Centene Corporation (CNC) Q1 2022 Earnings Call Transcript

Centene Corporation  (NYSE: CNC) Q1 2022 earnings call dated Apr. 26, 2022

Corporate Participants:

Jennifer Gilligan — Senior Vice President, Investor Relations

Sarah M. London — Chief Executive Officer

Brent Layton — President and Chief Operating Officer

Drew Asher — Chief Financial Officer

Kevin Counihan — Senior Vice President – Products

Analysts:

Justin Lake — Wolfe Research — Analyst

Joshua Raskin — Nephron Research — Analyst

Scott Fidel — Stephens — Analyst

Matt Borsch — BMO Capital Markets — Analyst

Adam Ron — Bank of Amercia — Analyst

Gary Taylor — Cowen — Analyst

Nathan Rich — Goldman Sachs — Analyst

A.J. Rice — Credit Suisse — Analyst

Michael Ha — Morgan Stanley — Analyst

George Hill — Deutsche Bank — Analyst

Steven Valiquette — Barclays — Analyst

Calvin Sternick — JPMorgan — Analyst

Ben Flox — Jefferies — Analyst

Presentation:

Operator

Good day, and welcome to the Centene Corporation First Quarter 2022 Earnings Results Conference Call. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Jennifer Gilligan. Please go ahead, ma’am. Ms. Gilligan, your line is live.

Jennifer Gilligan — Senior Vice President, Investor Relations

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?

Sarah M. London — Chief Executive Officer

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 healthcare 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 nine 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 give 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 three 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 two 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 multi-year staged approach to derisk 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 by 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 three 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 healthcare 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 healthcare 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?

Brent Layton — President and Chief Operating Officer

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 reprocurement wins in Louisiana and Indiana. As I’m sure you’ve all gotten here — got 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 into 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 end 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 three 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, serving 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 continued to be margin enhancement through clinic — clinical initiatives, network expansion and value-based contracting. Overall, 2022 is off to a solid start across all three core products.

With that, let me turn the call over to Drew.

Drew Asher — Chief Financial Officer

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 four 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 basis points 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 non-recourse 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 days 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 1st, three 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 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.

Thanks for your support. Operator, you may now open the line for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today’s first question comes from Justin Lake at Wolfe Research. Please go ahead.

Justin Lake — Wolfe Research — Analyst

Thanks. Good morning. And Sarah, congrats on the new role. Wanted to ask a couple of things. One, on the MLR, Drew, you — the — you’re giving us MLR by segment, which is incredibly helpful. Can you tell us how those numbers kind of shake out versus your expectations? I know you expected the exchanges to get 500 basis points better. I think you talked about Medicaid being — at least year-over-year, Medicaid, probably up more than 100 basis points year-over-year. So just kind of curious how those came out versus your expectations?

And then secondly, on the Medicaid side, how are the discussions going with states on the rate setting process for next year? Do you still expect them to kind of let these MLR floors absorb whatever upside there might be or do you think the states are looking to come after the lower utilization potentially be at lower rates? Thanks.

Drew Asher — Chief Financial Officer

Okay. Thanks, Justin. Yeah, so going — 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 to come down a little bit. That’s the progression throughout the year. You’re right. On our commercial business, we expect about 500 basis points year-over-year improvement. We got 420 basis points 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 six of our products down to three. Remember, we acquired Aetna’s business a few years ago. And after a few years, you have to get down to the three 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.

Justin Lake — Wolfe Research — Analyst

Thanks for the color.

Operator

And ladies and gentlemen, our next question today comes from John [Phonetic] Raskin of Nephron Research. Please go ahead.

Joshua Raskin — Nephron Research — Analyst

Hi, good morning. Close enough. So I just want 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?

Sarah M. London — Chief Executive Officer

Yeah, 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 impacts. 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 about at that going forward.

Brent Layton — President and Chief Operating Officer

We’re spending a great deal of time working with providers on value-based. So 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 on value-based and there’s a tremendous amount of effort and very excited where, ultimately, our conversations, relationship with providers are going and where they’re at today.

Joshua Raskin — Nephron Research — Analyst

Thanks.

Operator

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

Scott Fidel — Stephens — Analyst

Hi, thanks. Good morning. And first of all, 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. And 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 on 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 do you see one of those actually emerging here at this point in time? Thanks.

Sarah M. London — Chief Executive Officer

Yeah. Scott, thanks for your comments and for the question. So I’ll touch on the enhanced APTCs relative to 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 APTCs 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.

Kevin Counihan — Senior Vice President – Products

Thanks. Good morning. We’re very pleased with the administration’s policy decision on the family glitch. As you folks probably know, we’ve been advocating for this for quite some time and it’s really a long overdue. So it’s a very welcome change. As mentioned, there clearly are some issues related in the draft final rule that we’re working very collaboratively with CMS in terms of addressing. So much of healthcare policy is about — should be about simplicity and making things easier and simpler for individuals and families to access affordable coverage. We believe the spirit of the family glitch provision attempts to do that, but also believe that there’s opportunities for refinement. And as I said, we’re working very aggressively with CMS and constructively to address those.

