important part of that. The second thing is there is a continued evolution of just the changing in the codes and understanding the codes, because there's a number of codes that fell off. What are the substitute for those codes?
We do believe that there will be a coding adjustment that will come back around to correct for any kind of initial changes that are there. We do believe that. The third thing is that we think there's opportunities from a cost structure point of view of being able to continue to improve the cost structure, whether it's the panel size that our physicians are utilizing, or just the ability to effectively use the real estate in the clinics that we have, especially as you think about more telehealth opportunities there and being able to do more in the home. We see the opportunity for a number of different mitigations going forward.
We've had this same circumstance back in 2016 and 2017 when a risk adjustment there was a number of codes that were adjusted significantly and threw a number of plans into an unprofitable mode. Sitting here in Vegas, this is when DaVita really took it on the chin as a result of some of the changes that they faced. What you did is you saw the industry come back as a result of continuing to add more value into the system and at the same time continuing to adjust the operating model.
I guess I understand the first two, that as the health plan, you're gonna adjust benefits, and it makes sense. There's more room to cut in highly capitated markets. The second one, potential coding offsets. This is a new whole program, we can remap things to new things. The third one, doesn't make much sense to me, because in theory, finding cost offsets is what you should have been doing the whole time. Why is that not part of your long-term model, but then also somehow a, an offset to maybe an unexpected rate of-
Yeah, there's a few things there. One is just the amount of time that doctors are utilizing today in coding and so on, so you're trying to leverage that more. You can do that both in continuing to add better technology for it, but at the same time, you know, expanding their panel size and substituting some of the time that they today are spending in coding.
The business has been, I know for us, it's really been a combination of the proper documentation, along with health outcomes, along with improved quality and member satisfaction. We see coding still being important going forward, but the health outcomes and in addition, the ability to deliver better value for the customer overall is important.
I think the emphasis for us is gonna be as much about on the clinical model as it has been on the coding side.
Okay. I tried to get Encompass to raise guidance earlier, I'm gonna try to do the same thing for you guys. You have this $37 EPS target. Since that time, you've grown twice as fast as you thought you were going to this year. You're saying you're grow above average next year. Like, why isn't 37, like, the low end? Or, like, why is that still a reasonable number to be thinking about?
Well, we're early in our commitments of three years, as, you know, I've mentioned. We're nine months into this process here, there's a lot of changes on the horizon here. I think changing in the midst of where we are as an industry and as a company with all the regulatory aspects we're having to navigate through, would be unwise. I think when you look at the strength of the organization, where we are today, also the, you know, the growth that we've put out, it's an impressive growth, and we feel right now it wouldn't be appropriate for us to raise.
All right. Well, they didn't bite either, I guess that's a common theme. The other thing that you guys are doing a lot, you made a lot of investments in the home. Obviously with Kindred, then you have onehome. Can you talk a little bit about what the opportunity is there and why it makes sense for you to own those assets versus partnering with those assets?
We're a big believer that home has got an opportunity for a lot of expansion, all the way from expansion of the clinical models that we're able to utilize into the home and the type of services that are offered in the home. We look at home as being a trajectory of a longer-term opportunity for us.
We also see the home as being very complementary when we think about integration of our various different CenterWell assets, because it is a leverage point for us and a convenient for our members to do more services into the home utilizing our primary care assets. We just see it both integration-wise and in addition, the opportunity for expansion of services. Today, we see the home business as being A fee-for-service business that needs to evolve to a value-based model.
It's a model that we feel that is important not only for cost effectiveness of the home, but more really utilizing the home where it has its opportunity to be more proactive in managing the care downstream, preventing, you know, emergency room visits and admissions and slowing disease progression down. We just see that opportunity being, you know, significant for us in the future.
You ask about owning it's really the opportunity to have a platform that's nationwide, to be able to integrate that in with our CenterWell assets, but then to be able to expand it utilizing a more value-based model going forward. There's a lot of change that needs to happen in the industry, but I will...
I think what we'll see a decade from now in home health will be much different than what we see today.
Does that all change the value-based care aspect of home? I don't hear about coding as much on the home care value-based care aspect of it. It seems more like cost side, but is there a coding benefit that we should also be thinking about for that?
There may be an opportunity while you have that home interaction to tee up sort of gaps in care closures, potentially documentation.
Mm-hmm.
I would say what we are more focused on is, as Bruce said, leveraging that interaction to make sure that the nurse is considering the holistic sort of needs of the patient and total cost of care, which just isn't the mindset today. It's addressing whatever the orders were written to. I think we worked with, Kindred at the time through that JV structure and found it difficult to innovate to the degree we wanted to against clinical outcomes just because our incentives were not fully aligned.
