UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
Current
Report
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): January 22, 2009
MOLINA
HEALTHCARE, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
1-31719
|
13-4204626
|
||
|
(State
of incorporation)
|
(Commission
File Number)
|
(I.R.S.
Employer Identification
Number)
|
200
Oceangate, Suite 100, Long Beach, California 90802
(Address
of principal executive offices)
Registrant’s
telephone number, including area code: (562) 435-3666
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
7.01. Regulation FD Disclosure.
On January
22, 2009, Molina Healthcare, Inc. issued a press release announcing its guidance
for fiscal year 2009. The full text of the press release is included
as Exhibit 99.1 to this report. The information contained in the
websites cited in the press release is not part of this report.
Also on
January 22, 2009, in connection with the Company’s presentation at its Investor
Day Conference in New York City, the Company webcast certain slides. A copy of
the Company’s complete slide presentation is included as Exhibit 99.2 to this
report. An audio and slide replay of the live broadcast of the Company’s
Investor Day presentation will be available for 30 days from the date of the
presentation at the Company’s website, www.molinahealthcare.com.
The
information in this Form 8-K and the exhibits attached hereto shall not be
deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act
of 1934 or otherwise subject to the liabilities of that section, nor shall it be
deemed incorporated by reference in any filing under the Securities Act of 1933
or the Securities Exchange Act of 1934, except as expressly set forth by
specific reference in such a filing.
Item
9.01. Financial Statements and Exhibits.
(d) Exhibits:
|
Exhibit
|
|
|
No.
|
Description
|
|
99.1
|
Press
release of Molina Healthcare, Inc. issued January 22, 2009, reporting
guidance for fiscal year 2009.
|
|
99.2
|
Slide
presentation given at the Investor Day Conference of Molina Healthcare,
Inc. held on January 22,
2009.
|
SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
| MOLINA HEALTHCARE, INC. | ||
|
Date:
January 22, 2009
|
By: /s/ Mark L. Andrews | |
| Mark L. Andrews | ||
| Chief Legal Officer, General Counsel, | ||
| and Corporate Secretary |
EXHIBIT
INDEX
|
Exhibit
|
|
|
No.
|
Description
|
|
99.1
|
Press
release of Molina Healthcare, Inc. issued January 22, 2009, reporting
guidance for fiscal year 2009.
|
|
99.2
|
Slide
presentation given at the Investor Day Conference of Molina Healthcare,
Inc. held on January 22,
2009.
|
Exhibit
99.1
News Release
Contact:
Juan José
Orellana
Investor
Relations
562-435-3666,
ext. 111143
MOLINA
HEALTHCARE ISSUES GUIDANCE
FOR
ITS 2009 FISCAL YEAR
Long Beach, California (January 22,
2009) – Molina Healthcare, Inc. (NYSE:MOH) today announced its guidance
for 2009. For its 2009 fiscal year, the Company currently expects the
financial results shown below (all amounts are approximate):
|
Earnings
per diluted share
|
$2.20
to $2.40
|
|
Net
income
|
$59
to $65 million
|
|
Investment
income
|
$15
million
|
|
Premium
revenue
|
$3.6
billion
|
|
EBITDA
|
$158
to $167 million
|
|
EBITDA
as a percentage of premium revenue
|
4.4%
to 4.7%
|
|
Medical
care costs as a percentage of premium revenue
|
85.5%
|
|
Core
G&A (administrative expenses excluding premium taxes)
as a percentage of total
revenue
|
7.5%
|
|
Administrative
expenses (including premium taxes)
as a percentage of total
revenue
|
10.5%
|
|
Depreciation
and amortization
|
$43
million
|
|
Interest
expense
|
14
million
|
|
Total
membership
|
1.44
million
|
|
Diluted
shares outstanding
|
27
million
|
|
Effective
tax rate
|
41%
|
The
Company’s guidance for diluted shares outstanding does not include any potential
dilution from its senior convertible notes.
Molina
Healthcare, Inc. is a multi-state managed care organization that arranges for
the delivery of healthcare services to persons eligible for Medicaid, Medicare,
and other government-sponsored programs for low-income families and
individuals. Molina Healthcare’s ten licensed health plan
subsidiaries in California, Florida, Michigan, Missouri, Nevada, New Mexico,
Ohio, Texas, Utah, and Washington serve approximately 1.26 million
members. More information about Molina Healthcare can be obtained at
www.molinahealthcare.com.
