Centene Corp (CNC) 2002 Q3 法說會逐字稿

Ladies and gentlemen thank you for standing by and welcome to the CENTENE Corporation's Third Quarter Conference Call.

At this time, all participants are in the listen only mode, later we will conduct a question and answer session.

Instructions will be given at that time.

If you should require assistance during the call please press "0" then "*."

And as a reminder your conference is being recorded.

I would now like to turn the conference over to our host, Ms. Lisa Wilson, please go ahead.

Good morning everyone, I am Lisa Wilson of In-Site Communications CENTENE's Investors Relation firm.

Thank you for joining today's conference all.

By now, you should have a copy of the press release issued by the company last night after the close of market.

If you have not received it, please call Donna Ranor at (314)725-4477 and it will be faxed to you immediately.

We have with us today Dr. Michael Neidorff, President and Chief Executive Officer and Karey Witty, Chief Financial Officer of CENTENE Corporation.

This call is expected to last approximately 45 minutes.

The call may also be accessed through the company's website at www.centene.com and a replay of the call will be available after 12 o'clock today by dialing (800)475-6701 and answering access code 654-098.

Any remarks at CENTENE may make about future expectations, plans, and prospects for CENTENE constitute forward looking statements for purposes of the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward looking statements as a result of the various important factors including those discussed in CENTENE's quarterly report on Form 10(q) for the quarter ended September 30th 2002 which is on file with the SEC.

CENTENE anticipates that subsequent events and developments will cause its estimates to change.

While the company may elect to update these forward-looking statements at some point in the future, CENTENE specifically disclaims any obligations to do so.

Now, I'd like to turn the call over to Michael Neidorff.

Michael.

Thank you Lisa.

Good morning everyone, and thank you for joining our third quarter 2002 results conference call.

I am pleased to say that our results announced yesterday after the close of the market reflect this company's 13th consecutive quarter of increased revenue and earnings growth, and give us reason to increase guidance for Q4 in fiscal year 2002.

We experienced continued growth in the states in which we operate, Texas, Indiana and Wisconsin; and today's results again reaffirm the consistency, predictability and sustainability of the CENTENE business model.

Our goal and focus remains intact to be a predictable company that delivers upon stated expectations.

This quarter's earnings per share were 52 cents, net of one-time gains.

Operating income was very strong at $8 million, up 50 percent versus Q3 of '01.

Membership growth continues to be strong across all our markets and resulted in an enrollment increase of 31.7 percent year-over-year to 296,100 members, as of September 30th 2002.

This includes 3,400 acquired SCHIP lives.

This also compares to 278,600 lives at June 30th of this year, an increase of 6.3 percent quarter-over-quarter.

In the quarter, overall membership growth was achieved by increases across all our markets.

In Wisconsin, we achieved 2.3 percent sequential membership growth and now have 126,800 members enrolled in our plan there.

Membership was driven by growth in the category, overall.

In Indiana, we had a 9.3 percent increase to 101,500 lives.

We expect to see sustainable growth in Indiana, as that state continues to increase, beyond surprise (ph), in a number of mandated counties with Medicaid's enrolling.

Finally, in Texas, we had sequential growth of 4 percent including the 3,400 lives that we added in San Antonio and El Paso service areas through our acquisition, which I would discuss later.

We expect the Texas business to continue to grow, as we add new counties and SCHIP lives there.

SG&A was 10.9 percent of total revenue during the quarter, which was flat versus the prior period and reflects the write-off of due diligence and legal expenses related to the number of acquisition opportunities that we elected not to pursue.

On various conferences, we have highlighted that we will be prudent and disciplined purchasers and that write-off reflects that.

As previously stated, our goal for the Medicaid health plan business continues to be achieving a single digit SG&A run rate by Q4 of '03.

As a reminder, our SG&A percentage is calculated conservatively.

It does not include interest income, and the revenue line in the revenue lines and does include depreciation and amortization as an expense.

Our health benefits ratio was 82.2 percent at the low end of our acceptable banded range of 82 percent to 83.5 percent.

We remind you that it is acceptable to see movement in this range from quarter to quarter.

This may be caused by the addition of new providers and new members who're not fully transitioned into our systems as well as from seasonality.

As previously stated, our approach is to maintain margins through a combination of rate increases and administrative policies, practices, and fee schedule changes.

