Good day, and welcome to the Centene Corporation First Quarter 2022 Earnings Results Conference Call. All participants will be in a listen-only mode. Please note, today's event is being recorded. I would now like to turn the conference over to Jennifer Gilligan. Please go ahead, ma'am. Thank you, Rocco, and good morning, everyone. Thank you for joining us on our First Quarter 2022 Earnings Results Conference Call. Sarah London, Chief Executive Officer; Brent Layton, President and Chief Operating Officer; and Drew Asher, Executive Vice President and Chief Financial Officer of Centene, will host this morning's call, which also can be accessed through our website at centene.com. Any remarks that Centene may make about future expectations, plans, and prospects constitute forward-looking statements for the purpose of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in Centene's most recent Form 10-K filed on February 22, and other public SEC filings. Centene anticipates that subsequent events and developments may cause its estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The call will also refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our First Quarter 2022 press release, which is available on the company's website under the Investors section. Additionally, please mark your calendars for our upcoming Investor Day scheduled for June 17. This meeting will be hosted in a virtual format available via webcast. With that, I would like to turn the call over to our CEO, Sarah London. Sarah?

Thank you, Jen. Good morning, everyone, and thank you for joining us as we review our First Quarter 2022 results. I want to begin by acknowledging the passing of a great man, Michael Neidorff, whose leadership and passion built Centene into the purpose-driven market leader that it is today. Michael infused our entire organization with the belief that high-quality affordable health care should be within reach of every American, especially our nation's most vulnerable. On behalf of the entire Centene team, I want to send our thoughts and prayers to Michael's family. We will miss him dearly, but I can assure you that Michael's legacy lives on in the men and women of this company, and our commitment to his vision has never been stronger. On our call today, I'll begin with an update regarding the company's leadership structure, touch on first quarter highlights, and then provide you an update on strategy and our value creation initiatives. Brent will speak to our performance in our core business lines. And finally, Drew will review our financial results and full-year 2022 outlook in more detail. First, the company's core leadership structure. We are updating this morning the construct of the office of the CEO. This group of individuals represents the most experienced, strategic, and senior leaders of the organization who will assist me in setting policy and driving forward Centene's enterprise agenda. The office of the CEO includes myself, Brent Layton, our President and Chief Operating Officer; Drew Asher, our Chief Financial Officer; Jim Murray, our Chief Transformation Officer, who will take on expanded responsibilities in addition to our value creation office; and Ken Fasola, who, in addition to leading Magellan, will assume oversight of our portfolio of strategic non-health plan assets. This construct, with key support from our Chief Administrative Officer and General Counsel, formalizes the manner in which we've been operating for the last several months and represents the agenda-setting nucleus of the organization as we enter the next stage of transformation and growth. Now let's discuss our first quarter results. Centene delivered a strong first quarter performance, including adjusted diluted EPS of $1.83, up 12% compared to the year-ago quarter. We closed the quarter with 26.2 million members, up 8% compared to the year-ago quarter, demonstrating the strength and value of our products in the market and the success of our enrollment periods. As a result, we are raising our full-year 2022 outlook from our previously provided range. We now expect our full-year 2022 adjusted EPS to be within a range of $5.40 to $5.55. Drew will provide more details on the quarter and outlook in a few moments. Now to strategy. Over the last few months, the opportunities to optimize and strengthen our business have become even clearer. We remain hyper-focused on executing our value creation plan with many workstreams well underway and clear milestones ahead. At the same time, we are refreshing our long-term strategy in order to pave the way for growth beyond our 2024 horizon. As we have said before, focusing on our core business and prioritizing value creation are not just short-term ideas. They are pillars of and critical inputs to a long-term strategic vision for the company. Let me give you an example. Over the last 9 months, you have heard us repeatedly talk about operating excellence as a focus of our value creation work. It includes streamlining platforms, standardizing processes, modernizing systems, and using data everywhere to be as smart as possible about how we do our work. It means fewer calls, fewer clicks, and faster answers. Will it create SG&A savings? Absolutely. Is that our measure of success? No. The real goal of operating excellence is to fundamentally improve the experience that members, providers, community and state partners have with Centene. Success, put simply, is making it easier to do business with us. For our members, we believe we can deliver more seamless and efficient ways to deliver the information, access, and care they need when and where they need it most. Our goal is to increasingly empower our members and their caregivers as agents and advocates in the care journey. For our provider partners, we believe there is a significant opportunity to align more closely in value-based