MOH
Issues Guidance For Its 2009 Fiscal Year
Page
2
January
22, 2009
Safe Harbor Statement under the
Private Securities Litigation Reform Act of 1995: This press release
contains numerous "forward-looking statements" regarding our expected results
for 2009. All of our forward-looking statements are based on current
expectations and assumptions that are subject to numerous known and unknown
risks, uncertainties, and other factors that could cause our actual results to
differ materially. Such factors include, without limitation, risks
related to: budgetary pressures on the federal and state governments
and their resulting inability to fully fund Medicaid, Medicare, or SCHIP or to
maintain current membership eligibility thresholds and criteria; the
successful management of our medical costs and the achievement of our projected
medical care ratios in all our health plans, including the reduction of the
medical care ratio of our Ohio health plan; the success of our efforts to
leverage our administrative costs to address the needs associated with increased
enrollment; risks related to our limited experience operating in Florida and
attendant claims estimation difficulties; growth in our Medicaid and Medicare
enrollment consistent with our expectations; uncertainties regarding the impact
of federal health care reform efforts and the new presidential administration;
rate increases and the maintenance of existing rate levels that are consistent
with our expectations; our inability to pass on to our contracted providers any
rate cuts under our governmental contracts; the budget and liquidity crisis in
California and the state’s inability to make payment under its contracts with
our California health plan; the successful resolution of pending rate litigation
in California; the renewal of the provider premium tax beyond October 1, 2009;
our ability to accurately estimate incurred but not reported medical costs
across all health plans; the successful renewal and continuation of the
government contracts of all of our health plans, including the re-selection of
our Michigan and Missouri health plans in response to Medicaid RFPs in 2009; in
light of the current turmoil and illiquidity in credit markets, the availability
of financing to fund and capitalize our acquisitions and start-up activities and
to meet our liquidity needs; the illiquidity of our auction rate securities; the
successful and cost-effective integration of our acquisitions; earnings
seasonality; interest rates on invested balances that are lower than expected;
high profile qui tam matters and negative publicity regarding Medicaid managed
care and Medicare Advantage; changes in funding under our contracts as a result
of regulatory and programmatic adjustments and reforms; approval by state
regulators of dividends and distributions by our subsidiaries; unexpected
changes in member utilization patterns, healthcare practices, or healthcare
technologies; high dollar claims related to catastrophic illness; changes in
federal or state laws or regulations or in their interpretation; the favorable
resolution of litigation or arbitration matters; and other risks and
uncertainties as detailed in our reports and filings with the Securities and
Exchange Commission and available on its website at www.sec.gov. All
forward-looking statements in this release represent our judgment as of January
22, 2009. We disclaim any obligation to update any forward-looking
statement to conform the statement to actual results or changes in our
expectations.
Note regarding EBITDA
Measures: The Company calculates EBITDA by adding back depreciation and
amortization expense to operating income. EBITDA is not prepared in
conformity with GAAP since it excludes depreciation and amortization expense,
interest expense, and the provision for income taxes. This non-GAAP
financial measure should not be considered as an alternative to net income,
operating income, operating margin, or cash provided by operating
activities. Management uses EBITDA as a supplemental metric in
evaluating the Company’s financial performance, in evaluating financing and
business development decisions, and in forecasting and analyzing future
periods. For these reasons, management believes that EBITDA is a
useful supplemental measure to investors in evaluating the Company’s performance
and the performance of other companies in our industry.
-END-
Exhibit
99.2
1
Juan José Orellana VP, Investor Relations Molina Healthcare, Inc.
2009 Molina Healthcare Investor Day January 22, 2009 New York,
NY 2009 Investor Day
2
About today Opening remarks Panel I Panel II 2009 Guidance
3
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of
1995: This slide presentation, as well as our accompanying oral remarks, contain
numerous “forward-looking statements.” All of our forward-looking statements are
subject to numerous risks, uncertainties, and other factors that could cause our
actual results to differ materially. Anyone viewing or listening to this
presentation is urged to read the risk factors and cautionary statements found
in Molina Healthcare’s most recent annual report on Form 10-K, its quarterly
reports on Form 10-Q, its current reports on Form 8-K, and its other reports and
filings with the Securities and Exchange Commission and available for viewing on
its website at www.sec.gov. Cautionary statement
4
J. Mario Molina, MD Chief Executive Officer Molina Healthcare, Inc.
2009 Molina Healthcare Investor Day January 22, 2009 New York,
NY Business Overview
5
Topics Strategic plan Molina markets Macroeconomic trends
Management
6
Mission statement Our mission is to provide healthcare services to low-income
families and individuals covered by government programs “I want this to be an
exemplary organization.” Mary R. Molina Founder
7
Growth Premium Revenue Growth TANF 87% ABD 8% SCHIP 5% Medicare <1% Our
members $ in millions Focus on government programs for poor & uninsured
Goal: Revenues of $4 billion by end of 2010 Increase ABD enrollment Increase
Medicare enrollment Acquisitions will continue to play an important role *
Approximate revenue amount based on most recent guidance -- final reported
revenue amount may vary.
8
Other financial objectives We must use the most cost-effective alternatives Lead
our industry in limiting administrative costs No state to contribute more than
15% of revenue Keep a nickel from every dollar of revenue – EBITDA margin 5% of
revenue We are the stewards of the public’s money Core Administrative Expense as
% of total revenue “This is a business of nickels.” C.
David Molina, MD Founder
9
Growth: revenue diversification Revenue Share by State FY 2003 Revenue Share by
State 3Q 2008 CA 13% NM 11% OH 21% TX 4% WA 23% MI 16% MO 7% NV <1% UT 5% CA
35% WA 43% MI 11% UT 11% Significant revenue diversification since going public
in 2003
10
Commitment to quality ALL of Molina’s eligible health plans ranked by US News
& World Report New Mexico, Utah, and Washington health plans
ranked as the top Medicaid plan in their state Texas and Ohio to undergo NCQA
accreditation in 2009 “Quality is everyone’s
responsibility.” W. Edwards Deming (1900-1993) American
Statistician
11
Business Snapshot Washington 295,000 California 313,000 New Mexico 84,000 Utah
55,000 Michigan 207,000 Ohio 179,000 Texas 29,000 Membership growth Markets and
members served – Q3 ‘08 TANF 87% ABD 8% SCHIP 5% Medicare <1% Our members
Missouri 77,000 Nevada <1,000 Florida in thousands
12
Segmentation LTC Duals ABD TANF = patients in need of more complex
care (for illustrative purposes only - not an actual percentage)
complexity of care number of potential enrollees Medicare
Medicaid
13
Sizeable market continues to grow Medicaid Enrollment ˜ 59M 1.
