Molina Healthcare Inc (MOH) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Molina Healthcare third quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Wednesday, October 28, 2009.

I would now like to turn the conference over to Juan Jose Orellana, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Todd. Hello, everyone, and thank you for joining us. The purpose of this call is to discuss Molina Healthcare's financial results for the third quarter ended September 30, 2009. 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.

On the call with me today are Dr. Mario Molina, our CEO; John Molina, our CFO; Terry Bayer, our COO; Dr. Jim Howatt, our CMO; and Joseph White, our Chief Accounting Officer. After the completion of our prepared remarks, we will open the call to take your questions.

I also would like to remind you that our comments today contain numerous forward-looking statements under 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 earnings release, our 10-K annual report and our 10-Q quarterly reports filed with the Securities and Exchange Commission. These reports 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 October 28, 2009, 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 molinahealthcare.com.

I would now like to turn the call over to Dr. Mario Molina.

Thank you, Juan Jose, and hello, everyone. The third quarter has been challenging for Molina Healthcare. Compared to the third quarter of last year, our premium revenue has grown by 16% and our membership has grown by 14%; but our profitability has suffered, due to rising medical care costs. Our financial performance continues to be affected by many of the same factors we had discussed during our second quarter conference call.

These factors include higher utilization of physician services; higher outpatient costs; and an increase in new members with their higher medical costs. In the third quarter, emergency room utilization increased, in part driven by a resurgence in the 2009 H1N1 flu epidemic.

As you know, President Obama recently declared a national emergency due to this novel flu epidemic. The H1N1 flu first became a factor in the second quarter. Flu activity declined during the summer months, but baseline flu activity remained elevated. With the return of children to school in the fall, we saw a resurgence of the H1N1 flu beginning in September and continuing through October.

As Dr. Michael Siegel discussed during the second quarter call, the H1N1 flu virus seems to disproportionately attack children and young adults -- the patient population that comprises the majority of Molina Healthcare's membership.

Public health officials are vigorously attempting to immunize the public, giving priority to high-risk groups such as children and pregnant women. We are doing our part to aid in this effort by administering the vaccine in our clinics in California and Virginia. However, the vaccine only recently became available in limited supply, while the H1N1 epidemic began in the second quarter of this calendar year.

On another front, the California health plan's results have had a continuing negative effect on our profitability, decreasing our consolidated earnings by $0.58 per share so far this year. Not all of our contracts in the state are performing poorly. The problems in California are best illustrated by the poor performance under our contracts in Los Angeles County and in Yolo County, and the Access for Infants and Mothers, or AIM program, in San Diego County.

We were required to participate in the AIM program beginning in 2005 as a condition of the approval of our acquisition of Sharp Health Plan's Medicaid contract in San Diego County. As hospital costs have increased, the premiums for the AIM program have not kept pace with these costs.

As a result, we have given state regulators notice of our intention to leave the AIM program no later than July 2010. Likewise, we have given notice of our intention to leave Yolo County, and we expect that notice to be effective no later than February 2010.

Our difficulties in Los Angeles County stem from net premium decreases to HealthNet in the face of rising medical costs. As a reminder, we operate as a subcontractor to HealthNet in Los Angeles County. The premiums we receive reflect the premium paid to HealthNet, less a portion they retain for certain administrative functions. As a result, we have not benefited from administrative leverage as our enrollment in Los Angeles County has grown.

Los Angeles County is very large geographically. It is roughly as large as the state of Connecticut. And if it were a stand-alone state, it would be one of the top five Medicaid markets in the country, based on enrollment.

We view the county as 10 micromarkets, and we are evaluating our performance in each of these micromarkets. In an effort to improve our profitability, we have selectively capped our enrollment in some markets and are restructuring our provider network in certain areas. As a result, there may be declines in our California health plan's enrollment over the next few quarters.

Our response to the challenges posed by these three contracts recognized the differing long-term potential of each contract. We are often asked why we have not chosen to simply exit the California market, with its budget problems and large deficits.

To answer this question, we must put California in its proper perspective. We have operated here for three decades and managed through difficult times. Traditionally, it has been a profitable market for us.

California is a large and diverse state and we operate in six of its 58 counties. If California were a country, it would have the eighth largest economy in the world, behind Italy, and ahead of Brazil and Russia. It is the state with the largest number of Medicaid beneficiaries -- about 7 million -- and has the second largest Medicaid budget in the country.

