Molina Healthcare Inc (MOH) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Molina Healthcare third quarter 2007 conference call.

(OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded today, Thursday, November 1, 2007. It is now my pleasure to turn the conference over to Juan Jose Orellana, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Dave. Hello, everyone. And thank you for joining us. The purpose of this call is to discuss Molina Healthcare's third quarter financial results. The company's earnings release reporting its results was issued today after the market closed and is now posted for viewing on our company website.

Before we get started, I would like to thank everyone who attended our fall Investor Day in New York City. And we look forward to seeing you again at upcoming conferences and meetings.

Now on the call with me today are several members of our executive team, Dr. Mario Molina, John Molina, Terry Bayer, and Joseph White. Dr. Siegel will be sitting in today for Dr. James Howatt, our Chief Medical Officer, who is unavailable today as he is visiting our new Missouri health plant. After the completion of our prepared remarks, we will open the call to take your questions.

I would also like to remind you that our comments today contain numerous forward-looking statements that are intended to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act. All of our forward-looking statements are based on our current expectations and assumptions that are subject to numerous risks, uncertainties, and other factors that could cause our actual results to differ materially. A description of such risk factors can be found in our 10-K annual report and our 10-Q quarterly reports filed with the Securities and Exchange Commission, which can be accessed under the Investor Relations tab of our company website or on the SEC's website. All forward-looking statements made during today's call represent our judgment as of November 1, 2007. And we disclaim any obligation to update such statements.

This call is being recorded. And a 30-day replay of the conference call will be available over the internet through the company's website at www.molinahealthcare.com. I would now like to turn the care over to Dr. Molina.

Thank you, Juan Jose. And a very pleasant good evening, everyone. Today, Molina Healthcare reported solid third quarter results. This was a quarter in which all of our health plans demonstrated improvements in different areas. And the execution of our business strategy continued to align with the directions mapped by our strategic plan.

Only a few things have changed since we held our Investor Day in mid-September. Therefore, my remarks today will focus on providing a brief update on our accomplishments for the quarter and how these accomplishments related to our strategic plan. As we have done in previous earnings calls, John will provide an overview of our financial results during his remarks.

For those of you who attended our Investor Day in September, you may recall that our strategic plan calls for five key areas of focus -- quality, growth, financial strength, customer service, and compliance. I will briefly review our recent accomplishments in the context of some of these strategic areas.

First, as to quality, I speak for everyone at Molina Healthcare when I say that we are especially proud that for the third year in a row, all of our eligible health plans have been ranked by U.S. News & World Report and the National Committee for Quality Assurance among the country's best Medicaid health plans. The rankings are based on a thorough review of nearly 800 Medicaid, commercial, and Medicare plans. The rankings assess each health plan in three major data categories -- consumer experience, prevention, and treatment. In addition, our California health plan recently earned an excellent quality accreditation status from NCQA. As a result of this achievement, all of our eligible health plans now hold excellent quality accreditation status.

The second strategic area is growth. Our objective is to achieve consistent and measured growth through the expansion of existing markets, acquisitions, and entry into programs that are consistent with our mission. Early in September, we announced the signing of a definitive agreement to acquire St. Louis, MO, based Mercy CarePlus. This morning, we issued a press release announcing that the transaction is now closed. This acquisition helps us to meet our goal for diversification as we believe our Missouri plan is poised for both near and long-term growth. Mercy CarePlus is a Medicaid-only managed care plan with a contract running through June of 2009.

Starting in 2008, the State of Missouri intends to expand mandatory Medicaid managed care to 21 additional counties, where approximately 46,000 Medicaid beneficiaries reside. Mercy's strong roots in the community, its existing membership base of approximately 67,000 members, and most importantly its dedicated and capable staff, will provide a solid footing for growth.

I would now like to discuss our Medicare expansion. As you may recall back in 2005, we expressed our intention to participate in Medicare contracts with CMS. Today, we offer Medicare product in California, Washington, Michigan, Nevada, and Utah as a Medicare Advantage Special Needs Plan, or SNP. Our SNPs are focused on serving only the dual eligible population, the beneficiaries eligible for both Medicaid and Medicare.