Medicaid: A Primer. Key Information on the Nation’s Health Program for Low
Income People. Kaiser Commission on Medicaid and the Uninsured
(January 2009) Managed care is an alternative to state’s rising Medicaid costs
Migration of new populations to managed care Growing diversity and complexity of
social and healthcare needs Medicaid Expenditures: ˜ $304B
1
14
29+ years of Medicaid experience Documented Quality: NCQA accreditation
Management: experience and stability Industry leading administrative efficiency
Recognized cultural & linguistic competency “Our roots are in the clinics.”
Competencies
15
Stimulating the economy Source: Mark Zandi, Chief Economist and
Co-founder of Moody’s Economy.com: Testimony to the Senate Budget Committee,
November 19, 2008. Medicaid delivers a good return on investment: $1 spent on:
UI benefit extension Increase in Food Stamps Aid to State Governments (i.e.
Medicaid FMAP increase) Infrastructure Projects = 1 year change in
GDP = $1.63 = $1.73 = $1.38 = $1.59
16
Stimulus package FMAP proposal $87 Billion for increased FMAP over the next 2
years 4.9% FMAP increase to all states Rest apportioned based on unemployment
FMAP funds can not be used for rainy day funds; must be used for Medicaid Must
maintain eligibility standards no more restrictive than those in effect July 1,
2008
17
Baucus Plan Other Placeholder: All poor adults eligible for Medicaid SCHIP
eligibility to 250% of the FPL A national insurance exchange with subsidies up
to 400% of FPL public plan option within exchange Pay-or-play for medium and
large firms Preventive services covered (“Right Choices”) and Medicare buy-in
for 55-64 year olds until exchange in place Individual mandate when
affordability assured
18
Obama Plan Other Placeholder: Medicaid and SCHIP expansions National
insurance exchange and public plan run together sliding scale subsidies
Pay-or-play for medium and large-size employers Parents must cover kids
Guaranteed eligibility for insurance and federal reinsurance $50 billion over 10
years for HIT
19
Medicare advantage Other Placeholder: Medicare Advantage plans will see
substantial cuts in payments Congress, President Obama want to shrink or
eliminate 13% gap between FFS and MA costs This would adversely affect primarily
private fee-for-service plans
20
U.S. Medicaid population growth Medicaid population increased quickly during the
2001 recession and its aftermath 1. Source: KCMU and Urban Institute estimates
based on KCMU Medicaid enrollment data collected by Health Management Associates
from 44 states, normalized to national totals (2008) 2. Source: Stan Dom, Bowen
Garret, John Holahan, and Aimee Williams, Medicaid, SCHIP and Economic Downturn:
Policy Challenges & Policy Responses, prepared for the Kaiser Commission
on Medicaid and the Uninsured (2008) 1
7.8% MOH enrollment growth in 2008 above Company
historical average of ~ 3.5% Unemployment growth is expected to
impact Medicaid, SCHIP, and the uninsured 1M 1.1M 1% = Increase in national
unemployment rate Increase in Medicaid & SCHIP enrollment Increase in
uninsured 2
21
Public coverage during a recession Income eligibility as a % of the poverty
level 1. Source: Health Coverage in a Period of Rising Unemployment (Schwartz);
Kaiser Commission on Medicaid and the Uninsured. (December 2008) 2. Source:
Squeezed! Caught Between Unemployment Benefits and Healthcare Costs. Families
USA. (January 2009) 1 Low income unemployed families are unable to afford COBRA
2 Low and moderate income workers are especially vulnerable to becoming
uninsured If President Obama’s plan to cover all adults under 100% FPL is
approved it will add: Adults to the Medicaid Program 16
million
22
SCHIP reauthorization Washington California State includes SCHIP in
Medicaid program Utah Michigan Ohio Texas Missouri Florida Many of our health
plans’ principal governmental contracts include SCHIP State
contracts separately for SCHIP Million Currently covered
by SCHIP in U.S. 7 4 + Million Additional uninsured
children to be covered by bill House & Senate proposals include: and:
Coverage for children in families above 300 percent of Federal poverty level
will receive Medicaid match rate New Mexico
23 “No
managed care CEO has been in place longer than Mario Molina.” Management
team “John Molina is among the longest tenured CFOs in the managed
care space.” *Source: Nersessian G., Credit Suisse Equity Research. “The Molina
Chronicles” -- Takeaways from Management Meetings, Feb. 29, 2008. Mark Andrews,
JD Chief Legal Officer & Corporate Secretary Terry Bayer, JD, MPH Chief
Operating Officer James Howatt, MD, MBA Chief Medical Officer J. Mario Molina,
MD Chief Executive Officer John C. Molina, JD Chief Financial Officer Joseph
White, CPA, MBA Chief Accounting Officer
24
The Medicaid opportunity “Success is where preparation and opportunity meet.”
