T
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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Delaware
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42-1406317
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
Number)
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7711
Carondelet Avenue
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St.
Louis, Missouri
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63105
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(Address
of principal executive offices)
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(Zip
Code)
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Common
Stock, $0.001 Par Value
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New
York Stock Exchange
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Title
of Each Class
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Name
of Each Exchange on Which
Registered
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Part
I
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Item
1.
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3
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Item
1A.
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17
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Item
1B.
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25
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Item
2.
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25
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Item
3.
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25
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Item
4.
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26
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Part
II
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Item
5.
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26
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Item
6.
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27
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Item
7.
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28
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Item 7A.
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37
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Item
8.
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38
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Item
9.
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39
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Item
9A.
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39
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Item
9B.
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41
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Part
III
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Item
10.
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41
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Item
11.
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41
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Item
12.
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41
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Item
13.
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41
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Item
14.
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41
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Part
IV
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Item 15.
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41
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68
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Ÿ
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Sustained
Historic Operating Performance.
We have a historical trend of increasing revenues as we have grown
in
existing markets and expanded into new markets. We entered the Wisconsin
market in 1984, the Indiana market in 1995, the Texas market in 1999,
the
New Jersey market in 2002, the Ohio market in 2004 and the Georgia
market
in 2006. We have also increased membership by acquiring Medicaid
businesses, contracts and other related assets from competitors in
existing markets, most recently in Ohio in 2005 and 2006. We have
increased our total membership from 409,600 in 2002 to 1,262,200
as of
December 31, 2006, a 32% Compound Annual Growth Rate, or CAGR. For
the
year ended December 31, 2006, we had revenue of $2.3 billion, representing
a 49% CAGR since the year ended December 31, 2002. We generated total
cash
flow from operations of $195.0 million during the year ended December
31,
2006.
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Ÿ
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Medicaid
Expertise. Over
the last 20 years, we have strived to develop a specialized Medicaid
expertise that has helped us establish and maintain relationships
with
members, providers and state governments. We have implemented programs
developed to achieve savings for state governments and improve medical
outcomes for members by reducing inappropriate emergency room use,
inpatient days and high cost interventions, as well as by managing
care of
chronic illnesses. Our experience in working with state regulators
helps
us implement and deliver programs and services efficiently and affords
us
opportunities to provide input regarding Medicaid industry practices
and
policies in the states in which we operate. We work with state agencies
on
redefining benefits, eligibility requirements and provider fee schedules
in order to maximize the number of uninsured individuals covered
through
Medicaid, SCHIP and SSI and expand these types of benefits offered.
Our
approach is to accomplish this while maintaining adequate levels
of
provider compensation and protecting our profitability.
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Ÿ
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Diversified
Business Lines. We
continue to broaden our service offerings to address areas that we
believe
have been traditionally underserved by Medicaid managed care
organizations. In addition to our Medicaid and Medicaid-related managed
care services, our service offerings include behavioral health, disease
management, long-term care programs, managed vision, nurse triage,
pharmacy benefits management and treatment compliance. Through the
utilization of a multi-business line approach, we are able to diversify
our revenue and help control our medical costs.
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Ÿ
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Localized
Approach with Centralized Support Infrastructure. We
take a localized approach to managing our subsidiaries, including
provider
and member services. This approach enables us to facilitate access
by our
members to high quality, culturally sensitive healthcare services.
Our
systems and procedures have been designed to address these
community-specific challenges through outreach, education, transportation
and other member support activities. For example, our community outreach
programs work with our members and their communities to promote health
and
self-improvement
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Ÿ
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Specialized
and Scalable Systems and Technology.
Through our specialized information systems, we work to strengthen
relationships with providers and states which help us grow our membership
base. Our specialized information systems allow us to support our
core
processing functions under a set of integrated databases which are
designed to be both replicable and scalable. Physicians can use claims,
utilization and membership data to manage their practices more
efficiently, and they also benefit from our timely payments. State
agencies can use data from our information systems to demonstrate
that
their Medicaid populations receive quality health care in an efficient
manner. These systems also help identify needs for new healthcare
and
specialty programs. We have the ability to leverage our platform
for one
state configuration into new states or for health plan acquisitions.
Our
ability to access data and translate it into meaningful information
is
essential to operating across a multi-state service area in a
cost-effective manner.
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Ÿ
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Experienced
Management Team.
We have a management team who possess significant industry experience.
Michael Neidorff, our Chairman and CEO, has been with us since 1996
and
has over 20 years of experience in all aspects of managed care. Per
Brodin, our Senior Vice President and Chief Financial Officer, has
extensive experience as a financial and accounting officer both at
Centene
and other organizations. The other members of our senior management
team
are well-seasoned professionals with a broad range of capabilities
including industry experience and functional expertise. This team
has
successfully managed the growth of our health plans and specialty
businesses, while maintaining operational
discipline.
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Ÿ
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Increase
Penetration of Existing State Markets. We
seek to continue to increase our Medicaid membership in states in
which we
currently operate through alliances with key providers, outreach
efforts,
development and implementation of community-specific products and
acquisitions. In 2006, we were awarded two regions in connection
with
Ohio’s statewide restructuring of its Medicaid managed care program,
expanding the number of counties we serve from three to 27. We also
were
awarded a Medicaid Aged, Blind or Disabled, or ABD, contract in four
regions in Ohio. In Texas, we expanded our operations to the Corpus
Christi market in 2006 and began managing care for SSI recipients
in
February 2007. We may also increase membership by acquiring Medicaid
businesses, contracts and other related assets from our competitors
in our
existing markets or by enlisting additional providers. For example,
in
2005 and 2006, we acquired certain Medicaid-related assets in Ohio.