I'm pleased to report that this approach has been successful.

Now, I would like to discuss the visibility on rates in each of the states in which we operate.

First Texas, we signed a two year contract there in September of 2001 and received a weighted average 10.8 percent rate increase.

Additionally, we've now gained a concession from the state to increase our SCHIP rate by 8 percent effective September 1.

We want to acknowledge the state's constructive approach and forthrightly dealing with a premium insufficiency where it existed.

Second Indiana, we're pleased that while expanding it's mandated counties, the state granted us incremental rate increases over the year and with the most recent adjustment effective October 1, this amounts to a 3 percent cumulative effect.

We continue to work with the state for additional rate adjustments when and if necessary and appropriate.

Wisconsin has given us the preliminary indication that there will an overall rate increase for the state.

Although, the specific amounts of the increase that we'll receive relative to our geographic area and product distribution is under discussion and should be finalized shortly.

Finally, New Jersey, which we expect to close in Q4.

Granted a mid year rate increase of 6 percent in January of 2002 and additional 3 percent increase on July 1.

Importantly, they also removed the general assistance population from the Medicaid population.

This is a high utilization group and taking this group out of the Medicaid population demonstrates the state to go to work constructively with the industry.

Like Indiana, we're confident that when justified, New Jersey will make the appropriate adjustments.

Additionally, in line with our previously stated goal and approach to maintain margin protection in working with the states, we received approval from all three of our current states to implement administrative changes in our hospital emergency department policy.

By example, we should gain an additional 2 percent of margin protection in Texas.

This program allows us to work with the emergency room of hospitals to reduce inappropriate utilization and is consistent with federal and state guidelines.

Concurrent with the close of our New Jersey acquisition, we will ask regulators to approve similar policies and practices there.

Turning now to acquisitions, we are pleased to have closed the purchase of University of Texas health plans, SCHIP business in San Antonio and El Paso service areas, adding these new lives to our current membership base.

Additionally, we look forward to closing Amarillo and Lubbock on November 1 of 2002.

As highlighted in the 10(q) that we filed in conjunction with this press release, we purchased these 26,000 lives at a cost of $500,000.

Subject to regulatory approval, we expect New Jersey to close in Q4.

We are pleased initially to maintain this as a joint venture with the University of Medicine and Dentistry of New Jersey.

This University is a highly respected medical school, and we look forward to working with them in serving the 500 -50,000 members covered by the university health plan.

We believe that there is plenty of opportunity for organic growth in New Jersey and that with approximately 685,000 Medicaid lives in this market, there is ample room for three or four large responsible competitive players to operate.

The cost of the 80 percent ownership was $10 million.

Importantly, we have a full pipeline of acquisitions that on - that insist on being disciplined, prudent purchasers.

We continue to evaluate additional acquisition opportunities in states in which we operate and in other mandated Medicaid states.

We are interested in those opportunities where the acquisition is accretive, can be converted to our system platform in a short period of time, and where we have the potential to become a leader in a contracted service area.

As most of you are aware, it is our policy not to comment on new deals until we have signed definitive agreement.

As we approach the one year anniversary of our initial public offering, I'm confident in saying that we're executing on our mission, delivering on the promise of better healthcare in order to provide a solution for states to manage the Medicaid outcomes and costs.

We continue to see organic growth in our markets, and our acquisition program is well underway.

Further, we continue to strengthen the relationship with our doctors through their continued timely payments and processing their claims resulting in a reduction of the number of days in claims payable.

Our solid performance continues to produce strong financial results.

I would like to take this opportunity once again to thank all of our employees for their ongoing commitment and hard work which ultimately enables us to deliver consistent and predictable results.

With that I'd like to turn it over to Karey Witty.

Thanks Michael.

Our third quarter 2002 earnings represent our fourth quarter reporting as a public company.

To recap the highlights of the quarter, membership increased 32 percent versus the same period last year to 296,100 reflecting the addition of 17,500 members during the third quarter.

Revenue increased 36 percent to $116.4 million and earnings from operations increased 50 percent to $8 million.

Our effective income tax rate during the quarter was 37 percent largely due to revised investment strategies that include tax advantage securities as well as an improved mix of state tax rate.

