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Humana (NYSE:HUM)

Q4 2012 Earnings Call

February 04, 2013 9:00 am ET

Executives

Regina Nethery - Vice President of Investor Relations

Bruce D. Broussard - Chief Executive Officer, President, Director and Member of Executive Committee

James H. Bloem - Chief Financial Officer, Senior Vice President and Treasurer

James E. Murray - Chief Operating Officer and Executive Vice President

Steven E. McCulley - Principal Accounting Officer, Vice President and Controller

Analysts

Matthew Borsch - Goldman Sachs Group Inc., Research Division

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Justin Lake - JP Morgan Chase & Co, Research Division

Joshua R. Raskin - Barclays Capital, Research Division

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

Thomas A. Carroll - Stifel, Nicolaus & Co., Inc., Research Division

Ralph Giacobbe - Crédit Suisse AG, Research Division

Christine Arnold - Cowen and Company, LLC, Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

David H. Windley - Jefferies & Company, Inc., Research Division

Scott J. Fidel - Deutsche Bank AG, Research Division

Carl R. McDonald - Citigroup Inc, Research Division

Sarah James - Wedbush Securities Inc., Research Division

Melissa McGinnis - Morgan Stanley, Research Division

Operator

Good morning, my name is Lindsay, and I will be your conference operator today. At this time, I would like to welcome everyone to Humana's Fourth Quarter 2012 Earnings Release Conference Call. [Operator Instructions] Ms. Regina Nethery, you may begin your conference.

Regina Nethery

Thank you. We appreciate you joining the call this morning. In a moment, Humana's senior management team will discuss our fourth quarter 2012 results, as well as our earnings outlook for 2013.

Participating in today's prepared remarks will be Bruce Broussard, Humana's President and Chief Executive Officer; Jim Bloem, Senior Vice President and Chief Financial Officer. Following these prepared remarks, we will open up the lines for a question-and-answer session with industry analysts. Joining Mike and Jim for the prepared remarks and the Q&A session will be Jim Murray, Executive Vice President and Chief Operating Officer; Chris Todoroff, Senior Vice President and General Counsel; and Steve McCulley, Vice President, Controller and Principal Accounting Officer. We encourage the investing public and media to listen in to both management's prepared remarks and the related Q&A with analysts.

This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com, later today. This call is also being simulcast via the Internet, along with a virtual slide presentation. For those of you who have company firewall issues and cannot access the live presentation, an Adobe version of the slides has been posted to the Investor Relations section of Humana's website.

Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in this morning's earnings press release, as well as in our filings with the Securities and Exchange Commission.

Today's press release, our historical financial news releases and our filings with the SEC are all available on Humana's Investor Relations website. Finally, any references made to earnings per share or EPS in today's call refer to diluted earnings per common share.

With that, I'll turn the call over to Bruce Broussard.

Bruce D. Broussard

Thank you, and good morning. In today's call, I'll provide a brief recap of 2012, an update on our thoughts around 2013, and importantly, how we believe how 2013 positions us for continued success in 2014 and beyond.

Today, Humana reported fourth quarter 2012 earnings per share of $1.19 and full year EPS of $7.47, ahead of our previous expectations. Our 2012 results reflect the continued implementation of our company's strategy, offering our members affordable health care, combined with a positive consumer experience in growing markets.

The strategy's engine is our integrated care delivery model, which is designed to seamlessly unite quality care and a high member engagement, enabled via sophisticated data analytics. We believe this strategy is positioning Humana for sustainability and growth in membership and earnings.

In 2012, we furthered the implementation of this strategy and achieved some notable milestones. First, we saw significant progress in our Star quality rating from CMS. For bonus year 2014, our average Star rating increased from 3.28 to 3.82. The contract that includes the majority of our Florida membership earned 4.5 stars. We have the only plan offered by a publicly traded organization that has earned a 5-Star rating, and most significant is that the percentage of our members and plans rated 4 Stars or above increased to 40%.

Our second milestone for 2012 was that we significantly expanded our HMO offerings. We believe HMOs allow our integrated delivery model to work more effectively for our members than any other option plan. The percentage of Individual Medicare Advantage members who chose to enroll in our -- in an HMO reached 48% during the AEP and is expected to continue to rise through the remainder of the year. We anticipate the full year will show new HMO enrollment of over 50%, our highest since the implementation of Medicare Modernization Act in 2006.

Our third milestone, we were successful in our bids for Medicaid business in Ohio, Illinois and Kentucky, including individuals dual-eligible for Medicare and Medicaid in both Ohio and Illinois.

Fourth, we furthered the build-out of our integrated care delivery model through our acquisitions of Metropolitan Health and Certify Data Systems and through our investment in MCCI and JenCare. In addition, we acquired approximately 50 primary care providers that we integrated into our concentric care delivery network.

The last 2012 milestone I'll highlight is the noteworthy action we took in connection with the issues we experienced with our second quarter results, by accelerating infrastructure investment to quickly address problems stemming from our enrolling new -- more new members than higher-than-expected medical benefit ratios. Later in the call, I'll review the details to our progression.

For 2013, we continue to anticipate full year earnings per share in the range of $7.60 to $7.80. In his remarks, Jim Bloem will describe some recent developments that give us further comfort with this range. The increasing strong foundation that our operational initiatives will build in -- on in 2013 reinforces our belief in our ability to achieve continued success in 2014 and subsequent years.

Next, I'll walk you through some of the factors developing for 2013 and why we are encouraged by our prospects. I'll begin with Medicare membership growth from the annual election period. Our January Medicare Advantage individual enrollment of just over 2 million, up from 83,000 from December, including approximately 75,000 HMO members. This all further supports our confidence in our projection for the full year net addition of 100,000 to 120,000 individual Medicare Advantage members. This net increase from December includes the required divestiture of approximately 13,000 members related to last year's Arcadian acquisition.

