Molina Healthcare Inc · NYSE:MOH
Molina Healthcare — Investor Day (January 2011)
62 slides from Molina Healthcare's investor day presentation, Jan 26, 2011
Slide 1: Investor Day 2011
New York, New York January 26, 2011 INVESTOR DAY 2011A
Slide 2: Cautionary statement
Cautionary statement "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This slide presentation, as well as our accompanying oral remarks, contain numerous "forward- looking statements" regarding our operations for 2011 and subsequent fiscal years. All of our forward
Slide 3: Agenda
Agenda 3 Prine toe enter 12:30pm-12:35pm Opening Remarks Juan José Orellana, VP Investor Relations 12:35pm-1:10pm —_ Business Overview J. Mario Molina, MD, Chief Executive Officer 1:10pm-1:30pm Panel 1 Q&A 1:30pm-1:40pm Break Health Plan Update Terry Bayer, Chief Operating Officer Molina Medicaid So
Slide 4: Who we are
Fee-based fiscal agent services, business process outsourcing, and care and utilization management Non-risk, fee business with higher margins and no regulatory capital requirement Who we are 4 No other company in the Medicaid space can do all three Health Plans Medicaid Health Information Mgmt Healt
Slide 5: Business Overview
New York, New York January 26, 2011 New York, New York January 26, 2011 Business Overview J. Mario Molina, MD President & Chief Executive Officer
Slide 6: Business snapshot
Business snapshot Markets and members served - Q3 2010 Washington 353,000 California 349,000 New Mexico 91,000 Utah 78,000 Texas 96,000 Missouri 79,000 Michigan 225,000 Ohio 241,000 Florida3 57,000 Health plan enrollment growth Health plan membership profile (in thousands) (in thousands) Molina Heal
Slide 7: Expanding the business
Expanding the business RFP Awards Tactical Acquisitions Direct Delivery TX Dallas ABD TX CHIP RSA WI Medicaid Southeast TX Laredo WI Abri WA Molina Medical @ Compass Delivering on our strategy CA Additional capacity to be deployed 2010 expansion review: Strategic Acquisitions Fiscal Agent Organic Gr
Slide 8: Accelerating growth in health plan opportunities
Accelerating growth in health plan opportunities In the next three years, it is expected that states will be offering many new Medicaid RFPs or expansions in order to avoid disruption in 2014. GA FL IL TX AZ TANF Lives .9M 1.3M 1.8M 1.8M - ABD Lives .4M .3M - .4M .027M CHIP Lives .2M - - .3M - Total
Slide 9: Organizing for health care reform
Organizing for health care reform 59M 2014-2018 2010 2019 16M 75M Medicaid Expansion 1 Sources: 1. CMS, Congressional Budget Office; does not include organic population growth. 2010. Unit designed to focus leadership attention on the key aspects of reform, while allowing leaders to continue to run t
Slide 10: Near and long-term catalysts
Near and long-term catalysts Before Reform Opportunities State budgets under pressure leading to MCO RFP activity ABD expansion; more states are evaluating transitioning this population to managed care Technology requirements (ICD-10) generating Fiscal Agent RFP activity State interest in new demons
Slide 11: Benefits of scale
Benefits of scale Over the next three years, health insurance plans are required to upgrade their systems for diagnosis, procedure coding and claims processing to the International Classification of Diseases - ICD-10. Per-Member Estimated Cost of ICD-10 Implementation by size of company Source: Amer
Slide 12: Why managed care is a viable solution
Why managed care is a viable solution Although some States project improved cash flows over the next few years as the economy recovers, States' fiscal conditions remain very weak. (CHART) - -$110 - -$191 - -$160 - -$140 State Budget Shortfalls After Use of Recovery Act Funds Budget shortfalls in bil
Slide 13: Molina Direct Delivery
Molina Direct Delivery The growing and aging U.S. population foreshadows an increasing shortage of physicians over the next 15 years. Health care reform is estimated to worsen the shortfall by 25%. The shortfall will be most acutely felt among already underserved populations. Approximately 20% of Ca
Slide 14: Quality and value
Quality and value 4 es , BRBM CHINA
Slide 15: Refocusing of Medicare
Refocusing of Medicare Duals account for approximately 15% of Medicaid enrollees but contribute to 39% of all Medicaid spending Medicaid/Medicare spending averages $20K per dual per year, 5X greater than other Medicare beneficiaries Dual population will highly benefit from managed care Source: Kaise
Slide 16: The future of health plan RFPs
The future of health plan RFPs The Request for Proposal (RFP) is a common tool employed by State Medicaid agencies for selecting health plans. Although a robust RFP pipeline is expected ahead of health care reform, States will have to consider other contracting methods. States determine pricing; not