Earnings per share for the third quarter, net of a one-time dividend received, were 52 cents versus 45 cents in the prior year.

As indicated in our Form 10(q) that we filed concurrent with the release of our financials, and as we discussed on the Q2 call in July, we terminated our investment in a captive insurance company used for reinsurance purposes.

As a result, the company recorded a one time dividend of $5.1 million captured in our investment and other income during the quarter.

As you will recall, our acquisition of Bankers Reserve Life Insurance Company announced earlier this year enables us to provide reinsurance to our HMO subsidiaries.

Additionally, it is important to note that the third quarter 2002 earnings per share reflect a significant increase in the fully diluted share count from our IPO.

The fully diluted share count was 11.8 million at September 30, 2002 versus 7.9 million at September 30, 2001.

Our EPS of 52 cents for the third quarter of 2002 shows a significant increase over pro forma EPS of 34 cents in the third quarter of 2001.

Because of our balance sheet strength, we are well positioned to take advantage of future opportunities.

Balance sheet highlight for the quarter include cash and investments of $142.9 million on total assets of $170.8 million and we remain debt free.

Intangible assets increased by 485,000 net, reflecting our contract acquisition of the Texas University's health plan SCHIP contract.

Days in claims payable fell 2.9 days during the quarter to 62.7 within our stated target range of 60 to 65 days.

This improvement reflects our further ability to reduce claims inventory on hand, which continued to lessen due to improved claims payment efficiencies.

As we discussed on our call last quarter, we expected an improvement in our inventory levels due to a full quarter's implementation of Masis (ph), our enhanced imaging technology.

During the third quarter, the average period from the date of receipt of acclaim to the date it is paid fell from 11.5 days at the end of Q2 to 9.9 days at the end of Q3.

Additionally, our EDI claim submission increased to an average of 49 percent for the quarter, up from an average of 43.5 percent for that of the second quarter.

We continue to believe that days in claims payable should remain in the range of 60 to 65 days.

CENTENE generated strong cash flow during the third quarter, increasing cash and investments on our balance sheet by $13.7 million.

For the quarter ended September 30, 2002, the cash flows generated from operating activities were $13.2 million compared to net income of $9.3 million.

Free cash at the end of the quarter totaled approximately $60 million.

Due to our continued strong performance in the third quarter, we are expecting our revenues to be in the range of 437 million to 444 million or to increase by 34 to 36 percent for the year ended 2002 compared to 2001, excluding the pending New Jersey transaction.

Turning to our earnings outlook for 2002, we expect earnings per share to be in the range of $2.15 to $2.17, excluding the pending New Jersey transaction and including the one time dividend of 26 cents recognized in Q3.

This translates into EPS growth of more than 50 percent over the 2001 pro forma $1.25.

Turning to 2003 guidance, we anticipate revenue in the range of 550 million to 560 million or growth in excess of 25 percent and net earnings on our core business in the range of $2.30 to $2.35 per share.

We expect that the addition of New Jersey will add revenue of 115 to 125 million and net earnings in the range of 20 to 24 cents in 2003.

And with that, we will open the call up to questions.

Ladies and gentlemen, if you wish to ask a question please press "1" on your touch tone phone.

You will hear a tone indicating that you've been placed in the queue and you may remove yourself from the queue at any time by pressing "#" key.

If you are on a speakerphone, please pick up your handset before pressing the number.

And our first question will come from the line of Steve Halper with Thomas Weisel.

Please go ahead.

Hi, good morning.

Just a couple of quick questions.

When did you close the Texas SCHIP business?

Good morning, Steve.

Steve, we closed the El Paso market September 1, closed the San Antonio market October 1, and as Michael indicated, we anticipate closing the Lubbock/Amarillo market November 1.

OK.

And if you look at the increase that you got on your SCHIP business in Texas effective September 1, what would that do to your overall blended rate?

If you don't want to answer that question, you could say what your SCHIP business was in Texas?

No.

We're going to answer that.

Its adding up percent to that 10.8.That we got in there.

A percent on the going forward basis.

Overall for Texas?

Overall, yes.

OK and Karey, did you say your free cash that you could use is 60 million?

That's right.

Does that reflect the 10 that you're going to be paying for New Jersey?

It does.

That's free cash on the balance sheet as of September 30th.

So certainly, when that closes we will use 10 million of that free cash.