In January, we will begin offering our SNP product in New Mexico and Texas as well. In addition to our SNP product, we will also begin enrolling Medicare members in a new full-service Medicare product in January of 2008. This additional product will enable us to enroll individuals that are not dual eligibles but who qualify for Medicare. Low-income Medicare beneficiaries face many of the same social and healthcare access challenges that affect our elderly Medicaid patients. We feel that both our Medicare products allow us to broadly serve the low income population with which we are very familiar.

The new product will be available in the seven states in which our SNP product will be available. And marketing efforts for both products are underway. We continue to build on previous success to enhance the company's financial position. Our approach to achieving financial strength is rooted in the belief that we must be careful in the management of our financial resources. The money we spend to provide care to our members comes from taxpayers. We take our responsibility to be stewards of these public funds very seriously. To that end, we have established a solid track record for administrative efficiency and quality medical care.

Financial strength is often closely tied to our growth and quality objectives. A reputation for quality is essential to our revenue growth, which in turn adds to our financial strength. A good example of how these elements of our strategic plan interact can be found in the Washington Medicaid integration partnership, a demonstration project aimed at meeting the diverse needs of the aged, blind, and disabled population.

During our Investor Day, Jim Howatt, our Chief Medical Officer, led a discussion of this project. I think it serves as a good example of our strategic plan in action. There are three elements here that are important to address. First, we were selected by the State of Washington, who was seeking a reliable partner to explore healthcare options for the elderly, blind, and disabled.

Second, we jointly developed a new approach to care and care coordination for this population. The experience we have gained will help us grow in the future as other states look to innovate and provide effective and economical means of care for their ABD populations. The success of this program was externally validated by the Center for Healthcare Strategies. And the results can be found online at chcs.org.

And third, our growing experience with the ABD population gives us confidence that we can provide care to this group at acceptable profit margins. In fact, we currently care for approximately 90,000 ABD patients. The takeaway is that by strategically partnering with our customers, delivering innovative solutions, and leveraging the lessons learned from initiatives deployed across our different health plans, we are fostering a linkage between our strategic goals of quality care, growth, and financial strength.

Another area of strategic focus is compliance. As stewards of public funds, one of our priorities is to maintain an infrastructure that promotes and facilitates effective oversight of our operations. We adopted this approach ten years ago. And it is part of our corporate culture. Compliance, of course, is a dynamic and ongoing process. And our attitude is that there is always opportunity for improvement.

We have a corporate compliance plan. And each of our health plans has its own dedicated compliance staff. We believe this functionality also facilitates our ability to meet new requirements that can arise in a changing business environment and has been an integral component of our success.

Before I turn the call over to John, I also want to mention that in the third quarter one of our directors, Wayne Lowell, resigned from our board. Wayne stepped down to focus his efforts on his new role as the Chief Executive Officer of San Antonio-based WellMed. We would like to thank Wayne for his leadership and his contributions to Molina Healthcare over the past five years as both a consultant and a director and wish him the best in his new endeavor. Congratulations, Wayne.

And now I would like to turn the call over to John.

Thank you, Mario. As Mario noted, results for the third quarter of 2007 showed a substantial improvement over 2006 third quarter results with a 42% increase in net income year over year. Specifically, net income for the third quarter ended September 30, 2007, was approximately $17.5 million, or $0.62 per diluted share. Our 2007 third quarter results include the benefit of higher enrollment in our Ohio and Texas health plans and a lower consolidated medical care ratio.

Also, during the third quarter of 2007, our New Mexico health plan received a 5% premium increase effective July 1, 2007. With respect to Michigan, we expect rates to be announced in the fourth quarter of 2007. Rates for both Ohio and Washington are not finalized but will have an effective date of January 2008.

Premium revenues were $628 million for the third quarter of 2007, an increase of $116 million, or approximately 23%, over premium revenues in the third quarter of 2006. The increase in premium revenue was mainly due to our membership growth in Ohio and Texas. Excluding Indiana, membership increased 11% year over year. We did experience some modest growth in our Medicare population, where the premiums are much higher when compared to Medicaid.