All of the current healthcare reform proposals under consideration by Congress include expanding the Medicaid program. The three states that stand to benefit the most from the proposed Medicaid expansions are California, Florida, and Texas.

If you believe, as we do, that there will be healthcare reform that includes Medicaid expansion in the future, it is of strategic importance for us to maintain a presence in California and these other states. Part of our strategy is to find a way to maintain a profitable presence in California, Florida, and Texas, as we await the implementation of healthcare reform.

The impact of the H1N1 flu epidemic is significant and may grow worse. In addition, we do not know what the effect of the usual seasonal flu will be this winter.

A report issued this month by the Nelson A. Rockefeller Institute of Government reports that 49 states saw total tax collections fall during the second quarter of 2009, and that overall state tax collections experienced a record drop of 17%. Therefore, as virtually all states face budget problems, premium rate increases are uncertain, as are optional Medicaid benefits.

With the cessation of federal stimulus package payments to states at the end of 2010, states may begin to tighten their eligibility requirements. All of these things could result in declining premium revenue. This changing landscape requires us to rethink our strategy. For the past few years, we have pursued an aggressive growth strategy. We have nearly tripled our enrollment over the past six years and have diversified geographically; but this has placed some pressure on our profit margins.

In the near-term, our number one goal is to improve our profitability. This does not mean that we will forgo opportunities to grow and diversify the Company; but we will increasingly view these opportunities selectively and only through the lens of improved profitability.

We will pursue those opportunities that yield profitable growth and diversification. We will continue to examine end market acquisition opportunities, as they have traditionally been the most accretive. We will continue to aggressively pursue opportunities to strip out unnecessary costs wherever we find them.

We will follow a network strategy that emphasizes more selective provider networks to both improve quality outcomes and deliver more cost-effective care. We will do all of this without sacrificing quality or abandoning our commitment to have all of our health plans accredited by the National Committee on Quality Assurance.

In the near-term, this may mean capping enrollment in some areas or exiting markets where premiums are inadequate to support our goals. Enrollment will drop in some markets as a result of this strategy. However, our goal is to build a stronger, more profitable organization, as we position the Company to take advantage of the long-term trends in healthcare reform.

In closing, I want to stress two things -- first, Molina Healthcare has been in this business for nearly 30 years. We have the experience and financial resources to succeed in this environment and emerge stronger than before.

Second, we remain committed to our mission and optimistic about our long-term prospects. We are a Company arranging for the essential healthcare services to a growing and vulnerable population. We have a unique opportunity and we intend to make the best of it.

I will now turn the call over to John, who will discuss the Company's third quarter performance in greater detail.

Thank you, Mario. Earnings for the third quarter of 2009 were $0.33 per fully diluted share. Net income was $9 million for the quarter, compared to $16 million reported for the third quarter of 2008. Our 2009 third quarter revenue increased 16% or $123 million, compared to the third quarter of 2008. Enrollment growth was very strong across all of our markets. Our enrollment now exceeds 1.4 million members and grew by 43,000 members or 3% in the third quarter alone.

However, these accelerated enrollment trends are adding to significant medical margin pressure. In absolute numbers, Florida and California added the most members during the quarter. However, on the year-to-date basis, Florida and California are also the two states exhibiting the highest medical care ratios. We believe that as we streamline our networks and transition to -- towards a more tightly managed organization, our financial results will improve.

As Mario noted, our Company has a long-term commitment to California and Florida, and we are taking steps to improve the profitability of our health plans in those states. This may result in a reduction in membership in certain markets, in connection with our restructuring of our provider networks and tighter utilization management.

Our medical care ratio increased from 84.6% in the third quarter of 2008 to 86.7% in the third quarter of 2009. This is an increase of 210 basis points year-over-year, and a slight 10 basis point decrease over the prior quarter ended June 30, 2009. Nearly half of this year-over-year increase can be attributed to the California health plan. As previously discussed, our primary concern is to improve the financial performance of our California health plan.

Our medical cost trends continue to be consistent with those identified by the Company during the second quarter of 2009. Except in the case of outpatient costs, where both utilization and unit costs have increased, our higher medical costs continue to be the result of higher utilization rather than higher unit costs.

The increase in medical costs was most pronounced in connection with physician and outpatient costs. Together, these costs increased nearly 9% on a per member per month basis, compared with the third quarter of 2008. Emergency room costs increased due to both higher emergency room utilization as well as unit costs. H1N1 and the costs associated with recently enrolled members also remained key contributors to the higher medical costs.