OK 60 minus 10.

Correct.

So its not 60, which already takes into account the 10?

That's correct.

OK, and then the last question on the tax rate - was a little bit lower.

What tax rate should we be assuming going forward?

37, I think, was a little abnormally low for the quarter but 38 is a sustainable rate going forward for Q4 and into 2003.

OK.

Thanks.

Good quarter guys.

Thanks.

The next question will come from the line of Todd Allen with Kenny Securities.

Please go ahead.

Good morning guys excellent quarter.

Thank you.

Just a couple of quick questions.

Could you talk a little bit about that pre- tax dividend of 5.1 million?

I know that's nonrecurring, guys.

I wanted to make sure I understand where that came from?

Sure it's - we've been talking about, Todd, for a probably a couple of quarters now, but essentially, we had an investment in a United SPC whereby United provided reinsurance for the - our owned subsidiaries.

Eventually, when we terminated that relationship and brought the reinsurance capabilities in house the end results were that we received this $5.1 million dividend.

So we have no continued relationship now with United SPC, and we're providing reinsurance internally, again, through our owned Bankers Life.

And the Bankers Reserve Life serves that same function now.

Is that correct?

Yes.

When you gave guidance, you stated that for 2003 - when you mentioned New Jersey, after you made that comment, and you said full year 550 million to 560 million and EPS of 230 to 235.

Is that inclusive of the New Jersey 115, 125?

No.

That's the core business.

So that is exclusive of New Jersey?

Correct.

Right.

OK.

So, then if we're looking - let's say, on low end of guidance, if we're at 230 and low end of New Jersey estimate of 20 cents, the low end of guidance, therefore, would be 250.

Is that correct?

That's right.

OK.

Excellent results, guys.

Thank you.

Appreciate good work.

Thank you.

And our next question will come from the line of John Szabo with CIBC.

Please go head.

Good morning.

I have just a couple of questions.

Michael, I just wanted to clarify what you said on Indiana.

Did you say there was a change on October 1st?

October 1st, Sza, as they've rolled out the new counties, we've been working with them to adjust the rates; and the impact is a cumulative, as you look at across the whole of full year what we received plus what we got on October 1.

All right, it comes to about 3 percent.

So, once again, it's a percent, a little bit more or maybe less, more or less, probably about a percent impact right now on next year across the whole book of business.

I'm sorry.

You're saying it's a 1 percent.

Kind of, 1 percent impact across the whole book of business.

On top of it, I think, it was 2.8 was what you're getting before or something like that?

Well, we received - that was last year, we received close to 3 - a combination of rate increases and...

...and the fees...

... some of the fees things.

Right.

This time, it looks like we're going to have the same kind of mix between rates and the TR program, as we gave you some guidance on Texas where we've done the work.

That's gonna be worth about 2 percent we think is by example.

OK.

On New Jersey, just a couple of questions - Karey, and what you said on the days claims payable 60 to 65, have you - would that range apply post New Jersey or is there going to be some skewing in that metric as you bring that deal on?

The metric that I'm quoting, John, is really our, let's say, same store.

Certainly, we think that with New Jersey coming on, that would increase our days claims payable; but, certainly, we'll be able to highlight for you what the core business is and the differentiation that New Jersey brings to the table.

OK.

And then just one last question on that.

Michael, you said that, initially, there was - it's formed as a joint venture.

Can you just remind us what, sort of, the rationale was behind that structure and, kind of, how you see that point out?

The university that we have the joint venture with have their own (inaudible).

It is the only medical school in the state of New Jersey.

It has a very strong reputation.

It treats a lot of the population in the Newark area and so, in creating a - going to a new state like this with that size and scale that's there, it made a lot of sense to us to work closely with them as a partner with a hard call on their stock as well as we highlighted.

So, it's just a matter of finding a way to work with it.

Dr. Cook (ph) who's President of the university is on the board of this company and so, that all is part of that mix, John.

It's just a nice way to enter a state with that size.

OK, thanks.

Congratulations.

Thank you.

Thanks John.

Thank you.

And our next question will come from the line of Chris Sergeant with Stifel, Nicolaus.

Please go ahead.

Yes, good morning.

Fabulous quarter guys and forward outlook is equally fabulous.

Most of my questions were answered.