partnerships, and we are committed to delivering the data and tools that will help them drive better health outcomes. For our state partners, we believe in being excellent at the basics, but we also intend to leverage our uniquely local approach to deliver innovative solutions that are infused with an understanding of the communities we serve and designed to help them succeed. The goal across all stakeholders is the same: to build lasting trusted relationships. This has been a differentiator for Centene from the beginning, and we intend to build on this strength as we grow and innovate. More to come on this during our June Investor Day. In the meantime, you should feel confident the work we do over the next 3 years will not only align with but naturally fuel our next phase of innovation and growth, and we are designing and executing with that end in mind. Now turning to specific updates on the value creation work. We remain on track to achieve our previously stated goals. Jim Murray and his team are moving at a rapid but thoughtful pace to execute on these initiatives with tremendous support and partnership from both our corporate business leaders and our local team leaders. While we are excited about our progress, we also ask you to recognize that some of these initiatives are complex and will take years to fully complete. We are being deliberate, using a step-by-step approach to ensure that standardization and operational enhancements are taking place in the right way across the organization. This means that as we enhance certain enterprise-wide best practices, we will also preserve the local feel and approach that has served as this company's hallmark for 2 decades. I'll give you a few examples of the progress the team has achieved in the quarter. First, we successfully hit our pharmacy platform migration milestones and are already engaged in strategic discussions with our potential PBM partners about how to drive additional quality and value in delivering pharmacy benefits to our members. Last week, slightly ahead of schedule, we released the RFP that will cover our more than $40 billion of pharmacy spend in 2022. We have made meaningful progress this quarter in evaluating our existing portfolio of real estate assets, given our commitment to increased work-from-home and flexible work models. We are in the process of determining the necessary square footage to support our employees moving forward and anticipate a significant downsizing of our current leased space. We have also advanced our efforts to centralize key functions such as utilization management and call centers to enterprise shared services organizations. To that end, we performed a lift and shift of reporting responsibilities for both these functions earlier this month. For the remainder of the year, we will be focusing on standardizing best practices and optimizing these operating models. In addition to the savings opportunity, we believe these organizational shifts will create a better experience for our members and providers as well as our employees. Lastly, and importantly, we've kicked off our efforts around large-scale IT platform consolidation. As you know, Centene has grown tremendously through acquisition over the last several years. And as we have mentioned before, the resulting technology footprint includes multiple core platforms and over 500 support applications. The conversion process will require a multiyear staged approach to de-risk the effort, but the opportunity for increased efficiencies is significant. And while this will be hard work, consolidation is necessary to enable the stakeholder experience we intend to deliver. These are just a few examples of the nearly 15 workstreams in the process of being activated. As I stated earlier, we are very pleased with our progress but recognize that we still have miles to go before we sleep. Before I wrap up, I would like to highlight a recent example of the work we are doing to improve health equity through data-driven innovation. In March, Centene was one of 3 organizations who received the Innovation Award by the National Committee for Quality Assurance, or NCQA, for our focus on health equity. The award recognizes Centene's data-driven health equity improvement model for being a leading-edge strategy for improving health equity and health care quality. The effectiveness of our health equity improvement model represents success on many levels. By using a data-driven process, we are identifying opportunities to reduce health care disparities, designing initiatives across community member and provider levels, and tracking our impact. These efforts can produce higher quality outcomes for our members and, in turn, improvement to important metrics such as HEDIS scores. To highlight some examples, Centene's health equity model was able to improve rates of immunizations for Latino children with our Silversummit Health Plan in Nevada, colorectal cancer screening rates for American Indian and Alaska native members in our Arizona complete health plan and maternal health outcomes among African-American and Black members with our Health Net plan in California. Health Net has also been chosen to participate in NCQA's Health Equity accreditation plus pilot program. Addressing Health Equity in new and innovative ways is very much aligned with our purpose and will be an important part of our work going forward. Further, applying big data to drive local outcomes will be a critical and sustaining differentiating strategy for the enterprise. In closing, I'm humbled by the opportunity to lead this exceptional team and company. We have significant runway ahead to deliver for our members, enhance our operations, achieve our financial commitments, and create value for our shareholders. With that, I will turn it over to Brent, who will provide an update on our core business lines. Brent?

