Molina Healthcare Inc (MOH) 2015 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Molina Healthcare third quarter 2015 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 call is being recorded, Thursday, October 29, 2015. I will now turn the conference call over to Juan Jose Orellana, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, George. 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, 2015. 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, and Joseph White, our Chief Financial Officer. After the completion of our prepared remarks, we'll open the call to take your questions. If you have multiple questions, we ask you get back in the queue so that others can have an opportunity to ask their questions.

Our comments today will contain 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, which are subject to numerous risk factors that could cause our actual results to differ materially. A description of such risk factors can be found in our earnings release and in our reports filed with the Securities and Exchange Commission, including our Form 10-K annual report, our Form 10-Q quarterly reports, and our Form 8-K current reports. 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 29, 2015, and we disclaim any obligation to update such statements, except as required by the securities laws. This call is being recorded and a 30-day replay of the conference call will be available at our Company's website, molinahealthcare.com. I would now like to turn the call over to Dr. Mario Molina.

Thank you, Juan Jose, and thanks to everyone for joining us on the call as we review our financial results and key accomplishments for the quarter. As outlined in today's earnings release, we continue to grow enrollment and revenue when compared to last year and last quarter while making progress on our long-term margin improvement efforts. In addition, we remain watchful of new business opportunities. For example, over the last three quarters we've announced six transactions. These acquisitions have afforded us new avenues to expand our current health plan business and add capabilities to our service offering. Since we covered a considerable amount of information at our last investor day in New York just last month, today I will primarily highlight a few recent developments and discuss some of the things that have changed since our presentation in September. John will address our quarterly financials in greater detail during his remarks. For now, all I have to say is that those results are very good indeed.

As of this September, nearly 18 million people have gained health insurance by signing up for Medicaid or the marketplace as a result of the Affordable Care Act. The uninsured rate has fallen from a high of 18% to nearly 11%. The lowest uninsured rate in 50 years. We at Molina Healthcare are doing our part to make sure everyone has access to care. Our enrollment has grown by approximately 1.5 million members to 3.5 million since January of 2014. Today we serve more than 0.5 million Medicaid expansion members and over 200,000 low-income marketplace members.

Our contribution to healthcare goes beyond the numbers of members we serve. Our most important contribution lies in our commitment to providing access to quality healthcare for our members. To that end, we have set about expanding and keeping the care capabilities that we bring to our members. We are focusing on quality outcomes, care integration, and measurable results.

During our investor day, we talked at great length about our acquisition of Providence Human Services. You'll recall Providence is one of the nation's largest providers of behavioral and mental health services with 6,800 employees, more of 80% are client facing, and operations in 23 states in the District of Columbia. The Company's broad national footprint is by deployed a local level, enabling it to effectively target specific needs in diverse geographies. As states continue to look for cost-effective strategies to manage the care of individuals with more complex healthcare and behavioral needs, we'll continue to see more states move toward the integration of behavioral health and medical services. We're excited about the opportunity to pursue these initiatives with our new capability and we look forward to bringing the skills, enthusiasm, commitment, and expertise of the providence team to our members. In the meantime, we remain focused on closing this transaction in the near future.

Given our recent acquisition activity, I wanted to remind everyone of our approach to M&A. In general, our acquisition strategy falls in to three categories. New markets, existing markets, and new capabilities. When we target a new market, our goal is to continue to diversify our geographic footprint by increasing the number of state contracts that we hold. Over the long-term, this allows us to leverage our administrative infrastructure across a broader revenue base and drive down costs. In an existing market our goal is to strengthen our competitive position and market share by pursuing bolt-on acquisitions. These types of transitions typically see higher accretion levels, and given our infrastructure in these markets, enable us to drive short-term administrative leverage and create long-term value. When evaluating a new capability or the enhancement of an existing capability or provider arrangement, our strategy is to strengthen provider alignment to ensure our goals align with our provider's goals, improving medical costs over time.