By integrating it and having a health plan as well as the home health asset, and being able to fully align our incentives and optimize sort of the enterprise value creation that you can create without worrying about the discrete margin on an episodic payment versus fee-for-service, we think is important and necessary because of the level of sort of change that needs to take place in the way home health is delivered today.
We are definitely more oriented to that, to improve the experience, while also then trying to use that interaction to drive greater integration across the rest of the enterprise. W e've had a lot of success getting patients who are non-compliant with their meds to convert to CenterWell Pharmacy, and get them on mail order delivery. They're able to identify social determinants and get them into care management programs.
If they aren't well supported by primary care, making a referral into CenterWell Primary Care or home-based primary care. An opportunity that we haven't fully leveraged yet is they serve a lot of original Medicare patients.
Is there an opportunity when they see a patient who maybe has unmet needs to make a referral into the health plan so they can get better educated about Medicare Advantage and all the services they would have access to? There is a lot of opportunity through that, but I would say we're much more focused on clinical outcomes and member support than leveraging it for a coding interaction.
Yeah. I guess it's just interesting that even when you were a partial owner, you weren't able to get them to do what you wanted to do, so full ownership. With onehome, you guys have DME and infusion in Texas and Florida. You expanded it outside of that. Are you getting the same results as you go to new markets where you're managing other providers versus when you own the whole thing?
Far, we have not seen the uptake in the own DME infusion. Some of that, if you remember the beauty of that model is getting upstream of the referral and then leveraging that to then refer into your proprietary assets. We knew going outside of Florida and Texas, we were entering less heavily penetrated risk markets. In those risk markets, it's very easy to explain the value proposition to the providers and get them compliant with that process.
As we expanded into non-risk-based markets, they're compliant with sending the referral, but they've already chosen the referring provider in many cases, there's more to do there. what we're doing is a combination of own and network capabilities across DME infusion to start. One of the things you'll probably see us do is narrow that network.
One of the easiest things is narrow the network versus the broad networks we have today, get more, you know, into that narrow network. As you transition to proprietary over time, you can get the uptake much more quickly. Those are some of the learnings we've had as we've expanded out of Florida and Texas that will then continue to evolve, I think, in the way we think about that, the most efficient way to deploy that model. Ultimately, we wanna get upstream, have control of the referral, and then route them into proprietary.
In the immediate term, what we've seen is significant value with onehome in the markets that we've rolled out. I mean, we've seen a significant value both in the episodic side of reducing home health utilization, but more importantly, seeing downstream benefit from readmission rates. We're obtaining value today just in the over putting onehome over and being able to provide the clinical on the utilizational side of it. We then have the opportunity to expand that value through the DME and the infusion side as what Susan's talking about.
Yeah. I guess one of the other regulations that came out, was impacted the way marketing can happen in MA going forward. You know, you guys still think high single digits is the right way to grow. That's even with that, like, is that something we should be worrying about? Is that changing the way that you're thinking about marketing or interacting with people?
I mean, there's a number of changes. I know we don't have time to go through every one of them. I mean, how we market is one of them. That, that is nationally versus locally because you do when you are marketing, you have to market a plan that is in that marketplace.
There's ways to live with that responsibility, and that is to have a brand that's nationally, and then a call to action that's locally. In effect, I think that's where the industry is gonna end up, and that's probably one area where the industry is learning will learn itself into it. We feel even with that the industry just has so much value proposition for customers that they'll continue to choose MA.
I guess one last question that I've been asking all the companies. As far as we're heading into recession, I mean, you guys, how do you think about your growth during recession? I think there's a couple things I could think about that might say seniors value the extra benefits more during recession, growth could be better. Maybe there's some impact on how seniors use the system during a recession. How are you thinking about the net impact of recession for your business?
For seniors, having healthcare coverage is very important. What is the most cost-effective healthcare coverage for them, both in the ability for them to access it and use it? MA stands apart there. We believe in a recession that is actually MA will be a beneficiary of that, just as a result of the value proposition we offer.
you don't think people will use the system more or differently during a recession?
I don't.
Historically, you see some more, I think, on the commercial side than Medicare. In the Medicare side, a recession means sometimes it's slightly positive. We haven't seen it that it creates a concern on the utilization side.
All right. Great. I think that's all we have time for. Thank you very much.
Thank you, Kevin.
Thanks.