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Ÿ
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Diversify
Business Lines. We
seek to broaden our business lines into areas that complement our
existing
business to enable us to grow and diversify our revenue. For instance,
in
October 2006, we commenced operations under our managed care program
contracts to provide long-term care services in Arizona, and in January
2006, we completed the acquisition of US Script, a pharmacy benefits
manager. We are also considering other premium-based or fee-for-service
lines of business that would provide additional diversity. We employ
a
disciplined acquisition strategy that is based on defined criteria
including internal rate of return, accretion to earnings per share,
market
leadership and compatibility with our information systems. We engage
our
executives in the relevant operational units or functional areas
to ensure
consistency between the diligence and integration process.
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Address
Emerging State Needs. We
work to assist the states in which we operate in addressing the operating
challenges they face. We seek to assist the states in balancing premium
rates, benefit levels, member eligibility, policies and practices,
and
provider compensation. For example, in 2005 we began performing under
our
contracts with the State of Arizona to facilitate the delivery of
mental
health and substance abuse services to behavioral health recipients
in
Arizona. Effective January 1, 2005, we were awarded a behavioral
health
contract to serve SCHIP members in Kansas. By helping states structure
an
appropriate level and range of Medicaid, SCHIP and specialty services,
we
seek to ensure that we are able to continue to provide those services
on
terms that achieve targeted gross margins, provide an acceptable
return
and grow our business.
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Ÿ
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Develop
and Acquire Additional State Markets. We
continue to leverage our experience to identify and develop new markets
by
seeking both to acquire existing business and to build our own operations.
We expect to focus expansion on states where Medicaid recipients
are
mandated to enroll in managed care organizations because we believe
member
enrollment levels are more predictable in these states. For example,
effective June 1, 2006, we began managing care for Medicaid and SCHIP
members in Georgia.
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Leverage
Established Infrastructure to Enhance Operating
Efficiencies.
We
intend to continue to invest in infrastructure to further drive
efficiencies in operations and to add functionality to improve
the service
provided to members and other organizations at a low cost. Our
centralized
functions enable us to add members and markets quickly and economically.
For example, during 2005, we opened an additional claims processing
facility to accommodate our planned growth initiatives for this
centralized function.
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Ÿ
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Maintain
Operational Discipline. We
monitor our cost trends, operating performance, regulatory relationships
and the Medicaid political environment in our existing markets. We
seek to
operate in markets that allow us to meet our internal metrics including
membership growth, plan size, market leadership and operating efficiency.
We may divest contracts or health plans in markets where the state’s
Medicaid environment, over a long-term basis, does not allow us to
meet
our targeted performance levels. We use multiple techniques to monitor
and
reduce our medical costs, including on-site hospital review by staff
nurses and involvement of medical management and finance personnel
in
reviewing significant cases. Our health economics unit and health
plan
controllers evaluate the financial impact of proposed changes in
provider
relationships. We also conduct monthly reviews of member demographics
for
each health plan.
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State
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Local
Health Plan Name
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First
Year of Operations Under the Company
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Counties
Served at
December
31, 2006
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Market
Share(1)
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Membership
at
December
31, 2006
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Georgia
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Peach
State Health Plan
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2006
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90
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30.6%
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308,800
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||||||
Indiana
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Managed
Health Services
|
1995
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92
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33.4%
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183,100
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||||||
New
Jersey
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University
Health Plans
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2002
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20
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8.1%
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58,900
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||||||
Ohio
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Buckeye
Community Health Plan
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2004
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27
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11.3%
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109,200
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||||||
Texas
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Superior
HealthPlan
|
1999
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217
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21.0%
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298,500
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||||||
Wisconsin
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Managed
Health Services
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1984
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29
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32.9%
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164,800
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(1) |
Represents
Medicaid and SCHIP membership as of December 31, 2006 as a percentage
of
total eligible Medicaid and SCHIP members in each state, based on
data
provided by each state. SSI programs are
excluded.
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Ÿ
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Significant
cost savings compared to state paid reimbursement for
services.
We bring bottom-line management experience to our health plans.
On the
administrative and management side, we bring experience including
quality
of care improvement methods, utilization management procedures,
an
efficient claims payment system, and provider performance reporting,
as
well as managers and staff experienced in using these key elements
to
improve the quality of and access to
care.
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Ÿ
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Data-driven
approaches to balance cost and verify eligibility.
Our Medicaid health plans have conducted enrollment processing
and
activities for state programs since 1984. We ensure effective enrollment
procedures that move members into the plan, then educate them and
ensure
that they receive needed services as quickly as possible. Our IT
department has created mapping/translation programs for loading
membership
and linking membership eligibility status to all of Centene’s subsystems.
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Ÿ
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Establishment
of realistic and meaningful expectations for quality deliverables.
We
have collaborated with state agencies in redefining benefits, eligibility
requirements and provider fee schedules with the goal of maximizing
the
number of uninsured individuals covered through Medicaid and SSI
programs.
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Ÿ
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Managed
care expertise in government subsidized programs.
Our expertise in Medicaid has helped us establish and maintain
strong
relationships with our constituent communities of members, providers
and
state governments. We provide access to services through local
providers
and staff that focus on the cultural norms of their individual
communities. To that end, systems and procedures have been designed
to
address community-specific challenges through outreach, education,
transportation and other member support activities.
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Ÿ
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Improved
medical outcomes.
We have implemented programs developed to achieve savings for state
governments and improve medical outcomes for members by reducing
inappropriate emergency room use, inpatient days and high cost
interventions, as well as by managing care of chronic
illness.
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Ÿ
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Timely
payment of provider claims.
We are committed to ensuring that our information systems and claims
payment systems meet or exceed state requirements. We continuously
endeavor to update our systems and processes to improve the timeliness
of
our provider payments.
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Ÿ
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Cost
saving outreach and specialty programs.
Our health plans have adopted a physician-driven approach where
network
providers are actively engaged in developing and implementing healthcare
delivery policies and strategies. This approach is designed to
eliminate
unnecessary costs, improve services to members and simplify the
administrative burdens placed on providers. The combination of
a
decentralized local approach to health plan operations and a centralized
approach to administrative functions such as finance, information
systems
and claims processing allows us to quickly and economically integrate
new
business opportunities in both the Medicaid Managed Care and Specialty
Services segments.