Bobby
Unser
25
James W. Howatt, MD, MBA Chief Medical Officer Molina Healthcare, Inc. Medical
Affairs Update 2009 Molina Healthcare Investor Day January 22, 2009 New York,
NY
26
Leveraging data to maximize value The value equation Quality/Cost =
Value
27
Leveraging data to maximize value Maternal health Discharge planning
Accreditation & quality improvement In-source behavioral health
value
28
Managed care 101 Getting it right Right care Right place Right provider Right
time in course of illness
29
Our priority Managing medical costs equals increasing value
30
Why do we care about prematurity? Babies born before 32 weeks have the greatest
risk for death and poor health outcomes. Social costs of preterm births: $26.2M
1. Source Preterm Birth: Causes, Consequences, and Prevention; Institute
of Medicine of the National Academies. July 2006 2. Source: National
Governor’s Association Issue Brief June 9, 2003 Body:Nearly 13% of deliveries in
the nation are premature (less than 37 weeks) Significant mortality
and long-term health complications Immediate costs are high (Difference between
28 and 36 weeks around $175,000) Long term costs are high (estimated
in excess of $500,000 lifetime cost for extremely premature) 40% of all
deliveries in the nation occur in Medicaid 2 1
31
What is the 17-P Program? A program that identifies pregnancies with a history
of premature delivery Weekly administration of a hormone shot Results in an
approximately 1/3rd reduction in repeat premature births
32
Maternal health: reducing prematurity 17-P program High risk OB recognition
& intervention Early identification Intervention Biometrics Lengthen
gestational period Engage pediatrics
33
17-P Now active across all Molina health plans 185 Total Participating
Pregnancies 85 Pending Pregnancies 58 Pregnancies delivered at full term Molina
17-P Program Results 2008 100 Completed Pregnancies 30 weeks prior pregnancy 38
weeks treated with 17-P Average Gestation:
34
Why 32 weeks is important. Average NICU Days by Gestational Age at Delivery
NICU Days Gestational Age at Delivery (Weeks)
35
Commitment to quality Our long-term success will depend on the quality of
services we provide Body:Enrollment 26 states now rely on some form of
accreditation and it can affect enrollment algorithms Quality payments Pay for
performance Quality bonuses Objective evidence Efficiency & effectiveness
Recognition Molina has more accreditations than any other Medicaid organization
(5 currently, and 2 more in the pipeline) Spotlight on Michigan: Pilot Program
Assignment algorithm Pay for performance Assisting
providers
36
Leveraging data to improve scores Identifying missed services Claims
Demographics Create an ‘Every Touch’ strategy Engage all elements of Molina
Member service – critical Website for providers Monitor results Roll out to all
Molina plans
37
Leveraging data: results Results: within 3 months of advice, an
additional 9-15% (over baseline) obtained services. Impact: Molina
scores estimated to increase significantly year-over-year and compared to peers.
Molina has received over 10,000 “hits” with recommendations to obtain care
1
38
In-sourcing of behavioral health Ohio Transition complete and generating savings
in: in-patient days out-patient services reduction in neuro-psych testing
Additional savings anticipated from integration of care Similar efforts underway
in Texas Missouri to follow Terminated behavioral health provider contracts in
Ohio in 3Q08 and brought in-house
39
Discharge Planning Reduce Length of Stay Facilitate Effective Discharge Prevent
Readmissions Medications Follow-Up Appointments Transportation Durable Medical
Equipment
40
Emergency room misuse Nurse Advice Line Home care advice Urgent care center
referral Access Commercial clinics Incentives to PCPs to extend hours Partner
with facilities Surrogate for inadequate care Monitor utilization with select
diagnoses Monitor utilization by provider Case manager Chronic illness with poor
self-management Chronic pain Drug-seeking Behavioral health
41
The Bottom Line Maternal health Discharge planning Accreditation &
quality improvement In-source behavioral health 1% decrease
in our medical care ratio $0.65 increase to earnings per share
yields
42
Terry Bayer Chief Operations Officer Molina Healthcare, Inc. Operations Update
2009 Molina Healthcare Investor Day January 22, 2009 New York,
NY
43
Operations Update Leveraging data to meet operational challenges Ohio California
Acquisition integration update Missouri Florida Customer service
Claims
44
Focus on Data “IN GOD WE TRUST; ALL OTHERS BRING
DATA.”