Operator

Thank you. And ladies and gentlemen, our next question today comes from Matt Borsch at BMO Capital Markets. Please go ahead.

Matt Borsch — BMO Capital Markets — Analyst

Yes. Thank you. I was hoping you could help us think about the headwinds from the drop — expected drop in STAR revenues going into 2023 and how you may have anticipated and incorporated that into your bid for 2023? I know that’s confidential, but maybe just some sense directionally you can give us on that?

Drew Asher — Chief Financial Officer

Yeah, it’s a really good question. Actually, it’s a 2024 question. 2023, so the STAR scores that came out in October of 2021, they’re called the rating year 2022 STAR scores, which is revenue ’23, those were in good shape, obviously, aided with a tailwind from the disaster relief provisions. So those sunset as we go into 2024. And the — some of the measures where, quite frankly, we just weren’t operating at the level we need to operate back in the back half of 2020 for ops and admin measures and then 2021 dates of service, which fuel the rating year ’23 STAR scores, which is revenue year ’24. So we’re enthusiastic about margin expansion opportunity for 2023, and that’s sort of — we’re trying to balance that with a little bit of growth in Medicare Advantage for ’23, and then we’ve got a hurdle for 2024. And our jobs as managers, not victims, is to execute and pull levers, and the value creation plan is designed just to do that.

Matt Borsch — BMO Capital Markets — Analyst

Thank you very much.

Sarah M. London — Chief Executive Officer

Matt, I was just going to add a little bit more detail on, and Drew touched on this in his comments. But sort of as we look forward, right, because it is a multi-year 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, and are making real investment 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, make sure we’re closing those gaps in care.

Matt Borsch — BMO Capital Markets — Analyst

Thank you.

Operator

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

Adam Ron — Bank of Amercia — Analyst

Hi, 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 of subsidies?

Drew Asher — Chief Financial Officer

Yeah. So there’s certainly competition. You’ve seen that increase in some markets exponentially in the last couple of years. I think some companies are figuring out that this — at the core is an insurance business. And so you’ve actually got to get to an earnings standpoint to have a viable business. And I think that’s going to help the market sort of balance out a little bit better as we look ahead. But you’re absolutely right. We powered through that competition. We welcome competition. And Brent, maybe a couple of new products that helped us diversify our portfolio.

Brent Layton — President and Chief Operating Officer

Yes. I mean, we actually raised our premium. We increased it, but yet we were still able to grow and be successful in our markets from the standpoint. And some of that has to do with the new products that we developed. One of the products was more of a clinic focused in South Florida and in Texas and also more of a tailored network approach we use and that helped us retain members. We’ve been also not only grew, we retained a great deal of our members year-over-year, which we’re excited about. In fact, last year, we grew a great deal through the Biden SEP [Phonetic], and we’ve actually been able to retain 69% of those from ’21 into ’22. So retained growth and being able to very much bring new product that really helped us retain and keep our membership and actually grow even if we raise premiums.

Sarah M. London — Chief Executive Officer

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.

Operator

Thank you. And our next question today comes from Gary Taylor at Cowen. Please go ahead.

Gary Taylor — Cowen — Analyst

Hey, good morning. I know Michael will be missed, so I’ll share my condolences as well. Just a two-part question. First, Drew, 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 impact on the August Medi-Cal Award?

Brent Layton — President and Chief Operating Officer

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.

Sarah M. London — Chief Executive Officer

Yeah. And then on the Magellan front, I would say the team out there worked very, very closely with the state in those early days of go-live and has been performing very, very well since mid to late February. There are zero backlog in authorizations, and I think has built a really positive relationship with the state through that collaboration. Relative to the RFP, California is a very important state for us, and we have — throughout the Magellan acquisition process, throughout the Rx go-live and throughout our bid process have been very focused on making sure that we are aligned with the state and meeting their expectations and looking to exceed their expectations. So there were challenges out of the gate, but I think the team recovered incredibly well. You’d have to ask California, but at least the signals we’re getting from them is that they’re very happy with the collaboration and the partnership.

Brent Layton — President and Chief Operating Officer

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.

Operator

Thank you. And our next question today comes from Nathan Rich at Goldman Sachs. Please go ahead.

Nathan Rich — Goldman Sachs — Analyst

Thanks. Good morning. 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? Thank you.

Sarah M. London — Chief Executive Officer

Sure. Thanks for the question. So I’ll hit on the PBM front and invite Drew to weigh in as well because we’ve been having these conversations with potential partners together. We’re — we issued the RFP early. We’re still on track for the year-end award, but part of the logic of getting the RFP out there earlier was to allow for the more strategic conversation about what the scope would be with that partner. The key criteria are obviously going to be quality and performance, transparency is incredibly important and then also feeling that like we have a very close partner. And so economics are incredibly important, probably first, second and third, but then also making sure that as we deliver a member and provider experience that we have a very responsive partner that is as focused on quality as we are. I don’t know, Drew, if you want to add anything.