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Ÿ
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Responsible
collection and dissemination of utilization data.
We gather utilization data from multiple sources, allowing for
an
integrated view of our members’ utilization of services. These sources
include medical and behavioral health claims and encounter data,
pharmacy
data, vision and dental vendor claims and authorization data from
Care
Enhanced Case Management Systems, or CCMS, the authorization and
case
management system utilized by us to coordinate care.
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Timely
and accurate reporting.
Our information systems have robust reporting capabilities which
have been
instrumental in identifying the need for new and/or improved healthcare
and specialty programs. For state agencies, our reporting capability
is
instrumental in demonstrating an auditable program.
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primary
and specialty physician care
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24-hour
nurse advice line
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inpatient
and outpatient hospital care
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transportation
assistance
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emergency
and urgent care
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vision
care
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prenatal
care
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dental
care
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laboratory
and x-ray services
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immunizations
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home
health and durable medical equipment
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prescriptions
and limited over-the-counter drugs
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behavioral
health and substance abuse services
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CONNECTIONS
is
a community face-to-face outreach and education program designed
to create
a link between the member and the provider and help identify potential
challenges or risk elements to a member’s health, such as nutritional
challenges and health education shortcomings. CONNECTIONS representatives
also contact new members by phone or mail to discuss managed care,
the
Medicaid program and our services. Our CONNECTIONS representatives
make
home visits, conduct educational programs and represent our health
plans
at community events such as health fairs.
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Ÿ
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Start
Smart For Your Baby
is
a prenatal and infant health program designed to increase the percentage
of pregnant women receiving early prenatal care, reduce the incidence
of
low birth weight babies, identify high risk pregnancies, increase
participation in the federal Women, Infant and Children program,
and
increase well-child visits. The program includes risk assessments,
education through face-to-face meetings and materials, behavior
modification plans, assistance in selecting a provider for the infant
and
scheduling newborn follow-up visits.
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EPSDT
Case Management
is
a preventive care program designed to educate our members on the
benefits
of Early and Periodic Screening, Diagnosis and Treatment, or EPSDT,
services. We have a systematic program of communicating, tracking,
outreach, reporting and follow-through that promotes state EPSDT
programs.
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Disease
Management Programs
are designed to help members understand their disease and treatment
plan
and improve their health outcomes in a cost effective manner. These
programs address medical conditions that are common within
the
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Primary
Care
Physicians
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Specialty
Care
Physicians
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Hospitals
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Georgia
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2,379
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7,112
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128
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|||
Indiana
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738
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1,422
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42
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New
Jersey
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1,732
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5,283
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73
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Ohio
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1,026
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2,387
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35
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Texas
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5,646
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10,487
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335
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Wisconsin
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2,118
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4,793
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65
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Ÿ
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Under
our fee-for-service contracts with physicians, particularly specialty
care
physicians, we pay a negotiated fee for covered services. This
model is
characterized as having no financial risk for the physician. In
addition,
this model requires management oversight because our total cost
may
increase as the units of services increase or as more expensive
services
are replaced for less expensive services. We have prior authorization
procedures in place that are intended to make sure that certain
high cost
diagnostic and other services are medically appropriate.
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Ÿ
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Under
our capitated contracts, primary care physicians are paid a monthly
fee
for each of our members assigned to his or her practice and are
at risk
for all costs related to primary and specialty physician and emergency
room services. In return for this payment, these physicians provide
all
primary care and preventive services, including primary care office
visits
and EPSDT services. If these physicians also provide non-capitated
services to their assigned members, they may receive payment under
fee-for-service arrangements at Medicaid rates.
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Ÿ
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Customized
Utilization Reports
provide certain of our contracted physicians with information that
enables
them to run their practices more efficiently and focuses them on
specific
patient needs. For example, quarterly detail reports update physicians
on
their status within their risk pools. Equivalency reports provide
physicians with financial comparisons of capitated versus fee-for-service
arrangements.
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Ÿ
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Case
Management Support
helps the physician coordinate specialty care and ancillary services
for
patients with complex conditions and direct members to appropriate
community resources to address both their health and socio-economic
needs.
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Web-based
Claims and Eligibility Resources
have been implemented in selected markets to provide physicians with
on-line access to perform claims and eligibility inquiries.
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a
prenatal case management program aimed at helping women with high-risk
pregnancies deliver full-term, healthy infants;
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a
program to reduce the number of inappropriate emergency room visits;
and
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Ÿ
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a
disease management program to improve the ability of those with asthma
and
their families to control their disease and thereby reduce the need
for
emergency room visits and hospitalizations.
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Ÿ
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Behavioral
Health.
Cenpatico Behavioral Health manages behavioral healthcare for members
via
a contracted network of providers. Cenpatico works with providers
to
determine the best course of treatment for a given diagnosis and
helps
ensure members and their providers are aware of the full array
of services
available. Our networks feature a range of services so that patients
can
be treated at an appropriate level of care. We also run school-based
programs in Arizona that focus on students with special needs.
We acquired
Cenpatico in 2003.
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Ÿ
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Disease
Management. Our
disease management providers, AirLogix and Cardium, specialize
in chronic
respiratory disease management and cardiac disease management.
Through
their specialization in respiratory management, AirLogix uses self-care
therapies, in-home interaction and informatics processes to deliver
highly
effective clinical results, enhanced patient-provider satisfaction
and
greater cost reductions in respiratory management. We acquired
AirLogix in
July 2005. Through a people-centered, multi-disciplinary and integrated
approach, Cardium uses primary health coaches, customized care
plans, and
disease-specific education to assist patients in achieving their
health
goals and deliver enhanced patient-provider satisfaction and greater
cost
reductions in chronic disease management. We acquired Cardium in
May
2006.
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Ÿ
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Long-term
Care.
