Triple-S Management Corporation
Q1 2021 Earnings Call Transcript

Published: 9 May 2021

[Operator:]

Good morning. Welcome to Triple-S Management First Quarter 2021 Earnings Call. Today’s conference is being recorded. At this time, I would now like to turn the conference over to Garrett Edson of ICR. Please go ahead sir.

[Garrett Edson:]

Thank you, and good morning. Welcome to the Triple-S Management first quarter 2021 earnings conference call. With us today are your host Bobby Garcia, President and Chief Executive Officer of Triple-S, and Juan Jose Roman, the Executive Vice President and Chief Financial Officer. In addition, Madeline Hernandez, Chief Operating Officer and President of Managed Care will be available during Q&A. Lastly, with us today is the incoming CFO, Victor Haddock. By now everyone should have access to the earnings announcement, which was released prior to this call which may also be found on the company's website at triplesmanagement.com.

[Bobby Garcia:]

Thanks, Garrett, and good morning, everyone. We appreciate your time this morning and we hope everyone is safe and healthy. In the first quarter of 2021, we generated double-digit revenue growth and solid adjusted earnings per share. Our performance was driven by strong Medicaid results coupled with another quarter of top and bottom line growth at Life and P&C. And we continue to make steady progress scaling our chronic condition management programs, a key part of our value-based integrated healthcare strategy with a particular focus this year on patient participation levels. Total operating revenue for the quarter increased 15% from the prior year period to $1.03 billion as we benefited from higher Medicaid membership and average premium rates. Adjusted net income was $15.6 million or $0.67 per diluted share compared with $0.75 per share in the first quarter of 2020. As expected, in Q1 utilization of services rose from the unusually low levels we saw in the same period last year when the pandemic-related locked down depressed utilization significantly. In the first quarter of 2021 members accessed more healthcare services that they had previously deferred because of the pandemic. Despite this increase in utilization, we remain confident in our outlook for the full year, which I'll review shortly.

[Victor Haddock:]

Thank you, Bobby, and thank you to the Triple-S Board for this terrific opportunity and humble to be taking the reins from such an accomplished CFO in Juan Jose. And I'm excited to be joining such a talented group of professionals at this pivotal time in Triple-S growth. On a personal note, I'm happy to be returning to Puerto Rico, where I have deep family routes. I look forward to contributing to Triple-S continued success and growth as the preferred healthcare services company in Puerto Rico. I also look forward to working with our shareholders and investment community on an ongoing basis.

[Bobby Garcia:]

Thank you, Victor. It's great to have you on the team. All right. So, let me now turn to our segment performance beginning with Managed Care. As we noted on our last call, our Medicare Advantage membership was relatively flat during the open enrollment period, and market shares remained steady among all players. Looking forward, we're expecting modest membership gains by year-end. Our Medicaid segment has continued its healthy top line growth. We added another 14,750 members in the first quarter and continued to benefit from the premium rate increases we received last year. We now have nearly 437,000 members reinforcing our position as the dominant Medicaid provider on the island. Our Life and P&C segments, again delivered strong results. Both businesses generated another quarter of steady revenue and profitable performance. Taking a broader view of the environment in Puerto Rico, we see reasons to be optimistic more than one million Puerto Ricans nearly a third of the Island's total population have received at least one vaccine dose suggesting we're on the back end of the pandemic. In addition with a promising government debt restructuring proposal on the table, and then expected rapid flow of federal and reconstruction funds the outlook for Puerto Rico's economy looks bright, and that's a big positive for Triple-S.