Drew Asher — Chief Financial Officer

No, I think you hit on the key word, which is partner, 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 pretty pleased with the level of engagement so far.

Sarah M. London — Chief Executive Officer

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.

Operator

Thank you. And ladies and gentlemen, our next question comes from A.J. Rice at Credit Suisse. Please go ahead.

A.J. Rice — Credit Suisse — Analyst

Hi, everybody. 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, that would be the case? And then a more broad question, you referenced in the release that Medicaid utilization is — seems to be returning to somewhat normalcy. I wonder where are you at relative to a pre-pandemic level or a 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?

Sarah M. London — Chief Executive Officer

Sure. Thanks, A.J. I will just clarify relative to Medicare, the focus is absolutely on margin, 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 multi-year journey, but it starts in 2023. Drew, do you want to talk about utilization?

Drew Asher — Chief Financial Officer

Yeah, sure. Yeah, 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.

Operator

Thank you. And our next question today comes from Michael Ha with Morgan Stanley. Please go ahead.

Michael Ha — Morgan Stanley — Analyst

Thank you, guys. And my condolences as well to Michael and the Centene team. So my question — two-part question on Medicaid pipeline. First, with the number of upcoming RFPs, I was wondering if you could highlight which near-term opportunities are top of mind of Centene? To us, it looks like they’re mainly reprocurements, but are there any specific upcoming greenfield opportunities you’ve your eye on? And then second part question to Sarah, and firstly, congrats on the appointment.

I know Michael has been speaking about Centene as more than just a health plan for so long [Phonetic], and with your extensive background in healthcare tech really looking forward to seeing you usher the Company forward. But yeah, looking at Medicaid specifically and continuity of ops, could you talk about how you can help continue the Company’s RFP run rate that has been around 80% for the better part of the past decade?

Sarah M. London — Chief Executive Officer

So the best person to answer that question and the answer to your second question is Brent.

Brent Layton — President and Chief Operating Officer

There’s no doubt the Medicaid RFP pipeline is reopening. It’s much more like a 2017, 2018 and 2019. Clearly, the pandemic slowed down reprocurements in 2020 and 2021. 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.

Operator

Thank you. And ladies and gentlemen, our next question today comes from George Hill with Deutsche Bank. Please go ahead.

George Hill — Deutsche Bank — Analyst

Yeah. Good morning, and thanks for taking the question. Just a quick follow-up on the PBM RFP. Can you talk about how broad the PBM RFP is going? And is it, like 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?

Drew Asher — Chief Financial Officer

Yeah. We need a partner that can handle the size and scale of $40 billion of spend and the complexity of a multi-line 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.

George Hill — Deutsche Bank — Analyst

Okay. Thank you.

Sarah M. London — Chief Executive Officer

And I would just reiterate relative to the timing that, again, we released 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.

George Hill — Deutsche Bank — Analyst

Thank you.

Operator

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

Steven Valiquette — Barclays — Analyst

Great. Thanks. Good morning. 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? 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? Thanks.

Drew Asher — Chief Financial Officer

Yeah. Let me answer it this way. We’ve grown — if you go back to March of 2020, the inception, the onset of the pandemic, we’ve grown 2.8 million members since then in Medicaid, excluding adds like North Carolina or Missouri expansion business, which was sort of an organic wins. So we expect a little over half of those members to attrit through the redetermination process, granted, it’s an estimate, but it’s a very — it’s a very complex estimate that we’ve assessed 29 times over picking slope lines based upon direct conversations with the state.

And Brent and Dave Thomas’s team have done a really good job engaging with states and actually preparing for the catcher’s mitt opportunity in Marketplace. But sticking with your question in Medicaid, so we expect a little over half of that 2.8 million members, which gets you to the $6 billion of revenue to attrit largely by the end of ’23. I guess some of it could go into ’24 depending on the states that really want to stretch out redeterminations, but I’d say largely by the end of 2023.

Steven Valiquette — Barclays — Analyst

Okay, great. Thanks.

Operator

And our next question today comes from Calvin Sternick with JPMorgan. Please go ahead.

Calvin Sternick — JPMorgan — Analyst

Yeah. Thanks for the question. 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 [Phonetic] Centene products? Thanks.

Drew Asher — Chief Financial Officer

Yeah, 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.

Brent Layton — President and Chief Operating Officer

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 close 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.

Operator

Thank you. And our next question today comes from Benjamin Flox with Jefferies. Please go ahead.

Ben Flox — Jefferies — Analyst

Hi. Thank you. Good morning. 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 sickest 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 redeterminations if and when those to [Phonetic] begin? Thanks.

Drew Asher — Chief Financial Officer

Yeah. 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 actuarial 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 [Phonetic]. And so it’s our job to sort of keep it there regardless of what’s thrown at us.

Sarah M. London — Chief Executive Officer

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 through the roles in three 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 five 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 make sure that the rates are actuarially sound based on the impact we think will incur.

Operator

Thank you. 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.

Sarah M. London — Chief Executive Officer

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.

Operator

[Operator Closing Remarks]