Centene Corp (CNC) 2010 Q4 法說會逐字稿

Good morning and welcome to the Centene fourth-quarter 2010 and year-end results conference call.

You will be in listen-only mode during the conference call, but you will have an opportunity afterwards to ask questions.

Instructions will follow at that time.

(Operator Instructions)

After today's presentation there will be an opportunity to ask questions and as a note, this conference is being recorded.

I now would like to turn the conference over to Ed Kroll.

Mr.

Kroll, please go ahead.

Thank you, operator, and good morning, everyone.

I'm Ed Kroll, Senior Vice President, Finance and Investor Relations at Centene Corporation.

Thank you for joining our Q4 2010 earnings call.

Michael Neidorff, Centene's Chairman and Chief Executive Officer, and Bill Scheffel, Centene's Executive Vice President and Chief Financial Officer, will host this morning's call.

The call is expected to last approximately 45 minutes and may be accessed through our website at centene.com.

A replay will be available shortly after the call's completion, also on our website at centene.com or by dialing 877-344-7529 in the US and Canada or 412-317-0088 from other countries, and the playback number for both of those is 447292.

Any remarks that Centene may make about future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provision 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 various important factors including those discussed in Centene's Form 10-Q dated October 26, 2010, and other public SEC filings.

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, we specifically disclaim any obligation to do so.

As a reminder, you can find our 2011 earnings release dates on our website in the Investor Relations section.

We'll use the usual pattern of release dates during 2011 and for the fourth quarter to be reported in February of 2012.

Also, our next Investor Day is June 14th this year in New York City.

Please mark your calendars.

And with that I'd like to turn the call over to our Chairman and CEO, Michael Neidorff.

Michael.

Thank you, Ed.

Good morning, everyone, and thank you for joining Centene's fourth quarter and full year 2010 earnings call.

Before I discuss the quarterly and full year financial results, I would like to comment on recent headlines about state budgets that have caused some volatility in Centene's stock.

The chatter around certain state budget proposals raised concerns about future managed care rate adequacy.

Some clarity on this topic may be helpful.

The budgets they are discussing are preliminary, simply first round proposals that will go through many iterations in upcoming legislative debates.

Over the years, we have seen many examples where the final budgets look vastly different from their original preliminary outline.

Recent discussions of rate cuts in the Texas House proposal actually referred to provider fee schedules, which would be largely a pass-through item for Centene.

We believe there is more than enough money in the (system) to ensure actuarially sound rates.

We can help our state customers navigate through these difficult budget times using some of our unique tools.

As we have previously commented, difficult economic times make for sound public policy.

States are now more willing to move from fee for service to managed care.

For example, Illinois recently mandated that at least half of its 2.8 million Medicaid eligibles be enrolled in a care coordination program by January 1, 2015.

We are very focused on the next couple years.

There is unprecedented demand for the multi-line of products and services that Centene offers.

We have a full pipeline in 2011 and beyond.

Here are some examples.

In January 2011 we began operating under a new contract in Mississippi.

We commenced operations in all 82 counties serving the aged, blind and disabled and foster care populations.

We also began operating under a new statewide managed care contract in Indiana, serving the Medicaid population and Healthy Indiana Plan, known as HIP, members.

HIP is a program for underinsured and uninsured adults who earn less than 200% of the federal poverty level and do not qualify for conventional Medicaid.

Our capabilities in managing hybrid health plans were key to winning this business.

We now have hybrids in four states.

In February 2011 we began operating under additional STAR+PLUS ABD contract in the Dallas service area of Texas.

In the second quarter of 2011, we expect to commence operations in Illinois.

We were chosen by the state to provide managed care services to the ABD recipients in six counties.

This was part of the state's mandatory healthcare enrollment that I previously mentioned.

Three of our existing states, Arizona, Texas and Georgia, are in varying stages of planning reprocurement and likely managed care expansions this year.

We are proud of our track record in all three and view these RFPs as opportunities to expand our presence in these states.

There are a number of other state opportunities.

One that we have already mentioned is Louisiana.