Thank you, Sarah. Good morning, everyone. Before I jump in, I'd like to build on Sarah's remarks. I had the pleasure of working with Michael Neidorff for 21 years. His impact on this company is undeniable, and I will continue to be thankful for the opportunity he gave me. I'd also like to take a moment to recognize this is Sarah's first earnings call as our CEO. And Sarah, I couldn't be more pleased to continue to work with you in your new role. And I think I speak for the entire team here at Centene when I say we're excited about what the future holds for us as an organization under your leadership. Now back to the business today. I'm happy to talk about the performance of our core business lines during the first quarter. In the first quarter, we have seen HBR in line with expectations across each of our core products. Our Medicaid business remains strong with membership increasing to nearly 15.3 million members at the end of the first quarter and contract re-procurement wins in Louisiana and Indiana. As I'm sure you've all gotten used to me saying, our Medicaid growth continues to be aided by the ongoing suspension of redeterminations. As Drew will explain further, we anticipate the return of redeterminations in August. We continue to work with our state partners to better understand how we can support this transition and are confident in our ability to retain and attract membership to our exchange products in the 25 states where we have both Medicaid and Marketplace. As states begin to transition back to redeterminations, I believe we will begin to see new opportunities for Medicaid managed care programs as we move past the pandemic, and states look to improve health outcomes and make Medicaid programs more efficient. In our exchange product, following a strong open enrollment, we ended the quarter at over 2 million members. We are pleased with both our member retention and our new member enrollments. As I discussed at the fourth quarter call, we introduced 3 new product offerings for the exchange in 2022. These products designed to meet the evolving needs of our members have performed in line with our expectations, served as both a tool for our member retention and attraction as a means to provide member engagement and manage utilization. While we're pleased with the performance of these products, our core and better product offerings remain the foundation of our exchange offerings. We continue to monitor the administration's adjustment to the exchange market, including efforts to close the family glitch, which could allow an additional 5 million people to use tax credits to purchase Marketplace plans. In Medicare, we ended the quarter following annual enrollment with more than 1.4 million members across 36 states. Overall, we are very pleased with our strong growth of Medicare, yielding 200,000 net new members and 16% membership growth year-over-year 2021. We've managed well through another COVID variant at the top of the year as well. As we continue into 2022 and beyond, we see significant opportunity in Medicare. Our focus continues to be margin enhancement through clinical initiatives, network expansion, and value-based contracting. Overall, 2022 is off to a solid start across all 3 core products. With that, let me turn the call over to Drew.

Thank you, Brent. This morning, we kicked off 2022 with first quarter results of $37.2 billion in revenue and adjusted diluted earnings per share of $1.83 in the quarter, up 12% from $1.63 in Q1 2021. Let's start with revenue for the quarter. Total revenue grew by $7.2 billion compared to the first quarter of 2021 primarily due to strong organic growth throughout the last year in Medicaid and strong Medicare membership growth during the annual enrollment period. Total membership increased to 26.2 million, up 8% compared to a year ago. It's important to note a couple of revenue drivers that were unplanned in the quarter. First of all, you will see that our premium tax revenue was $3 billion in the quarter. That's about $1.5 billion more than we had estimated. This was largely due to 4 states providing lump sums for us to pass through to providers. And remember, this revenue item is interesting but not relevant since it's 100% pass-through. That's why we are constantly orienting you to the premium and service revenue, which drives important metrics like net income margin and SG&A percentage. Premium and Service revenue of $34.2 billion in the quarter was about $1 billion higher than our expectation with approximately half of it due to a Texas retroactive hospital pass-through that CMS recently restored. Because there's a small administrative provision on this retro item, it's included in premium revenue, not premium tax revenue. The remainder of Premium and Service revenue outperformance was strong continued Medicare and Medicaid growth. Our Q1 consolidated HBR was 87.3%, consistent with our expectation, leaning slightly positive. Since you now have visibility and comparability into quarterly HBR components, let's talk about each. Medicaid at 88.9% was right on track in the quarter. Our Medicare HBR was slightly better than our expectation driven by a good quarter for our Medicare PDP business. The PDP business may only be $2 billion in annual revenue, but it's a great asset. That's the largest contributor to our over $40 billion of 2022 pharmacy spend, and it's a good captive audience for our Medicare Advantage business. All right, back to the Q1 HBR. Our commercial business improved 420 basis points year-over-year reflecting pricing discipline and making progress towards the annual goal we laid out at Investor Day. Moving to other P&L and balance sheet items, our adjusted SG&A expense ratio was 7.7% in the quarter, consistent with our expectations compared to 7.6% last year. The inclusion of Magellan and Circle each increased the year-over-year ratio by approximately 20 and 15 basis points, respectively. We expect our value creation plan to drive SG&A lower over the next few years. Cash flow provided by operations was $1.2 billion in the first quarter primarily driven by net earnings. Our domestic unregulated and unrestricted cash on hand at quarter end was $68 million as expected after closing the Magellan transaction in early Q1. Our goal continues to be to build cash at parent beginning in the back half of 2022 for share buybacks and debt paydown. This corresponds with the timing of the majority of our health plan dividends. Debt at quarter end was relatively flat at $18.9 billion. Our debt-to-cap ratio was down slightly at 40.7%, excluding our nonrecourse debt. Our medical claims liability totaled $16.3 billion at quarter end, up $2 billion and represents 53 days in claims payable compared to 52 in Q4 2021. As we begin 2022, we're building momentum both in our businesses and our value creation plan. And as you've heard me say many times, one quarter doesn't make the year. However, we do have a quarter of actuals under our belt, and we all know that the PHE has been pushed out to July, and therefore, redeterminations would start after that. So let's go through some changes we made in full-year 2022 guidance metrics. Premium and Service revenue was up $2.5 billion, including the first quarter results, the Texas item we discussed earlier, and an assumption that redeterminations commence August 1, 3 months later than our prior assumption. Since we continue to grow due to the pushback of the PHE end date, we also expect the ultimate run-rate revenue reduction to be higher at around $6 billion, up from our previous estimate of $5 billion. That will largely impact 2023. Continuing on with 2022 guidance, premium tax revenue, once again, with no impact on the bottom line, is up $1.5 billion for 2022. And our HBR and SG&A ranges are reconfirmed and unchanged. Overall, given the results in the quarter and pushing back the commencement of redeterminations, we are raising our adjusted EPS guidance range to $5.40 to $5.55 with a little over 60% in the first half of the year. As we look ahead, I'm pleased with the value creation work so far. And as Sarah said, this goes well beyond cost-cutting. Jim Murray and the team are making operational decisions and changes that are focused on long-term durability of operating excellence. You've heard this company talk for years about quality and STARS, and now better late than never, STARS is a tier 1 initiative of the value creation office with new investments being made in member engagement, value-based contracting, operational functions, and clinical initiatives. Given the STAR calendar, it will take a couple of years for our investments to show up in STAR scores that come out in late 2023, which will drive 2025 revenue. In the meantime, as we said in multiple venues, the STAR scores that come out in late 2022 that drive 2024 revenue will show a meaningful drop due to the sunsetting of the COVID era disaster relief provisions and our immature operations during these past measurement periods. On other value creation initiatives, we look forward to giving you more details at the June Investor Day, but let me give you a teaser on one that Sarah mentioned. While we are still finalizing the details, we expect to reduce over half of our domestic leased real estate footprint. Though there will be a one-time cost to this, which we will frame for you in Q2, the run-rate benefit will be a nice contributor to our value creation goals. More to come in June. In summary, the business is performing well while we are focused on, enthusiastic about, and investing in the future.