Our medical care ratio decreased to 83.7% in the third quarter of 2007 from 84.1% in the third quarter of 2006. This is an improvement of 40 basis points year over year and a 140 basis point improvement over the prior quarter ended June 30, 2007. This improvement comes from the seasonality associated with the third quarter as well as a few other components, such as stable utilization, lower medical care ratios in the Ohio and Texas health plans, and the termination of operations in Indiana, which ran a 103% medical care ratio in the third quarter of 2006.

Our general and administrative expense ratio was flat year over year. G&A expenses, including premium taxes, were $74 million for the third quarter of 2007, representing about 12% of total revenue, as compared with $61 million for the third quarter of 2006, which was also 12% of total revenue. Our core G&A, or G&A less premium taxes, decreased year over year to 8.4% in the third quarter of 2007, as compared with 8.6% in the third quarter of 2006, but increased from the second quarter of 2007, primarily due to increases to bonus accruals as the result of improved financial performance in 2007 and continued investment in our Medicare infrastructure.

The company remains consistent in its reserving methodology. Days in claims payable remained flat sequentially and year over year at 54 days. Claims in inventory per member have gone down both year over year and sequentially. As discussed in the past, claims data becomes more reliable over time. And we are now getting better visibility into Ohio and Texas medical claims. Nevertheless, we don't have the same degree of visibility as in our other health plans.

Cash flow from operating activities was $113 million for the nine months ended September 30, 2007, which is an increase of $46 million over the nine months ended September 30, 2006. This improvement is primarily due to increased consolidated net income, deferred revenue in the Ohio health plan, and the timing of payments for medical claims and benefits payable. As previously noted in our releases, with the company's continued growth, we expect cash flow to exceed net income. However, excluding the impact of growth, we would expect cash flow to approximate net income plus depreciation and amortization. The company finished the third quarter of 2007 with cash and investments at the parent company of approximately $24 million and on a consolidated basis with $556 million.

As Mario discussed, growth is an important component of our strategic plan and is confirmed by the completion of the Mercy CarePlus acquisition in Missouri. The purchase price of the acquisition was $80 million, which is approximately $74 million net of retained cash and is subject to certain adjustments. Again, the plan has a little over 67,000 members. 91% are TANF and 9% are SCHIP. Most of the members are in the St. Louis region. But Mercy CarePlus has a contract in all three regions in the state, Eastern, Central, and Western.

There are five key reasons why we are excited about growth opportunities in Missouri. First, 21 counties are undergoing mandatory managed care expansions in January 2008. Second, the July 2008 Medicaid sunset provision has been removed. Third, there is a proposal to gradually increase Medicaid reimbursement rates over the next four years to align the rates more closely with the Medicare fee schedule. $25 million has already been earmarked to increase rates to providers.

Fourth, Governor Blunt announced the Insure Missouri Public Health Program, which offers health coverage to additional uninsured Missourians starting in the first quarter of 2008. This expansion will enable more working parents to become insured. The program's healthcare delivery system represents an opportunity for HMOs and PPOs. And fifth, less than half of the total Medicaid beneficiaries in the State of Missouri have been enrolled in managed care. As previously disclosed, we expect Mercy CarePlus to add approximately $0.13 per share to our 2008 earnings.

On October 11, 2007, we completed our offering of senior convertible notes. We issued and sold an aggregate principle amount of $20 million with a coupon rate of 3.75% due in 2014. The proceeds from the offering will be used to pursue further acquisitions, expansion strategies, and for general corporate purposes, including working capital. We've used a portion of the proceeds to pay off the $20 million owed on our credit facility as well as fund our acquisition of Mercy CarePlus in Missouri.

Finally, in light of many of the improvements just discussed, the company is revising its previously stated guidance with an increase in earnings per diluted share for fiscal year 2007 from the $1.85 to $1.95 range to $1.90 to $2.00 range.