It is likely they will issue an RFP in 2011, which we are well positioned for.

While we are currently focused on 2011 and 2012, we will be ready for the growth opportunities federal healthcare reform will bring in 2014.

It is important to note that we are not dependent solely on reform to maintain our growth.

We foresee a steady stream of state based RFP opportunities well into the future, regardless of the status of federal health reform.

There is a major trend of states interested in issuing RFPs to move their highest cost beneficiaries, aged, blind and disabled and long-term care, into managed care.

Our unique medical management programs and multi-line platform position us well to serve these high acuity recipients.

Over the past year our ABD membership has grown by 26% and our long-term care membership has nearly doubled.

There are many states also looking into initiating exchange type subsidy based programs before the final stages of healthcare reform is implemented.

Our acquisition of Celtic and Nova Systems provided us with the tools needed to create hybrids or exchange-based products.

These plans address the needs of individuals and other low income populations who are often moved in and out of Medicaid eligibility.

By expanding our focus to also include the uninsured and underinsured, we have enhanced our strategic position, while meeting the changing needs of our state customers.

Now, turning to some of the highlights of the past year.

Premium and Service revenues increased 10.5% versus 2009.

Excluding the effect of the Indiana, Ohio pharmacy carve-out, Premium and Service revenues increased more than 15%.

Our composite rate increase for 2010 was 2.3%.

This includes a 0.9% rate increase in Georgia effective July 1.

In Florida we received a 1% rate increase for non-reformed counties and a 6% rate increase for reformed counties effective September 1.

These rate increases were finalized and approved by CMS in the fourth quarter.

Thus, we reported them in the fourth quarter, retroactive to their effective dates.

Earnings from operations grew 14% to $157 million in 2010, versus $138 million in 2009.

At December 31, 2010, we served 195,000 at risk members in Florida, nearly doubling our membership [through] the end of 2009.

We achieved this through the continued conversion of non-risk lives to at risk and a strategic acquisition of Citrus Health.

This has increased the percentage of our non-reform membership from 23% at the end of 2009 to 53% currently.

Citrus also added product diversity with its long-term care membership.

Given our new scale, we are well positioned to participate in a likely further expansion of the state's managed care program.

In November of 2010 our Celtic unit began offering affordable health insurance to small businesses in Texas.

This new program is called Healthy Texas.

In December of 2010, we began operating under an expanded behavioral health contract in Arizona.

Now, turning to the fourth quarter.

Premium and Service revenues grew by 7.5% in the fourth quarter, excluding the pharmacy carve-out I mentioned earlier.

Fourth quarter revenues grew by 12.1%.

Fourth quarter pretax earnings grew by more than 15% year over year.

Our consolidated health benefits ratio improved by 60 basis points year over year and 90 basis points sequentially.

Our third quarter earnings were mentioned.

On our third quarter earnings call, we mentioned our decision to exit two reform counties in Florida.

We exited these two counties on January 1, as rates were not adequate to cover medical cost trends.

During the fourth quarter, we focused on improving conditions in the remaining three reform counties, while providing network improvements in medical management initiatives.

These efforts became worthwhile as evidenced by our improved HBR.

The fourth quarter G&A rate increased 30 basis points year over year to 13%, due to expected start-up costs primarily in Mississippi and Texas.

We expected G&A leverage to be partially offset by start-up costs again in 2011.

But we do expect a minimum of 30 basis point improvement in 2011 over 2010 and we continue to leverage our infrastructure.

Over the long-term, as we continue to make investments and gain scale, we expect to become more efficient as we add new businesses.

Before turning the call over to Bill, I'd like to make some closing remarks.

A take-away message, if you will.

We are quite pleased with the work our management team has done to provide another year of solid performance.

We strive to manage our operations and balance sheet to maximize visibility and minimize volatility.

Based on the discipline of our portfolio approach, we choose prudently the states with which we work and the contracts on which we bid.

The predictability and reliability of our business is a function of our culture, as well as our information technology systems.