Our pipeline remains robust and we have continued to execute on our acquisition strategy. Integral health plan in Florida is a 90,000-member Medicaid plan operating in the Pensacola, Tampa, Sarasota and Ft. Meyers regions. This acquisition further expands our Medicaid footprint to 7 of the 11 Medicaid regions across the state. We expect the integral acquisition to generate approximately $250 million in annualized revenue and that the transition will close later this year. In Illinois, Loyola Physician Partners serves as a medical home for approximately 20,000 members in Cook County. This acquisition further expands our Chicago area footprint, complimenting our recently announced acquisition of MyCare in July. Loyola is expected to generate approximately $50 million in revenue on an annualized basis, and we anticipate that this transaction will close in the first quarter of 2016.

As I mentioned before, the integration process for in-market acquisitions benefits from our existing infrastructure and local presence. Because of this, the process requires minimal resources at the corporate level and allows for a significant portion to be completed locally. Our record number of acquisitions this year, while significant, has not diminished our focus on retaining existing business. In Michigan, for example, we currently provide services in 50 counties where approximately 1.3 million individuals eligible for Medicaid receive care. Our current enrollment, which includes members from the HealthPlus acquisition, is about 340,000 members across multiple lines of business. Earlier this month, the State of Michigan announced its health plan recommendations for their Medicaid program to begin January 2016. And we are pleased to announce that Molina Healthcare of Michigan was recommended for eight regions covering 65 counties.

Our dual eligible programs continue to drive up membership and premium revenue quarter-over-quarter with the majority of our states completing the passive enrollment process. Texas will complete passive enrollment this month, while South Carolina is still purely voluntary, with a passive enrollment date now set for April 1. As we near the end of the passive enrollment phase in these programs, it is important to understand that our focus shifts from enrolling new members to member retention. Last, I want to congratulate our New Mexico Plan President, Patty Kehoe, and the staff of our New Mexico Health Plan for being recognized at the [pinion] level by Quality New Mexico as part of its New Mexico Performance Excellence Awards. The Award recognizes organizations that show evidence of using systemic processes as a foundation to attain improved overall outcomes.

That concludes my commentary about the quarter. We continue to experience an exciting and extended period of growth. We continue to be well positioned for the future and I look forward to what that will bring. With that, I will now turn the call over to John for a look at our financial performance in the quarter.

As Mario noted from a financial perspective, this was an excellent quarter for Molina Healthcare. Net income per diluted share more than doubled to $0.77 this quarter compared to $0.33 for the third quarter of 2014. For the year-to-date, net income per diluted share was $2.07 compared to approximately $0.60 in the same period last year. Adjusted EPS for the quarter increased $0.89 per diluted share compared to just $0.48 during the same quarter a year ago.

Before I get in to the details of the quarter, I want to point out a couple of the most important takeaways from our progress for the first three quarters of 2015. First, top line revenue remains strong. Total revenue reached $10.3 billion for the nine months ended September 30, 2015. This is the second year in a row in which we have recorded more revenue year-to-date through September than during the entire previous year.

Second, we continue to expand our margins. Our net profit margin for the last six months was 1.1%, a 70 basis point improvement over the last year. Our margin improvement over last year has been driven by three key factors. Higher revenue, improved medical cost efficiencies, and full reimbursement of the Affordable Care Act health insurance fee.

As is usually the case, there are some moving parts in the numbers when looked at on a quarterly basis. So let me tell you how those parts fit together. First, we have now recognized all revenue related to Medicaid, health insurance fee reimbursement from January 2014 through September 2015. Our final HIF catch-up this quarter added approximately $25 million to pre-tax income for the quarters, $8 million which related to 2014. This amount was offset by $25 million in reduced revenue related to 2014 for medical cost corridors and profit limitations. The reduction in revenue related to 2014 is the result of a challenge as posed cost floors and profit limitations that are built around vague, ambiguous and poorly defined contract terms. We have several other cost floors and profit limitations to settle, so I don't want to imply that this issue is behind us. But we have started the process and with time will come more clarity. The important point to note is that these two items offset each other.

Next, our medical care ratio continues to improve year-over-year as we reported an 88.9% medical care ratio for the last nine months, compared to 89.6% for the same period last year. Absent the $25 million reduction related to the 2014 cost floor true ups, which I just mentioned, our third quarter medical care ratio would have been consistent with the first two quarters of this year. Our MMP plan, or Medicare Medicaid plan in particular, on a quarter-over-quarter basis saw significant improvement. We continue to benefit from administrative cost leverage which you need to look a little bit deeper in to the numbers to see it. If we ignore significant marketplace, broker, and exchange fees which weren't present last year, our G&A ratio was 7.4% for the third quarter of 2015. It is 7.5% year-to-date.