The following factors were considered when we revised our earnings outlook. Increased revenue resulting from the Riverside and San Bernardino County rate increases effective October 1, 2007; lower medical costs in Washington, New Mexico, and Texas; finalization of the Mercy CarePlus acquisition -- you may recall the guidance did not include Mercy CarePlus; the impact on investment income and interest expense of the company's recent issuance of $200 million in convertible senior notes, as well as the impact on investment income of declining interest rates; and the uncertainty surrounding any rate increase in Michigan as a result of budget issues.

The revised 2007 guidance does not take into account the increase to the company's interest expense that would result if proposed FASB Staff Position 14-a is adopted. Currently, only our recently issued senior convertible notes would qualify under this accounting treatment.

In the past, the company has issued guidance in January. We therefore plan to release any 2008 forecasts in January of 2008. This concludes our prepared remarks. Operator, we're ready to take questions.

Thank you, sir. (OPERATOR INSTRUCTIONS) And our first question comes from the line of Bill Georges of J.P. Morgan. Please proceed.

Thanks. Good afternoon. My first question is just could you go over your reserving practices with respect to new business? And just if you can give us metrics there or at least philosophically, how do you look at reserving for new ABD and SNP populations specifically?

Sure, Bill. A lot of our approach depends on what information is available at the time we're getting the new populations. So with respect to Missouri, for example, we've got claims data. So we'll be able to just pick up sort of where they left off. In brand new populations, we tend to use a 90% medical care threshold until the claims develop. And that's going to then be augmented a little bit by capitation arrangements or anything else that we may see early on. But generally speaking, we use a 90% medical care ratio, which is what we did in Ohio and Texas for the past several quarters.

And have you been taking any positive prior period development into results as a result of lower experienced costs in any of the jurisdictions?

We did in Texas this quarter.

Okay. Can you size that for us?

Sure. It was about $2.5 million. If you go back and review some of the previous calls from some of the previous quarters, we did say that we're pretty comfortable that beginning in the third quarter this year we would get enough claims development where we could evaluate that. And for Texas, the evaluation came in and suggested that we're a bit over reserved. Ohio's coming in on the CFC side pretty well in line. The ABD population is still a little small and a little early for us to really get a good development, probably another quarter or two away.

Okay. And could you just update us on the latest in California both with any rate increases and also what's going on, on the legislative front with healthcare reform?

Sure. In California, we got a -- got that right here, hold on -- 7.8% increase in Riverside and San Bernardino counties. It was flat in L.A. County. And San Diego already came in about 5% retroactive to July 1, 2006, and an additional 5% effective July 1 of 2007. And I think we've previously discussed that.

Okay. And last quick question then -- I guess you seem to be alluding a little bit to the regulatory investigation that's going on down in Florida. Have you been contacted by any regulators with respect to anything that's going on in the Medicaid business, yours or generally in the marketplace?

Bill, this is Mario. No, we have not.

Okay. Thanks a lot.

And our next question comes from the line of Greg Nersessian of Credit Suisse. Please proceed.

Hi. Good evening. My first question was just on the comment that you had made regarding the drop in claims inventory in the quarter. Could you describe that? It looked like a pretty big drop, at least year over year.

This is Joe White speaking. We just sped up the processing of some of our lower dollar claims through some system changes and processes we've made. If you look at the bill charges, which we supply, you'll see that that number that dropped isn't really so great. And again, that's reflective of just paying faster, particularly on smaller claims.

Okay. That was my question, the discrepancy there. So the difference is the cost per claim in inventory as of the September 20th, '07, date is much higher than cost per claim in '06.

Yes, and that's not receive driven. It's just driven by the way we're processing the smaller claims a little bit faster through system changes.

Okay. Great. And then my second question was it looked like there was a big jump in the growth of the special needs plans in the quarter. Two questions on that -- one, how should we understand that? Is there anything seasonal about that business in terms of the timing of the membership coming on? Or is that perhaps just a little bit more focus around the marketing and the outreach? And then secondly, I guess that membership can come on all year long. So when we think about some of the other Medicare plans that ramp up spending in the fourth quarter, is that a pattern we should expect from Molina? Or is your marketing and outreach more of a year-round type of spend?