Slide 17: Response to changes in FMAP
Response to changes in FMAP Total & State Funds Medicaid Annual Spending Growth 2006-2010 (CHART) SOURCE: FY 2011 estimated by HMA. 2009 and 2010 from: Vernon Smith, Kathy Gifford, Eileen Ellis, Robin Rudowitz. Caryn Marks and Molly O'Malley, "The Crunch Continues: Medicaid Spending, Coverage and Po
Slide 18: Investment highlights
Investment highlights Attractive sector growth prospects driven by government policies and economic conditions Proven flexible health care services portfolio (risk-based, fee-based and direct delivery) Diversified geographic exposure with significant presence in high growth regions Focus on governme
Slide 19: Panel Q&A
Panel 1 Q&A 19 es BRRM CHINA
Slide 20: Health Plan Update
New York, New York January 26, 2011 Health Plan Update Terry P. Bayer Chief Operating Officer
Slide 21: Washington health plan
Washington health plan (CHART) (CHART) Molina Healthcare of Washington Historical and YTD Enrollment 2006-YTD 3Q2010 Molina Healthcare of Washington Historical and YTD Enrollment 2006-YTD 3Q2010 Utilization management efforts Second clinic launched Request for proposal postponed 21 Note: MCR for Q3
Slide 22: Michigan health plan
Michigan health plan (CHART) Molina Healthcare of Michigan Historical and YTD Medical Care Ratio 2006- YTD 3Q2010 Utilization management efforts in Medicaid and Medicare lines of business Solid performance despite challenging State revenues 22 Note: MCR for Q3 2010 is YTD.
Slide 23: California health plan
California health plan 2010 significant performance improvement State of California preliminary Budget for FY 2011/2012 includes: 3.9% increase in the base Medi-Cal managed care budget 10% Medi-Cal provider rate cut Cost sharing ($5 office visit/$50 ER) 1115 Waiver requires ABD (called SPD in Califo
Slide 24: California 1115 Waiver expands ABD program
California 1115 Waiver expands ABD program Improved Care for vulnerable populations: enrollment of Seniors and Persons with Disability (SPD) in Medicaid managed care 380K new eligibles in California 260K new eligibles in Molina markets 12K additional enrolled with Molina by year end 2011 $10 billion
Slide 25: Ohio health plan
Ohio health plan Enrollment growing and medical costs managed 1/1/11 Rate Increase - of 4.5% ABD and CFC State managed care population expansions not anticipated before 2012 New Governor/Administration Molina Healthcare of Ohio Historical and YTD Medical Care Ratio and Enrollment 2006-YTD3Q 2010 25
Slide 26: Florida health plan
Florida health plan Low enrollment (57K) Applying initiatives similar to California and Ohio Medical cost management initiatives Pharmacy Provider network re-contracting Behavioral health Molina Healthcare of Florida began its initial enrollment of Medicaid members in January of 2009 as part of a co
Slide 27: Texas health plan
Texas health plan CHIP Rural Service Area contract began September 1, 2010 STAR+PLUS contract award in the Dallas Service Area Contract effective February 2011 Competitor exit in that service area The additional scale offered by the expansion of our CHIP and STAR+PLUS programs in the state will cont
Slide 28: Texas opportunity review
Texas opportunity review MOLINA STAR and STAR+PLUS Footprint STAR, STAR+PLUS & CHIP Expansion & Re-procurement 2011-2012 Source: Texas Health and Human Services Commission http://www.hhsc.state.tx.us/medicaid/MMC-Contiguous-Counties.pdf State of Texas will implement a re-procurement and expansion of
Slide 29: Texas opportunity overview
Texas opportunity overview Through our current STAR, STAR+PLUS and CHIP RSA contracts, we have a strong network in place to build from to accommodate the STAR and STAR+PLUS expansion. Molina STAR, STAR+PLUS, and CHIP RSA Footprint Molina CHIP RSA Footprint Molina STAR, STAR+PLUS Footprint STAR, STAR
Slide 30: Health plan owned & operated primary care clinics
California: Health plan owned & operated primary care clinics Citrus Heights, CA (1) Fontana, CA (1) Wilmington, CA (1) Lancaster, CA (1) Long Beach, CA (3) Moreno Valley, CA (1) Ontario, CA (1) Pomona, CA (2) Riverside, CA (1) San Bernardino, CA (1) Sacramento, CA (3) Virginia: 3 Company operated C
Slide 31: Molina Medicaid Solutions
New York, New York January 26, 2011 Molina Medicaid Solutions Norman Nichols President, Molina Medicaid Solutions
Slide 32: Molina Launches Molina Medicaid Solutions