As I have said many times, our culture is grounded on the belief that we are managers, not victims.

We have made tremendous strides with our systems development, including predictive modeling, medical management tools, and our proprietary dashboard technologies.

These tools provide us with early warning signs, allowing us to rapidly respond and deal with corrections that are necessary.

They also give us confidence in entering multiple states at the same time.

Our discipline and predictability are equally important to our state customers as they make procurement decisions.

We remain focused on sustainable profitability and look forward to another year of success in 2010.

Thank you again for your interest in Centene and with that I'll turn it over to Bill.

Thank you, Michael, and good morning, everyone.

For the fourth quarter of 2010, Premium and Service revenues were $1.13 billion compared to $1.05 billion in 2009.

This represents a 7.5% increase between years and is a result of the following items.

First, an increase in membership of 5.2% between years.

This includes our acquisition of Citrus Health Care and the conversion of the remaining members from Access Health Solutions, both in the fourth quarter, and also the acquisition in June of Carolina Crescent Health Plan.

Second, the addition of an expanded service area for our behavioral health business in Arizona effective December 1st.

And third, rate increases received between years.

This year over year growth was mitigated by several factors.

The pharmacy carve-out in two states, which occurred at the beginning of 2010; the decline in membership of approximately 48,000 members in our Texas rural CHIP contract, as a result of the state adding a second vendor effective September 1st; and the decline in membership of approximately 60,000 members in Wisconsin, as our southeastern contract for BadgerCare was not renewed.

For the year ended December 31, 2010, Premium and Service revenues were $4.28 billion compared to $3.88 billion in 2009, representing a 10.5% increase between years.

As we have previously discussed, the pharmacy carve-outs in Indiana and Ohio reduced 2010 revenue by $185 million.

Excluding the carve-outs our revenues would have increased 16%, which is in line with our annual revenue growth rate target of 15%.

The $400 million increase in Premium and Service revenue between years consists of several factors.

It reflects a 13.6% increase in member months, which includes the additional members related to the acquisitions of Citrus Health Care and Carolina Crescent Health Plan, the conversion of the remaining Access Health membership in Florida, but offset by the decreases in membership for the Texas rural CHIP product and the Wisconsin southeastern area.

The increase also includes a composite rate increase of approximately 2.3% between years, but is reduced by the loss of revenues as a result of the pharmacy carve-outs.

Our consolidated health benefits ratio was 83.3% for the fourth quarter of 2010 compared to 83.9% in the fourth quarter of 2009 and 84.2% in the third quarter of 2010.

The 60 basis point improvement between years reflects the rate increases recorded in the fourth quarter and lower flu costs incurred in the fourth quarter of 2010 compared to the fourth quarter of 2009.

Sequentially, the 90 basis point improvement from the third quarter reflects the rate increases recorded in the fourth quarter and improvement in our Florida health plan HBR.

With respect to Florida, we have exited two of the reform counties effective January 1 and made changes in our provider network and re-contracted with certain providers.

Coupled with the September 1 rate increase, we are seeing improvements in the overall HBR.

And as a result of the membership additions in the fourth quarter in the non-reformed counties, we now have 53% of our Florida membership in non-reformed counties compared to 23% at last year-end.

The full year 2010 health benefits ratio was 83.8% compared to 83.5% for the full year of 2009.

The 30 basis point year over year increase was primarily due to the impact of a higher HBR in our Florida health plan, offset by lower flu costs in 2010 compared to 2009.

Our general and administrative expense ratio for the fourth quarter of 2010 was 13.0% compared to 12.7% in the fourth quarter last year and 12.2% in the third quarter of 2010.

The increase in the G&A ratio over last year and sequentially reflects start-up costs, in particular for Mississippi and Dallas STAR+PLUS, and additional variable compensation expense.

The general and administrative expense ratio for the full year 2010 was 12.8% compared to 13.3% for the full year 2009.

The 50 basis point decrease in the ratio primarily reflects the leveraging of our expenses over higher revenues, partially offset by our expansion costs.