Now let me discuss what we are experiencing as a result of the 2009 H1N1 flu. As Mario pointed out, the disease attack rate is highest in persons under age 25. This group constitutes a significant portion of our membership, and is therefore more likely to have a greater impact on our results. The increased utilization trends resulting from the H1N1 flu season were most pronounced in California and Michigan, where 40% of our current enrollment resides.

It is important to note that since the H1N1 flu is a new phenomenon, it is difficult to predict what its impact will be on our fourth quarter results. However, during the third quarter, some of the key indicators we focus on to assess the severity of the flu season reflected dramatically elevated activity.

For example, at our Company-operated primary care clinics in California, we saw a 50% increase in visits for flu-related illness. Flu-related call volumes to our National Nurse Advice Line increased by nearly 300%, and pharmacy costs related to respiratory illness increased by 14% when compared to the third quarter of 2008.

The overall impact to our medical cost of H1N1-related activity was an increase of approximately 50 basis points in the medical care ratio, compared to the third quarter of 2008.

As discussed during the second quarter, the Company continues to observe the same trends reported by most of our peers, where providers are billing for more intensive levels of care than they were a year ago. Please refer to the table in our discussion of physician and outpatient costs in today's press release for year-to-date information.

We continue to excel at controlling our administrative costs during this difficult environment. G&A expenses in the third quarter were 10.7% of total revenue or $98 million, as compared to 11.1% of total revenue for the third quarter 2008 or $88 million. Core G&A expenses decreased 50 basis points to 7.5% of total revenue for the third quarter of 2009, as compared to 8% for the third quarter of 2008. The decrease in core G&A compared with the third quarter of 2008 was primarily due to administrative leverage as a result of premium and enrollment growth.

Cash flow remains strong. Cash flow provided by operations in the third quarter increased to $130 million, compared with cash flow used in operations totaling $20 million for the same period in 2008. This is an increase of $150 million. Excluding restricted investments, the Company had cash and investments of approximately $680 million. The parent Company had key -- free cash flow -- free cash and investments, excuse me -- of approximately $54 million, including auction rate securities with fair value of $17 million.

Our balance sheet remains strong with a current ratio of 1.68.

Now I would like to address our outlook for the remainder of 2009. Due to several factors that make it particularly difficult to predict the Company's short-term medical costs and earnings, including the 2009 H1N1 flu epidemic and the resulting Declaration of National Emergency by the President; higher utilization associated with new members; and state budgetary shortfalls, including the uncertainty surrounding the passage of the Michigan State budget, the Company is withdrawing those elements of its 2009 guidance related to its medical care costs and earnings.

All other elements remained the same as previously provided. Please refer to our press release for an outline of all elements that remain the same.

This concludes our prepared remarks. We are now ready to take questions.

(Operator Instructions). Daryn Miller, Goldman Sachs.

A question -- I just wanted to clarify -- your MCR year-over-year is up over 200 basis points. Did you say only 50 bps of that was due to H1N1?

That's right, Daryn.

Okay, thank you. The second question, was there any incentive comp reversal in the third quarter?

No.

Just thinking back to last year where we had an issue where guidance was actually lower and that happened, was there a reason why it wasn't lower this time?

Why what wasn't lower, Daryn? This is Mario.

Hi, Mario, sorry. Incentive compensation with the change in the outlook.

I think the difference -- Daryn, it's Joe -- I think the difference may have been, as I recall, last year, we probably had something on the books when we lowered guidance, whereas we didn't have anything accrued at this time.

Okay. So you haven't accrued yet for that? Okay.

Yes. That's correct.

And then a question, on the Florida MCR at 95%, is that -- are you accruing to a target there or is that what the state's running at? And just provide a little bit more clarity what cost element, if it is higher, what's driving that higher?

You know, Daryn, what's driving it higher than what we like and expect to see is that the patients are going through a transition phase from the MediPass to the full risk HMO. So as a result of that, we have to keep continuity of care; so certain drugs that are not on our formulary, we've got to continue to supply for a period of time. We expect over time that we'll bring that down below 90. But that is an actual number, it's not a target number.

Got you. That's specifically relating to that population that's transitioning, then?

Correct.

Okay. Thank you very much.

Josh Raskin, Barclays Capital.

A few quick questions. One, just talk a little bit about the timing and the recognition of these issues and why not preannounce the quarter -- I mean, it doesn't look like you guys are sort of even in the ballpark.

Josh, I think that the first two months of the quarter were running pretty well. We had some issues in the third month of the quarter, which brought the earnings down for the whole quarter. So there was really no reason or time to do the pre-announcement.