As a reminder, we do not provide quarterly guidance and do not change guidance unless there is a material change in our business. Therefore, we're not going to adjust the year-to-date guidance that we have previously given, and you should take nothing regarding our operations from that. Our results demonstrate that we continue to make progress toward achieving our 2017 margin goals that we have set for ourselves.

I want to mention that while we're not providing specific guidance for 2016 on this call, I want to make a few general comments regarding the marketplace. First, open enrollment period for 2016 is slated to start this upcoming Sunday, November 1. Our premium levels are competitive headed in to the enrollment window, and we believe the marketplace will continue to be profitable in 2016. Second, I want to point out that the drop in marketplace enrollment that we saw between the second and third quarters of this year is due to general attrition.

Unlike enrollment in Medicaid, marketplace membership does not grow or replenish throughout the year. Mario touched on our acquisitions earlier, so let me just add that three health plan acquisitions remain open and are anticipated to close in the fourth quarter of 2015 or in early 2016. Combined, these account for roughly 180,000 new members, or $300 million in new top line revenue from health plan operations on an annual basis.

Days and claims payable was flat sequentially, and the Company had cash and investments excess of $3.7 billion, including approximately $407 million at the parent. As we discussed during investor day, we anticipate cash outflows will accelerate in the fourth quarter, as we begin to pay for acquisitions that have closed and disperse accrued dollars related to Medicaid expansion corridors.

Finally, at our investor day in February, 2013, we set a goal to double the size of the Company from $6 billion in revenue to a run rate of $12 billion in revenue by the end of 2015. I'm pleased to report that as of the end of the third quarter we remain on course to exceed that goal. We've achieved this by continuing to emphasize, providing access to high quality care, for operating in the right states, pursuing the right programs, building the right provider networks and hiring the best employees. This past year we began shifting our focus toward expanding our margins. And as you can see from our results, we are getting some tractions on that front, for which we're pleased. This concludes our prepared remarks. We're now ready to take questions.

(Operator instructions)

Our first question comes from the line of Matthew Borsch with Goldman Sachs. Please go ahead.

Yes, thank you. My first question is on the rate outlook as you head in to next year and I'm asking partly in the context of another large competitor or company in the industry that talked to seeing or potentially seeing some adverse impact going in to next year. Can you just talk about where you stand relative to rate resets?

Sure, Matt. We did get a rate adjustment in Florida that's effective September 1. That I believe is about a gross 7% increase, but there are some provider passes, et cetera so it will be somewhere in the neighborhood of 5%, 5.5%. I believe that's the only one that we have now that's sort of locked down.

And what are you anticipating for some of your other geographies? I guess the question I'm asking is, is this an environment where Medicaid plans have generally been doing well and you find some of your states are in a mode where they're contemplating rate increases that might be tougher?

Why if you look back over the last several years, the success of plans like Molina increasing our profitability is due more to our own operations than has been to increases in rates. We've been experiencing flat to low single digit rates for the past several years, so I don't know that we're going to be expecting decreases or anything of that nature. We will likely to see some with respect to the Medicaid expansion rates, because we are accruing money to give back under those programs.

Okay.

Matt, this is Mario. Go back to our Investor Day. I think there was a nice table where we went through our expectations around rate increases.

Yes.

There's really not been much change since that Investor Day presentation.

Okay, good. Fair enough. If I could just on the cost and rebate floors that you referred to, is the $25 million there that was offset by recruitment of the health insurer fee, that was something that you were not in a position to recognize last year, because you just couldn't know or didn't have a good basis for knowing how it was going to come out?

That's correct. We had money accrued in the business above and beyond that.

Okay. Got it. And do you feel that you're closer to understanding what the it methodology is, at least that you'd be in a better position to predict it going forward?

As long as states don't change the methodology I think we're in good shape.

Okay. Fair enough. Thank you.

Our next question comes from the line of A.J. Rice with UBS. Please go ahead.