Our January Group Medicare Advantage members are up approximately 13,000 from December as net changes in fully insured Group Medicare membership outpaced the loss of our 29,000 member Group Medicare ASO account on January 1. This puts us on track for our projected full year membership growth of approximately 20,000 for Group Medicare Advantage.

With respect to standalone PDP membership, the AEP growth of approximately 127,000 members has resulted in us adjusting our guidance slightly upward. We now anticipate net growth in standalone PDP membership for 2013 of 135,000 to 175,000.

As we've discussed with you in the past, one of the important elements of our strategy is the movement of our membership into full-risk model, which we believe represents the future of health care delivery. Increasing care delivery is providing to the gold standard for providing quality, affordable care to members while simultaneously offering them a positive health care experience.

At the end of 2012, approximately 26.5% of our individual Medicare membership was in full-risk models, where providers' incentives are appropriately aligned with the quality experience we want our members to have. We expect that number to grow another 1% or 2% during 2013. As we've shared with you before, our goal is to have 50% of our individual Medicare Advantage membership in full-risk integrated care delivery models by 2017.

Provider interest in migrating towards the full-risk model continues to be strong, and the number of providers engaged in the path to risk is large and moving in the right direction. We're accelerating our relationship with risk providers as we leverage the MSO capabilities of our recent Metropolitan acquisition and MCCI investment. With these transactions, Humana now employs -- has strategic investments for MSO contracts with nearly 2,500 providers nationwide.

To improve transparency around how we are progressing and implementing our integrated care delivery model, beginning this quarter, our earnings news release will provide quarterly updates on a number of operational statistics with respect to care management, provider relationships and membership.

I've spoken in the past about the need to move quickly to get our members identified for the appropriate clinical programs. Let me briefly highlight some of the related operational statistics that are indicative of our progress here.

We've increased the number of care management professionals to 6,700 at the end of 2012 versus 3,800 at the end of 2011. We've targeted 55,000 in-home member health assessments for 2012. We actually exceeded that target by 5,000, completing 60,000 such assessments last year.

Members living with multiple chronic conditions enrolled in our chronic care program at a significantly higher rate than 2011. 2012 saw a 13% increase in eligible membership that enrolled in these programs, bringing the total at the end of the year to 150,000. We anticipate that number will expand again in 2013 with the timing of that enrollment importantly weighted toward the first part of the year.

Our Anvita-powered gaps-in-care alert system led to nearly 690,000 such gaps being closed as members and their providers responded to alerts sent out during the third quarter, a closure rate of approximately 40%. This compares to gaps-in-care closure rate of 29% only 1 quarter earlier.

By quickly assessing our members' health conditions and needs, and guiding them to the appropriate care pathways, we believe we are able to improve their health status, enhance their quality of life, enabling aging with grace in their homes, and reduce the incidence and cost of institutional health care, thus improving their health care experience. In summary, we believe Humana's strategic focus and operational discipline positions us well for the challenges ahead. While it's too early to provide any specifics about 2014 earnings, we continue to be confident in our ability to grow both our Medicare membership and our earnings moving forward.

Owning to -- owing to our accelerated and effective preparatory work around administrative cost reductions, clinical infrastructure expansion and integrated delivery -- care delivery enhancement, at this time, we do not foresee any significant impediments to reaching these growth targets. Our long-term belief is that the health care cost and experience can greatly improve through a model that incorporates fixed payments for caring for one's health while enabling individuals to meet their unique needs through choices and incentives for quality. In that context, our experience with Medicare Advantage, combined with the development of the integrated care delivery model, will foster Humana's success for years to come, short-term headwinds notwithstanding.

And lastly, I'd like to thank Mike McCallister for his 38 years as a Humana associate, including 13 years as our CEO. Mike has been an exceptional leader, and I'm pleased that I will continue to have the privilege of working with him as -- ongoing role as Humana's Nonexecutive Board Chairman.

With that, I'll turn it over to Jim for a review of our financials.

James H. Bloem

Thanks, Bruce, and good morning, everyone. While 2012 was a year of challenges, it enabled us to continue to prepare for 2014 and beyond. I'll first walk through our fourth quarter 2012 results before turning to our updated expectations for 2013.

Looking first then at the full year 2012, we're pleased with our earnings of $7.47 per share, which exceeded the midpoint of our previous guidance range by $0.17. As noted on the slide, the combined $88 million of improved fourth quarter operational performance in both our Retail and Employer Group Segments was partially offset by lower-than-expected results in both our Health and Well-Being Services Segment and Other Businesses. Overall, the net consolidated operating performance improvement of $69 million or $0.27 per share over the last 90 days was gratifying.

On the plus side, the better-than-expected performances of our Retail and Employer Group Segments were each driven by a lower benefit ratio and a lower operating cost ratio than previously forecast. The Retail Segment benefited most from a lower Medicare Advantage medical cost trend in the second half of the year. Our standalone PDP result also came in slightly better than forecast while our individual major medical business was in line with our previous forecast.

Additionally, as indicated on the slide, we experienced a much more severe flu season than we anticipated. This widely publicized severity resulted in an additional $25 million or $0.10 per share medical cost in December, mostly impacting our Retail Medicare Advantage business. These incremental flu costs primarily were driven by a sharp increase in hospital admissions associated with respiratory diagnoses. We saw these admission levels peak just before the middle of January, with steady abatement occurring since then. We estimate the total 2012-2013 incremental cost of these flu-driven admissions to be around $75 million with approximately 2/3 of that amount occurring in the first quarter of 2013, which corresponds to the occurrence of the peak in mid-January.

Now looking at the Employer Group Segment. The operating overperformance there was driven equally by our commercial group businesses, as well as our Group Medicare Advantage business. Each of which, like the Retail Segment, also benefited from a moderating medical cost-trend environment. Additionally, we continue to realize improvement in our operating cost structure for both these lines during the quarter.