Today's first question comes from Justin Lake at Wolfe Research.

Sarah, congratulations on your new role. I wanted to ask a couple of questions. First, regarding the MLR. Drew, your breakdown of MLR by segment is very helpful. Can you share how those numbers compare to your expectations? I recall you anticipated that the exchanges would improve by 500 basis points. You also mentioned that Medicaid has likely increased by more than 100 basis points year-over-year. I'm curious how these figures turned out in relation to your expectations. Secondly, on the Medicaid front, how are the discussions progressing with states regarding the rate setting process for next year? Do you still expect them to allow the MLR floors to absorb any potential upside, or do you think the states might pursue lower rates due to reduced utilization?

Okay. Thanks, Justin. Yes. So ripping through the HBRs by our lines of business, Medicaid was right on track in the quarter. And we sort of expect that to tick up during the year and then the fourth quarter would come down a little bit. You're right. On our commercial business, we expect about 500 basis points year-over-year improvement. We got 420 in the first quarter. That's right on track with our expectation. Last Q2 was pretty ugly for commercial. So you'll see a wider gap there or improvement there, and we expect that to continue on for the rest of the year. So we're right on track. Commercial and Medicare was a little bit better than expectation due to the PDP business not only in HBR, but I'm actually pleased with that business. We had to collapse 6 of our products down to 3. Remember, we acquired Aetna's business a few years ago. And after a few years, you have to get down to the 3 products, and we had great retention based on some programs that were implemented, so not just an HBR benefit, but also really good retention performance on that business. And then the sunsetting of the risk corridors, that continues. We're still down to about half a dozen COVID era risk corridors, and therefore, the paybacks we're seeing have diminished quite a bit from last year, and those discussions continue to be constructive.

And ladies and gentlemen, our next question today comes from John Raskin of Nephron Research.

So I just wanted to draw on Sarah's comments earlier about the provider network. And how are you thinking about sort of network development? And specifically curious about potential impacts from providers that are seeing pressure on labor cost inflation. And then maybe any specifics around the changes with respect to value-based care in 2023 and beyond.