45
Focus on Data - The Molina Way Resolve Identify Issues
Analyze Review Data
46
Operations Update California Ohio Improving Profitability Medical Management
Re-contracting Rates Missouri Florida Profitable Integration Enrollment Growth
Acquisition and Start-Up in Parallel Membership Growth Medical
Management Rates
47
Molina Healthcare of Ohio Serving TANF & ABD populations in 4 regions Began
operations in December 2005 Cincinnati Columbus Dayton Membership History
Membership CFC 89% ABD 11%
48
Molina Healthcare of Ohio – Profitability Improvement Re-Contracting Medical
Management ABD1/09 CFC1/09 Risk Adjustment Score9/08
Medical Cost Reductions Rate Increase
5%
49
Molina Healthcare of California Membership History Membership Sacramento San
Diego Los Angeles Medicaid 88% Medicare <1% SCHIP 12%
50
Molina Healthcare of California Term High Cost Hospitals Re-contracting Medical
Management All Regions Los Angeles10/08 Riverside/ SB10/08 San Diego7/08
SacramentoPending Medical Cost Reductions
Rates Net Change 3.0% The rate challenges
51
Molina Healthcare of Missouri – successful integration Membership Growth New
Plan President Joanne Volovar Membership Medicaid 91% SCHIP 9%
13%
52
Molina Healthcare of Florida – successful start-up
Membership Membership Mix TANF 73% SSI 23% Members ˜ 55K 1. October
data publicly available from www.fdhc.state.fl.us
53
Molina Healthcare of Florida (Gp:) Jackson (Gp:) Calhoun (Gp:) Franklin (Gp:)
Gadsden (Gp:) Gulf (Gp:) Leon (Gp:) Wakulla (Gp:) Alachua (Gp:) Baker (Gp:) Bay
(Gp:) Brevard (Gp:) Broward 3,851 – Reform 491 – NR (Gp:) Charlotte
(Gp:) Citrus (Gp:) Clay (Gp:) Collier (Gp:) Dade 30,652 - NR (Gp:) De Soto (Gp:)
Dixie (Gp:) Duval (Gp:) Escambia (Gp:) Flagler (Gp:) Gilchrist (Gp:) Glades
(Gp:) Hamilton (Gp:) Hardee 188 – NR (Gp:) Hendry (Gp:) Hernando (Gp:) Highlands
188 – NR (Gp:) Hillsborough 4,364 – NR (Gp:) Holmes (Gp:) River 902 - NR (Gp:)
Jefferson (Gp:) Lafayette (Gp:) Lake (Gp:) Lee (Gp:) Levy (Gp:) Madison (Gp:)
Manatee 118 – NR (Gp:) Marion (Gp:) Martin 19 - NR (Gp:) Monroe 43 - NR (Gp:)
Okaloosa (Gp:) Okeechobee 5 - NR (Gp:) Palm Beach 8,897 - NR (Gp:) Pasco 1,836 –
NR (Gp:) Polk 3,957 – NR (Gp:) Putnam (Gp:) St. Johns (Gp:) St. Lucie 125 - NR
(Gp:) Santa Rosa (Gp:) Sarasota (Gp:) Seminole (Gp:) Sumter (Gp:) Suwannee (Gp:)
Taylor (Gp:) Union (Gp:) Volusia (Gp:) Walton (Gp:) Washington (Gp:) Liberty
(Gp:) Orange (Gp:) Osceola (Gp:) Nassau (Gp:) Bradford (Gp:) Columbia (Gp:)
Indian (Gp:) Pinellas 2,289 – NR Our diversification strategy
includes both start-ups and acquisitions. 8/08 Announced Florida NetPass
Acquisition Consideration $42M (subject to adjustments) 55 thousand members
Provider Service Network (PSN) 1/08-11/08 Provider Certificates
Awarded Broward, Dade, and Palm Beach 10/08 Medicaid Contract Awarded (Eff.
12/08) 12/08 First Members 1/09 Member transition begins
54
Successful integration of Florida NetPass Active enrollment in Dade county
January 2009 – 23K members Additional counties Broward Hillsborough Palm Beach
Pasco Pinellas Polk * Pending AHCA approval
55
Customer service Our primary customers are our members Our supporting customers
include our providers Improving provider satisfaction helps organic growth Focus
groups with providers revealed that faster payment would improve
satisfaction
56
Speed of payment and customer service “…reducing payment delays and
administrative burdens may have more of an impact on access than modest
increases in fee levels.” Cunningham, Peter J. and O’Malley, Ann S.
“Do Reimbursement Delays Discourage Medicaid Participation by Physicians?”
Health Affairs, 28 no.1 (2009): 27.
57
Customer service Focus on paying our providers faster Note: Missouri data not
included. Percentage (%) of Claims Paid within 15 days of Receipt 50% 60%
65% 70% 75% 80% 85% 90% 95% 100% Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07
Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan '08 Feb '08 Mar '08 Apr '08 May
'08 Jun '08 Jul '08 Aug '08 Sep '08 Oct '08 Nov '08 Dec '08
Production
58
Customer service Note: Missouri data not included. Average Turnaround Time in
Calendar Days 4 6 8 10 12 14 16 18 20 22 24 Jan-07 Feb-07 Mar-07 Apr-07 May-07
Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan '08 Feb '08 Mar '08 Apr '08
May '08 Jun '08 Jul '08 Aug '08 Sep '08 Oct '08 Nov '08 Dec '08 (Gp:) Production
Focus on paying our providers faster Days
59
Customer service Note: Missouri data and acquisition members not
included. Average Turnaround Time in Calendar Days &
Organic Growth Days Members 0 5 10 15 20 25 Jan-07 Feb-07 Mar-07 Apr-07 May-07
Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan '08 Feb '08 Mar '08 Apr '08
May '08 Jun '08 Jul '08 Aug '08 Sep '08 Oct '08 Nov '08 Dec '08 900,000 950,000
1,000,000 1,050,000 1,100,000 1,150,000 1,200,000 1,250,000 (Gp:) Production
(Gp:) Enrollment Focus on paying our providers faster
60
Summary Using data and feedback from our customers, we continue to improve our
operations.
61
Mark L. Andrews, Esq. Chief Legal Officer Molina Healthcare, Inc. Compliance: A
Value Proposition 2009 Molina Healthcare Investor Day January 22,
2009 New York, NY
62
Why discuss compliance now? We are acutely aware of the daily media and
regulatory reports of wrongdoing by competitors, providers, and individuals
operating within the healthcare sector We are acutely aware that
Molina is not among those reports and want you to know that we are also
intensely focused on keeping it that way
63
Compliance pays. How? 1. Regulatory Trust 2. Patient Confidence 3.
Provider Satisfaction 4. Public Market Clarity
64
Wisdom from Benjamin Franklin 1 Portrait of Benjamin Franklin, ca.