Turning next to our Health and Well-Being Segment. The $17 million of lower-than-anticipated fourth quarter pretax income primarily was due to our pharmacy operations, which experienced higher-than-expected costs associated with an operational system upgrade for our RightSource mail order tablet dispensing system. We believe most, if not all of these system ramp-up issues will be addressed by the end of March and, accordingly, have anticipated some continuation of these expenses into the first quarter of 2013. Additionally, the closing of the Metropolitan Health and MCCI transactions resulted in $12 million of transaction-related expenses that were not included in our previous forecast.

Looking further at our Other Businesses results for the quarter, we recorded approximately $33 million or $0.13 per share in long-term care expenses, primarily associated with the reserve strengthening of our closed-block long-term care policies. As you may recall, we performed an annual actuarial review of the assumptions underlying these reserves at year end. In the course of this year's review, we noted that long-term care claimants were staying on claim longer than we had reflected in our actuarial models. Accordingly, we adjusted our actuarial persistency assumptions for these claims, which, in turn, necessitated the additional reserves.

And finally, for the fourth quarter, our effective tax rate came in lower than previously estimated, primarily as a result of, first, truing up our prior estimates of the negative impact of nondeductible compensation as defined by the Affordable Care Act and the settlement of a multiyear state tax dispute. Both of these favorable items occurred in December and resulted in a 32% effective tax rate for the fourth quarter of 2012.

Turning now to 2013. We are reaffirming our full year earnings guidance range of $7.60 to $7.80 per share. This slide highlights 3 principal items in our guidance that have changed since early November. As with our review of 2012, let's start with our revised assumptions regarding our 2013 expected operating performance.

Starting on the left with the Retail Segment, we anticipate 2013 operating pretax income results to improve by approximately $45 million or $0.18 per share over our previous projection. This improvement is driven primarily by the continued organization-wide focus on operating efficiencies, as well as a slightly improved outlook for medical cost trends. We expect these operating improvements to be offset by the flu season that I described earlier, which is the most severe that Humana has experienced in at least a decade.

Turning next to the Employer Group. We expect our 2013 operating results to improve by approximately $10 million, again, partially offset by the estimated first quarter flu impact for this segment as well. The improvement of our Employer Group outlook is driven by both the reduced operating cost structure, as well as a slight improvement in medical cost trends that we experienced in the second half of 2012 in both our commercial and Group Medicare Advantage businesses, as I described earlier. However, with respect to the commercial medical cost trends, as in prior years, we remain very cautious and continue to anticipate an increase of 150 basis points, plus or minus 50 basis points, although we are quite pleased that this uptick has yet to occur.

Looking now at our Health and Well-Being Services Segment. We expect 2013 pretax income to improve by approximately $40 million from our previous guidance to a range of approximately $500 million to $550 million, primarily due to the expected $52 million or $0.20 per share contribution from Metropolitan Health. Additionally, we have lowered our outlook for our mail order pharmacy business by $12 million for the fourth quarter system ramp-up issue discussed previously.

With our expectations for results in our Other Businesses not changing materially, we need only to highlight the additional interest expense of $38 million or $0.14 per share we expect to incur as a result of our $1 billion senior notes offering in early December. Most of the offering proceeds were used to fund the strategic transactions completed in the fourth quarter.

So for the full year, we continue to see earnings per share within the range of $7.60 to $7.80, including the previously disclosed $75 million or $0.30 per share of accelerated and enhanced investments in our MSO and primary care capabilities. As Bruce described, we expect that these investments will benefit us significantly over the long term, both in competitive positioning and profitability.

Turning last to our expected 2013 quarterly earnings pattern. This show --this slide shows the timing of the major items that we expect are -- to impact our earnings from quarter-to-quarter. These items include the annually discussed seasonal factors, most of which you are familiar with over the years. Our growing Health and Well-Being Services Segment businesses do not exhibit material seasonality, thus they don't apply -- they don't appear on the slide.

Based on this slide, our first quarter 2013 earnings guidance range of $1.75 to $1.85 per share is consistent with our initial view of the first quarter typical -- the first quarter's typical relative contribution to our expected full year results, and we do not anticipate any significant 2013 differences from our 2012 quarterly run rate earnings pattern. To conclude, we are gratified with the results reported today and are confident of our prospects moving forward.

With that, we'll open up the lines for your questions. [Operator Instructions] Operator, please introduce the first caller.

Question-and-Answer Session

Operator

Your first question comes from the line of Matt Borsch with Goldman Sachs.

Matthew Borsch - Goldman Sachs Group Inc., Research Division

Could you just talk in a little more granularity about the transition process for -- to HMO products? And what year -- have you set quantitative goals that you can share there, and maybe just tell us how that's going with some market examples?

James E. Murray

This is Jim Murray. Yes, we've set targets. I think that the target that we had shared with a lot of you in the November Investor Day here in Humana detailed a lot of those. I don't have those in front of me that -- but if you reference those materials, you can see those. And philosophically, what we're attempting to try to do on a market-by-market basis is have a conversation with our members about the additional benefits and lower premiums that they can enjoy with the HMO products. As you know, the HMO products are more like the integrated care delivery model that Bruce detailed in his remarks. And that's where we can create a lot of economic benefits for the members that we serve, and also, the satisfaction measures and experience for the members is enhanced with that model. And so the conversations that our market point selling representatives have with the individual members goes through a lot of that discussion with them.

Bruce D. Broussard

Matt, just to add to that, as I think you know, we are -- it's sort of a 2-step process. One is building capacity, and the building the capacity is around bringing the providers to the risk-based contracting. And as we've talked about, we've had great progress in that. And then the second aspect, as Jim was alluding to, we are also focusing in certain markets. I think when everyone was here in November, we talked about 5 markets, maybe increasing that to 7 markets. But our intention is to be very, very strong in those 5 to 7 markets and the ability to build the integrated delivery system.

Matthew Borsch - Goldman Sachs Group Inc., Research Division

And just, if I could, one last question here. As you -- and I realize it's early, but as you look ahead to 2014, do -- is it your judgment at this point that you would make a member benefit reduction commensurate with the amount of the industry fee that's being introduced if, in fact, it's introduced as scheduled for next year?