Thanks. Hi, everybody. Maybe just following up, make sure I understand the $25 million adjustment. When you guys laid out your guidance for this year, should we think that was in there, or it was such an unknown that you did not have that in your guidance?

No, a big portion of that came from New Mexico and Washington. Washington was a change in the risk adjustment methodology, so we had no visibility to it when we put in our guidance numbers. And in New Mexico related to the retroactive adjustments that they made with respect to a certain population that came in retroactively.

Okay. I know you said you think you're getting your arms around all the 2014 exposure. Are there open-ended issues with respect to what's happening in 2015 that might be like this, either for the fourth quarter or next year?

There are potentially because some of the methodologies are not articulated very clearly in the state contract. So there's some interpretation of medical costs and such. We believe that in the discussions that we had with the states that are impacted that we have a good dialogue with the state regulators, and we would hope there wouldn't be much impact either way.

Okay. I know you don't update full year outlook unless there's a material change but I guess the $25 million which wasn't contemplated would seem to me to be meaningful. You're not updating guidance in any way for that, so does that imply the rest of the business is effectively you're raising (laugh) your outlook for the rest of the business to offset that? Is that the way we should think, because I think you said you had always had contemplated collecting the health insurance, albeit you didn't know what quarter it was going to come in.

Again, I hate to isolate one factor and say that's the only thing that's material. We have a number of acquisitions that are coming in the fourth quarter that we didn't contemplate at the beginning of the year that will certainly have an impact on earnings, and try to pinpoint just for the sake of a single quarter doesn't make a lot of sense. I would say that from a revenue and profit margin perspective, we are at a place that is a little bit further than what we thought but it doesn't make sense, since what we're really driving to is a sustainable profit margin in 2017 to really monkey around with the numbers one quarter.

Okay. Maybe one last data point question there. I guess you picked up 65,000 in Medicaid expansion lives during the quarter. I guess it seems to be late in the year to be seeing more Medicaid expansion unless year end there's somehow a new market or are these acquisitions doing that? How did you end up picking up 65,000 new Medicaid expansion lives?

It is for the most part the acquisitions.

Okay. All right. Thanks a lot.

You bet.

Our next question comes from the line of Josh Raskin with Barclays. Please go ahead.

Thanks. Hate to harp on this $25 million issue, but just want to make sure I understand. Obviously, they've changed the methodology with which they're looking back at 2014. Is that now contemplated in your thoughts for 2015 as well? Have you sort of recalibrated based on what the states are telling you in terms of floor definitions, et cetera?

We think, Josh, that we've got it pretty well ironed out now.

Okay. But did you have -- I guess my question is did you have any catch-up accruals in the third quarter to account for the fact that if they applied the same methodology, for arguments sake, that maybe you'd owe more money back to the states as well?

John, it's Joe speaking. Very insignificant, because if you think of it the bulk of this activity happened in 2014. So there were some adjustments, but they were relatively insignificant related to 2015. A few million dollars.

Okay. But you know what I mean, Joe, where I say if they're assuming, whatever they're defining these costs to be or the premium calculation I would assume if you guys owed money last year maybe you'd owe it again this year but it doesn't sound like you've made any extra accruals? This is all related prior year?

No, Josh, to be clear, we true-up all the accruals through the report date based on our knowledge as of that date, so we have adjusted those numbers. It's just that the impact on 2015 wasn't particularly severe. For example, if you think of New Mexico, most of the retro activity happened in 2014.

Okay. So that was a specific cohort. I got you. And then just on Puerto Rico, the MLR moved down from say 95%. I assume that was just sort of a target accrual number to just below 90%.

I guess I'm curious how operations are going there. Are you guys now accruing based on claims or better estimates in terms of your targets? I'm curious why the MLR came down there.

Hi, Josh. It's Joe speaking. We are moving towards reliance on claims, but oftentimes in the initial months of a startup. We generally tend to run higher MCRs, so what you're seeing now is we are moving closer to what we expect that to ride.

So a 90%-ish number is what you'd expect in the future or you think it comes down from there?

I wouldn't think it would drop much more below the 90%.

Got you. Okay. So clearly no claims trend or anything that are unusual, out of the ordinary that you didn't expect?

