Weekly Health Tech Reads | 10/27/24

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Q3 MEDICAID EARNINGS

Molina and Centene stocks both jumped on Q3 earnings as they “beat the odds” on Medicaid performance”

Molina and Centene shares jumped this week as they reported solid results in the Medicaid market, which Wall Street did not expect after Elevance’s miss last week. Molina was up 18% on its earnings release, while Centene was up 14%. While both noted the issues of redeterminations and the pressure it has put on MLR, both also projected confidence that they’re working through a manageable set of issues in Medicaid (and perhaps on a related front, the ACA market is looking like an attractive growth opportunity).

• Molina
  Molina saw a higher-than-expected MCR because of Medicaid and Medicare pressures, but was still able to produce an operating profit margin range for the quarter within its long-term range. Molina noted that redeterminations drove an acuity shift and higher utilization in the remaining population. LTSS, pharmacy, and behavioral health services were called out as key drivers of utilization. They called out some meaningful wins in the Medicaid market, including a HIDE SNP plan in Michigan, which will drive $1 billion of premium revenue by 2027 and translate to $0.50 of earnings per share. Molina shared it feels good about its exchange growth strategy for 2025, which is to drive growth in under-penetrated markets.

  Read Molina’s Q3 earnings transcript
  Read Molina’s Q3 earnings release
  

• Centene
  On the topic of Medicaid acuity, Centene noted that all of its states have “acknowledged the need to match rates with acuity and our states have now taken action with respect to acuity adjustments in some form.” Centene is still seeing roughly 30% of members impacted by redeterminations return to its Medicaid book. Less than half of those re-enrollees have retroactive coverage, meaning there is a coverage gap that has created short-term pressure on Medicaid MLR. That said, Centene appears confident it is moving through that quickly and that states are adjusting rates in response to the acuity data Centene is sharing. Beyond Medicaid, Centene expressed confidence in both the ACA and Medicare businesses. It expects lower growth in the ACA than some other insurers because of regulatory changes in how people shop for plans but expects a margin of 5% - 7.5% on that business. In Medicare, Centene indicated being on the right track, improving that business as it exited multiple states that weren’t aligned to its Medicaid footprint and reduced 30% of its H contracts.

  Read Centene’s Q3 earnings transcript
  Read Centene’s Q3 earnings release

✍️ Going Deeper

What’s going on in the Medicaid market? Last week, Elevance indicated “unprecedented” challenges that they’re facing, causing insurer stocks to plunge. This week, Centene and Molina have a very different tune — yes, there’s a dislocation because of redeterminations, but it’s under control. How are these narratives so different?

Some of it, I’d imagine, is how these companies are choosing to position their narratives on Wall Street. Case-in-point: California’s retroactive rate decision, which both Centene and Molina discussed. Molina made a big deal of this news, seemingly surprised by what it called a “highly unusual” move and mentioning they’re working with the state to further understand why it made this change, which drove 0.5% of Molina’s MCR in the quarter. Molina brought this issue up multiple times on the call. Centene, on the other hand, didn’t even mention it. When asked by an analyst about the change, they opaquely responded that Centene got “adequate information to get a negative retro into our Q2 results”. So, if I’m following along, you have Centene saying they had enough information from California to include the negative adjustment in Q2 results and move on. But you have Molina saying they were surprised by the same exact change a full quarter later, to the tune of a 500 bps hit on MCR? It seems like it indicates the degree to which these companies interpret and share out the changes they’re working through with state regulators in different ways.

But beyond just the positioning of the various companies, I go back to the LinkedIn update that J. Mario Molina shared last week, as it remains the most logical explanation of what is happening in the Medicaid market. My summary of his post: as the redeterminations process concludes, healthier individuals have finally left Medicaid, leaving the carriers with sicker populations. Meanwhile, states set rates on multi-year look-back periods, and this higher acuity population has only materialized in the last quarter or two, so there will be a lag before states catch up. Until states are able to adjust rates to match that sicker population, it will be hard for insurers to manage this book of business profitably. And in an industry where margins are 2% in good years, that is a pretty large challenge for Medicaid MCOs to navigate.

MA STAR RATINGS

Humana sues CMS over 2025 star ratings, seeks a recalculation

The changes to Stars calculations continue to cause a kerfluffle in the Medicare Advantage insurer market. This week, Humana sued CMS, asking for their 2025 scores to be set aside. The case is interesting because it seems to make a broader argument than some of the other cases we’ve seen have success from SCAN and Elevance, which have centered around details of a specific call center phone call.

In this case, Humana argues that CMS has an issue with its calcluation process, suggesting that CMS often makes errors in its calculations and that CMS was more transparent in sharing the underlying data in the past. This allowed Humana and other insurers to identify where CMS performed calculations incorrectly and request changes. Given the magnitude of changes to cut points this year, Humana is concerned that CMS didn’t share as much data, particularly because its own calculations indicate CMS likely miscalculated things again.

The lawsuit also goes in-depth into the same call center metric that SCAN and Elevance did related to the timeliness of accessing a foreign translator. Humana had a call disconnect, leading them to request that CMS make modifications to allow for callbacks and adjust how it determines whether a call counts.

Read the Humana complaint
Read HealthcareDive’s reporting

✍️ Going Deeper

If you’re interested in the Medicare Advantage market, it is worth reading lawsuits like this one to understand where Medicare Advantage plans are spending their time these days. In this case, you have Humana arguing with CMS about things like the definition of what it means to “reach” a customer service representative in a call center and whether a call should count.