James E. Murray

This is Jim again. Obviously, there's a lot of things that have to go into the pot to try to figure all that out. It's our intention to recover the industry fee in either lower benefits or higher premiums. But as you know, what has to happen with the funding with the government is something we'll learn in the next couple of weeks, where our competition is, what we are able to do with the 15 Percent Solution that you're all familiar with, secular trends, risk revenue and some of the good work we're doing around the in-home assessments and the whole integrated care delivery model progression that we're detailing here. So there's a lot of things that we study market-by-market, but it's our intent to recover that fee, both on a pretax and in those cases where we can on an after-tax basis.

Operator

Your next question comes from the line of Chris Rigg with Susquehanna Financial.

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

I guess just to follow up on that last thought there. When we get the 45-day notice in a couple of weeks, what are you guys anticipating in that in terms of sort of a base rate update for 2014?

James E. Murray

There's a lot of things that we read about. Many of you have different opinions about what ultimately will happen. We have our own ideas about some of the variables that go into that funding rate that we look for. When we step back, we look at it, we're sensing something that is flattish to slightly down. And that's an environment that we've demonstrated in the past that we can live with. But again, that's a lot of studying, a lot of by-market evaluations on all of the things that I just talked through here a moment ago, and lots of work to do in and around the February through April time frames. But again, based upon what we're sensing, we feel comfortable that we'll be able to come out with a set of products, benefits and premiums that will be very attractive to the members that we serve.

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Okay. And then on the Retail Segment medical loss ratio guidance, it's up 50 basis points. When I look at the impact of the flu -- I guess what's driving that increase? Does it have anything to do with the recent acquisitions, or is it all just on the cost trend side?

James H. Bloem

It's all on the cost trend side. It's basically the worst flu season we've had in more than -- in at least a decade. And as we showed, it's in the fourth quarter for about $25 million and it's carried over, peaking in mid-January in 2013.

James E. Murray

Yes. Relative to our prior guidance, it's the flu. There's also some additional quality measures we're doing around our drug programs that we've identified some additional costs related to that and also the in-home assessments and them included in that benefit ratio calculation, a very -- a part of that increase.

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Okay. And so when I look at the -- on the -- on Slide 12, in the $45 million benefit from operations that you're projecting, is that -- I guess I'm just trying to figure out the math here, because it looks like $45 million would be less than 50 basis points. And is the $45 million of benefit not in the cost side, or how should we think about the net impact here?

Steven E. McCulley

This is Steve. On the operating cost, the operating cost is down versus the last projection as well. So the increase in benefit ratio is offset by a lowering of the operating cost ratio.

Bruce D. Broussard

The admin cost ratio.

Operator

The next question comes from the line of Justin Lake with JPMorgan.

Justin Lake - JP Morgan Chase & Co, Research Division

First, just want to follow up here on the MLR question, the Retail Segment. So you had -- clearly, we've seen a big flu season. But you had previously mentioned last year that you had about $50 million of investments in improving medical outcomes, improving risk scores that would drive something in the neighborhood of $200 million to $300 million in improved economics. Was curious for an update here in how that works again -- potentially could have worked against the MLR.

James E. Murray

This is Jim Murray. The -- I'm extremely proud of what we've done in the last -- in a couple of quarters around the second quarter initiative. We identified a couple of problems that were -- existed in our Medicare Advantage individual business, and Bruce detailed a lot of the good work that we did in that regard. And as you saw in the third quarter and now again in the fourth quarter, we began to produce improvements around our medical cost trends in the Retail Segment. That run rate of improvement is something that detail -- that Jim Bloem detailed in his remarks earlier. Again, I feel very good about a lot of the good work that we did, and we'll see how that all plays out. It's really early here to claim any improvement in our guidance for 2013. And again, we'll see whether or not some of this good work has beneficial effects going into 2013, and we can talk through that probably in the first and second quarter.

James H. Bloem

And we will [indiscernible] around 5% this year on overall basis.

Justin Lake - JP Morgan Chase & Co, Research Division

Got it. And then, Jim Murray, you mentioned at the Investor Day that you expected to grow Medicare Advantage membership and earnings in 2014. I'm just curious if there's any change, at least in your view, since the company doesn't seem to be giving -- obviously, it's early for '14 guidance. But clearly, you had a pretty strong view there at the Investor Day.

James E. Murray

And I continue to have a strong view. I'll feel even stronger after we go through our bid evaluation process in February through April. But again, we're doing a lot of really good things to control our medical trends around the 15 Percent Solution and the integrated care delivery model. I felt very good at Investor Day about our ability to continue to grow and make additional profits, and nothing has changed from that point in time. In fact, as I look at some stuff, I feel even better.

Operator

The next question comes from the line of Josh Raskin with Barclays.

Joshua R. Raskin - Barclays Capital, Research Division

First question just relates to some of the changes that you guys have made post second quarter of last year around your ability to identify and help control some of the new membership that's coming in on the Retail MA side. And I think I heard you talk about in-home assessments that would actually -- the target being down, I guess, maybe 5,000 year-over-year. So I'm just curious, what are you doing to give yourselves additional comfort? What signs can we look for early on to make sure that we know these new members are coming in at profit levels that are commensurate with your guidance?

Bruce D. Broussard

Yes. I think, first, the -- we were actually higher in assessments by 5,000. We've -- we targeted 55,000, and we actually completed 60,000 in that regard. And we're seeing -- as Jim was alluding to in his comments just a few minutes ago, we are seeing some very positive aspects coming out of that and being able to get our chronic members on a managed program quicker and being able to have more effect both on the care model and also the cost.