Yes. Thanks. I can take that, and then we'll probably ask Brent to comment on it as well. So first, relative to inflation impacts, we haven't really seen anything so far this year. The fact that our rates are contracted creates a buffer on that but obviously aware of the potential future impact. And it's yet another reason why the move more aggressively to align with providers in value-based contracting is a major priority as we go forward. We've made really good progress on that and I think probably relative to peers are further along on the Medicaid side. But I'll let Brent talk about kind of where we are today and then how we're looking at that going forward.

We're spending a great deal of time working with providers on value base. And when I talk about value-based, I'm talking about risk both up and downside. And I would say that, in Medicare, we've continued a very strong effort. So we've always been very focused on value-based true risk in Medicare, and we're continuing that and accelerating that. Medicaid, though, is really discussions, as we moved into the pandemic and now coming out of the pandemic, have allowed us to really be a very high percentage for the Medicaid product. And I think you'll continue to see tremendous growth for risk within Medicaid. And right now, we're looking for the best approach within the exchange. So we're very focused and value-based, and there's a tremendous amount of effort and very excited about where, ultimately, our conversations, relationships with providers are going and where they're at today.

And ladies and gentlemen, our next question today comes from Scott Fidel with Stephens.

And first of all, I just wanted to send my condolences on Michael's passing to the Centene team. And then on the question, I was hoping maybe you can give us a little more insight just to some of the policy dynamics that are playing out here around the exchange market. And Brent, I know that you had touched on one of those with the administration looking to try to address the family glitch. We've also obviously got the temporary subsidies that were in place from the ARPA bill, and those may or may not expire. So just interested in how you're thinking about some of these policy sort of developments playing out and how much flexibility the administration will have to implement these just through executive actions or will there need to be a legislative vehicle to address some of these and if you see one of those actually emerging here at this point in time.

Yes. Scott, thanks for your comments and for the question. So I'll touch on the enhanced APTCs relative to the marketplace, and then we can talk about the family glitch as well. So the enhanced APTCs are currently scheduled to expire at the end of this year. And if those are allowed to expire, we estimate that it would impact around 10% to 15% of our Marketplace membership. That said, there is broad Democratic support for the program. And so as you pointed out, over the next couple of months, we're watching very closely to see if they can identify an actionable legislative vehicle. And so one example of that would be a slimmed-down Build Back Better. And the prevailing view is that the enhanced APTC is being extended out to 2025 as well as drug pricing reform would be the most likely healthcare candidates for inclusion in a bill like that. So watching that certainly very closely over the coming months here. But I would also say that we don't see it as a binary endpoint. There are other legislative and policy options that are available to mitigate the impact. So we're talking to our state and federal partners actively about those in parallel. And so as you would expect, overall, planning for both best and worst-case scenario and proactively working to support and shape policy that's not just good for Centene, but policy we think is good for the entire industry. I will turn it over to Kevin Counihan, who is on the phone, to talk a little bit more about the family glitch and how we see that as an opportunity for Ambetter product but also some of the hurdles that we would need to overcome in order to make that as actionable as possible.

Thanks. We're very pleased with the administration's decision regarding the family glitch. As you may know, we've been advocating for this for quite some time, and it's really a long overdue change. So it's a very welcome adjustment. As mentioned, there are clearly some issues in the draft final rule that we're working closely with CMS to address. Much of healthcare policy should focus on simplicity and making it easier for individuals and families to access affordable coverage. We believe the intent of the family glitch provision aims to achieve that, but I also think there are opportunities for improvement. As I said, we're actively working with CMS in a constructive manner to address these concerns.

And ladies and gentlemen, our next question today comes from Matt Borsch of BMO Capital Markets.

I was hoping you could help us understand the challenges from the expected decline in STAR revenues heading into 2023 and how you may have anticipated that in your 2023 bid. I know this is confidential, but perhaps you can give us some general direction on this.

Yes, that’s a great question. This actually pertains to 2024. The STAR scores released in October 2021, which relate to the rating year 2022, impact our revenue for 2023. Those scores were solid, partly thanks to the support from disaster relief provisions, but those will no longer be in effect as we enter 2024. Some of our operations and administrative measures were not up to standard in the latter half of 2020, and also for the 2021 service dates, which influence the rating year 2023 STAR scores that affect our revenue for 2024. We are optimistic about the potential for margin expansion in 2023 while trying to achieve some growth in Medicare Advantage for this year. We do have challenges ahead for 2024. Our responsibility as managers is to take proactive steps and implement strategies, and our value creation plan is specifically structured to achieve that.