Okay. And then sort of following up on that, it sounded like the summer months were okay from a flu perspective and it picked up in September and October. If we assume 50 bps is about $4.5 million, and we make the assumption of something in the ballpark of $4 million in the month of September, do you think you'll be profitable in the fourth quarter?

This is why, Josh, we're not -- that's why we withdrew that element of guidance.

Okay. So it's tough to even know if you're going to sort of make money. I guess -- let me ask a different question then. What's differentiating Molina from some of your competitors, even in the state of California? Is it the clinics? Or is population or County mix? I'm just sort of curious why -- and certainly others have mentioned this; it just seems a magnitude for you guys seems to be particularly harsh.

Josh, this is Mario. I think it's a combination of things. Part of it, as we mentioned, has to do with the LA County contract where we are getting less than the full premium revenue, because HealthNet withholds a portion for administrative functions. A lot of it is driven by a higher hospital costs. And some of it has to do with some of these other contracts, like Yolo County, which we are exiting, and the AIM program, which we are exiting. So it's really a mix of all of those things.

In terms of what others are saying, I don't know. I mean, I don't know who else has reported in California and what they've said. But this is our experience. And as John pointed out, the first two months of the quarter, we were right on track with our guidance, and September was a very difficult month.

Okay, thanks a lot.

Greg Nersessian, Credit Suisse.

My first question was just on the timing of when you think you guys might update the guidance. Are you going to wait until you report the actual fourth quarter? Or is there going to be an interim announcement? What are your thoughts on that, I guess, right now?

Right now we're not planning to give guidance for the fourth quarter, if that's what you're asking.

So we won't know what the fourth quarter looks like until you actually report it?

Correct.

Okay. And no plans to do an investor day or anything like that, you could reschedule in January?

Actually -- excuse me, Greg, this is John -- we are going to have the investor day; I think right now, it's slotted for -- towards the end of January 20-something. And we give our outlook for the year at that point; we plan to do that.

But that would be before you report the fourth quarter?

Correct, as we do every year.

Okay. So you'll give -- okay. So, you'll give an update on 2009, obviously, then, when you're giving the 2010 guidance?

To the extent we have greater clarity on what's going on, yes.

Okay. A couple of other things, real quick. How much membership is in the Yolo and the San Diego programs you're getting out of?

Those books of business are pretty small but they are running significant losses. And that's why we're exiting. You're not going to see a big impact on overall membership, but you should see an improvement in profitability as a result.

Okay. And have you talked to HealthNet yet about the situation? I mean, is there a chance you might reassess that relationship?

We have regular ongoing conversations with HealthNet.

Okay. And then just last question. You mentioned that you're meeting with regulators on the -- has that happened yet? Have you started to talk to them yet? And what's been the response on the ER coding so far?

I don't think that we have met with any government agencies with regard to this yet. We're still gathering the data. We want to be very careful and very thoughtful about this.

Okay. So no sense of how the regulators are going to approach this upcoding issue that you've had to (multiple speakers) --?

No, but I do think it seems to be fairly widespread.

Yes, you're not the only ones that talk about it, so. Okay, thanks.

Carl McDonald, Oppenheimer.

I just wanted to get a better sense of how far along the spectrum the results in California are. So if you were to pull out the three counties that you highlighted, would the rest of the California business be profitable? Or is it just that these three counties are very -- losing a lot of money and the other counties aren't losing quite as much?

That's a good question.

Carl, it's Joe speaking. I think it's fair to say that the other counties are marginally profitable.

Okay, great. Thank you.

John Rex, JPMorgan.

How would you suggest handling the $7.8 million taxes payment that reduced revenues and drove the cost ratio in that quarter so far up. I mean, I assume that all relates to prior quarters, is that correct?

Hi, this is Joe speaking. It would relate to the contract year ending 8/31/09, plus obviously, the stub period started the new year in September. I think the best way to handle that is we break out premium and medical costs by state in the back of the earnings release. I would take the 9/30 year-to-date numbers there as a run rate. And I think (multiple speakers).

I mean, you know, what strikes me, though, is most of that didn't relate to the third quarter, the vast majority of it. So if I back out that impact, I end up with an MCR of something like 85.9%. So --

(multiple speakers) I would just caution you, to the extent that an adjustment to that doesn't relate to -- it relates to quarters before this; also much of that is driven by claims development in previous quarters too. There's a constant process of truing-up the amounts owed to Texas under the experience rebate.