James E. Murray

Yes. The -- a lot of the things that we detailed at the time of the second quarter were programs to identify folks a lot more rapidly than we had in the past. We talked about the fact that, generally, it could have taken up to 6 months or 9 months to identify folks for chronic programs. So we're reaching out more rapidly than we had in the past to have folks do HRAs. We've implemented some predictive models based upon early claim information that we're seeing to identify those folks that we need to make outreaches to. Bruce talked through the additional market based and chronic nurses that are a part of our programs. I think we more than doubled the number of nurses that are a part of our acute programs, as well as chronic programs. As we always do, we evaluated the risk scores year-over-year. We've studied January claim payments and identified the amount that was related to the flu by the codes that we see related to that. We pulled that out and then we studied our utilization statistics, and they seem to be pretty much in line. And then importantly, and we talked about this last year, we changed our targeted MERs for new members. You'll recall that we said last year that our target had actually got a little bit more aggressive. We actually reduced that target MER for this year, somewhere, on a market-by-market basis, anywhere from 200 to 400 basis points. And so that will have a beneficial effect on these new members that we got this year in the AEP. So all in all, we feel very good about what we've done to address the new member issue, and we're not seeing any evidence that we've got a concern there.

Joshua R. Raskin - Barclays Capital, Research Division

That's great, Jim. Just so in terms of magnitude, is it more -- the health risk assessments and the reviews that you did, I think the 60,000 assessments you did last year, just in terms of sizing the magnitude, is it a bigger impact in '13 the prior year assessments that you're now going to get paid for or -- and/or moving people into the chronic care program? Or is it more...

James E. Murray

The -- I'm sorry, the 60,000 assessments that we did will have a beneficial effect on the MRA revenues that we get in 2013 and also will positively impact the timeliness of getting people into programs. Some of that beneficial effect began at the tail end of '12, but it will play (sic) [pay] more dividends in 2013. That 60,000 is probably going to be significantly increased in 2013, because we're seeing that the in-home assessments is extremely beneficial for us from a P&L standpoint, both identifying people for programs, as well as enhancing risk revenue.

Joshua R. Raskin - Barclays Capital, Research Division

Got you. And then just a quick question on the capitation payments that you made in the fourth quarter that drove down the payables, is that risk-sharing agreements? Is that just a bigger impact this year because you're growing your risk sharing?

Steven E. McCulley

This is Steve. Yes. If you look at that, that was -- the schedule in the press release is a year-to-date number on the capitation, and that is a lot of growth in the HMO. And actually, as you -- we look to the next couple of years, we'll continue to see that -- to have an impact as we grow our HMO business. Sequentially, during the quarter, what happened, if you look at the claim inventory levels now versus at the end of September, you'll see that was the biggest reason for the drop, as well as the cut-off with our pharmacy processor. So you'll see that on Page 20, I think, of the press release.

Operator

Your next question comes from the line of Peter Costa with Wells Fargo.

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

Could you go over the medical cost-trend components a little bit with me? Just -- I'm not quite sure I followed exactly what you expect cost trend to be this year, in 2013. And then if you could, what's causing the 150 basis points of increase in the commercial medical cost trend?

Steven E. McCulley

This is Steve again, Peter. So both your questions are about the commercial trend, I take it. So I think what we said is that this year we saw trend come in at around 5% for 2012. And next year, we plan on that ultimately going up 150 basis points, and I think we've been saying that for quite a while now. And we do expect it to kind of -- to increase and to return to what maybe the historical norms are. But that's been slower to play out than we expected, so we continue to be cautious about that, want to be cautious with our pricing. So as we look forward to 2013, we've assumed a return to the 6.5% range. And -- but so far, we really haven't seen any indication of it going there yet. But ultimately, we think it will.

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

And can you break up the components of that, please?

Steven E. McCulley

Yes. I don't have that in front of me, but it tends to be utilization driven. We would expect -- the utilization has been lower than historical norms in both the inpatient and, to a less degree, the outpatient side. But I would say the inpatient is -- utilization is the biggest driver.

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

Okay. And then on the new disclosure page that you have, can you describe exactly what it takes to be other versus path to risk versus full risk? What defines which member is in which of those categories?

Steven E. McCulley

This is Steve again. I'll take a run at that. The path to risk, our HMO members that are in an HMO contract, and they're either targeted to go to risk or we expect that a fair percentage of those will ultimately go to risk. Some of those -- some of these providers have actually signed up for risk arrangements. And as their panel sizes reaches a credible panel size, they'll flip to the risk category. So there will always be some HMOs that stay fee-for-service HMO, but we look at that as kind of as a step towards full risk and risk assumption.

James E. Murray

This is Jim. One of the things that we attempt to do is we have integration continuum, if you will, and one of the first steps is incentivizing providers for a lot of the quality measures that the government evaluates us on. So we'll pay folks for higher preventative screenings and higher ultimate HEDIS scores, obviously, and satisfaction numbers. As we move down that continuum, we might add things like utilization statistics on a by-provider or a by-market basis and then, ultimately, full risk is the final. So that path to risk is attempting to get folks aligned with the kinds of things that are necessary to manage in a population health or integrated model kind of perspective, and it's just a learning journey, if you will.

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

So payments don't really tie to the path to risk category, correct? It's just -- the hope that they will eventually be there.

James E. Murray

Pardon me? Can you help me? I'm not sure I'm following your question.

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

Well, I guess another way of saying the question is -- get to the final point. Your capitation payment that went up this year, so the -- causing the DCP to come down. If I look at the path to risk, I can see why that would be -- have grown. But the way you described it didn't sound like it's actually capitation payments. It's just more members on -- in contracts that are expected to eventually be under risk contract.

James E. Murray

In an HMO, you'll pay a primary care physician a capitation payment. And in addition to that, if they deliver significant improvements in HEDIS measures and quality bonus scores, you might pay them an incentive on top of that capitation payment.

Steven E. McCulley

Yes, Peter. So on the days in claims payable, even for a fee-for-service type HMO or a non-risk HMO, I should call it, the primary care physician will be capitated and some of the specialty network can be capitated as well. So you move that expense from an IBNR-type expense to a capitation expense, even if it is not listed.

Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division

So there is a correlation to the DCP line [indiscernible] path to risk...

James E. Murray

Yes, absolutely.