Bridgeway Health Solutions provides long-term care services to
the elderly
and people with disabilities on SSI that meet income and resources
requirements who are at risk of being or are institutionalized.
Bridgeway
has members in the Maricopa, Yuma and La Paz counties of Arizona.
Bridgeway attempts to distinguish itself from other Medicaid and
Medicare
health plans through ongoing participation with community groups
to
address situations that might be barriers to quality care and independent
living. Bridgeway commenced operations in October
2006.
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Ÿ
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Managed
Vision. OptiCare manages
vision benefits for members via a contracted network of providers.
OptiCare works with providers to provide a variety of vision plan
designs
and helps ensure members and their providers are aware of the full
array
of products and services available. Our networks feature a range
of
products and services so that patients can be treated at an appropriate
level of care. We acquired the managed vision business of OptiCare
Health
Systems, Inc. in July 2006.
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Ÿ
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Nurse
Triage. NurseWise
provides a toll-free nurse triage line 24 hours per day, 7 days
per week,
52 weeks per year. Our members call one number and reach customer
service
representatives and bilingual nursing staff who provide health
education,
triage advice and offer continuous access to health plan functions.
Additionally, our representatives verify eligibility, confirm primary
care
provider assignments and provide benefit and network referral coordination
for members and providers after business hours. Our staff can arrange
for
urgent pharmacy refills, transportation and qualified behavioral
health
professionals for crisis stabilization assessments. Call volume
is based
on membership levels and seasonal variation. NurseWise commenced
operations in 1998.
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Ÿ
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Pharmacy
Benefits Management.
US Script is
a pharmacy benefits manager that administers pharmacy benefits
and
processes pharmacy claims via its proprietary claims processing
software.
US Script has developed and administers a contracted national network
of
retail pharmacies. We acquired US Script in January
2006.
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Ÿ
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Treatment
Compliance.
ScriptAssist
is a treatment compliance program that uses psychological-based
tools to
predict which patients are likely to be non-compliant regarding
taking
their medications, and then to motivate those at-risk patients
to adhere
to their doctors’ advice.
ScriptAssist
uses registered nurses to educate patients about the reasons for
the
medications they were prescribed, to provide accurate information
about
side effects and risks of such medications, and to keep the doctors
informed of the patients’ progress between visits. We acquired
ScriptAssist
in 2003.
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Ÿ
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written
standards of conduct;
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Ÿ
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designation
of a corporate compliance officer and compliance committee;
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Ÿ
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effective
training and education;
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Ÿ
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effective
lines for reporting and communication;
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Ÿ
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enforcement
of standards through disciplinary guidelines and actions;
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Ÿ
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internal
monitoring and auditing; and
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Ÿ
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prompt
response to detected offenses and development of corrective action
plans.
|
Ÿ
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Medicaid
Managed Care Organizations
focus solely on providing healthcare services to Medicaid recipients.
Many
of these operate in one city or state and are owned by providers,
primarily hospitals.
|
Ÿ
|
National
and Regional Commercial Managed Care Organizations
have Medicaid members in addition to members in private commercial
plans.
Some of these organizations offer a range of specialty services including
pharmacy benefits management, behavioral health management, disease
management, and nurse triage call support
centers.
|
Ÿ
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Primary
Care Case Management Programs
are programs established by the states through contracts with primary
care
providers. Under these programs, physicians provide primary care
services
to Medicaid recipients, as well as limited medical management oversight.
|
Ÿ
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premium
and maintenance taxes;
|
Ÿ
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stringent
prompt-pay laws;
|
Ÿ
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requirements
of National Provider Identifier numbers on claim
submittals;
|
Ÿ
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disclosure
requirements regarding provider fee schedules and coding procedures;
and
|
Ÿ
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programs
to monitor and supervise the activities and financial solvency
of provider
groups.
|
Ÿ eligibility,
enrollment and disenrollment processes;
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Ÿ health
education and wellness and prevention programs;
|
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Ÿ covered
services;
|
Ÿ timeliness
of claims payment;
|
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Ÿ eligible
providers;
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Ÿ financial
standards;
|
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Ÿ subcontractors;
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Ÿ safeguarding
of
member information;
|
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Ÿ record-keeping
and record retention;
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Ÿ fraud
and abuse
detection and reporting;
|
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Ÿ periodic
financial
and informational reporting;
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Ÿ grievance
procedures; and
|
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Ÿ quality
assurance;
|
Ÿ organization
and administrative systems.
|
State
Contract
|
|
Expiration
Date
|
|
Renewal
or Extension by the State
|
Termination
by the State
|
|
Arizona
- Behavioral Health
|
June
30, 2008
|
May
be extended for up to two additional years.
|
May
be terminated for convenience or an event of default.
|
|||
Arizona
- Long-term Care
|
September
30, 2009
|
May
be extended for up to two additional years.
|
May
be terminated for convenience or an event of default.
|
|||
|
||||||
Georgia
|
|
June
30, 2007
|
Renewable
for five additional one-year terms.
|
May
be terminated for an event of default or significant changes in
circumstances.
|
||
|
||||||
Indiana
|
|
December
31, 2010
|
May
be extended for up to two additional years.
|
May
be terminated for convenience or an event of default.
|
||
|
||||||
Kansas
- Behavioral Health
|
|
June
30, 2008
|
May
be extended with four one-year renewal options.
|
May
be terminated for cause, or without cause for lack of funding.
|
||
Missouri
|
June
30, 2007
|
Contract
rights sold effective February 1, 2007.
|
||||
New
Jersey
|
June
30, 2007
|
Renewable
annually for successive 12-month periods.
|
May
be terminated for convenience or an event of default.
|
|||
Ohio
|
June
30, 2007
|
Renewable
annually for successive 12-month periods.
|
May
be terminated for an event of default.
|
|||
Ohio
- ABD
|
June
30, 2007
|
Renewable
annually for successive 12-month periods.
|
May
be terminated for an event of default.