That's correct. So far it appears to be what we expected it to be. And if you look back, Mario mentioned our guidance presentation at the beginning of the year. We thought it would come in around 91%. It's pretty much coming in where we thought it would.

Okay.

Our next question comes from the line of Peter Costa with Wells Fargo Securities. Please go ahead.

Thanks for the question. Question relates to the guidance and then known items of the fourth quarter. I'd like to break it down by business instead of by state.

If we look at your original guidance for the year on GAAP basis of $2.35, at nine months you're at $2.07. So at least another $0.28 for the fourth quarter. I want to be clear, you're not actually reiterating the $2.35, you are just not updating that. It's not necessarily that $0.28 that you are telling us to get to for the fourth quarter.

And then the remainder of the question is are there known items to you now going in to the fourth quarter that are going to go up either in the Medicaid expansion business? And you've been running at a very low MLR there.

You say you've been accruing for the various updates, but is there something that's going to make that loss ratio go up in the fourth quarter? The same question regarding the medical marketplace business where you're at 70% loss ratio. Do you expect that to go higher in the fourth quarter?

And then third, your acquisitions overall, do you expect them to be accretive or dilutive going in to the fourth quarter?

Pete, there's a lot of great questions there so let me see if I can parse it out. I'll start with the three business line questions first then get to guidance. With respect to the Medicaid expansion, you have to remember the GAAP definition for medical care ratio is different than what the states are using and the states, frankly, are using different requirements, different components depending on the state.

But we don't expect other than normal seasonality that, that should increase materially. With the marketplace I'd say the same thing. We did see some deterioration in the enrollment.

It may be that folks didn't pay their premiums and were dropped off. It's most likely that the folks that didn't pay their premiums weren't utilizing a lot of services anyway, so there may be a bit of a mix shift there. But again, I don't think it's going to mean anything material.

The third question was acquisitions. We did close a couple acquisitions in this quarter, the HealthPlus acquisition and the Integral acquisition -- pardon me, and the smaller one in Florida. Integral will close in the fourth quarter, Preferred was closed in the current quarter.

We do tend to see pent-up demand early on with these types of acquisitions. I think we've talked about that ad nauseum before, so you may see something, but then we'll also get some -- possibly towards the end of the fourth quarter some of the normalization from the acquisitions that closed in the third quarter. So again, I don't know that that's going to be a significant impact.

With respect to the guidance, I think the way you characterize it is correct. We're not updating guidance. On the other hand, we're not confirming that low number.

It's going to be -- the number is going to be what it is after we have the medical cost and the admin cost run through there. You will see an increase in the admin cost related to what we're doing in terms of the marketplace and Medicare enrollment. You may see a little bit higher medical cost because it is the fourth quarter but nothing I would say is extraordinary.

Thank you. That's helpful.

Our next question comes from the line of Kevin Fischbeck with Bank of America. Please go ahead.

Hi, this is Steve Baxter filling in for Kevin. Sorry to come back to the $25 million again. Does that all relate to the TANF businesses in Washington and New Mexico or is any of that spread out in ABD?

It's Joe speaking. It's about $20 million or so related mainly to TANF in New Mexico and the rest to expansion in Washington.

Okay, thanks. So I guess if I'm looking at the sequential TANF-CHIP MLR it's up about 300 basis points. And rough mass would probably explain about half of that. I guess is there anything else you'd want to highlight there in terms of the kind of pressure you saw in the quarter or is that reading too much in to it?

I think we'd say that's reading too much in to it. It's a single quarter. I wouldn't read beyond John's remarks about rates at the beginning of the call.

Okay. And then I guess the sequential movement in the marketplace MLR, I know I think it was in the mid [50%s] in the second quarter now moving into the mid [70%s]. Is that the progression that you'd expect? I guess it's hard for us to totally understand how the business is running. But I think you guys are the only ones who disclose it completely separate.

We don't have enough history with this large of a population to draw any conclusions definitively at this time.

We can say that year-to-date number is pretty solid.

Okay. Thank you.

Focus on the year-to-date, not the quarter.

(Operator instructions)

Our next question comes from the line of Andy Schenker with Morgan Stanley. Please go ahead.