James H. Bloem

The more HMO we have, the lower...

Bruce D. Broussard

You'll see that metric that many of you follow continue to go down over time as more and more of our members go to HMO.

Operator

Your next question comes from the line of Tom Carroll with Stifel.

Thomas A. Carroll - Stifel, Nicolaus & Co., Inc., Research Division

Just sticking with the commercial bucket for a minute here. You had some commentary in your press release about your commercial enrollment, I think, indicating about 59% of it was small group. I wonder if you could give us a sense of kind of how much does your small group book contribute to the overall profitability at Humana, just as we think about 2014 and 2015 and exchanges and all that stuff. And then secondly, I had a question on your -- the recently awarded Florida long-term care program, which I believe Humana is protesting. What do you think were the state's primary decision factors in awarding that business? Any sense or insight you could give us there would be great.

Unknown Executive

I'll take the Florida side. And we really don't want to comment on the -- on our relationship with the states and all the aspects going on, both because we normally don't do that, and second, we're working with them today on the protest.

James E. Murray

And then on the small group business, it is a profitable part of our overall Employer Group results. So I don't know that I would give a percentage, but it's certainly one of the larger parts of the profit there, maybe...

James H. Bloem

Certainly on the commercial side.

James E. Murray

On the commercial side. There's also -- the Medicare Group business is in there, which does well -- and the large group business as well. But it -- the small group is profitable.

James H. Bloem

Your question is well placed with respect to our -- the weighting of our membership. We have, as a percentage of our commercial group business, more is in small group than is typical.

James E. Murray

We're very pleased with the performance of our small group business. It continues to do well financially and grow. I think they're probably somewhere in their 27th or 30th month of consecutive monthly growth, and so we're really pleased with the way that it's developing.

Bruce D. Broussard

As we look at 2014, one of the analysis that we've done is, internally, our relationships, our membership is skewed to more professional groups and higher -- well, more professional groups, I'll leave it at that. And what we find is that the transition or the anticipated transition of that group to exchanges is actually in the lower level than something like a Retail or even the restaurant business. So we feel that we are in a good position in dealing with the transition of 2014, both in preparing for exchanges, but then secondarily, as we look at our relationships with our customers today.

Thomas A. Carroll - Stifel, Nicolaus & Co., Inc., Research Division

So given that, would you suggest that your expectations, at least right now, given what we all think about exchanges and whatnot, is that the contribution from your small group book going into the next few years is probably not going to be impacted that much? Is that fair?

James E. Murray

That's a fair characterization. We've done some long-term projections and models as a part of our strategic planning. And although there are some movement from our small group block into the individual exchanges, we don't think it's very significant because of what Bruce described a moment ago.

Operator

Your next question comes from the line of Ralph Giacobbe with Credit Suisse.

Ralph Giacobbe - Crédit Suisse AG, Research Division

Just want to go back to the HMO-PPO split. You had talked about, at the end of the year, being sort of over 50% on the HMO side from just under 50%. I guess I'm just getting to -- would like to get a read in terms of longer term, where that percentage, where you'd like that to go, where we should think about it going, and then if you can help at all to sort of frame the MLR differential and the MLR between the 2.

Bruce D. Broussard

I think on the HMO, we probably really are measuring longer term on the integrated delivery model, which really relates to having relationships and membership in the risk-contracting area. And we anticipate that to be at 50% by 2017, which today, as we mentioned, it's right in the 27% or so range, and we anticipate that increasing by 1% or 2% this year, in that vein. We really are not giving long-term visibility into the HMO side as we think, really, the investor should be focused on the integrated delivery model and the benefits from that point of view. In regards to your second discussion, I don't think we've given detail out on the MLR side. Steve, have we?

Steven E. McCulley

No, we haven't, not by HMO and PPO. And -- but I don't know that they -- for non-risk, I mean, they wouldn't be that different. So there'll always be some non-risk HMO and some PPO business which will do well for us. But I think the key is what Bruce said, driving towards that 50% in risk arrangements by 2017 is what we're pushing for.

James E. Murray

When you think philosophically around the HMO, the goal there is to drive our costs lower so that we can offer more benefits to the membership. And so that's an evaluation that we have to make on a year-by-year basis, how much of that cost improvement we pass back to the membership.

Bruce D. Broussard

I think a slide that we have shared with the investors over the years -- or over the last year is that comparator to the Medicare original cost and what we see, full risk is around 71% of Medicare. And when you look at no provider incentives at all, it's around 91%. And as we've stated before, also when you look at our quality scores in the integrated model with global risk, they are much higher. So we continue to be firm believers that we'll see a substantial increase in quality and decrease in cost as we see this moving from a -- more into the integrated delivery model.

Ralph Giacobbe - Crédit Suisse AG, Research Division

Okay. And then second question, just going back to the industry tax in 2014 and sort of the ability to offset that. Is the expectation essentially that you'll hold the 5% margin net of the tax on potentially sort of softer top line or see lower margin on higher premium revenue?

James E. Murray

This is Jim. That's yet to be played out. The comment that we would like to you -- have you all take is that we continue to believe strongly that we'll be able to grow and make a tremendous or a significant amount of profitability over time. The geography of whether it's pretax of after tax, we'll have to figure out as we lay out all the bidding variables that go on a market-by-market evaluation. We feel very good about our ability to grow and earn a fair profit going forward though.

Operator

The next question comes from the line of Christine Arnold with Cowen.

Christine Arnold - Cowen and Company, LLC, Research Division

A question on some studies that have come out suggesting that people who disenroll from Medicare Advantage may, in fact, be sicker people. And so we've seen a Health Affairs study and then another one today out of CMS. Could you comment on that please?

James E. Murray

This is Jim Murray. I have not seen any of those studies. We are very happy to take all comers. To us, it doesn't matter, because of the risk-adjusted revenue, what the person's particular illnesses are. And so I don't have any of that information that you just referenced.

James H. Bloem

We do think our care delivery model...