This is Terry Bayer. What I think you're seeing in recent months is our education and development of our sales and marketing effort. I think you know we've proceeded with this very cautiously and conservatively to be sure that we were in full compliance. And as we brought the new product up, a lot of those sales activities are clicking and working out with the new hires we've been able to bring on. So you'll see that. And we'd like to see that continue going forward.

But in response to your question about the timing, if you recall in Mario's remarks, the special needs plans will continue throughout the year. So there should be no effective slowdown in that. Those full-dual eligibles are able to enroll throughout the year. But we are entering the open enrollment period, in fact have entered it for the 2008 full service Medicare plans. So there's a heightened level of activity now for effective 1/1. Then there'll be a period of time post that when there's a settling in and folks can still transfer among plans. And then for the MAPD, or the full service plan, that will hold until the next open enrollment period in the fall of 2008.

Okay. That was very helpful. And then last quick question -- just on the Mercy, should we think about Mercy Care accretion in the last quarter of this year being -- or at least the last two months -- commensurate with the full year run rate for next year that you've given us? Or will there be less of an impact in '07 or in 4Q07?

I'd say it's probably going to be about the same, Greg.

The same as your run rate for '08?

Correct.

Okay. Okay. That's it. That's all I had.

Thank you.

And our next question comes from the line of Josh Raskin of Lehman Brothers. Please proceed.

Thanks. Good evening. First question just on the percentage of cost that you guys are now booking under capitation, I know you guys have sort of a new category there. Is that a shift just simply because of the mix due to some of the M&A? Or is there sort of a fundamental underlying trend towards more capitation?

Josh, you're looking at year over year?

I'm looking at -- yes, year over year, you've got more --

Part of that's because of the growth in the central region in Ohio where we have a large capitation contract with a hospital and physician group.

Okay.

And then we didn't have much enrollment in the central region in 2006. And it really ramped up early part of this year if I'm not mistaken.

Okay. So same story, no real intentional shift towards capitation. It's just, again, new geography.

Correct.

Okay. Second question, the convert regs, the 14-a, have you guys put some thought into what the potential dilutive impacts would be if those regulations are passed?

Hold on. I'll let Joe answer that.

Yes, Josh, we've done some work on that. As you're aware there are many factors there, the biggest one being whether this proposed FASB staff position is going to be adopted. If it were, though, then we move into the -- if we have to take an estimate of what our market debt rate is, generally if we assumed a market debt rate in the neighborhood of 8.5%, it right now looks like the annual EPS impact would run about $0.12 negative.

Okay. And you guys made some sort of sense as to -- an estimate as to what the equity portion is. And that's sort of fully -- ?

That's correct. I mean, obviously, the equity portion shifts around depending on what you take to be your market debt rate.

Yes, okay. So $0.12.

Yes.

Sounds like it's -- and 8.5%. That's fine. And just --

Obviously, yes, right around 8.5%. And obviously, that would creep up a little bit more as the years past and more of the balance shifted into debt. Yes, that's an annualized effect for the first year.

Okay. Got you. And then obviously, we can ramp it up.

Yes, it'll move up a little bit as you shift the equity component up into debt.

Okay. Last question for me -- just you guys are growing. Obviously, the SNP plans are coming on. And we're certainly seeing the momentum that Terry talked about. And Mario alluded to an expansion of your MA options to beyond (inaudible). And so as you think about becoming as we think about maybe more traditional Medicare Advantage players, is that a real big focus area? And if you guys had opportunities maybe through M&A for expansion, is that something you would think about, becoming a more sizable MA player?

Well, Josh, we do intend to become a more sizable player in the Medicare market. Part of the reason for developing this additional product in addition to the SNP is we found that there were people who wanted to enroll with us who were low-income seniors but weren't dual eligibles. And so we had to turn people away. I think in terms of if you go back to our Investor Day and you talk about the pyramid, the base of the pyramid is always going to be the Medicare patients.