1794-1802 www.historicaldocuments.com An ounce of prevention is worth a pound of
cure. Compliance preserves value
65
Non-compliance undermines earnings Increased Costs Fines, penalties,
judgments Litigation expenses Insurance premiums Lost Revenue
Enrollment decline Enrollment freeze Resource Drain Personnel time Project
distraction Lost Expansion Opportunities Stock Impact Price Trading
volume
66
The impact is immediate and significant (Gp:) volume (Gp:) daily trading price
(Gp:) millions (Gp:) $0 (Gp:) $20 (Gp:) $40 (Gp:) $60 (Gp:) $80 (Gp:) $100 (Gp:)
$120 (Gp:) $140 (Gp:) 10 (Gp:) 20 (Gp:) 30 (Gp:) 40 (Gp:) 10/1/07 (Gp:) 10/8/07
(Gp:) 10/15/07 (Gp:) 10/22/07 (Gp:) 10/29/07 (Gp:) 11/5/07 (Gp:) 11/12/07 (Gp:)
11/19/07 (Gp:) 11/26/07 (Gp:) 12/3/07 (Gp:) 12/10/07 (Gp:) 12/17/07 (Gp:)
12/24/07 (Gp:) 12/31/07
67
Compliance delivers quality NCQA accreditation matters Increasingly required for
program entry Functions as deemer for meeting program requirements in a
streamlined and more efficient manner. That means expense saved
Recognized as a proper surrogate for quality – increasing regulator, patient,
and provider confidence 26 states now rely on some form of
accreditation
68
Compliance contributes to our success 29 years 1. Experience we have been doing
this longer 2. Core Value we choose to do this 3. Priority key component of our
strategic plan What keep us out of the headlines? An enterprise wide
model Spread responsibility more broadly Address ‘people’ component of
compliance Moved beyond just checklists and memorization 4. Our
approach:
69
The landscape matters The environment is too complex for lists and memorization
Changes too fast to leave in the hands of a few compliance team members Team
members need to learn and embrace 6 basic concepts
70
Compliance is driven by people 1. Compliance is part of your role 2. You can’t
know everything 3. You have permission to raise questions 4. Asking questions
does not equal “snitching” 5. You should trust your instincts 6. There are some
basic “red flags” So ask questions
71
Likely industry compliance hotbeds for 2009 ID & PHI privacy Security Data
development (UM and cost) Claims Marketing/Outreach Fraud &
abuse
72
Break
73
Growth Opportunities John C. Molina Chief Financial Officer Molina
Healthcare, Inc. 2009 Molina Healthcare Investor Day January 22, 2009 New York,
NY
74
Growth Opportunities - 2009 Organic growth Eligibility expansion New populations
New market opportunities Managed care expansion
75
Organic Growth Consolidated Molina Enrollment 2008 U.S. National Unemployment
Rate 2008 2 Source: (1) Medicaid, SCHIP and Economic Downturn: Policy
Challenges and Policy Responses, Kaiser Family Foundation, April 2008 (2) U.S.
Bureau of Labor Statistics, September 2008 Economic deterioration will increase
enrollment in existing Molina markets (1% increase in Unemployment results in an
additional 1 Million Medicaid Lives1) MOH Enrollment U.S. Unemployment
Rate
76
States in which Molina operates 7 of Molina’s 9 Health Plans are in States that
rank among the Top 20 Medicaid spenders. Title:Organic growth Source:
Kaiser Commission on Medicaid and the Uninsured
http://www.statehealthfacts.org
77
Organic growth: federal stimulus package Federal stimulus package will increase
Federal funding to current Molina markets: Adds $87B in federal match 4.9%
increased funding to ALL states Federal funds to cover newly unemployed who
enter the Medicaid program through 2010 Additional relief to states
with high unemployment rates
78
Organic growth: FMAP increase November 2008 National Rate 6.7% National Ranking
The $87.0B proposed FMAP increase will be distributed based on States’
Unemployment Rates as well as FMAP percentages. Unemployment
Rate
79
Eligibility expansion: SCHIP reauthorization House bill passed Senate bill
passed out of Committee Details: Reauthorized through fiscal year 2013 Adds 4.1M
children to the 7M already covered Funding for
outreach Senate bill also: Requires GAO to study actuarial soundness of
rates Establishes Medicaid / SCHIP Commission (like
MedPAC)
80
Eligibility expansion: SCHIP reauthorization Washington California State
includes SCHIP in Medicaid Program Utah Michigan Ohio Texas Missouri Florida
Many of our health plans’ principal governmental contracts include SCHIP State
contracts separately for SCHIP Million Currently covered
by SCHIP in U.S. 7 4 + Million Additional uninsured
children to be covered by Bill House & Senate proposals include: and:
Coverage for children in families above 300 percent of Federal poverty level
will receive Medicaid match rate New Mexico
81
Eligibility expansion: state level Some states have undertaken their own efforts
to expand eligibility States in which Molina operates that have already expanded
eligibility to the uninsured States expanding eligibility through FPL increases
States enacting Programs to Covered Uninsured populations States expanding
eligibility through FPL increases & enacting Programs to Covered Uninsured
populations
82
New Populations: Long Term Care (LTC) Medicaid LTC expenditures are large and
continue to grow. Molina has experience operating LTC plans in Texas and
Washington Molina markets in which state governments spent over $1B in Long Term
Care Source: ‘State Medicaid Expenditures for Long-Term Care 2008-2027’ – AHIP
September 2008 TOTAL STATE MEDICAID LTC EXPENDITURES
83
New market opportunities RFP’s for New Programs Additional Start-Up
Opportunities Exclusive Provider Organization (EPO) Potential new market