Can you talk about your claims capacity expansion and the timing, whether it's all CAPEX or if we need to be thinking about some incremental G&A to complete that expansion?

Sure, I think one within our numbers that's in there, and we - the expansion will come on line in Q1.

We - at this point, I would guess about 107,000 - 107 people covering our population.

So, we think we had some elasticity in that in terms of growth, but the new one comes in on - in Q1 and it's all within the numbers.

There's no CAPEX moved (ph) and there is no significant CAPEX impact on it.

Great, super.

Keep it up.

And when I say none, in the interest of full information, I mean we've been running about 3.5 - 3, 3.5 million this year and, you know, as a percent that's pretty small, so...

But within the guidance is what you're saying?

Yes, that's within the guidance.

Thank you and our next question will come from the line of Ed Kroll with SG Cowen.

Please go ahead.

Good morning.

Good morning.

Good morning Ed.

I've got a couple of questions here.

Just to follow up on that last question; what ball park what would the - this is along the lines of scalability for the back office, what would the - what would your capacity of members be say in Q1 of next year once...

Well, we currently operated a 12,000 to 13,000 square foot space.

We're adding 25,000.

But within that we are adding some other training and other capacity.

So, it would be safe to say we will more than double our current capacity within that space.

It's a two-story building, and it's built in a way that we can add and incrementally grow it as the membership comes on.

And so, Michael, in terms of members, you know, how many members would that allow you to efficiently manage.

Probably about 700,000 lives.

OK.

Or more.

But I'm giving you, kind of, the conservative number.

OK.

That's still a pretty big number.

And then, on the - Karey, you gave us a metric on the productivity gains.

Was it 11.5 days from - in Q2 down to 9.9 days Q3 average claims turnover?

Yes, that's right.

And that's from when you get the claim to when the check goes out the door?

Correct.

Date of receipt to date paid, right.

OK.

Great.

And last question on the cash flow.

It seemed particularly strong relative to net income in the quarter.

Was there any final catch-up from Wisconsin in there or is it just the receipt of the dividend?

No, all of Wisconsin came through in Q2.

So we're - that's all said and done with.

OK.

So you're all caught up with that.

Right.

That's right.

So is it - that 5 million in the quarter, the dividend?

You know, 5 million obviously falls to the bottom line, which is a starting point for your operating cash.

All right.

That is a piece of it.

One small piece that you see on our balance sheet, roughly, 900,000 in an unearned premium dollar.

The state of Texas did pay us for the El Paso CHIP lives prior to quarter end for the subsequent month.

So there is an unearned premium hanging on our balance sheet relative to that.

OK.

All right.

Nice quarter.

Thanks very much for the update.

Thank you.

Thank you.

Our next question will come from Daren Marhula (ph) with Piper Jaffray.

Please go ahead.

Hey, guys.

It's Ted Shannon calling.

Good morning.

I wanted to get a little bit more color on some of the things you're doing to work with providers to get access to the claims faster.

I mean, obviously, you're improving the turnover once you get the claims; but in order to get your days down to the level they're at, you must be getting - you know, the doctors to get the claims to you sooner than, you know, you have been in the past.

Can you talk a little bit about what you're doing to, you know, get access to the claim faster?

I think, first of all, those numbers work out from the date we receive it.

So it has a lot to do with it.

We are doing more in EDI.

Right.

You know, that's what I was going to just reiterate.

Ted, we did mention also that we've increased our EDI rates Q2 to Q3 from 43.5 to roughly 49 at the end of - on average at the end of Q3.

So obviously, that highlights the speed at which we're getting claims.

OK.

That's helpful.

And then, in Indiana, how many counties do you - are you currently working in, and how many more will you be able to expand into as they, you know, increase the mandatory managed care?

We're currently in six counties.

We added some more.

And it's probably another two, three or four that are the meaningful ones.

I mean, if you take right now the counties that we are in probably we've got - and this is an estimate on my part - maybe 60 percent, 65 percent of the Medicaid populations.

And so when you move to the 80, 85 percent level of it you'll be adding just two or three more counties.

OK.

All right guys.

Thanks.

Those were helpful.

Thank you.

Thank you; and again, if you do have a question or a comment, please press "1" at this time.

And we do have a follow up from the line of Steve Halper, please go ahead.