[Juan Jose Roman:]

Thank you, Bobby, and good morning, everyone. First, I want to thank Victor for his kind words earlier on the call. I'm happy to hand over the CFO responsibilities to such a successful professional. I share Bobby's confidence that Victor will contribute much as Triple-S enters its next chapter. This is my last call as CFO of as Triple-S Management. All in, I have been part of Triple-S for more than 21 years. It has been a great pleasure and honor to serve our community, our customers, providers and investors, and I have been fortunate to work with an exceptional group of people. To my finance team Thanks for your support through all these years. Now to the financial results. Our first quarter results, similar to our fourth quarter 2020 performance, were driven by a significant increase in Medicaid membership and the impact of changes in utilization patterns brought on by COVID-19. By the end of 2020, utilization of services had reached pre-pandemic levels. And during the first quarter of this year, we continue to see previously deferred utilization along with COVID-related costs which resulted in a year-over-year increase in our MLR. Reported adjusted net income per diluted share for the first quarter was $0.67 compared with $0.75 in the prior year period. Turning to segment results. In Managed Care, premiums earned net increased $122.2 million or 15.1% over the same period last year. The increase was due to higher average premium rates across all businesses and higher Medicaid member months. In the Medicaid business, average premium rates increased 20% compared with the prior year, mainly as a result of two rate increases in May and July 2020. Medicaid member months rose again in the first quarter by over 228,000 or 21% year-over-year. As mentioned in previous quarters, since the beginning of 2020, we have been consistently growing our membership. Two market developments in November of 2020 caused our growth to accelerate. First, the government assigned the remaining members of a Medicaid carrier that was leaving the program. And the assignment resulted in an additional 80,000 member months for us. In addition, in November 2020, the number of people eligible for Medicaid increased by approximately 63,000. In the Medicare business, we had higher premiums per member per month, mostly because of an increase in our average risk scores and in the CMS premium benchmark. The commercial business had a decline in member months of approximately 21,000, reflecting the economic impact of the pandemic. Managed Care claims increased $133.6 million year-over-year, and the MLR at 87.1% was 340 basis points higher than last year. The rise in MLR was primarily due to several factors. First, the waiver of medical and payment policies. Second, COVID-19-related testing and treatment costs, which, together with the waiver policies, represented approximately 170 basis points of the increase in MLR in the 2021 quarter.

[Operator:]

Thank you. And we’ll hear from Scott Green with 8 Knots.

[Scott Green:]

Hey guys. Thank you for the questions. Can you hear me okay?

[Bobby Garcia:]

Yes. Morning Scott.

[Scott Green:]

Great, good morning. So my first question is that I just wanted to get your sense of how the results for the quarter came in versus your expectations. Anything that was positive or negative. That might be helpful. First question?

[Bobby Garcia:]

For Scott in short, it was in line with our expectations.

[Juan Jose Roman:]

Yes. As bobby said, it’s in line. We definitely saw a little higher increase in membership in the Medicaid business. That’s probably is the one that certainly higher than expected.

[Scott Green:]

Okay. And on the, a question on the health insurance reserves. So there, I noticed that the days in claims payable metric was 55 days, which is up about five days, sequentially nine days year-over-year. Can you talk a little bit about what is driving that increase in the days in claims payable?

[Juan Jose Roman:]

Yes, Scott. Mostly – first, last year, again, as we said, at the end of the quarter, there was the significant increase in claims. So that was part of the reduction of last years’. This year is basically our increase is that we basically, our claims went up for the year as compared to the number of claims and utilization with the pent-up demand is back. So that’s basically – there’s no nothing major outside of that. And the other part is that we have an increase in our MA in the membership and then MA products.

[Scott Green:]

Okay. On MA you mentioned in the press release that the premium rates benefited, including from a member risk scores. And I wanted to ask how you’ve been managing that, especially considering how some other health insurance plans have talked about some headwinds from their scores this year seems like you’ve done a really good job. Being able to capture those. Can you talk a little bit about what you’ve put in place to be able to make sure you’ve been getting those risk scores, what you’re showing up in your premium rates?