So to the extent we might be going back and increasing or decreasing a portion of the rebate in prior quarters, where also that's driven by having to go back and increase or decrease our estimate of medical expenses for the quarter. So that's why I think (multiple speakers) -- go ahead.

Well, I guess, my point on this, though, is that but for that, you wouldn't have missed the quarter, essentially. I mean, that was -- that's the miss. When you look down the line items across the different markets, the sequential change in the loss ratios, frankly, for most of them was modest, many improved. You do that one, you're in an improved percent.

So, I guess what I'm struggling is -- so, what were you thinking you were going to do in the 3Q, then, if absent this Texas adjustment, you would have been running, you would have been running, you would have been in line, you would have actually made the quarter. Then what were you actually thinking? Because this actually looks like it would have been okay, absent that.

Well, there's an adjustment to Texas revenue every quarter based upon the development of the experience rebate. So I don't think it's correct to say that we anticipated no adjustment to revenue during quarter three when we set guidance.

You know, John, the other thing I would say is that most of the states are performing pretty well. You're right -- we have seen an increase in the flu across virtually all the states. It has had an impact, and I think that it probably is going to get worse because I don't think the flu season has peaked yet.

But for the most part, the other states are performing well. There are a few isolated problems. Clearly, California is having a big negative impact on our earnings and that has to be addressed.

The issue with Texas is somewhat difficult to deal with from an accounting standpoint, because as Joe points out, it's kind of a rolling number. But we think that we have a pretty good handle on that. And as he points out, going forward, if you use the year-to-date numbers as a run rate, you can kind of project what Texas is going to look like.

There are a few issues we've got to deal with. Some of them are clearly within our control. They have to do with contracting; they have to do with premium rates and network strategy. Some of them, like the flu epidemic due to the H1N1, and perhaps a second flu epidemic coming from the seasonal flu later in the year, are outside of our control.

But as I mentioned, I think the long-term prospects are good. There are some problems that have to be dealt with, but most of this are things that we can control.

Well, maybe for example, where would you have expected California to come in this quarter? So, it went up 50 basis points, from 91.7 to 92.3. Were you expecting that to improve a couple hundred basis points? Again, I'm just trying to find what was so out of line with where your head may have been.

You know, John, traditionally, the third quarter has the lowest medical care ratio. And as I think I pointed out earlier, the first two months, we were running along with what we expected. It really was a couple of factors. In -- largely in September, that, frankly, if you look out at what's happening with the flu season, the H1N1, we just don't know if that's going to continue to go up or if at some point, it's going to -- at some point, it's got to peak; but we don't know if that's going to peak in October, November or December.

And it's having a big, big impact on us because of our population. And frankly, the inability to tell is this going to be outpatient or inpatient-related.

So I would say that -- I'd echo Mario's points. We have a number of states that are doing well. California, we expect it to bounce back some and it didn't.

Can you just give me kind of magnitude -- what was the order of magnitude you expected? I'm just trying to get an idea of what was (multiple speakers)?

I don't want to go into giving projections by state, John but we have been working on the California issues, and other issues as well. I mean, remember, we talked in the second quarter about terminating the contract in Washington for basic health.

Now, that contract will run out through the remainder of the year; but it's a problem. A number of the contracts we've terminated in California, you have rolling termination dates. And so, one of the points that I wanted to make on this call is that when we tell you we're going to take an action, it's not immediate.

Some of these have 90, 120, 270-day notice requirements. So we can tell you that we're making a change, but this is a little bit like the battleship analogy -- this thing doesn't turn on a dime. I don't want you to think that we're asleep at the switch, but by the same token, some of these things do take time to see the results.

Okay. And you're saying we shouldn't think of this extra seven point -- this $7.8 million Texas payment for a run rate, also? Is that correct? Joe, is that what you said? (multiple speakers) I'm not sure if I understand why we shouldn't think of it ex- that, though.

Well, as John is wont to say, there are many factors in any given quarter that both work favorably and unfavorably in the results. And I think to attach it to any specific one is probably not the wisest approach.

Okay. Any detail on Michigan you can offer, your comments on Michigan? (multiple speakers)

What aspect of Michigan, John?

Well, I think that was just the one that you were citing specifically in terms of your --?

Oh, the problem in Michigan right now is that we don't know what's going to happen with the budget. We were told originally to expect a 4.5% rate increase and then the budget did not pass. It's been -- there's been a one-month extension. We could know by the end of this week, early next week what the budget situation is.