Our fourth quarter investment and other income was $3.3 million, a decrease of $0.6 million from last year.

Our full year 2010 investment and other income was $15.2 million, a decline of $0.5 million year over year.

Both the fourth quarter and full year declines reflect the continued low level of interest rates.

Interest expense was $5.5 million in the fourth quarter of 2010 compared to $4.1 million for the fourth quarter of 2009.

Interest expense for 2010 was $18.0 million versus $16.3 million in 2009.

The increases between years reflect higher borrowing levels and the effect of capitalizing interest during the construction period of our new corporate headquarters development.

And the interest capitalization for that ceased when the building opened July 1st.

Excluding the amounts attributable to non-controlling interest, our fourth quarter tax rate was 40.0% compared to 36.7% in the fourth quarter of 2009.

Our full year 2010 tax rate was 39.7% compared to 36.2% in 2009.

The increase in the effective tax rate was primarily related to a decrease in tax exempt interest and an increase in state income taxes, as we no longer receive a tax benefit from net operating loss carry-forwards in the state of Georgia.

Effective July 1st the state of Georgia replaced the state income tax with a premium tax for Medicaid managed care organizations.

Our diluted earnings per share for the fourth quarter were $0.50 compared to $0.53 a year ago.

For the year, our diluted earnings per share were $1.80 in 2010 compared to $1.94 in 2009.

The 2010 results reflect the dilution from the additional shares issued as part of the stock offering in the first quarter of 2010.

At December 31, 2010, we had cash, investments and restricted deposits of $1.07 billion, including $1.04 billion held by regulated entities and $31 million held by unregulated entities.

Our subsidiaries had aggregate statutory capital in surplus of approximately $516 million compared with the minimum aggregate statutory requirements of $308 million.

We have estimated our risk based capital percentage to be in excess of 350% of the authorized control level at December 31, 2010.

In January, we refinanced our revolving credit agreement with a five year, $350 million unsecured revolver.

Additionally, in December 2010, we refinanced the construction loan related to our corporate headquarters development with an $80 million, 10 year mortgage note.

The mortgage note is non-recourse and bears interest at a 5.14% rate.

At December 31, 2010, our total debt was $331 million and our debt to capital ratio was 29.3%.

Excluding the $80 million non-recourse mortgage note, our debt to capital ratio was 23.9%.

Our medical claims liabilities totaled $457 million at December 31, 2010, representing 45.6 days in claims payable, which is in the middle of our 43 to 48 day targeted range.

This is a 1.5 day decline from September 30th and reflects the impact of an increase in claims received electronically and a 1.4 day decrease from third quarter to fourth quarter in the average time from when the service is provided to when payment is made, which is reflected in the decrease in our period-end inventory number.

This level also reflects the effect of not having any new plans starting up in the fourth quarter.

During the initial periods of operations for new health plans, such as Mississippi and Illinois, we may see an increase in the days in claims payable for a certain period of time.

We ended the year with cash flow from operations of $169 million, which is 1.7 times earnings.

For the fourth quarter, our cash flow from operations was $195 million.

At December 31, 2010, we received advanced payments of $117 million compared to $92 million at last year-end.

Factoring out the changes in the timing of payments for both receivables and unearned revenue, our cash flow from operations in 2010 is $167 million, still 1.7 times earnings.

I would now like to reiterate the 2011 financial guidance that we announced in December.

We expect Premium and Service revenues of $4.9 billion to $5.1 billion and earnings per share from Continuing Operations of approximately $2.00 to $2.10.

We are guiding the health benefits ratio to approximately 84% to 85%, the consolidated G&A ratio to 12.0% to 12.5%, and diluted shares outstanding of approximately 51.5 million.

We expect to have a higher level of business expansion costs in the first and second quarters, reflecting the February 1st start date for Dallas STAR+PLUS and the anticipated second quarter start date in Illinois.

As discussed on our guidance call in December, we estimate that we will incur $0.08 to $0.12 in start-up costs in 2011, up to half of this in the first quarter.