[Juan Jose Roman:]

Yes, Scott. Well, we have continued our process, right. We have been working together with our IPA’s, our primary care physicians in order to maintain receiving the information that is necessary from our membership. So basically also we work with, with a team of people that actually help us going to the primary care offices, just to make sure that, we’re getting the right documentation. So that process probably has not changed from our usual process. But obviously because of the pandemic, we tried to be as active as possible, especially starting in the third quarter of 2020, where we were able to really do get back into the street and meeting again with our paramedical physician. It was a significant effort really, from our team just going back, making sure as you very well said that we don’t lose that critical information for this business.

[Scott Green:]

Okay, great. On the Medicaid or reform MLR that showed substantial improvements, especially sequentially into the 80s for MLR we’re, I know there’s been some reconciliations going back and forth with the government. Can you talk about how that’s turned out and the MLR you view now as stable? And I think in the past you expected it to be in the very low 90s are the rates where they need to be now. So that’s where it should be going forward?

[Juan Jose Roman:]

Yes. So a couple of item, right? As you very well said, we continue making the reconciliations with the government. We call it that some premium from the previous year as part of that reconciliation. And that was recognized in Q1. But in addition to that, the care and business, we are also seeing better PMPM or higher PMPM as we continue to improve the given process with the government. And we’re getting a membership classified in the right sale. So it’s a combination of both. We’re seeing a better process on one hand. And on the other hand, we did so some incremental revenue related to getting done those reconciliation that come from last year. In terms of expected MLR for the remainder of the year. We are expecting that to be in the lower 90s.

[Scott Green:]

Okay. And for overall MLR 87.1, the full year guidance, 86 to 87. I know historically I believe first quarter has tended to be the highest MLR quarter of the year. Although you have utilization normalizing this year. Can you talk a little bit about, what you’re expecting in your outlook in terms of the seasonal progression of MLR, especially relative to history when first quarter was the highest and yes. In relation to your results this quarter versus the full year guidance?

[Juan Jose Roman:]

Yes. We saw basically, utilization is came back, right? It’s a combination obviously, of some items higher than usual orders slow. But overall, when we look at the utilization and compare with pre-pandemic levels, we are there, right? So March we believe that is basically back to be our highest month of the year, but the most important part really that we do expect to see an improvement is in the second half when the waivers and are eliminated. So the waivers and payment policies really, as I mentioned in my section represented around 170 basis points of incremental MLR. Some of the waivers has already been eliminated effective April. Others will be in July. So what we do expect is a progression from now to year end with some improvement, just because we will not have those waivers that cost money, right, increase the MLR. So we’ll do expect for all our businesses, for the three line of businesses to see improvements just because of the elimination of the waivers that we have in place today.

[Scott Green:]

Okay, great. Are there what are a couple, is there one or two examples of waivers that were in place that are now being waved in either April or July? Curious what an example of something like that might be?

[Juan Jose Roman:]

For example, concurrent review of hospital admissions that was not allowed during the pandemic and that will come back. Right. As soon as the waivers are out also in pharmacy we have two reviews or eliminate the time period, right. To get your next, the next yes, the refill too soon was eliminated. And that definitely has some impact. As I have mentioned in the previous calls, we saw a significant decreasing, basically everything with the exception of pharmacy. So that’s one that we do expect once refill too soon, for example is back to normal, then we should see controlled expense in pharmacy.

[Scott Green:]

Okay. Got it. Great. And, and then on the Hurricane Maria side, so congratulations on the progress there. I guess if you could just elaborate a little bit with your biggest claim out of the way, and at this point you have a bunch of experience settling claims with large claimants and with the court process, just at this point, how you’re thinking about the reserve level and the potential range of outcomes of the claims that are left relative to your reserve level?

[Bobby Garcia:]

Sure. Scott I’ll take that. I would say overall, when you think about the overall experience where we settled over 98% of claims, and those remain open are basically all in court with few exceptions. And we, and at the same time, we’ve been able to settle a number of those cases that are in court, within our reserves. And when you put that all together and you think, all right, we’ve been able to settle over 98% of the cases within our reserve levels, it suggests that we have a methodology and a track record with all these cases that is solid. So our position with respect to the remaining cases in court is that the claimants are being unreasonable and we have a solid basis for our reserve levels. And that’s why one who, says that we continue to be confident in those reserve levels.