Hey, this is Cornelia in for Andy. Some of large cap peers have discussed competitive pricing on the exchanges and some potential for enrollment declines next year. Do you think you can grow your presence meaningfully on the exchanges, and do you have any expectations to pick up lives from some of the co-ops closing?

This is John. I don't know if we have too many of the co-ops closing in the states we're doing in the marketplace. We price our products at a point where we thought they would be competitive and yet remain profitable. And I would also want to make sure that people understand it's not just the premium, it's also things like co-pays, deductibles, et cetera that really roll in to what a competitive financial package is. We think we're well positioned for the marketplace going in to next year.

Okay. And then just for Florida it looked like your MLR increased almost 600 basis points quarter to quarter. Is it possible to break out what it was driven by MMA or long-term care versus the exchanges? Or should we be thinking about as the majority of that was the increase from the [5.5%] to the [7.3%] in exchange MLR?

It's Joe speaking. You have it at the end -- it's the trend in marketplace.

Okay, great. Thanks.

Our next question comes from the line of Anagha Gupte with Leerink Partners. Please go ahead.

Yes. Thanks, good evening. [First] question is about the RFPs, you obviously won in Michigan. Georgia and Iowa were not successful. So as you look at the wins and the criteria, and any learnings from what might have made things different? And what the criteria are that are being used, or is it largely this incumbent business versus new entrants?

This is Mario. I think that clearly incumbents in a state like Georgia have an advantage. You're operating there.

You've got your networks in place. You're well know both to the state and to the providers. That clearly played in to it.

I don't want to comment on Iowa. We are happy with the results in Michigan. I wouldn't read a whole lot in to it.

There were three RFPs in three different states with a lot of different criteria, so it's hard to draw conclusions across them.

And as you [bought] the behavioral piece in Providence, and the other capabilities you're building seems to be the services and you look at the upcoming pipeline of RFPs, can you comment on [knowing] what those might look like? I believe Virginia comes up later next year and Pennsylvania is out there, Nebraska, and so on.

Well, we didn't do the acquisition because of the RFPs. We did it because we believed there's an overall trend in the Medicaid program to integrate and coordinate behavioral health with the medical benefits, and that's a long-term trend.

At the same time in many states where we're being asked to manage those benefits, we felt it was prudent for us to have a stronger presence in the behavioral health area and also to have providers that we can draw on. So Providence is largely a provider organization, providing care to Medicaid beneficiaries. It matches very well with our business and our strategy.

Okay, got it. Thanks. One more if I may on the G&A. Where do you think this will settle out here -- [you have some pressure here]? Where do you think the drivers for that? What is your target right now on the normalized G&A?

And then on the loss ratios as well with the 89.3%. Is it still at the 2% net margin that we should be kind of thinking about and what the timing of that might be? If you could give us some color?

Ana, we haven't changed our thinking in terms of where we want to be in 2017.

Okay, great. One final one if I might. On the exchanges you say you are positioned well. Obviously we're hearing a lot of angst from others.

You thought you had [200,000] losses quarter, but it's for [200,000]-plus. Any thoughts on what you might expect to see in the open enrollment season that is starting a couple days from now?

Well, this is Mario. We've not provided any guidance on what we think our 2016 marketplace is going to look like. It's really hard to tell. We've put together what we think are competitive rates. We remain in operations in all the states where we had operations last year.

We have slightly expanded our footprint by adding a few new counties. But remember too that the primary goal of our entering in to the marketplace was to provide continuity of care for people that had been on Medicaid and maybe no longer qualified and have become uninsured as a result, and that continues to be the strategy. If you look at our marketplace enrollment, it's largely people below 250% of poverty.

Yes. That makes a ton of sense. Thanks, Mario. Appreciate it.

Our next question comes from the line of Brian Wright with Sterne Agee CRT. Please go ahead.

Thanks. Good morning. Couple questions. Is there a way or do you have any guess or sense as to kind of what the buckets of attrition for the public marketplace is between tax documentation, immigration documentation, and failure to pay premiums? And any insights into deadlines that may have occurred in third quarter specifically for any of those issues?

This is John. You're working way too hard if you start this by saying good morning. (Laughter) We don't have the granular detail in terms of why people roll off the marketplace during the third quarter. There is no indication on our part.