On the other hand, they may not pass the budget; we may not get a rate increase; they may modify provider rates; they may do another extension; it's really up in the air.

With California, we're sort of used to this. They never pass a budget on time, it seems; but this is a new phenomenon in Michigan. And as I pointed out, these states are under a lot of pressure and we don't know for sure what's going to happen. When the stimulus package money goes away at the end of 2010, the states are going to face tremendous pressure unless something is done. And we don't expect the number of people on Medicaid to drop much in 2010.

So all of these things taken together make it a pretty uncertain environment for us right now in the fourth quarter.

Okay, I didn't know if there was something special -- you had spiked it out kind of distinctly from others, and so I just didn't know if there was something else unique about the market that was on your mind. But --

It's mainly the budget issue and the fact that they're continuing to pay us at last year's rates, not the higher rates that we were told to expect.

Okay, thank you.

(Operator Instructions). Craig Silver, private investor.

Yes. I'd like to ask your opinion on this healthcare reform. What's not clear or maybe you can tell your thoughts on this -- public options being discussed. Is that good, bad, or neutral for our Company?

It's kind of a difficult question, Craig, but I think that for Molina Healthcare, it's really sort of neutral. I mean, what we basically do is contract with the government to provide healthcare. And we do it through the Medicaid program, the CHIP program, and the Medicare program. The private option that is being discussed would really -- or the public option that's being discussed is really an alternative for commercial plans.

So I don't know that it's going to have much of an impact on us and we've not really taken a position on the plan.

Okay. Second question -- you're showing a $10.9 million business purchase in the quarter. Could you explain what that purchase was?

This is Joe speaking. That's a combination of activity in three fronts. It's a true up on our purchase of our Missouri health plan back in the last quarter of 2007. It's a small acquisition in Laredo, Texas, to transition 9,000 members to the Company. And it's also a partial payment of an acquisition in Florida, as we transition members from HealthPass into our Florida HMO.

Okay. We also had an increase in our intangibles for the year, over $20 million. Was that also acquisitions or is there others?

Yes. Yes, the bulk of it being in Florida.

Okay. Because we're showing $21 million increase in intangibles, but our purchases of transactions is only $10.9 million.

(multiple speakers) There's an accounting twist to that. Essentially, the Florida acquisition is being accomplished in stages. So we've essentially got a payable to the sellers in Florida recorded that's not showing as an actual cash payment, that we had in the cash flow statement because we haven't released those funds yet.

Okay. Do we expect these acquisitions to prove our earnings? Substantially, or --?

Well, I think that the Florida acquisition is an ongoing process. It's not really going to change -- it's not a new thing that's going to change things much. The acquisition in Texas is small. And I think that we are doing that in conjunction with the expectation that we will be expanding through the Texas CHIP program in the fall of 2010 as a result of the RFP.

Okay. All right. And final question, it's very good that we're continuing to flow cash; it's good to see our cash balance grow. What's the possibility of starting to see a dividend for shareholders? I think that would open up our stock to some more mutual funds that need income.

You know, it's something that's been discussed in the past, but right now, I don't anticipate a dividend in the near future.

Well, it would be helpful for our shareholders. It would certainly open our stock up to more funds that are looking for, not just growth but for income.

In John and Mario, you're talking to two of the largest shareholders in the Company, and we would certainly benefit from a dividend. So we're aware of that.

Yes, well, you're also benefiting from restricted share purchases and other things that shareholders are not. So, keep that in mind.

Thank you.

Okay, thank you.

Tom Carroll, Stifel Nicolaus.

I was just thinking, this chart you have on page 5, the emergency room visits per 1,000, that showed the change year-over-year in the different levels. If there is 100 ER visits in a year on a kind of a normalized basis, how many fit into each of those buckets? And then what does this year look like? To get to (multiple speakers) [the quantity of] distribution?

I would say normal conventional wisdom is the bell-shaped curve. So, the level 1, if you look at -- for example, if you look at the American College of Emergency Physicians guidelines on this, a level 1 is a wound check. And a level 5 is a multi-system exam. So it's really a bell-shaped curve. Most of this stuff falls in level 3. And so that's why you can see why, given the changes we've outlined in the table here, why it's having an impact on our cost structure.

Yes, the distribution is skewing to the higher codes. And this is a new phenomenon that -- you know, we're working on it. It's a little strange.

Okay, thank you.

Well, that concludes our call. Thank you for joining us and we will speak to you at the end of the fourth quarter. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great rest of the day, everyone.