opportunities in 2009 and 2010
84
Managed care expansions States continue to view managed care as a cost-effective
response to growing fiscal pressures: Medicaid Reform Initiatives in Florida,
Louisiana, and Virginia Service Area Expansions in Texas Transition of ABD
population to managed care Replacement of FFS and partial risk programs with
managed care Evidence continues to grow that managed care is a cost-effective
solution Studies in California and Ohio show managed care saves States
money
85
Will California expand managed care? Fee For Service County Organized Health
Systems Managed Care Health Plans Average California PMPM California: Managed
Care provides a slower growth rate in Medi-Cal expenditures and greater budget
certainty. Source: California’s Medical Assistance Program, Annual Statistical
Report, Calendar Year 2004, 2006, and Company estimates
86
Joseph White Chief Accounting Officer Molina Healthcare, Inc. Leveraging
Administrative Investment 2009 Molina Healthcare Investor Day January 22, 2009
New York, NY
87
Administrative expense components Recruiting Training Retention Measurement
Facilities 10% People 60% Technology 10% Outside Services 20%
Equipment Vendors Common Processes Consistency Motivation Work Force
Tax Incentive Flexibility Telecommuting Partnering Multiple Sources Industry
Expertise Cost Effectiveness Long-Term Profitable Growth
88
Leveraging administrative expenses Note: Core Admin percentage excludes premium
taxes. 2008E indicates estimate of 2008 financial results. Core Administrative
Expense as a percent of revenue is declining
89
Molina excels in controlling administrative costs 1. Administrative leverage as
competitive advantage 2. Average of nine-month administrative cost PMPM for MOH,
AGP, and CNC based on publicly reported information for quarter ended September
30, 2008. Calculation based on total administrative costs divided by average
membership for the period. Publicly reported administrative cost PMPM
for nine months ended September 30, 2008.
90
Molina excels at controlling administrative costs 1. Average of nine-month
administrative cost ratios for MOH, AGP, and CNC based on publicly reported
information for quarter ended September 30, 2008. The ratio represents
administrative costs as a percentage of total revenue including interest
income. Publicly reported administrative cost ratio for nine months
ended September 30, 2008. Administrative leverage as competitive
advantage 2.
91
Leveraging administrative costs in 2009 A 1% increase in premium revenue
potentially yields 10¢ EPS $0 $30.0 M $25.5 M (85%)
$4.5 M Payable to Provider Available for Admin & Profit Revenue Note: The
amounts shown above do not reflect actual results they are shown for
illustrative purposes
92
Days in claims payable Claims inventories continue to fall Fee for service costs
65% of all medical care costs Pharmacy capitation consistent year over year Cost
recovery Enhanced Now built into lag tables Greater clarity from faster payments
Faster payment Familiarity with data
93
Questions?
94
2009 Guidance John C. Molina Chief Financial Officer
Molina Healthcare, Inc. 2009 Molina Healthcare Investor Day January 22, 2009 New
York, NY
95
The following 2009 Guidance presentation contains numerous "forward-looking
statements" regarding the Company’s projected 2009 financial results. Any
statement that refers to guidance, projections, expectations, strategies,
challenges, and opportunities, or their underlying assumptions, or other
characterizations of future events or circumstances, is a forward-looking
statement. All of the Company's forward-looking statements are subject to
numerous known and unknown risks, uncertainties, and other factors that could
cause our actual results to differ materially. Such factors include, without
limitation, risks related to: budgetary pressures on the federal and
state governments and their resulting inability to fully fund Medicaid,
Medicare, or SCHIP or to maintain current membership eligibility
thresholds and criteria; the successful management of our medical costs and the
achievement of our projected medical care ratios in all our health plans,
including the reduction of the medical care ratio of our Ohio health plan; the
success of our efforts to leverage our administrative costs to address the needs
associated with increased enrollment; risks related to our limited experience
operating in Florida and attendant claims estimation difficulties; growth in our
Medicaid and Medicare enrollment consistent with our expectations; uncertainties
regarding the impact of federal health care reform efforts and the new
presidential administration; rate increases and the maintenance of existing rate
levels that are consistent with our expectations; our inability to pass on to
our contracted providers any rate cuts under our governmental contracts; the
budget and liquidity crisis in California and the state’s inability to make
payment under its contracts with the California health plan; the successful
resolution of pending rate litigation in California; the renewal of the provider
premium tax beyond October 1, 2009; our ability to accurately estimate incurred
but not reported medical costs across all health plans; the successful renewal
and continuation of the government contracts of all of our health plans,
including the re-selection of our Michigan and Missouri health plans in response
to Medicaid RFPs in 2009; in light of the current turmoil and illiquidity in