Molina Launches Molina Medicaid Solutions $131 million purchase price Transaction closed on May 1, 2010 Molina acquired: MMIS/Fiscal Agent contracts in ID, LA, ME, NJ, & WV Pharmacy Rebate Management contract in Florida Market leading QNXT-based Health Pas MMIS platform technology ~1,000 HIM employe
Slide 33: Medicaid systems & technology vendors
Medicaid systems & technology vendors Medicaid business processes are supported by vendors and systems, which provide Medicaid system, specialty or operational services. Managed Care Enrollment Brokers Third Party Liability Recovery Vendors Data Warehousing & Mgmt Solutions MMIS System Vendors (Fisc
Slide 34: MMS operational - First Months
MMS operational - First 6 Months Secured contract addendum to achieve 5010 compliance Secured three year extension through 3/2014 with 2 option years System went live on 9/2010 System went live on 6/2010 Supplemented with additional resources to support system implementation Enterprise Idaho Maine L
Slide 35: MMIS market opportunity
MMIS market opportunity 35 MMIS has been around for more than 30 years and is one of the most expensive and complex system for states to maintain, enhance or replace. Outsourced to MMIS Vendors State Operated Other (i.e. Universities, vendor/state combinations) Notes: Expiration dates include option
Slide 36: General new market entry criteria
Molina Healthcare Plans Molina Medicaid Solutions Larger states Smaller states Mandatory managed care Favorable system architecture Competitive provider environment System replacement with no "takeovers" Favorable regulatory environment Metrics complement systems with favorable risk factors Strategi
Slide 37: Integration of COTS products
Integration of COTS products Products can be stand-alone or used together as needed Products can be bolted on to existing legacy systems to enhance functionality MITA-aligned Unified database Immediate access to all data Eliminate non-integrated data storage stovepipes Configurable components Quick
Slide 38: Revenue opportunities
Revenue opportunities 5010 Level 1 Compliance ICD 10 e-Prescribing integration with MMIS New Fraud and Abuse Reporting Requirements Health Information Exchange & Electronic Health Record Patient Protection and Affordable Care Act (PPACA) 2010 Medicaid regulatory requirements 38
Slide 39: Revenue opportunities: care management
Revenue opportunities Care Management: Benefit Cost Containment: Care Coordination Welcome call to patient, health risk screening and identify desired outcome of patient iClinical Telephone Services for ER Intake notification for ER/UC for visits, admissions and interventions PAY4Performance Enhance
Slide 40: Strategic fit of fiscal agent & health plan business
Strategic fit of fiscal agent & health plan business Focused on Government Patient Base Health Care Information Technology Firm in Fiscal Agent Market Leverage Health Plans' Care Management Offerings for Fiscal Agent Business Leverage Health Plans' Cost Containment Methodologies for Clients 40
Slide 41: Panel Q&A
Panel 2 Q&A a es BERN CHINA
Slide 42: Minimum MCR Requirements
New York, New York January 26, 2011 Minimum MCR Requirements Joseph White, CPA Chief Accounting Officer
Slide 43: Minimum MLR Requirements
Minimum MLR Requirements Requirement of Interim Financial Regulation (45 CFR Part 158): Individual and small group market minimum 80% MLR Large group market minimum 85% MLR Excludes Medicaid Companies Effective : January 1, 2011 Action: Rebates to all enrollees if MLR does not meet minimum requireme
Slide 44: Molina experience with expense and profit contract provisions
Molina Healthcare Health Plans Molina Medicaid Solutions New Mexico Medical cost floor Admin Cap Profit Cap Utah CHIP Medical cost floor until 1/1/09 California: Healthy Families Medical cost floor New Mexico: Medical cost floor Admin Cap Profit Cap Texas: Medical cost floor Admin Cap Tiered profit
Slide 45: How does ACA calculate an MLR? The Denominator
How does ACA calculate an MLR? The Denominator Premiums Earned are increased by: Federal and State Taxes Premium taxes Regulatory authority licenses and fees Subsidies received from Federal and State high risk pools Revenue earned from the assumption of business from another entity Adjustments for e
Slide 46: How does ACA calculate an MLR? The Numerator
How does ACA calculate an MLR? The Numerator: Paid Claims (adjusted for IBNP) are reduced by: RX rebates Claims-over payments recovered Paid Claims (adjusted for IBNP) are increased by: Cost of Fraud and Abuse prevention - to the extent it lowers medical costs Provider bonuses and incentives State s
Slide 47: Estimated Molina MLRs Based on ACA Standards
