Centene Warns States May Cut Medicaid Payments to Insurers

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Centene Corp. warned that the Covid pandemic could lead Medicare and Medicaid programs to cut the rates paid to care providers and health plans.

The health insurer said in a quarterly securities filing disclosure Tuesday that it could face delayed or reduced payments from the government due to Covid-19. Previously, in disclosing virus-related risks, Centene had said only that payments could be delayed.

The coronavirus pandemic tipped the U.S. economy into recession early this year. Economic contractions tend to erode the amount of tax dollars collected, straining government budgets.

Centene executives said on a call with analysts that they’re having productive conversations with states about reimbursement rates.

“While we do expect some short-term pressure on rates, these rates have to be actuarially sound,” Chief Executive Officer Michael Neidorff said. That means managed-care companies can contest state rate proposals that are insufficient to cover the costs of care for Medicaid beneficiaries.

The longer-term risk of a decline in government payments has gotten less attention than the immediate financial hit suffered by lots of medical providers during the pandemic. But it may be a significant longer-term factor for a sector that depends on public funding for much of its revenue.

Centene, which posted stronger-than-expected second-quarter financial results, saw its shares decline as much as 3.9% in New York trading. The stock is up about 4% for the year to date.

Containing Costs

Neidorff said he expects more states to turn to companies like Centene for help holding down costs in their Medicaid programs, which are often among the biggest state budget expenditures alongside education. He said states must also take into account insurers’ Covid-related costs, as well as the expectation that people who recently deferred medical care as the virus spread will have higher expenses later.

States can adjust the monthly per-member fees they pay to Medicaid managed-care companies up or down by 1.5% if they make corresponding changes in program benefits.

“We’ve included I think a reasonable assumption of rate adjustments from now to the end of this year,” Chief Financial Officer Jeff Schwaneke said on the call.

Cantor Fitzgerald analysts wrote in a note that Centene tends to have good relationships with state customers, and “we are not that concerned regarding the rate outlook, at this juncture.”

Centene executives also said on the call that Congressional assistance to state Medicaid programs in the form of increased federal matching funds is bolstering the safety-net program.

In an interview with Bloomberg News, Neidorff downplayed the disclosure of the potential for lower government payments. Centene routinely discloses a long list of potential pitfalls, including how changes in state programs could affect financial results.

Securities filings aren’t “marketing documents,” Neidorff said. “They’re legal documents that highlight absolutely what could go wrong, not necessarily what is.”

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