|
|||
Texas
|
August
31, 2008
|
May
be extended for up to six additional years.
|
May
be terminated for convenience, an event of default or lack of federal
funding.
|
|||
Texas
- Exclusive Provider Organization
|
August
31, 2007
|
May
be extended for up to three additional years.
|
May
be terminated upon any event of default or in the event of lack of
state
or federal funding.
|
|||
Wisconsin
|
December
31, 2007
|
Renewable
through the states’ periodic recertification process.
|
May
be terminated if a change in state or federal laws, rules or regulations
materially affects either party’s right or responsibilities or for an
event of default or lack of funding.
|
|||
Wisconsin
- Network Health Plan Subcontract
|
December
31, 2011
|
Renews
automatically for successive five-year terms.
|
May
be terminated upon two-years notice prior to the end of the then
current
term or if a change in state or federal laws, rules or regulations
materially affects either party’s rights or responsibilities under the
contract, or if Network Health Plan’s contract with the State is
terminated.
|
|||
Wisconsin
SSI
|
December
31, 2007
|
Renewable
through the states’ periodic recertification process.
|
May
be terminated for convenience, if a change in state or federal laws,
rules
or regulations materially affects either party’s rights or
responsibilities, or an event of default or lack of
funding.
|
Ÿ
|
limit
certain uses and disclosures of private health information, and require
patient authorizations for such uses and disclosures of private health
information;
|
Ÿ
|
guarantee
patients rights to access their medical records and to know who else
has
accessed them;
|
Ÿ
|
limit
most disclosure of health information to the minimum needed for the
intended purpose;
|
Ÿ
|
establish
procedures to ensure the protection of private health
information;
|
Ÿ
|
authorize
access to records by researchers and others;
and
|
Ÿ
|
impose
criminal and civil sanctions for improper uses or disclosures of
health
information.
|
Ÿ
|
the
state law is necessary to prevent fraud and abuse related to the
provision
of and payment for healthcare;
|
Ÿ
|
the
state law is necessary to ensure appropriate state regulation of
insurance
and health plans;
|
Ÿ
|
the
state law is necessary for state reporting on healthcare delivery
or
costs; or
|
Ÿ
|
the
state law addresses controlled
substances.
|
Name
|
|
Age
|
|
Position
|
Michael
F. Neidorff
|
|
64
|
|
Chairman
and Chief Executive Officer
|
J.
Per Brodin
|
|
45
|
|
Senior
Vice President, Chief Financial Officer and Treasurer
|
Patti
J. Darnley
|
47
|
Senior
Vice President, Operations
|
||
Marie
J. Glancy
|
48
|
Senior
Vice President, Operational Services and Regulatory
Affairs
|
||
Carol
E. Goldman
|
|
49
|
|
Senior
Vice President and Chief Administration Officer
|
Jesse
N. Hunter
|
31
|
Vice
President, Corporate
Development
|
||
Mary V. Mason | 38 | Senior Vice President and Chief Medical Officer | ||
William
N. Scheffel
|
|
53
|
|
Senior
Vice President, Specialty Business Unit
|
Keith
H. Williamson
|
54
|
Senior
Vice President, General Counsel and Secretary
|
||
Karey
L. Witty
|
|
42
|
|
Senior
Vice President, Health Plan Business
Unit
|
Ÿ
|
force
us to restructure our relationships with providers within our
network;
|
Ÿ
|
require
us to implement additional or different programs and
systems;
|
Ÿ
|
mandate
minimum medical expense levels as a percentage of premium
revenues;
|
Ÿ
|
restrict
revenue and enrollment growth;
|
Ÿ
|
require
us to develop plans to guard against the financial insolvency of
our
providers;
|
Ÿ
|
increase
our healthcare and administrative costs;
|
Ÿ
|
impose
additional capital and reserve requirements;
and
|
Ÿ
|
increase
or change our liability to members in the event of malpractice by
our
providers.
|
We
face periodic reviews, audits and investigations under our contracts
with
state government
agencies, and these audits could
have adverse findings, which may negatively impact
our business.
|
Ÿ
|
refunding
of amounts we have been paid pursuant to our
contracts;
|
Ÿ
|
imposition
of fines, penalties and other sanctions on
us;
|
Ÿ
|
loss
of our right to participate in various markets;
|
Ÿ
|
increased
difficulty in selling our products and services;
and
|
Ÿ
|
loss
of one or more of our licenses.
|
Ÿ |
additional
personnel who are not familiar with our operations and corporate
culture;
|
Ÿ |
provider
networks that may operate on different terms than our existing
networks;
|
Ÿ |
existing
members, who may decide to switch to another healthcare plan;
and
|
Ÿ |
disparate
administrative, accounting and finance, and information
systems.