While it might seem silly that so much energy is spent on these mundane topics, they have massive business implications for insurers. Sachin Jain’s Forbes post this week does a nice job walking through the impact of star ratings on plans, how plans respond to those star rating changes and potential thoughts for modifying the star rating system. Both this post and the Humana lawsuit above explain why the star ratings program exists in the first place, and how the system seems to be deviating from that a bit.

My takeaway from all of this? It seems like there is destined to be more change ahead for the star rating program.

PRIOR AUTHORIZATIONS

ProPublica dives into EviCore’s “denials-for-dollars” model

This ProPublica investigation does a nice job of diving into EviCore’s business of reviewing prior authorizations on behalf of payors. It highlights the bad outcomes that can happen for individuals as payors attempt to manage costs and the messiness of determining what it means for care to be medically necessary.

Read the ProPublica report

✍️ Going Deeper

This article touches on one of the underbellies of value-based care models and population health management that I think gets glossed over too often — if you’re financially responsible for managing the health of a population of individuals, inevitably, there are going to be scenarios that arise where you don’t do what is in the best interest of an individual because of the cost implications it has for the entire population. A company like EviCore seems like a downstream consequence of that reality, particularly when dealing with massive insurance companies trying to adjudicate these decisions rapidly at scale.

The most concerning part of the article to me as it relates to EviCore’s business practices is their seeming unwillingness to listen to feedback on medical guidelines. Yet at the same time, that seems like a pretty bold strategy for a company that has to be well aware it would find itself in the limelight like this at some point. I imagine that EviCore would disagree with that general sentiment expressed in the article — and you can see their clinical guidelines here listed by condition and health plan.

At the same time, I find myself wondering how you improve upon this. If you replace EviCore with one of the AI-for-PA startups, do the problems unearthed in this article get better or worse? If the complaint is that EviCore is a black box, it’s not clear to me how that gets better. It seems like the underlying problem is how platforms like EviCore choose to turn the screws when health plans ask them to provide “high touch” reviews that are implicitly designed to increase denial rates.

Either way, the story highlights the friction that is intentionally introduced into the ecosystem by EviCore, and the whole concept of prior authorizations. Take, for instance, the “sentinel effect” that was described in the article. Moving past the creepy terminology, it describes the concept that the total number of prior auth submissions goes down when a tool like EviCore is introduced because providers know it’s “watching”. The question is whether you interpret that friction as a bad or a good thing — the provider lens is that it’s bad — it’s evidence that providers are not seeking needed care because of the administrative burden. The payor lens is that it’s good — it’s evidence that it is reducing unnecessary utilization. Like most things, the answer is in some grey mucky area in between.

It strikes me that we’re only going to be hearing more stories like this moving forward as organizations attempt to navigate tricky population health decisions around what high-cost care gets paid for and what doesn’t. We saw a good example just this week in New York as the NYC employee health plan faced negative press for reversing its coverage of GLP-1s, saying it was covering them in error, and that it never planned to cover them because of the cost implications it would have on premiums. The underlying theme here: whoever is put in the position of denying care that individuals want/need because of the cost implications for a broader population will inevitably make for an easy villain.

MEDICAID DATA

KFF Medicaid director survey provides glimpse into Medicaid financing

Given the amount of discussion on insurer earnings calls about the state of the Medicaid market, this KFF survey of Medicaid directors on Medicaid spending and growth for 2024 and 2025 feels timely. Directors expect enrollment to decline again in 2025 and the growth of total Medicaid spending to slow. It is interesting to note that over half of states think there is at least a 50/50 chance that they’ll experience a Medicaid budget shortfall, up significantly from previous surveys.

Read the KFF Medicaid director survey results

STARTUP BENCHMARKS

Bessemer shares its annual benchmarking report for health tech startups

Bessemer’s Sofia Guerra and Steve Kraus shared the second installment of their healthcare benchmarking data. It includes some helpful data points, including the chart below highlighting how the rates at which startups are “graduating” from Seed funding —> Series A —> Series B rounds have declined significantly in the past few years. It mirrors some of the sentiment that I heard at HLTH this week around the early-stage funding environment (i.e. its hard).

This year’s report felt a little lighter on benchmarks than last year’s version, which was full of helpful benchmarks for different types of health tech startups. That said, there are still a number of really helpful insights, particularly around AI startups. The observations that they’re seeing huge revenue increases and that the revenue isn’t necessarily recurring in nature were quite interesting.

Read the Bessemer report

Head of Business Development & Partnerships at Pareto Health, a self-funded benefits platform for small and medium-sized employers. Learn more.
$160k — $205k | Remote

Senior Product Manager, Growth at Tia, a women's health care model focused on primary & preventive care across lifespans. Learn more.
$160k — $170k | Hybrid (SF, LA, or NYC)

VP of Data & Digital Strategic Partnerships Relations at Vizient, a group purchasing organization for provider organizations. Learn more.
$187k — $328k Remote

GM/Director of Operations, Psychiatry at Talkiatry, a digital mental health company providing psychiatry and therapy. Learn more.
$165k — $175k | Remote

VP, Medicare Growth Strategy at Humana, a Medicare Advantage insurer. Learn more.
Remote

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