Yes. Do you have anything procedurally as far as [insight/sense] of some of the procedural documentation deadlines for any of those issues?

I don't believe that they give us reasons why people drop off, whether it's -- whatever you [assign it] to.

The answer is no.

Okay. No worries. Then one that I know you can help me out with. Texas kind of picked up a bit sequentially, on the MLR side. Was there anything kind of one time-ish or anything that you could point us to what may be driving some of that?

It's the launch in the MMP in Texas, Brian, that's picking up speed.

Okay.

So we will run the [MCR] (multiple-speakers) initial stages.

So that's an initial based on guests, but not based on clients?

Correct.

Great. Okay, great. Thank you.

Our next question comes from the line of Chris Rigg with Susquehanna Financial Group. Please go ahead.

Hey, guys. Not to beat this horse to death, but on the $25 million can you give us a sense of the gestation of how that occurred? Is this something that came up during the quarter? Has this been -- particularly, I think you said New Mexico its about $20 million. Sort of how long has this been ongoing, and when you kind of came to a resolution on it?

I'll take the first part of that. If you flip back to our 10-Qs, particularly the Washington situation, we've been talking about this for a number of quarters. The issue related to Washington is essentially our rates are tied to premium adjustment -- risk adjustment across the it entire population and we don't have visibility in to that.

We've been talking about that for a long time in the 10-Qs. And we just got clarity on it just this quarter. You can also go back to our investor day back in September where we talked a fair amount about this. But suffice to say these are -- until these amounts are at least settled for the first year, it's very uncertain as to the actual mechanics of the calculations and the definitions involved.

Okay. Just on the guidance, again, I appreciate your comments. You kind of gave some of the put takes for the fourth quarter, but is there anything large, either on plus side or negative side we should be thinking about? Or is it sort of normal business trends with some impact from maybe some of the recent acquisitions?

I would say that, Chris.

Okay. I'll leave it there. Thanks a lot, guys.

Our next question comes from the line of Dave Windley with Jefferies.

Hi, thanks for taking the questions. The first one on the Providence acquisition, you talked at the Investor Day about spending I think in the order of $160 million on behavior-related care. How quickly in the overlap perhaps, how quickly can you begin to leverage Providence services in to your health plan footprint?

This is Mario. It's hard to say at this point, because we haven't closed the acquisition. The first thing we've got to do is close.

And then we can get in there and begin talking to them about how we can make better use of their services, but that is our goal. I just can't give you any idea on the timing.

And did I understand correctly that it would also be, maybe the second step in the goal would be to expand the Providence footprint in to additional Molina states?

Certainly.

Okay. Then I guess on Texas quality, sorry if this question has been asked. Do you have any better visibility on what has been opaque calculation on that?

You know, Dave, I think Juan Jose once won $25 because he bet at some point someone would ask that even if we were silent. No, we've got no update.

Okay. And in Michigan with the reprocurement there and the I think eight regions you were awarded, is it your expectation that membership would be about stable or do you think you can pick up some incremental members based on you're going forward footprint?

Usually we would only expect to pick up membership if one or more plans in a region were dropped. I think a couple regions we may have one plan that was dropped and so that membership would be distributed, but for the most part we think it would largely be stable.

Okay, and the HealthPlus acquisition is the only kind of cross benefit there, just the leverage of an SG&A presence in the state? Is that what I remember from the Investor Day conversation?

That's a big portion of it. Yes.

All right. Thank you.

Our final question is followup question from Brian Wright with Sterne Agee. Sir, please go ahead.

I missed a bit of the answer on that last one. I apologize. Is there any set timeframe on getting greater clarity on the definitions in Texas?

We thought we'd have it by the end of the third quarter. Brian, we're hoping we'll have it by the end of the year. I recall for last time it was about 15 months before we got clarity.

So if they can get it to us by the end of the year it will be a step in the right direction.

So there's a chance but we're not holding our breath.

I'm not.

Okay. Fair enough. Thank you.

All right. Thank you, everyone. We appreciate you joining the call. It was a good quarter and we look forward to talking to you at the next earnings release.

Ladies and gentlemen, this does concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line.