Medicaid, Medicaid.

Or Medicaid patients. And it will be the TANF patients, followed by the ABD, and then followed by the Medicare patients. They will -- the Medicare patients and the ABD patients will contribute an increasingly large amount of revenue. Right now, I think they contribute about 30% of revenue, even though they're only about 8% of our overall enrollment. And that pattern will probably continue.

The other thing we talked about is that at least in the foreseeable future, our goal is to have no contract account for more than 15% of overall revenue. So we continue to want to diversify by entering new states. Whether or not we would do a Medicare acquisition I think will depend on the circumstances.

Okay. So it doesn't sound like you guys are ready to get big in that through acquisition sort of in the short term. But it doesn't sound like your -- it certainly doesn't sound like you're ruling anything out in the future.

I wouldn't rule it out. But that's not the major focus in the short term. The short-term focus for us is to continue our diversification plans.

Okay. Perfect. Thanks.

(OPERATOR INSTRUCTIONS) And our next question comes from the line of Matt Perry of Wachovia. Please proceed.

Hi. Good afternoon. First question, it looks to me if I calculate the per member per month revenue that it increased pretty significantly in the third quarter. Was that -- I guess could you just discuss that a little bit? Is that rate increases? Or is that more the growth of the SNP product or kind of a mix between the two?

Matt, when you say it's grown, are you looking at year over year or sequentially?

No, yes, sequentially.

It has to do in part with some rate increases in New Mexico and the California, San Diego, and probably -- yes, full quarter of Ohio ABD.

You're also seeing the mix shift as we get more SNP and ABD members in with higher revenues.

Terry just reminded me, Matt, we didn't get all of our ABD patients in Ohio until about May and June. So the second quarter didn't have the full effect of all those ABD patients, whereas the third did.

Okay. And if I look out -- I mean, I know you're not giving '08 guidance. But if I think about what types of opportunities you have in your current markets to kind of grow your enrollment in '08, can you just give us -- I mean, you've talked about Missouri maybe doing some more mandatory counties in January. What other opportunities do you have in your current markets?

Well, I think one of our biggest opportunities is the Medicare. And if you go back to our Investor Day, the two things that we told everyone is that our goal is to reach a $4-billion revenue run rate by the end of 2010. And we expect to grow EPS by about 15% on average per year. So I think those are the kinds of metrics you need to think about for '08, even though we're not yet providing '08 guidance.

Have you discussed at all whether you'd be interested in the Tennessee Medicaid RFPs that should be coming out soon?

What I would say is that we discuss all these RFPs internally. We've got a business development staff that keeps track of all the potential RFPs. And we weigh our options just as we do the same with acquisitions. So we have our eye on all these things.

And then just last question from me -- you talked about some rate increases in California, Riverside, San Bernardino, and then I guess the previously discussed one in San Diego and then flat in L.A. Are there any other areas where you have members where you're awaiting a rate increase?

In California?

Yes.

No, because the San Diego and Sacramento are on a January 1 cycle. We go those. We've already talked about those.

And were any of the -- was that Riverside-San Bernardino rate increase retroactive at all?

No, the two-plan model counties, Riverside, San Bernardino, and Los Angeles are on an October 1 rate cycle. And they were not retroactive.

Okay. Thanks.

And our next question comes from the line of Matthew Borsch, Goldman Sachs. Please proceed.

Thank you. Good evening. This is actually Daryn Miller sitting in for Matt. Question on what you're seeing in the SNP market in terms of competition this year and expectations for increased competition with SNPs next year.

That's really a market-specific question. We're going into a couple of new markets. And we've taken a look across the board at our seven states. And honestly, it varies. There are a couple markets we're in where there's little, very little competition and we're positioned very well. It's not only whether we're competitive just with another player, but what our benefit design is also on the MAPD. So it's difficult. We definitely see some opportunities in a couple of the markets. And the others, we're setting realistic expectations for what it's like to be in a competitive market.