|
|
|
2006
Stock Price
|
|
2005
Stock Price
|
||||||||
|
|
High
|
|
Low
|
|
High
|
|
Low
|
||||
First
Quarter
|
|
$
|
30.26
|
|
$
|
22.70
|
|
$
|
35.38
|
|
$
|
26.50
|
Second
Quarter
|
|
|
29.59
|
|
|
22.88
|
|
|
34.38
|
|
|
24.86
|
Third
Quarter
|
|
|
23.87
|
|
|
13.25
|
|
|
37.91
|
|
|
22.60
|
Fourth
Quarter
|
|
|
26.95
|
|
|
16.11
|
|
|
27.76
|
|
|
16.76
|
Issuer
Purchases of Equity Securities
Fourth
Quarter 2006
|
|||||||||||
Period
|
Total
Number of
Shares
Purchased
|
Average
Price
per
Share
|
Total
Number
of
Shares
Purchased
as
Part
of Publicly
Announced
Plans
or
Programs
|
Maximum
Number
of Shares
that
May Yet Be
Purchased
Under
the
Plans or
Programs
|
|||||||
October
1 - October 31, 2006
|
16,500
|
$
|
19.06
|
16,500
|
3,615,600
|
||||||
November
1 - November 30, 2006
|
13,000
|
23.40
|
13,000
|
3,602,600
|
|||||||
December
1 - December 31, 2006
|
—
|
—
|
—
|
3,602,600
|
|||||||
TOTAL
|
|
29,500
|
|
$
|
20.97
|
|
29,500
|
3,602,600
|
|
|
Year
Ended December 31,
|
|
|||||||||||||||||
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|||||
(In
thousands, except share data)
|
||||||||||||||||||||
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium
|
|
$
|
2,199,439
|
|
|
$
|
1,491,899
|
|
|
$
|
991,673
|
|
|
$
|
759,763
|
|
|
$
|
461,030
|
|
Service
|
|
|
79,581
|
|
|
|
13,965
|
|
|
|
9,267
|
|
|
|
9,967
|
|
|
|
457
|
|
Total
revenues
|
|
|
2,279,020
|
|
|
|
1,505,864
|
|
|
|
1,000,940
|
|
|
|
769,730
|
|
|
|
461,487
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Medical
costs
|
|
|
1,819,811
|
|
|
|
1,226,909
|
|
|
|
800,476
|
|
|
|
626,192
|
|
|
|
379,468
|
|
Cost
of services
|
|
|
60,735
|
|
|
|
5,851
|
|
|
|
8,065
|
|
|
|
8,323
|
|
|
|
341
|
|
General
and administrative expenses
|
|
|
346,284
|
|
|
|
193,913
|
|
|
|
127,863
|
|
|
|
88,288
|
|
|
|
50,072
|
|
Impairment
loss
|
81,098
|
—
|
—
|
—
|
—
|
|||||||||||||||
Total
operating expenses
|
|
|
2,307,928
|
|
|
|
1,426,673
|
|
|
|
936,404
|
|
|
|
722,803
|
|
|
|
429,881
|
|
Earnings
(loss) from operations
|
|
|
(28,908
|
)
|
|
|
79,191
|
|
|
|
64,536
|
|
|
|
46,927
|
|
|
|
31,606
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Investment
and other income
|
|
|
17,892
|
|
|
|
10,655
|
|
|
|
6,431
|
|
|
|
5,160
|
|
|
|
9,575
|
|
Interest
expense
|
|
|
(10,636
|
)
|
|
|
(3,990
|
)
|
|
|
(680
|
)
|
|
|
(194
|
)
|
|
|
(45
|
)
|
Earnings
(loss) before income taxes
|
|
|
(21,652
|
)
|
|
|
85,856
|
|
|
|
70,287
|
|
|
|
51,893
|
|
|
|
41,136
|
|
Income
tax expense
|
|
|
21,977
|
|
|
|
30,224
|
|
|
|
25,975
|
|
|
|
19,504
|
|
|
|
15,631
|
|
Minority
interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
881
|
|
|
|
116
|
|
Net
earnings (loss)
|
|
$
|
(43,629
|
)
|
|
$
|
55,632
|
|
|
$
|
44,312
|
|
|
$
|
33,270
|
|
|
$
|
25,621
|
|
Net
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Basic
earnings (loss) per common share
|
|
$
|
(1.01
|
)
|
|
$
|
1.31
|
|
|
$
|
1.09
|
|
|
$
|
0.93
|
|
|
$
|
0.82
|
|
Diluted
earnings (loss) per common share
|
|
$
|
(1.01
|
)
|
|
$
|
1.24
|
|
|
$
|
1.02
|
|
|
$
|
0.87
|
|
|
$
|
0.73
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Basic
|
|
|
43,160,860
|
|
|
|
42,312,522
|
|
|
|
40,820,909
|
|
|
|
35,704,426
|
|
|
|
31,432,080
|
|
Diluted
|
|
|
43,160,860
|
|
|
|
45,027,633
|
|
|
|
43,616,445
|
|
|
|
38,422,152
|
|
|
|
34,932,232
|
|
|
|
December
31,
|
|
|||||||||||||||||
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|||||
|
|
(In
thousands)
|
|
|||||||||||||||||
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
271,047
|
|
|
$
|
147,358
|
|
|
$
|
84,105
|
|
|
$
|
64,346
|
|
|
$
|
59,656
|
|
Investments
and restricted deposits
|
237,603
|
202,916
|
233,257
|
220,335
|
104,999
|
|||||||||||||||
Total
assets
|
|
|
894,980
|
|
|
|
668,030
|
|
|
|
527,934
|
|
|
|
362,692
|
|
|
|
210,327
|
|
Medical
claims liabilities
|
280,441
|
170,514
|
165,980
|
106,569
|
91,181
|
|||||||||||||||
Long-term
debt
|
|
|
174,646
|
|
|
|
92,448
|
|
|
|
46,973
|
|
|
|
7,616
|
|
|
|
—
|
|
Total
stockholders’ equity
|
|
|
326,423
|
|
|
|
352,048
|
|
|
|
271,312
|
|
|
|
220,115
|
|
|
|
102,183
|
—
|
Year-end
Medicaid Managed Care membership of 1,262,200, including 138,900
members
in Kansas and Missouri.
|
—
|
Total
revenues of $2.3 billion.
|
—
|
Medicaid
and SCHIP health benefits ratio, or HBR, of 82.6%, SSI HBR
of 87.6%,
Specialty Services HBR of 82.5%.
|
—
|
Medicaid
Managed Care general and administrative, or G&A, expense ratio of
12.6% and Specialty Services G&A ratio of
16.9%.
|
—
|
Diluted
net loss per share of $1.01, including $94.5 million pre-tax,
or
$2.04 per share, charges for intangible asset impairment and costs
to
exit Kansas and Missouri.
|
—
|
Total
operating cash flows of $195.0
million.
|
—
|
Effective
September 1, 2006, we began operating under a new contract and expanded
operations in Texas to include 11,500 Medicaid and SCHIP members
in the
Corpus Christi, Austin and Lubbock
markets.
|
—
|
In
Georgia, we began managing care for Medicaid and SCHIP members in
the
Atlanta and Central regions effective June 1, 2006 and Southwest
region
effective September 1, 2006. At December 31, 2006, our membership
in
Georgia was 308,800.
|
—
|
We
began operating under new contracts with the State of Ohio to manage
care
for 37,200 Medicaid members by entering seven new counties in the
East
Central market on July 1, 2006, and 17 new counties in the Northwest
market on October 1, 2006.
|
—
|
Effective
June 1, 2006, we acquired MediPlan Corporation, or MediPlan, and
began
managing care for an additional 13,600 members in Ohio. The results
of
operations of this entity are included in our consolidated financial
statements beginning June 1, 2006.
|
—
|
Effective
May 1, 2005, we acquired the operating assets of SummaCare, Inc.