Estimated Molina MLRs Based on ACA Standards Estimated Molina MLRs Based on ACA Standards 47 For the nine months end September 30, 2010 Estimated MLRs based on the Company's interpretation of ACA MLR regulations as of January 26, 2011, and subject to limitations in the Company's existing reporting s
Slide 48: 2011 & 2012 Outlook
New York, New York January 26, 2011 2011 & 2012 Outlook John C. Molina Chief Financial Officer
Slide 49: Cautionary Statement
Cautionary Statement Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This slide presentation contains numerous "forward-looking statements" regarding the Company's expected results for fiscal years 2011 and 2012. All of our forward-looking statements are based on ou
Slide 50: 2011 Guidance Issued
2011 Guidance Issued 50 Note: "G" denote guidance. Amounts are estimates and subject to change. Actual results may differ materially. See cautionary statement. 2011G Premium Revenue Service Revenue Investment Income Medical Care Costs Medical Care Ratio Service Costs Service Revenue Ratio G&A Expens
Slide 51: Key assumptions for 2011 Guidance
Key assumptions for 2011 Guidance Revenue Membership increases (TX and CA ABD) are main driver Minimal rate increases MMS ME & ID Certification Flat investment rates Medical Costs Typical Flu Season Medicare Cost Improvements FL, WI Cost Improvements Administrative Costs MMS ME & ID Stabilization 51
Slide 52: What's not included in 2011 Guidance
What's not included in 2011 Guidance 52 Not included in 2011 Guidance Rate decreases except for Wisconsin Acquisitions Managed Care RFPs Increase in interest rates greater than 25 bps Potential Tax Benefits from new incentives Rate decreases due to State Budget shortfalls Please refer to the Company
Slide 53: 2009 - 2011G Rate Changes
2009 - 2011G* Rate Changes 53 Health Plan 2009 2010 2011G* California 3.0% 6.0% 5.0% (1) Florida 3.0% 2.0% 0.0% Michigan 2.0% (PREV 4.0%)(2) 1.5% 0.0% Missouri 4.0% (1.0%) 0.0% New Mexico (7.0%)(3) (6.0%)(3) 0.0% Ohio 4.0% 5.0% 4.5% Texas 0.0% (1.0%) 0.0% Utah (Medicaid only) n/a 7.0% 0.0% Washingto
Slide 54: Guidance includes expansion in existing markets
Guidance includes expansion in existing markets 54 (CHART) California and Texas account for 20% of all Elderly and Disabled Medicaid Enrollees* 14.7M Elderly and Disabled Medicaid Enrollees Nationally* Solidifying footprint in States with largest Medicaid markets California: 12,000 New ABD Lives by
Slide 55: States Under Pressure
55 States Under Pressure Guidance does not include rate decreases except in Wisconsin. State budgets remain under pressure. States in which Molina health plans participate are expected to fall short of their budgets for FY2011. (CHART) Change in State tax revenues* Total Gap as % of FY11 Budget** Mo
Slide 56: Seasonality of Earnings
Seasonality of Earnings 56 (CHART) (CHART) Note: "Historical" denotes the allocation of earnings from 2003-2010 New populations MMS Stabilization Costs ID & ME Certification and revenue recognition Please refer to the Company's cautionary statement.
Slide 57: 2011 MOH Segment Guidance
2011 MOH Segment Guidance 57 MMS Premium Revenue Service Revenue Investment Income Medical Care Costs Service Costs G&A Expense Premium Tax Expense Depreciation Amortization Interest Expense Income Before Tax Income Tax Net Income Diluted EPS Weighted Average Diluted Shares Outstanding EBITDA Note:
Slide 58: Opportunities in New and Existing States after 2011
Opportunities in New and Existing States after 2011 58 AZ1 TX GA FL IL Total covered population 1.3M 3.4M 1.8M 3.2M 2.6M Population up for bid 27K 3.2M 1.5M 1.6M 1.8M Effective Date 10/11 3/12 7/12 > 2012 >2012 MOH Expected Membership Prior to Expansion(2) - 125K - 72K - MOH Expected Additional Memb
Slide 59: Looking to 2012...
Looking to 2012... 59 Revenue will grow substantially: ABD expansions carried over from 2011 - CA and TX Anticipated 20,000 additional CA ABD members 1/1/2012 Managed care expansions in existing markets- TX, FL New States - GA, AZ Small increase in rates on invested assets can dramatically help the
Slide 60: What could go wrong with 2012 guidance?
What could go wrong with 2012 guidance? 60 2011 projections not achieved Lose existing contracts State rate cuts Don't win RFPs Acute flu season Other identified risk factors Please refer to the Company's cautionary statement.
Slide 61: Where are we going in 2012?
Where are we going in 2012? Total Revenue Medical Care Ratio G&A Ratio EBITDA EBITDA % Please refer to the Company's cautionary statement. 2012G $4.5B 84.8% 8.4% $209M 4.2% $5.0B-$6.0B 85.0%-85.5% 7.8%-8.3% $230M-$280M 4.5% 2011G Note: "G" denotes guidance. Amounts are estimates and subject to chang
Slide 62: Q&A
Q&A (©2012 Here ne e es ; ARR OHNS