[Scott Green:]

Great. Okay. And anything else in terms of either the timing on, how you think this plays out going forward? Is this something where, it could just take a while for some of these, some of the last 2% of claims to be finalized, or is there a reason to believe there could be more resolution and in the near term, and then secondly, and lastly just wanted to more specifically ask about your comfort level and experience around the cases that have been caught up in court and how does it played out? I know last quarter you adjusted your reserves to defend against these cases seeing how you were resolving some of them favorably. So, just wanted to check in on that. Those are my last two questions. Thank you.

[Bobby Garcia:]

Yes, sure. Well, I’ll, give you part of the answer and let want to say, add anything you’d like I’d say that we’re always interested in closing cases, right? There’s no one with a greater interest than us in settling these cases and putting this whole matter behind us and addressing the legitimate claims of our insured customers. So on the other hand, that the Puerto Rico court system is notoriously slow. And so we’ve been active with those who want to set the table and negotiate reasonable settlements. In the meantime, we’ll continue to contest these cases vigorously in court and do everything to make sure that we keep our expenses within reason and within budget, you’re right, last time for a loss adjustment expenses, we did increase somewhat and that was to give us let’s say more dry powder to continue litigating these cases. And so at this point, we don’t see a reason to add to, to that estimate of LAE. Juan anything else?

[Juan Jose Roman:]

No, that’s right on point, I think in terms of timing, Scott, as Bobby said we haven’t been actually closing cases that were in court. So there were sort of really, really soon, we don’t even have to go through a whole process. So those are the good news, some of those that settle. So what we expect is that we will continue slowly but steady, right? It’s only 300 now. And as Bobby said, most of them are in court. So however, we continue with many making progress in our discussions. There are offers out there with some of those. So we’re cautiously positive that will we continue closing cases, even those that aren’t in court. So in term of timing, it will depend, but it probably will take another year and a half. What expectation is that you will see, because again, it’s only 300, so we will see slowly but steady every quarter, some cases close every quarter, that’s our expectation, but could take us a year, year and a half. I want to reaffirm what Bobby said is that our reserve, we’re very comfortable with them. Now, the number of cases that we have outstanding in terms of total value are lower because we haven’t been closing and happy to report today, we closed our biggest case. So now they are even also smaller cases, right? That doesn’t mean that we have one or two over $10 million, but at least we have much less than in the past. And that gave us a lot of comfort. One of the things that I always said, we’ll do a look back how we’re closing our cases vis-a-vis our reserve. And in 2020, I can tell you we were right on point. When we look at what we pay vis-a-vis reserve for the full year, we basically were at the reserve slightly lower than our reserve.

[Scott Green:]

That’s great. Thanks for that update. And congratulations on the results.

[Juan Jose Roman:]

Appreciate it.

[Bobby Garcia:]

Thank you, Scott.

[Operator:]

And that will conclude the question-and-answer session at this time, I would like to turn the call back to Bobby Garcia for any additional or closing remarks.

[Bobby Garcia:]

Thank you, Operator. As you certainly know, this will be Juan Jose’s final earnings call with Triple-S. Juan you’ve been a great partner. I really thank you for all. You’ve done to make Triple-S the strong company it is today I want to recognize also, and thank the entire Triple-S team for their continued outstanding efforts and dedication as we’ve navigated that pandemic environment, while staying focused on building a health care delivery system, that’s patient-centered and committed to quality outcomes. We think everyone on the call today for your time and ongoing support; I will look forward to talking with you again in the summer during our second quarter earnings call. In the meantime, please reach out if you have any more questions and have a great day.

[Operator:]

And that will conclude today’s call. We thank you for your participation.