So we've been in this now for what, two years, Terry? And I think that the other thing is that we -- because we've taken a slow approach to this and we've been growing this organically, we've had the opportunity to learn a lot about how to market and how to develop the staff and also how to develop the benefits. So we're learning. And that's a good thing.

I'll add one other comment. We're entering the Texas market with both products on the SNP and the MAPD side. And we are obviously active in the Star Plus product there, which has ABD members on our rolls already. So one of our targets in that market will be to focus on bringing them over to the dually eligible Medicare-Medicaid plan as an example.

Great. Thank you. And while you're not providing '08 guidance, would you comment on your expectations for EPS growth?

Other than what I said that our aspirational goal is 15% on average per year over the next several years, no.

Thank you.

(OPERATOR INSTRUCTIONS) And our next question comes from the line of Brian Wright of Jefferies & Company. Please proceed.

Thanks. Good evening. Did you talk about absolute SG&A spend relative to the third quarter and the fourth quarter?

Yes, I think it was $74 million in the third quarter, Brian. But that includes premium taxes, which was around 21, 20 --

Brian --

[$22] million.

Third quarter '07 versus --

No, no. I'm just looking at as far as in the model for the fourth quarter from an absolute dollar spend basis. Are we kind of up a little bit in the fourth quarter, kind of flattish with the third quarter?

I would say probably flat, maybe slightly down. One of the things that impacted third quarter SG&A was, since the financial performance of the company has been improving, we added more to the bonus program.

How much was that in the third quarter?

$3.5 million.

So kind of ex-that's a good run rate for the fourth quarter.

Yes, probably.

Okay. And then what about membership in the fourth quarter? Is there any meaningful movement in any markets, maybe Ohio in particular?

I think if you look at our membership, it was basically flat quarter over quarter. I think that we're not anticipating large changes in enrollment, although we will be actively enrolling and are actively enrolling people in the SNP. So we may see some growth there.

Brian, and the other thing is just given that we closed a transaction today, you will see the $67,000 for Missouri appear on the P&L for the fourth quarter.

But on an organic basis, no meaningful movements.

It's consistent with the guidance, Brian.

Okay. And then, okay. That's good. Thank you.

And our next question comes from the line of Tom Carroll of Stifel Nicolaus. Please proceed.

Hi. Good evening. Follow-up question on the special needs plan discussion that you've been having and especially since you've seen some pretty decent growth there and are talking about it continuing into future years. It seems -- in doing some work on special needs plans recently, it seems that the, I guess, regulatory oversight -- that's probably a good way to put it -- of being approved as a special needs plan is going to get much more onerous as CMS, Congress, the various constituents look at trying to figure out what exactly is special about the huge growth in special needs plans that we've seen. And again, maybe it's too early to ask this question. But are you feeling any of that or seeing any of that? And perhaps, how are you baking that into your thinking about growth in SNPs going forward?

Let me just comment on that. One of the issues that Congress became aware of is that there were health plans that added special needs plans because of the -- loophole is an improper term -- but in essence, the marketing all year provides a different opportunity than being in the MAPD market. And I'll just contrast our position because we're in the SNP first targeting the dual-eligible population and then focusing on low-income beneficiaries. So we're in. We have our contracts approved. And doing service area expansions is not as difficult as it would be to enter the market. So in our view, our commitment to this population should raise no eyebrows or any additional scrutiny because we certainly weren't using it as a way to get around a limited marketing period.

Let me also add something, Tom. If you look at what we're doing with the MAPD special needs plans, our special needs plans are really designed for the dual eligible to take the Medicaid-Medicare beneficiaries and enroll them. We are not using this as a chronic special needs plan where we're doing disease specific. And I think those are the ones that are more of a problem. Ours is pretty generic vanilla dual-eligible MAPD SNP plan. I don't think we're going to have any problems.

All right. Great. Thanks.

And there are no further questions in queue at present time.

Well, that being the case, thank you all for joining us today. And we will talk to you at the next conference call.

Ladies and gentlemen, that does conclude the conference call for today. We thank you very much for your participation and ask that you please disconnect your lines. Thank you once again for attending. And have a great day.