The
results of operations of this entity are included in our consolidated
financial statements beginning May 1,
2005.
|
—
|
During
the second quarter of 2006, we were awarded a contract in Texas
to provide
managed care for SSI recipients in the San Antonio and Corpus Christi
markets. Membership operations commenced in February 2007.
|
—
|
During
2006, we received notification of an award in Ohio to provide managed
care
for Medicaid Aged, Blind or Disabled, or ABD, members in four regions.
Operations commenced in the Northeast and Southwest regions on
January 1
and February 1, 2007, respectively. Implementation is expected
to take
place in the Northwest region in March 2007 and in the East Central
region
in April 2007.
|
—
|
Effective
October 1, 2006, we began performing under our contract with the
Arizona
Health Care Cost Containment System to provide long-term care services
in
the Maricopa, Yuma and LaPaz counties in Arizona.
|
—
|
Effective
July 1, 2006, we acquired the managed vision business of OptiCare
Managed
Vision, Inc., or OptiCare. The results of operations of this entity
are
included in our consolidated financial statements beginning July
1,
2006.
|
—
|
Effective
May 9, 2006, we acquired Cardium Health Services Corporation, or
Cardium,
a disease management company. The results of operations of this entity
are
included in our consolidated financial statements beginning May 9,
2006.
|
—
|
Effective
January 1, 2006, we acquired US Script, Inc., or US Script, a pharmacy
benefits manager (PBM). The results of operations of this entity
are
included in our consolidated financial statements beginning January
1,
2006.
|
—
|
Effective
July 22, 2005, we acquired AirLogix, Inc., or AirLogix, a disease
management provider. The results of operations of this entity are
included
in our consolidated financial statements since July 22, 2005.
|
—
|
Effective
July 1, 2005, we began performing under our contract with the State
of
Arizona to facilitate the delivery of mental health and substance
abuse
services to behavioral health recipients in Arizona.
|
2006
|
2005
|
2004
|
%
Change
2005-2006
|
%
Change
2004-2005
|
||||||||||||
Premium
revenue
|
$
|
2,199.4
|
$
|
1,491.9
|
$
|
991.7
|
47.4
|
%
|
50.4
|
%
|
||||||
Service
revenue
|
79.6
|
14.0
|
9.2
|
469.9
|
%
|
50.7
|
%
|
|||||||||
Total
revenues
|
2,279.0
|
1,505.9
|
1,000.9
|
51.3
|
%
|
50.4
|
%
|
|||||||||
Medical
costs
|
1,819.8
|
1,226.9
|
800.5
|
48.3
|
%
|
53.3
|
%
|
|||||||||
Cost
of services
|
60.7
|
5.9
|
8.1
|
938.0
|
%
|
(27.5
|
)%
|
|||||||||
General
and administrative expenses
|
346.3
|
193.9
|
127.8
|
78.6
|
%
|
51.7
|
%
|
|||||||||
Impairment
loss
|
81.1
|
—
|
—
|
—
|
—
|
|||||||||||
Earnings
(loss) from operations
|
(28.9
|
)
|
79.2
|
64.5
|
(136.5
|
)%
|
22.7
|
%
|
||||||||
Investment
and other income, net
|
7.3
|
6.6
|
5.8
|
8.9
|
%
|
15.9
|
%
|
|||||||||
Earnings
(loss) before income taxes
|
(21.6
|
)
|
85.8
|
70.3
|
(125.2
|
)%
|
22.2
|
%
|
||||||||
Income
tax expense
|
22.0
|
30.2
|
26.0
|
(27.3
|
)%
|
16.4
|
%
|
|||||||||
Net
earnings (loss)
|
$
|
(43.6
|
)
|
$
|
55.6
|
$
|
44.3
|
(178.4
|
)%
|
25.5
|
%
|
|||||
Diluted
earnings (loss) per common share
|
$
|
(1.01
|
)
|
$
|
1.24
|
$
|
1.02
|
(181.5
|
)%
|
21.6
|
%
|
1.
|
Membership
growth
|
December
31,
|
||||||
2006
|
2005
|
2004
|
||||
Georgia
|
308,800
|
—
|
—
|
|||
Indiana
|
|
183,100
|
|
193,300
|
|
150,600
|
New
Jersey
|
|
58,900
|
|
56,500
|
|
52,800
|
Ohio
|
|
109,200
|
|
58,700
|
|
23,800
|
Texas
|
|
298,500
|
|
242,000
|
|
244,300
|
Wisconsin
|
|
164,800
|
|
172,100
|
|
165,800
|
Subtotal
|
|
1,123,300
|
|
722,600
|
|
637,300
|
Kansas
|
|
107,000
|
|
113,300
|
|
94,200
|
Missouri
|
|
31,900
|
|
36,000
|
|
41,200
|
Total
|
|
1,262,200
|
|
871,900
|
|
772,700
|
|
|
December
31,
|
||||
|
|
2006
|
|
2005
|
|
2004
|
Medicaid
|
|
887,300
|
|
573,100
|
|
484,700
|
SCHIP
|
|
216,200
|
|
134,600
|
|
142,200
|
SSI
|
|
19,800
|
|
14,900
|
|
10,400
|
Subtotal
|
1,123,300
|
722,600
|
637,300
|
|||
Kansas
and Missouri Medicaid/SCHIP members
|
138,900
|
149,300
|
135,400
|
|||
Total
|
|
1,262,200
|
|
871,900
|
|
772,700
|
2.
