Legacy Health Net Causes $300M Headache For Centene

July 26--Centene Corp. has earmarked $300 million to cover potential losses from business the company picked up in its $6 billion acquisition of Health Net Inc. last year, company officials said Tuesday.

During the company's second-quarter conference call Tuesday morning, executives disclosed that they had discovered $300 million in "premium deficiency reserves," or an estimate of a potential loss, mainly due to the increased use of substance abuse treatment centers in California and unfavorable results in the company's individual commercial business in Arizona.

Shares of the Clayton-based managed care company fell on the news, and the company experienced its largest intra-day loss in four years, according to Reuters. Shares closed at $68.87, down 8.5 percent.

The company now says it's looking to reduce its "exposure" in Arizona's individual market because problems there account for a large portion of the potential $300 million loss.

The Arizona Republic has reported Health Net will drop plans next year that currently cover 14,000 members. Centene said it had already taken steps to improve performance in both Arizona and California.

Centene is contesting some of the claims submitted by these substance abuse treatment centers in California, alleging that "there's been significant fraud and abuse," Michael Neidorff, president and CEO of Centene said. His organization and the state of California are investigating those claims, Neidorff said.

The issue is in litigation, which precluded Neidorff from disclosing much else other than the fact that they've made changes to coverage and benefits that the company expects will help stem losses.

Company officials stressed that the issues would not continue into 2017, as much of the problems predate March 24.

A coalition of at least 118 California treatment centers said Health Net began a blanket audit of treatment centers across the state as opposed to investigating "bad actors." In a letter dated May 16 to the California Department of Managed Healthcare, the providers say the audit places them in "financial jeopardy." The majority say payments are suspended while the audit is underway.

The Addiction Treatment Advocacy Coalition, which represents numerous California treatment facilities, alleges in the letter that Centene's Health Net subsidiary is in violation of the state law as they deny coverage.

Centene reported a better-than-expected quarterly profit as the health insurer benefited from lower medical costs and an increase in Medicare and commercial customers from its acquisition of rival Health Net.

Centene said commercial membership rose more than eight times and Medicare and dual plan membership jumped nearly 11 times in the second quarter from a year earlier.

Also Tuesday, Neidorff said Centene did not plan to acquire any Medicare Advantage plans from insurers looking to shed business to seek clearance for acquisitions.

The company also raised its full-year earnings forecast range to $2.65-$3.00 per share from $2.45-$2.80.

Net earnings from continuing operations attributable to shareholders rose about 93 percent to $170 million, or 98 cents per share, in the quarter ended June 30, from a year earlier. Adjusted, the company earned $1.29 per share, beating the average analyst estimate of $1.09, according to Thomson Reuters I/B/E/S.

The company's revenue nearly doubled to $10.90 billion. Analysts on average had expected $10.79 billion.

Samantha Liss --314-340-8017

@samanthann on Twitter

sliss@post-dispatch.com

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