Continuing on the Indiana discussion, while the growth has been rapid for the company, how long or how much or - how long would it take to penetrate those two to three counties that you just talked about and you know, did the state officially, you know, move in that direction for those counties yet?

Yes, the state attorneys - one of the things were working with them on and work with ourselves on and we are estimating, you know, on the 1st semester six months of next year, I mean, that we are working with the state in the budget period and the legislature in session in January.

All those issues, the timing is not absolutely certain.

But you would think within six months that, you know, they might move to mandated?

Yes, I mean, that's a, I guess the...

Right.

You know they - originally, there were some counties that they were not going to enter until '03 and part of '04 that they accelerated the way to save money.

And in the mandated status so, you know, its not a straight line in dealing with them.

Right.

So if those states don't go mandated within the next six or nine months, it's safe to assume that the growth in Indiana has to trail off a little bit.

Well, I think there's organic grows within our existing markets (inaudible) it actually reflects the guidance...

OK.

...that we've been giving in terms of Indiana versus planning and building.

And it's like until (inaudible) signed we don't put it in.

Well, we're not going to put a county in until the state says they're going to do it.

And then one other - and I appreciate that color - one other question switching gears to the New Jersey acquisition.

Has there been any, you know, meaningful change in personnel or anything that would cause any concern as you get closer to closing this transaction?

No, we have a - we believe that we have a strong management team there and our President and CEO there, Alex McLean([ph) is a strong individual, and we saw lot of value in he and lot of his people when he did the deal.

And when in Q4 do you plan on closing that, from what you could tell?

Well, I mean this is - I don't see it November 1.

So, I would - we, I guess, I would target December 1.

OK, and that's just going through the various state...

Yes.

...regulatory procedure.

Sure.

There are a lot of hoops to jump through in all these states.

And it's appropriate.

It gives them the confidence, and we kind of welcome that because we believe it will - it gives us a chance to have a repertoire with them and a relationship in terms of how they see how we do things.

And I guess, it's off to a good start, I think.

Great.

Thanks.

Thank you.

And our next question comes from Susan Roberts-ph with Baron Capital-ph.

Please go ahead.

Hi, good morning.

Good morning.

I wondered, if you could talk a little bit about the initiatives you were discussing in Texas with the ER rooms, and what you have to do there?

And how long it'll take for you to see the results that you're looking for?

Well, it was - we effectively started to kick in Q1 with the state contract, and it's really an issue of having worked through some policies, practices with the state that establishes what's a deniable claim, what is not a deniable claim.

The process for denying claims were inappropriate usage and some alternative contracting with hospitals that reduces their risk on it.

So, it's a combination of things, Susan, that put together, that really we expect will save us overall about 2 percent of our medical costs there and now that we're trying to estimate these things at reasonable but conservative basis.

On our medial expense because as you know, in this population, one of the key factors to influence your medical cost is your emergency room expense.

OK.

So I mean, we were pleased.

We were able to work through the federal guidelines and all three state guidelines to achieve that for ourselves.

OK.

Thank you.

Thank you.

Thank you.

And we do have a follow up from Todd Allen.

Please go ahead.

Sorry guys.

I just had a couple of questions about the New Jersey acquisition;

I guess looking at the $10 million figure that would imply you guys paid about $200 per member for an 80 percent stake, which would imply a total life value of about $250.

And that's substantially below half of what AMERIGROUP paid in their most recent acquisition of $650 ballpark.

I was hoping you could talk about your pricing just upon - first of all going forward with additional acquisitions, and also what the rationale for getting obviously a very good value in New Jersey was?

And also, if it tends to be under performing, can you address medical loss ratios in New Jersey, and what you expect in the way of improvement there?

All right.

One, I would not call it an under performing plan.

We are on record that we work hard to buy good properties that we can make better.

Two, we have lots of friends within medical loss ratio, maybe a little bit on the high side, but that's where we're able to run it through and normalize it on the contracts we've within the state.

That's more of a tuck in area.

So we know, going into it that it's going to be a good property, you know, it's like that.

Vis-à-vis AMERIGROUP, who I have a lot of respect for it and I mean they're a fine company and well managed.

I - their pricing approach to acquisitions and ours - I can't really comment.

I don't know how they get to it.

We have a given discipline and what we'll pay I commented that it will move up.