credit markets, the availability of financing to fund and capitalize our
acquisitions and start-up activities and to meet our liquidity needs; the
illiquidity of our auction rate securities; the successful and cost-effective
integration of our acquisitions; earnings seasonality; interest rates on
invested balances that are lower than expected; high profile qui tam matters and
negative publicity regarding Medicaid managed care and Medicare Advantage;
changes in funding under our contracts as a result of regulatory and
programmatic adjustments and reforms; approval by state regulators of dividends
and distributions by our subsidiaries; unexpected changes in member utilization
patterns, healthcare practices, or healthcare technologies; high dollar claims
related to catastrophic illness; changes in federal or state laws or regulations
or in their interpretation; the favorable resolution of litigation or
arbitration matters; and other risks and uncertainties as detailed in our
reports and filings with the Securities and Exchange Commission and available on
its website at www.sec.gov. All forward-looking statements in this release
represent our judgment as of January 22, 2009. We disclaim any obligation to
update any forward-looking statement to conform the statement to actual results
or changes in our expectations. Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995:
96
˜ $3.6B ˜ $15M ˜ 85.5% ˜ 10.5% ˜ 7.5% ˜ $158M - $167M ˜ $43M ˜ $14M ˜ $59M -
$65M ˜ $2.20 - $2.40 ˜ 27M ˜ 41% Premium
Revenue Investment Income Medical Care Ratio G&A
Ratio Core G&A Ratio EBITDA D&A Interest Expense
Net Income Diluted EPS Diluted Shares
Outstanding Effective Tax Rate 2009 Earnings Guidance (January 22,
2009)
97
Projected key developments for 2009 guidance Membership: Membership growth of
approximately 10% excluding Medicare and Florida. Revenue PMPM: 3% rate increase
Medical Costs: 4% increase in medical costs PMPM Administrative Costs: 4.5%
decrease in admin cost PMPM Investment Income: $15M investment income Interest
Expense: $5.3M impact from FASB Staff Position APB 14-1 (interest on convertible
debt)
98
Known rate changes impacting 2009 results Rate Change Effective Date California
Michigan Missouri New Mexico Ohio Washington 3.0% 5.5% 8.5% -1.0% / -2.5% 5.0%
- -1.0% / -3.7% 7/1/2008 and 10/1/2008 10/1/2008 7/1/2008 7/1/2008 and 12/1/2008
1/1/2009 1/1/2009 and 2/1/2009
99
Organic Membership Dec ‘07 Dec ’08E Jan ‘09E Dec ‘09G 1.15M 1.22M 1.34M 1.24M
6.1% 1.6% 8.1% % growth over previous period* Note: The percentages and
enrollment shown exclude both Florida membership and the membership in Ohio
transitioned from other health plans. “E” denotes estimated 2008 results and “G”
denote 2009 projected guidance. ’09 over ’08 Growth 9.8%* Organic growth should
accelerate in 2009
100 Consolidated
membership and revenue PMPM Membership Per Member per Month (Gp:) Membership
(Gp:) Premium Revenue PMPM ’07 over ‘06 Growth Membership:
12.4% Premium: 13.6% ’08 over ‘07 Growth Membership:
9.5% Premium: 11.0% ’09 over ‘08 Growth Membership:
15% Premium: 3% MO Acquisition MO Mang. Care Exp. OH ABD
Rollout OH: WLP Exit FL: Increase in Membership 2009 guidance assumes declining
to flat rates and increasing membership Note: ‘E’ denotes estimated and ‘G’
denotes 2009 Guidance.
101
Consolidated MCR and Medical Cost PMPM % of Premium Revenue Per Member per Month
(Gp:) MCR (Gp:) Medical Costs PMPM In 2009 the MCR will increase, but medical
costs PMPM will level off. Note: ‘E’ denotes estimated and ‘G’
denotes 2009 Guidance.
102
Guidance Summary vs. Preliminary 2008 Results * Represents mid point of range
2009 Guidance 2008E Results Increase/(Decrease) Premium Revenue Medical Care
Ratio Core G&A Ratio EBITDA EBITA Margin Net Income Diluted EPS Diluted
Shares Outstanding Effective Tax Rate Members $3.6B $3.0B $0.6B 85.5% 85.0% 0.5%
7.5% 8.0% (0.5%) $158M-$167M $145M-$148M $16M 4.4%-4.7% 4.7%-4.8% (0.2%)
$59M-$65M $61.7M-$63.4M ($0.6M) $2.20-$2.40 $2.22-$2.28 $0.05 27.0M 27.8M (0.8M)
41.0% 40.0% 1.0% 1.44M 1.26M 0.18M
103
Historical net income distribution Average Quarterly
Contribution 2001-2008E Semi-annual contribution not anticipated to
change materially in 2009.
104
Opportunities and Challenges 1. Source: Kaiser Commission on Medicaid
and the Uninsured, April 2008 2. Source: Kaiser Commission on
Medicaid and the Uninsured, 2006 Opportunities Discussion Impact of Economic
Conditions on Enrollment Fiscal Stimulus Florida M&A Opportunities Capital
Structure Admin Leverage 1% increase in the unemployment rate increases Medicaid
and SCHIP membership by approximately 1.0M. Impact of fiscal stimulus and SCHIP
reauthorization. The State of Florida is ranked 5th in the nation in Medicaid
spending, constituting 4% of all Medicaid spending. Guidance does not include
potential acquisitions. Guidance does not include any repurchases of our stock
or convertible notes. Increasing enrollment will allow leveraging of
administrative costs.
105
Opportunities and Challenges Challenges State Budgets California, New Mexico,
and Washington Ohio MCR Provider Premium Tax Florida Medicare Investment Income
Most States face substantial fiscal challenges. Rates Provider Cuts The Guidance
assumes an Ohio MCR of 87%. Rate increase, risk adjustment, re-contracting with
providers and in-sourcing of Behavioral Health. Guidance assumes no Provider
Premium Tax sunset on 10/1/09 Risks associated with new operations. Guidance
assumes 12,000 Medicare members by 2009 year-end. Interest rates to remain
low.
106
Questions?