|
Premium
rate increases
|
3.
|
Specialty
Services segment growth
|
|
Year
Ended December 31,
|
|||||||||
|
2006
|
2005
|
2004
|
|||||||
Medicaid
and SCHIP
|
82.6
|
%
|
81.8
|
%
|
80.4
|
%
|
||||
SSI
|
87.6
|
97.5
|
93.8
|
|||||||
Specialty
Services
|
82.5
|
85.0
|
—
|
|
Year
Ended December 31,
|
|||||||||
|
2006
|
2005
|
2004
|
|||||||
Medicaid
Managed Care
|
12.6
|
%
|
10.5
|
%
|
10.7
|
%
|
||||
Specialty
Services
|
16.9
|
35.4
|
52.3
|
|
Payments
Due by Period
|
||||||||||||||
|
Total
|
|
Less
Than
1
Year
|
|
1-3
Years
|
|
3-5
Years
|
|
More
Than
5
Years
|
||||||
Medical
claims liabilities
|
$
|
280,441
|
|
$
|
280,441
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Debt
|
|
175,617
|
|
|
971
|
|
|
9,923
|
|
|
160,372
|
|
|
4,351
|
|
Operating
leases
|
|
55,676
|
|
|
12,232
|
|
|
19,610
|
|
|
14,522
|
|
|
9,312
|
|
Purchase
obligations
|
17,589
|
5,819
|
10,021
|
1,749
|
—
|
||||||||||
Total
|
$
|
529,323
|
|
$
|
299,463
|
|
$
|
39,554
|
|
$
|
176,643
|
|
$
|
13,663
|
Completion
Factors (1):
|
|
Cost
Trend Factors (2):
|
|||||||||
(Decrease)
Increase
in
Factors
|
|
Increase
(Decrease)
in
Medical
Claims
Liabilities
|
(Decrease)
Increase
in
Factors
|
|
Increase
(Decrease)
in
Medical
Claims
Liabilities
|
||||||
|
|
(in
thousands)
|
|
|
(in
thousands)
|
||||||
(3
|
)%
|
$
|
38,100
|
(3
|
)%
|
$
|
(12,900
|
)
|
|||
(2
|
)
|
|
|
25,100
|
(2
|
)
|
|
(8,600
|
)
|
||
(1
|
)
|
|
|
12,100
|
(1
|
)
|
|
(4,300
|
)
|
||
1
|
|
|
(12,200
|
)
|
1
|
|
4,300
|
||||
2
|
|
|
(24,100
|
)
|
2
|
|
8,700
|
||||
3
|
|
|
(35,800
|
)
|
3
|
|
13,200
|
(1)
|
Reflects
estimated potential changes in medical claims liabilities caused
by
changes in completion factors.
|
(2)
|
Reflects
estimated potential changes in medical claims liabilities caused
by
changes in cost trend factors for the most recent periods.
|
|
Year
Ended December 31,
|
|||||||||
|
2006
|
2005
|
2004
|
|||||||
Balance,
January 1
|
$
|
170,514
|
$
|
165,980
|
$
|
106,569
|
||||
Acquisitions
|
1,788
|
—
|
24,909
|
|||||||
Incurred
related to:
|
||||||||||
Current
year
|
1,832,096
|
1,244,600
|
816,418
|
|||||||
Prior
years
|
(12,285
|
)
|
(17,691
|
)
|
(15,942
|
)
|
||||
Total
incurred
|
1,819,811
|
1,226,909
|
800,476
|
|||||||
Paid
related to:
|
||||||||||
Current
year
|
1,555,074
|
1,075,204
|
681,780
|
|||||||
Prior
years
|
156,598
|
147,171
|
84,194
|
|||||||
Total
paid
|
1,711,672
|
1,222,375
|
765,974
|
|||||||
Balance,
December 31
|
$
|
280,441
|
$
|
170,514
|
$
|
165,980
|
||||
Claims
inventory, December 31
|
296,000
|
255,000
|
150,000
|
|||||||
Days
in claims payable (1)
|
46.4
|
45.4
|
66.5
|
(1)
|
Days
in claims payable is a calculation of medical claims liabilities
at the
end of the period divided by average expense per calendar day for
the
fourth quarter of each year. Days in claims payable decreased in
2005 due
to the settlement of a lawsuit with Aurora, information systems
improvements to reduce our claims processing cycle time and the effect
of
our behavioral health contract in Arizona.
|
· |
our
ability to accurately predict and effectively manage health benefits
and
other operating expenses;
|
· |
competition;
|
· |
changes
in healthcare practices;
|
· |
changes
in federal or state laws or
regulations;
|
· |
inflation;
|
· |
provider
contract changes;
|
· |
new
technologies;
|
· |
reduction
in provider payments by governmental
payors;
|
· |
major
epidemics;
|
· |
disasters
and numerous other factors affecting the delivery and cost of
healthcare;
|
· |
the
expiration, cancellation or suspension of our Medicaid managed care
contracts by state governments;
|
· |
availability
of debt and equity financing, on terms that are favorable to us;
and
|
· |
general
economic and market conditions.
|
|
|
For
the Quarter Ended
|
||||||||||
|
|
March
31,
2006
(1)
|
|
June
30,
2006
(2)
|
|
September
30,
2006
(3)
|
|
December
31,
2006
(4)
|
||||
Total
revenues
|
|
$
|
455,078
|
|
$
|
495,293
|
|
$
|
631,249
|
|
$
|
697,400
|
Earnings
(loss) from operations
|
|
|
12,596
|
|
|
6,306
|
|
(66,556
|