I also would like to mention that we are reviewing our classification of medical costs in light of the NAIC's medical cost definition developed in 2010.

It is possible that we would reclassify certain costs that we currently classify as general and administrative costs to medical costs.

Any such change would be done for the first quarter, with prior periods reclassified to be consistent.

Operator, you may now open the line for questions.

(Operator Instructions).

Ken Lavine from UBS.

Just had a question on the new business ramps.

So with state budgets being what they are I would assume that would mean that states undergoing managed care expansions are placing even more emphasis on achieving year one savings.

How does that change the trajectory of the earnings contribution ramp from new business?

Would that push it out relatively to what Centene had traditionally seen in the past?

And if so, how would actual soundness come into play here?

Jesse, would you take that call?

Sure.

I think the premise that we have for all of our conversions, all the states we look at that are converting from fee for service into a managed care setting, there's going to be a series of actuarial assumptions of what are the implications of those changes.

The changes in trend, changes in absolute savings, and I think, Ken, what your question is around kind of the absolute savings in year one.

We would not anticipate given the budget issues, states are going to want to achieve savings as quickly as they can, we would not expect that to change the actuarial soundness of the rate that would be developed for a particular market.

So we would not anticipate having a changing the trajectory, if you will, from an earnings perspective.

All of these changes are going to take time to influence member behavior and things along those lines and so we expect to have a reasonable starting point and expect to continue to improve our earnings power over the course of the contract.

Okay.

Great.

Thank you.

Chris Rigg from Susquehanna.

I guess my first question is with regard to Georgia.

Has it been formally announced that the ABD population is going to be included in the RFP?

It is not at this point in time.

There's a new administration.

There's a new director of Medicaid and they're sorting through just what they intend to do.

And does that impact when we're expecting the RFP at this point?

We can't say with any absolute certainty, but there are some indications that they want to try and think about it, work through it very methodically.

We should have more color on that over the next quarter or so.

My understanding was that that could be out as soon as this month, February.

Is that no longer the case?

Well, I learned a long time ago that states and their timing can be very unpredictable.

From what we're hearing and seeing, it's not expected in that time frame.

Should be later.

Okay.

And then do you guys have any initial thoughts on the Florida budget proposal from yesterday?

Well, as I said earlier in my opening comments, it's very early.

There's a lot of iterations it goes through.

You have a new administration.

You have some new individuals working through it.

And we're confident that they want to do the responsible thing, because some of these states as they work through it, Georgia being one, they're seeing where managed care cost structures and the plans that they have now working on it are really delivering for them.

So I expect they'll do what they can to work with us.

Jesse, you want to add anything to that?

No, I think that's accurate.

We expect to end up in kind of the right place with respect to the Florida budget.

Okay.

And lastly, obviously the pipeline of new business is substantial at this point.

You guys already have existing footprints, sizable footprints in Georgia and Texas.

Can you give us a sense for your overall capital position and whether you may need to raise some money to potentially meet the needs of the new business coming up?

I'll start that, ask Bill to jump in here.

We did the offering.

You heard our debt to cap is in -- when you net out the building, which is non-recourse, it's in the 23% range.

And we have a revolver in place.

We have the capability to do bonds when and if we think it's appropriate.

So that's the type of thing, as you move through it, you make decisions.

We're going to keep a strong balance sheet but Bill, would you add anything to that?

We have strong cash flow generated during the year.

We have dividends from subsidiaries and so, I think at this point in time we believe we can adequately fund the growth and capital that's needed from the existing states that we have that are growing and some of the new states that we're getting into over the next 12 to 24 months.

I think as we've talked about, the fact that the medical loss ratio tends to be predictable and stable.

It avoids any sudden surprises where you need a sudden influx of capital short-term.

So we can do our cash flow planning.

Okay.

Thank you.

Tom Carroll from Stifel Nicolaus.

Just wanted to come back to the budget issue again and certainly there's a lot of moving pieces and this is not the first time we've seen budget issues before at states, but I guess is it fair to assume at this point that given the magnitude of some of the commentary out of the budgets that impact your markets, Texas and Florida here just yesterday, is the scenario to think about right now some type of lower revenue per member per month, but that margins stay about the same?