Matt, I was just going to add a little bit more detail, and Drew touched on this in his comments, but sort of as we look forward, right, because it is a multiyear effort, our ability to focus on it and make it a tier 1 initiative right now is very important to making that sort of meaningful rebound. So we think we've talked about this before, but we hired a Chief Quality Officer in Q4 of last year. We are making real investments in processes and systems with a focus on the member experience. But I would also highlight this is another great motivator for alignment in value-based contracts with providers because that's the best way to improve member experience and make sure we're closing those gaps in care.

And our next question today comes from Kevin Fischbeck at Bank of America.

This is Adam Ron on for Kevin. It seems like you were largely able to improve your exchange margins and hit the enrollment targets that you outlined. So I'm wondering after the open enrollment experience that you had, if you noticed any increased price competition and if you would expect that to continue and how you think about growing off the space setting aside the expiration subsidies.

Yes, there is definitely competition, which has significantly increased in some markets over the past few years. Some companies are realizing that fundamentally, this is an insurance business, and they need to focus on profitability to sustain themselves. I believe this will lead to a better balance in the market moving forward. You're right that we've managed to navigate through that competition and we embrace it. Additionally, we have introduced a few new products that have allowed us to diversify our offerings.

Yes, we increased our premium but still managed to grow and succeed in our markets. This success is partly due to the new products we developed, including a clinic-focused initiative in South Florida and Texas, as well as a more tailored network approach that helped us retain members. We've not only grown but have also retained a significant number of our members year-over-year, which we're excited about. In fact, last year, we experienced substantial growth and were able to retain 69% of our members from 2021 to 2022. Retaining growth while introducing new products has been key to keeping our membership and achieving growth even after raising premiums.

And I've pointed this out before, but I'll do so again because I think it's an important bellwether that the work that the Marketplace team did to really understand the competitive dynamics on a county-by-county level and then to build that up to the portfolio performance that we were aiming for, I think, is not only tremendously impressive work but is also a good indicator of how we think about going into the calibration of margin and growth in Medicare in the upcoming bid cycle.

Our next question today comes from Gary Taylor at Cowen.

I know Michael will be missed, so I'll share my condolences as well. Just a 2-part question. First, Drew, I appreciate the comment on the Medicaid HBR seasonality. The commercial HBR seasonality was so unusual last year. I just wondered if you could comment on expectations for that line of business specifically, if we'll see a more typical seasonality where it's far lower in the first quarter, first half and higher in the second half. Second part of the question was just we read so much noise about the California PBM implementation with Magellan having gone poorly initially. And just wondered if you could comment on what you're doing to mitigate that. And can you provide any comfort that it won't have an impact on the August Medical award?

Let me hit the mechanical question first. You're right. Last year, we sort of whipsawed quarter to quarter in our commercial performance. Now part of that is COVID variants coming at us. And so I'll say everything else equal, Gary, we expect a steady tick-up based upon the benefit plan designs in the commercial business, as you would expect throughout the year, so a steady rise to get to our goals.

Yes. On the Magellan front, the team worked closely with the state in the early days and has been performing well since mid- to late February. There is no backlog in authorizations, and they have built a strong relationship through this collaboration. California is a key state for us, and we have focused on aligning with the state and meeting, if not exceeding, their expectations throughout the Magellan acquisition process, the Rx go-live, and our bid process. There were initial challenges, but the team has recovered impressively. While you would need to ask California for their perspective, the feedback we are receiving suggests they are very satisfied with our collaboration and partnership.

I'll add one thing. Obviously, California is a very important state to Centene, but we are very fortunate to have many years of experience in California, and we're honored to be in California. And we have a lot of preparation for this RFP. We've been preparing for a very long time, and we strive every day to be the best health plan in California. And that is our goal, and that's what we want to attain and will be.

And our next question today comes from Nathan Rich at Goldman Sachs.

Sarah, I wanted to follow up on some of your comments on the value creation plan to start. You mentioned putting the pharmacy RFP out. I guess could you maybe at a high level talk about the key elements of that RFP and what you're looking for in a partner and kind of where you see the biggest opportunities for cost improvement in your pharmacy book? And then maybe a bit longer term, but you talked about refreshing the long-term strategy to drive growth. I know you'll get into more detail in June, but could you maybe just talk about some of the key areas that you're looking at when you look at the business in terms of where you see the opportunity?

Sure, thank you for the question. I'll discuss the PBM aspect and also invite Drew to contribute, as we've been having discussions with potential partners together. We issued the RFP early and remain on schedule for the year-end award. The reason for releasing the RFP ahead of time was to facilitate a more strategic discussion about the scope with that partner. The key criteria will focus on quality and performance, as transparency is very important. We want to ensure that we have a partner who is closely aligned with us. While economics are critically important, they are just one aspect; we also need a partner who can provide a responsive member and provider experience, emphasizing quality. Drew, would you like to add anything?