We've highlighted in the past, we'd be in the $100 to $400 range and so that may creep up some day to 425 and some of that we have given you an estimate.

The CHIP program costs less as we highlighted but, you know, I really can't - I mean we do it our way and they kind of do it their way and I don't know what else - I don't how to comment on that Todd.

Could you tell me what the - what you anticipate the current medical loss ratio is in New Jersey - you said might touch higher?

I'd say, Todd it's in the mid 80s range.

Mid 80s. 84, 85 in that range.

OK.

Yes, I'm just - it seems like you're getting off - in a way I'm trying - it's a compliment I didn't mean to indicate that it was under performing...

Right.

...in a negative sense but I think you guys have room to improve in larger sense.

Right.

I'm just trying to get a handle on it - I mean do you think that there are a number of acquisitions in your target price range because it seems like you're getting off with good deals?

We've a very full pipeline of things to evaluate and look at.

And as I think we highlighted with the flat SG&A this time, where we rolled out some legal and due diligent expenses for those that we decided not to do when we got into it.

So it just a matter of discipline, Todd.

You know, we're working through it.

We've a very full pipeline and at this point in time its working.

Overtime there may be some creep on the price we could see it coming down too.

I mean it - I'm not prepared to say we've to pay more than that.

OK, let me switch gears a little bit there was a discussion about this - the facilities build out and the increase in the claims payment processing area.

You had a made comment, 750,000 lives capacity, is that total for the CENTENE organization or is that incremental with the expansion?

No that I would say that you take that building and you look at it.

OK.

Where we've added, the station we can put in, one shift with our assistance I think we can get to that - 700,000 plus number.

OK.

So what we've done is, we've said now probably - we can probably put about 400 employees into that location.

OK.

OK.

Todd, I'm giving you some round numbers.

And so - and then you'll have (inaudible) facilities and all kinds of things during that phase as well.

So you know, we can always go to other (inaudible) and do other things.

So that's not going to be the only limiting - that's not going to be a limiting factor on our growth, but you know, if you look at where we're now and where we're trying to grow on a protocol (ph) basis, Todd - you know, our systems (inaudible) we talked widely about could go to 1.2 million.

So this is just - you know, it is disciplined organized way, Todd.

We are trying to say, here's where we are.

Here's we're going, you know, you can see it's not impacting the guidance for '03.

Todd, we're just - the way it gets impacted is if we don't think too ahead of time where we need to be.

Oh, I guess the only, remaining - I appreciate that.

Thank you, by the way.

I was getting a little confused making up the system capacity up to 1.2 million.

So I didn't - 750,000 means your ability to staff and drive that many lives through in the system capacity to separation?

Right.

OK.

And when you get to 600,000 lives, you're probably by that time already have planned your next service center.

Also - this will be my last question.

Can you talk at all about what your average cost is when you add a member life?

I am sure that is not high, but can you talk about incremental cost of the new member?

It's fairly marginal, and if you're talking about the additions to, lets say, the corporate staff and the - lets say, centralized functions, it is fairly marginal.

We look at metrics of the number of claims examiners that we would add in a per thousand metric of members that we would add.

For example, for New Jersey adding those 50,000 lives, we might add in the range of, say, 8 to 10 claims examiners.

We'll add a handful of people here locally.

So you know, part of the scalability of our business model with these centralized functions, it doesn't cost us a whole lot in overhead corporately to add these lives.

Obviously, we'll have a full staff at the health plan side so - but the incremental costs overhead are fairly small.

One other question to Karey, and will be the last.

I'm sorry about this, but you had said initially when New Jersey was announced that the state of New Jersey was requiring within 12 months to enter all additional counties in state of New Jersey.

Is that still a go?

Absolutely.

Yes.

Do you have a feel for timeframe as to how fast you might fill out the state?

Yes.

I mean we - obviously, when we do this we work with management on the following places, but I'm not going to give you a specific time line until we close on the business, and you know, start implementing.

But we're, you know, working on the integration plan, and before December 1, we're paying claims and entering (ph) business in New Jersey.

Great.

Thank you, guys.

Thank you.

And at this time, we have no further questions in queue.

Please continue.

Well, I want to thank you everyone.

And we look forward to reporting Q4.

Thank you, ladies and gentlemen.

That does conclude our conference for today.

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