Is that how we should think maybe about modeling?

Yes.

When you think about modeling, and once again Jesse and Bill can jump in as well, but when you think about modeling it's really a case that we have seen historically the low single digit.

We've been able to maintain our margins and having the good sense of what the medical cost trends are and the ability to manage that.

We're working with the states.

We're showing them going back to our original trademark margin protection programs and other programs to help them.

I think it's safe to say we can operate within those levels and maintain margins.

Bill, anything you want to add?

Well, I think the states are trying to deal with their budget issues by both looking at having lower rate increases and provider cuts and combination of those things.

I think your point is correct in the sense that we would expect to retain the same margins that we're currently running, whether there's a slight decrease in a PMPM cost, that certainly could happen if there's fee cuts on the provider schedules, but overall it's something that, quite frankly, we've been dealing with for the last couple of years and we just expect that to continue.

And then just a quick follow-up question on your Arizona LTC arrangement with Pima.

Is that something that over this year potentially could start transferring to a more full risk arrangement, because I think you said it's non-risk at this point?

Jesse?

As we noted in the release, we entered into, beginning of this year we entered into an administrative arrangement with Pima Health Systems in support of their ALTCS contract in Arizona.

So that is under the existing contract.

The contract is being reprocured currently.

And we will be bidding under the new contract in the state our existing business and potentially new business under our Bridgeway platform in Arizona.

But will the funding arrangement change at all or will it maintain its non-risk funding for the entire year?

What I am saying, Tom, is this arrangement is for the existing contract, which expires as part of this reprocurement.

September 30th.

We will be bidding for the regions that we intend to bid in Arizona, which will be on a full risk basis.

Yes, I got it.

Okay, thank you.

Josh Raskin from Barclays Capital.

On the Florida budget, I know you guys made a couple of comments on that, but was there any assumption of -- was it Medicaid managed care expansion in that budget?

Jesse?

We're still working through our internalizing the budget right now, I would say, Josh, as we're looking at the numbers.

So I think as we're -- I don't know if we can speak [be] on behalf of the budget itself.

I think our understanding and expectation is when we look at Florida there will be expansion of Medicaid managed care in Florida.

Typically we've seen this going back 10, 12, 15 years, that when states get in trouble financially, they tend to expand the managed care programs as a way to generate some of the funds they need to keep it strong.

So I would expect to see some expansion, not just Florida potentially, but all the states.

Right.

I apologize.

I know it's a little bit of an unfair question since the budget came out yesterday afternoon, but I was just curious if you guys had seen anything implicit.

Second question.

Obviously a lot of growth sort of starting to come in.

You talk about the start-up costs and got reform in the future.

What's a reasonable medium term after 2011, what's a good run rate in terms of your expectations around earnings?

I know you've talked about that mid-teen to high teens number in the past.

Should we think about this entering a period of maybe even growth above those levels for a couple of years or do you feel more comfortable just you'll reinvest what sort of overage you can do?

Bill.

I think our objective is to grow the bottom-line at the same rate or better than the top-line.

We sometimes have to pick up the initial start-up costs before we start generating revenue, which sometimes can throw that off a little bit, but in general we would expect that as the larger we grow and the more of these things that we have, we're able to absorb them within the normal numbers and maintain the margins.

So we would expect that we should be able to grow the bottom-line in the same or greater percentage that we do the top-line.

I think another way to look, another factor you have to take into account is when the plan starts.

If it starts in January, you have the full year to work through and start to normalize it.

If it starts in October, November, then you'll see for the year the impact of that because you don't have the full 12 months to work through it.

But as you can see, we had a slightly higher G&A ratio in the fourth quarter of 2010, which reflected the fact that Mississippi started on January 1st and Dallas STAR+PLUS started on February 1st.

So we had to have the staff on hand, ramped up, ready to go in advance of that.

Just one thing that I would add is as, Josh, what you're talking about is our kind of the run rate revenue and earnings growth on a go-forward basis.