I think you hit on the key word, which is partner. I don't want to have to arm wrestle every other month on issues and really want someone in tandem thinking about how we can deliver the most value to our state and federal customers and our members. So I'm pretty pleased with the level of engagement so far.

And then on the strategy front, obviously, we'll get more into this in June, and I think more over the back half of the year. But you've heard us lay out some of the principles. And so making sure that we are growing from the strength of the core business lines and looking at obvious adjacencies and then making sure that we are operating at a high level of excellence on an ongoing basis because we believe that will build the trusted relationships and, through that local approach, can give us a differentiated strategy for growth. So more to come in June on that.

And ladies and gentlemen, our next question comes from A.J. Rice at Credit Suisse.

Just wanted to follow up. First, a clarification on comments Sarah made about the Medicare bid strategy. I think previously, you guys have said that your focus in '23 will be on pricing for margin. I wonder if you would still say that would be the case. And then a more broad question, you referenced in the release that Medicaid utilization seems to be returning to somewhat normalcy. I wonder where are you at relative to a pre-pandemic level or baseline level on Medicaid at this point. Do you think you're fully sort of where you would be? Or is there still some utilization that has not come back? And if you want to make any comments on Medicare and the Marketplace as well on that, that would be great.

Sure. Thanks, A.J. I will just clarify relative to Medicare, the focus is absolutely on margins, still preserving slight growth but really starting to turn the dial on margin expansion. And it's, as Drew has said before, it's a multiyear journey, but it starts in 2023. Drew, do you want to talk about utilization?

Yes, sure. Yes, we're pretty close back to sort of the pre-pandemic levels on Medicaid. Let me give you a couple of examples. Like pediatric physicals and preventative, that snapped back pretty quickly, which is a good thing in 2020. But the adult visits are still lagging a little bit, and then ER has come back for all business lines, except for non-emergent in ER visits in Medicaid. So there's a couple of pockets where there's still a little bit of slight suppression, but we're largely back to pre-pandemic levels as we look at utilization metrics.

And our next question today comes from Michael Ha with Morgan Stanley.

My condolences to Michael and the Centene team. I have a two-part question regarding the Medicaid pipeline. First, with the upcoming RFPs, could you highlight which near-term opportunities are priorities for Centene? It appears they are mainly reprocurements, but are there any specific new opportunities you are considering? The second part is for Sarah. Congratulations on your appointment. Michael has mentioned that Centene is more than just a health plan, and with your strong background in health care technology, we are eager to see how you will advance the company. Specifically regarding Medicaid, could you discuss how you plan to maintain the company’s RFP run rate, which has remained around 80% for most of the past decade?

There’s no doubt the Medicaid RFP pipeline is reopening. It’s much more like a 2017, 18 and 19. Clearly, the pandemic slowed down reprocurements in 20 and 21. And with that, we’re seeing both, yes, reprocurements, and we have prepared for these, we try to run the very best health plans each and every day and respond to win these RFPs. But we also see a lot of new opportunities. We see new opportunities in states that have managed care for Medicaid that we’re not in. And yes, we’re beginning many, many discussions with states talking about enhancing their Medicaid program. So I think you’ll see a great deal of RFPs where it gives us new opportunity to grow and new opportunity really to have a positive impact. We’re actually very excited about it, seeing that really normal course is reappearing.

And ladies and gentlemen, our next question today comes from George Hill with Deutsche Bank.

Yes. Just a quick follow-up on the PBM RFP. Can you talk about how broad the PBM RFP is going? And why is it going to what I would call the usual suspects? And maybe can you talk about how you think about an early renewal for '23, given that you've got a pretty good partner at CVS, and they've got the ability to pull some of the cost savings forward.

Yes. We need a partner that can handle the size and scale of $40 billion of spend and the complexity of a multiline business. So that does limit the field to some degree, but there's still adequate competition out there. And I mean each of the parties has their own unique opportunities to impress us.

And I would just reiterate relative to the timing that, again, we released the RFP early in order to give time for those fulsome conversations, but we're still on track for year-end award. And as Drew has said and we have said multiple times, that there's nothing like a good old-fashioned RFP to make sure that we're getting the best economics.

And our next question today comes from Steven Valiquette with Barclays.