James E. Murray

It produces better outcomes for the people that we serve, and I think our quality Star performance begins to demonstrate that. And so we'll look at what you just referenced. But I've never seen that, and that's kind of a surprise to me.

Bruce D. Broussard

I think as we've said many, many times, we're seeing continued tenure of our relationship with our customers to be in the 7-year range, and we continue to see them aging with us. And as you've seen from our investments in our chronic program and our transitional program, that we're making quite a large impact both on the quality of care and the cost of care. So this study, I think we should probably should look at, but we're not seeing it in our business as a whole.

Christine Arnold - Cowen and Company, LLC, Research Division

Okay. And then should I think of the 26.5% as the percent of cost capitated? Is that the right way to think about it, or is it more of a qualitative metric than I'm making it?

Steven E. McCulley

No, I wouldn't -- this is Steve. There's also capitation expense in the other categories as well, so you can't really make that comparison. So that's just the members that are currently in risk-type arrangements.

Christine Arnold - Cowen and Company, LLC, Research Division

Okay. And then final question. With the benefit of hindsight in 2012, do you think part of the problem could have been the constraining of diabetes codes or having maybe missed the opportunity for the class of '11, which was so large, to properly code them as much as maybe you can?

James E. Murray

This is Jim. As we studied the root causes for all of our issues, that has not popped up as anything that has -- something that we've identified. We've been pretty clear on some of the things that faced us around the new members and the additional messaging and some of the outpatient costs that we experienced. I've not heard anybody explain what you just referenced as something that caused some of our problems.

Operator

Your next question comes from the line of Kevin Fischbeck with Bank of America.

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

I was wondering if you could go back through the seasonality. You indicated that it was kind of similar to last year in your new guidance, but it feels like it is actually a little bit more front-end loaded into Q1, I guess particularly, if you were to say that the Q1 number is $0.20 held back because of flu. That would imply almost $2 of earnings in the first quarter, which would really seasonally push things to the first quarter versus your guidance. So wanted to understand -- I appreciate the chart that was there. But those factors are all factors that we've seen in the last several years. Is there anything that would make this seasonality more pronounced than it might otherwise have been?

Steven E. McCulley

Kevin, this is Steve. Look, comparing to last year, there's a big -- because of leap year last year, there is a favorable kind of weekday seasonality advantage in 1Q this year, and that's a big factor, as well as the $0.30 of investments that we've spoken to are a little bit more weighted towards the back part of the year. So those would be the 2 things I would cite.

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Okay, that's helpful. And then just on the increased disclosure that you have on the physician side of things. Is there anything that we should be looking for as far as tracking that data from quarter-to-quarter? Do you expect a consistent increase in those numbers over time? Or is there a period where you say, well, we're doing Open Enrollment for January 1, so the data, as we get our networks together, should jump in Q4 or Q1, or how do you think about any seasonality in those metrics as we go forward?

James E. Murray

This is Jim Murray. The -- what I would be looking at those to give you comfort on is that the investment spend that we've talked to you about, where we would be acquiring physician practices over time, is beginning to play itself out, because that begins to demonstrate the building of the integrated care delivery model. And the other piece is the care professionals that are identified. And the more care professionals that we have that are focused on the chronically ill seniors, the better you'll feel about that -- if 20% of our seniors are complex chronically ill and contribute 60% of the cost, that will give you a better sense on how we're doing to measure or control some of that spend. And so those are the 2 things that I would be looking for is the building of the integrated model and also our focus on the chronic costs that are a big part of what we spend year after year.

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Jim, I guess the question is around timing. I mean, is there a sense that you say, well, if you haven't signed someone up by Q3, then that means you're behind track, or how do we think about the timing of that?

James E. Murray

Well, I think the members -- the member statistic will take, obviously, a bigger jump on the 1/1 renewals. And -- but the providers' statistics, on the other page, will tend to grow more ratably as we build out the network. So over the course of the year, you will see a little bit of increase on the membership side as agents come in. And as some providers on a path to risk, their membership panels reach a credible size, and those members will jump into risk arrangements as well. But those won't be big jumps. The big jumps will happen 1/1 on the membership side.

Operator

Your next question comes from the line of David Windley with Jefferies.

David H. Windley - Jefferies & Company, Inc., Research Division

Murray, your previous comments about the 45-day notice, I wondered if you could give us the positives that you're anticipating that would offset the negatives that we're aware of. So coding intensity is 150 basis point headwind, what gives you confidence that we get to flat to slightly down?

James E. Murray

Well, as we've talked many times in the past, there's about 10 variables that go into this calculation. The amount of the secular trends that we use as an organization year-over-year and what's happening with secular trends, the trend benders that we've talked with all of you about many times. And with -- because of the good work that we did during 2012, our anticipation would be that the trend benders that we have as an organization will be fairly impactful in 2014. The in-home assessments that we've done will positively impact our MRA revenues that we have experienced as an organization. So that's new add. The funding, the CMS will conclude whatever that is, but there'll be a current year, an amount. There'll also be a prior year catch-up that will be a part of that calculation. The Stars that Bruce talked you through earlier and the work that we're doing there will be positive, that will offset that. There's lots of pluses and minuses, and they're all going to be market-by-market. And so when we look at it, we calculate something that's kind of flat to slightly down. And when we look back at what we've been able to accomplish as an organization year after year, we feel fairly comfortable that we'll be able to address this situation and, again, grow and make a fair profit for 2014.

Bruce D. Broussard

I think one of the aspects that we do see that as a difference between the calculation is the premium tax included in it or not. Obviously, from our perspective and what Jim is referring to, the premium tax is not included in the calculation when we talk about being flat or slightly down.

David H. Windley - Jefferies & Company, Inc., Research Division

And so just to clarify, you're expecting the generalized 45-day notice to everybody being flat to slightly down and then you named off several Humana-specific items that would improve your, say, Humana adjusted rate experience. Is -- am I interpreting that correctly, or is it that you think your Humana rate will be about flat?