I think, as Michael alluded to before, the timing on these new opportunities and when they actually go live and the implications of that on revenue and earnings is unpredictable enough that I would not change from our 15% revenue and earnings growth targets we may well see depending on timing things move.

We have --

[It might be] a different number.

If you look at the track record of winning RFPs, look at how we've done within our existing states.

[Even though] our systems they even give the states products that people hadn't thought about, when we first did foster care, the Bridge product up in Massachusetts.

It's easy to say there's $20 billion out there.

There is and maybe more.

And we have no reason to believe we won't get more than our fair share of that.

Okay.

That's helpful.

And then just last question.

I think you mentioned that you were thinking about reclassifying some of your admin expenses to medical costs as per that NAIC definition.

Is there a sort of logistical reason to do that?

Is that sort of stat filings for you?

Obviously, MLRs aren't an impact.

I'm just curious what's driving that.

We're looking at that right now.

We'll make a decision in the first quarter.

I think that to the extent that we have more on an apples-to-apples comparison between companies if they have a similar classification of medical costs, we think that's a plus.

But a change for just changing is not something that we're interested in doing.

So we're seriously reviewing that right now.

I think when we work with multiple states it makes it easier for them to understand the apples-to-apples.

So, it's as Bill said, we'll work through it.

Got you.

Has there been sort of an external force that brought that to your attention or is this is something you guys have thought about internally?

Internal.

Okay.

Thank you.

Scott Green from Bank of America-Merrill Lynch.

So, a couple on the Healthy Texas program.

It's a new example of working collaboratively and closely with the state.

Is there any sense of enrollment expectations for the year?

And does it cover just your Medicaid geographies or is it state-wide?

Yes, Scott, this is Jesse.

I'll take that.

So we won't provide any specific enrollment guidance.

I would say that this is a new program and we've got a standing start beginning in the fourth quarter of last year, so we would expect a ramp of membership as we roll out the program.

And we have the opportunity to expand that across the state, but we are not focused on a state-wide presence at the present time.

Okay.

So it's more where you currently operate today at this point?

Yes, we're focused on -- there's some overlap with our existing markets.

It's a different product, so we're targeting regions that we think are appropriate for that product, which includes some of our existing markets and some other markets.

Okay.

And you won the contract through an RFP, is that right?

That's correct.

Okay.

And then any sense of the status of the final Texas RFP at this point?

Are you chalking the delay up to normal government delays at this point or is there any reason to believe the state's considering significant changes to scope or expansion?

Yes, I think we don't know the full extent right now.

I think what we understand is that there were -- the state has taken into account the comments that they received as they went through the draft RFP.

So we do not anticipate fundamental changes in either content or timing.

Mark, you want to add anything to that?

No, I think that covers it.

Okay.

And then lastly, any willingness to offer an update on how flu is trending versus your expectations?

Is it within the ballpark of normal at this point as you see it?

We'll ask Mary Mason, our Chief Medical Officer.

Yes, in the 2010, 2011 season appears to be a very typical flu season.

Started to see, as we would expect, some slight increases in November, December, appears to be leveling off January, February, so what we would expect.

Okay.

Great.

Thank you.

Brian Wright from Citadel Securities.

Who is responsible for the claims run-off from the Citrus acquisition?

The seller is responsible for claims run-off.

Great.

Thank you.

Carl McDonald from Citigroup.

Could you give us an update on where South Carolina is in the process of phasing out primary care and also remind us what you have in the guidance for South Carolina this year?

Yes, they're working on beginning the roll-out of managed care for the remaining 95,000 or so members who are in fee for service.

We expect that to begin in March.

And we've incorporated into our guidance our approximate share of that new membership.

Great.

Thank you.

(Operator Instructions).

Actually, there are no more questions at the present time.

Do you have any closing remarks?

I would like to thank everybody for coming on the call and look forward to talking to you about the first quarter results in April.

Thank you.

Thank you.

That does conclude today's teleconference.

You may now disconnect your phone lines.