Great. Let me also offer my condolences to everyone who is close to Michael. Just a quick question here. In relation to your comment that you now expect the $6 billion revenue loss from the redeterminations from the $5 billion previously. Was there any change to your internal projection on where you think you'll end the 2023 in relation to the Medicaid membership numbers? Or is that $1 billion additional revenue falloff just purely related to the extra revenue that you'll book for the additional months in '22 that would still fall off in '23? I just want to understand the mechanics around that. But more importantly, just where you think your membership numbers will end '23. Any change there or not?

Yes. Let me respond this way. Since March 2020, the start of the pandemic, we have gained 2.8 million members in Medicaid, not including additions like the North Carolina or Missouri expansions, which were organic wins. We anticipate that just over half of those members will leave through the redetermination process; this is an estimate. However, it's a complex estimate we have developed by analyzing trends based on direct discussions with the state. Brent and Dave Thomas's team has effectively engaged with states to prepare for the opportunity in the marketplace. Regarding Medicaid, we expect that just over half of the 2.8 million members, which corresponds to $6 billion in revenue, will leave primarily by the end of 2023. Some may extend into 2024, depending on the states that choose to delay redeterminations, but I would say primarily by the end of 2023.

And our next question today comes from Calvin Sternick with JP Morgan.

Yes. A couple of related questions here on the redeterminations and the exchanges. I guess, first, with so many members coming to market, either late this year or even into the first half of next year, do you anticipate any meaningful uptick in marketing spend to try to capture these members and just sort of how you think that would compare to historical spending levels? And then second, can you just remind us what programs or initiatives you have in place to try to capture Medicaid members as their income moves up and down to sort of retain the Centene products?

Like I mentioned in my last response, the team has really put a lot of thought into making sure we've got the processes in place to be able to, in some cases, market to, in some cases work directly with the state in terms of making those redetermined members aware of the opportunity to move in the marketplace. And I think, Brent, you probably got some insights into how that process has gone with the assistance from the CMS letter that was put out in early March.

So the 29 states where we have Medicaid health plans, we have the exchange or our Ambetter product in 25 of them. So we're able to overlap the counties and in a lot of ways, overlap the provider network, first and foremost. Second, we spent a great deal of time with the states. And absolutely both at the federal level and the state level absolutely want people to have coverage. And both government entities are working very closely with us. In regards to the states, it's about communication. How can we actually communicate with our members in what way through texting and so forth to let them know what their options and opportunities are to work with them. and the exact same on the federal level from that standpoint? In regards to your question about marketing spend and so forth, another component is exactly when does the PHE in, number one. And number two, every state will work at a different time. Some will want to move fast, some not so fast, and that will impact it. But no matter what it is, we will absolutely focus on distribution. We've gotten very good distribution for the exchange, and we'll continue to do that.

And our next question today comes from Benjamin Flox with Jefferies.

Just wanted to follow up on redeterminations, specifically on the impact of the Medicaid risk pool. We’ve heard some state program leaders indicate they're going to make an effort to keep the members on the roles as long as possible, which seems like it could front-end load some of the margin risk. Can you just provide an update on your thinking about managing through redetermination if and when those 2 begin?

Yes. I think the longer the Medicaid members are on the roles, sort of the better for the member, obviously, and the more stable sort of the overall aggregate population. But look, it's our job to get out in front of our state customers with data. We've already started doing that. We've had conversations with CMS to prepare for any necessary moves in rates. Right now, we're focused on the sunsetting of the risk corridors. And as soon as we get some additional data as redeterminations start presumably in August, but I guess we'll see if that sticks, then to ensure that rates are actuarially sound, and that's sort of what we do for a living around here regardless of what changes there are in Medicaid programs. Also, you'll note that we've lifted the HBR this year in Medicaid into the 89s. And so it's our job to sort of keep it there regardless of what's thrown at us.

And I would just touch back on Brent's comments as well that the benefit of being so conversant with our states and helping them to even think about what the right strategy is going into redeterminations and what the impacts might be is that we have line of sight to how each one of the states is thinking, and some of that thinking is shifting. So we have states that started off thinking that they could move through the roles in 3 months, and I think then better digested the fact that it was probably if coverage continuity and voter abrasion was important that, that's more like a 12-month plan. But we're seeing states everywhere from 5 months, which I think is probably the most aggressive all the way to 17 months. And again, just the fact that we're in those conversations gives us line of sight to plan and then, as Drew said, also be able to bring forward data that makes sure that the rates are actuarially sound based on the impact we think we'll incur.

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

Thanks, Rocco, and thanks, everyone, for joining us this morning. Please feel free to reach out to Investor Relations with any follow-up calls, and we'll talk to you soon.

Thank you, ma'am. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.