James E. Murray

That's correct. The first point that you made is the correct way to interpret what I just walked through.

Bruce D. Broussard

And I think, in general, for historical purposes and as we look in the future, the 15 Percent Solution, the continued migration to our members to the integrated delivery model, our focus on our productivity around our cost side are all examples of how we are dealing with a flat to declining rate in a market that does have increased cost.

David H. Windley - Jefferies & Company, Inc., Research Division

And if I could ask my follow-up to Jim Bloem. On the capital front, your debt to cap still remains low among peers. Is it your expectation that you will, say, use your dry powder there for acquisitions to add to the integrated delivery model? Could we expect that you might step up on the share repurchase? Can you give us a sense on the capital side for uses of capital?

James H. Bloem

I think that -- well, if you look at the last -- what we've done the last couple of years, they're very instructive about how we look at the deployment of capital. So if you look at 2012, you can see that we did a lot more in terms of the integrated care model in terms of acquisitions, in terms of CapEx and in terms of strategic investments. But at the same time, we also increased what we gave to the shareholders in terms of cash dividends and share repurchase. So we basically purchased things that raised the value of the company. We bought maybe 3x to 3.5x more of those in 2012 than we did in '11, but again, we also gave $52 million back. And all of the things that we spend our capital on, I'd like to just make sure that when we do this, I think that everybody needs to think about how capital efficient we are in terms of being able to build out the integrated care delivery model and what we get for what we pay, because I think having to -- staying with a conservative financial -- with a conservative balance sheet and strong cash flow is what we need to do as we enter the next 3-year period.

Operator

Your next question comes from the line of Scott Fidel with Deutsche Bank.

Scott J. Fidel - Deutsche Bank AG, Research Division

Just wanted to go back to the HMO versus PPO, and just ask a question around the targeted margins that you look for in those 2 product areas relative to the 5%. Are you targeting a 5% margin for both of those products, or do you target something higher for HMO, given all the structural advantages that you've highlighted, and something lower for PPO products?

Steven E. McCulley

This is Steve. No. We don't target a different margin for PPO than HMO. We tend to target an overall 5% margin, as we've spoken to. And at the end of the day, if the HMO model, being a more efficient model, we're able to offer richer benefits and have a better value proposition in many cases. So -- but we don't explicitly target a lower margin in the PPO product.

Scott J. Fidel - Deutsche Bank AG, Research Division

Okay. And then just wanted to ask, just a follow-up, just an update on thoughts on the level of exchange participation for 2014 and if you're comfortable giving us sort of a range of the number of exchange markets that you're thinking about participating in.

James E. Murray

Yes, this is Jim Murray. I think in our Investor Day presentation, we suggested that as many as 10 markets we'd participate on the individual exchange. One of the things that we found out since we were together in November is that in order to participate on the individual exchange, we'll also have to participate on the shop for the small group. And so that will cause us to change some of what we were thinking around the small group participation on the exchange to work collaboratively with our HumanaOne businesses to figure out where we're going to go state-by-state and market-by-market. But other than that, it's probably in the 10 range, 10-state range.

Operator

Your next question comes from the line of Carl McDonald with Citigroup.

Carl R. McDonald - Citigroup Inc, Research Division

I know you don't like to generally comment about the market-by-market results. But given the attention there's been in Florida, I wanted to see if you were willing to comment on the Florida Medicare loss ratio in 4Q and/or what the guidance for 2013 embeds.

Steven E. McCulley

No. This is Steve. I don't think we have any update for you on the Florida 4Q MLR. I don't have that. But as we've said, there's a number of things that go into the calculation in '14 with respect to the MLR minimum, including the deductibility of taxes and other things. So I really don't have an update for you. I think we've talked about that in the past.

James E. Murray

We've done a lot of scenarios that would suggest that there's some amount of exposure there as the 2014 regs go into play but nothing that is not something that we can handle and deal with.

Steven E. McCulley

And we still don't have the final rules yet. So once we get the rules and we're able to do a more in-depth analysis, then I'm sure we'll have an update.

Carl R. McDonald - Citigroup Inc, Research Division

And then separate follow-up. On the Retail Medicare business, do you have the numbers in terms of gross adds for '13 relative to attrition, and how those numbers compare to the final 2012?

James E. Murray

Are you talking about the total for the year of net adds?

Carl R. McDonald - Citigroup Inc, Research Division

Yes. So if you think about the up 100,000 to 120,000 guidance for '13, what did you grow on a gross basis? What did you lose in attrition to get to that 100,000, 120,000?

Regina Nethery

We have them here, Carl, so we may have to come back to that in just a second. Let us just get the right piece of paper in front of us. But -- so -- wait, here we go.

James E. Murray

Total sales for January of 2013 or for the AEP were new sales of about 270,000, which was pretty close to where we were for the 2012 and 2011, for those of you who are interested in new membership. And then the terms were about 172,000. That gets you to around that 83,000 net, I believe, after you factor out the Arcadian adjustment.

Operator

Your next question comes from the line of Sarah James with Wedbush.

Sarah James - Wedbush Securities Inc., Research Division

I wanted to follow on Carl's last question. So when you look at some of the dynamics of the terminations, are you finding any different trends in that cohort versus the renewals outside of product type?

James E. Murray

You're talking about Medicare Advantage information. We're not seeing anything significantly different in terms of the individuals who are terminating. We were a little bit more conservative with our benefit designs and premiums this past year, and so our terminations ticked up a bit, which we expected and we guided to. But nothing unusual in terms of who's terminating and -- or why they're terminating that was a surprise to us. So it was very close to...

Sarah James - Wedbush Securities Inc., Research Division

Maybe if I can phrase it a different way. If you were to look at those terminating members, were they in the geographies where you put forward some of the more material benefit design or price changes in '13 compared to what the product looked like in '12?

James E. Murray

That's probably a fair observation. And as we rolled up our anticipated guidance, we look market-by-market and we evaluated what our benefit design changes and premium changes were. And frankly, we came right on where we had originally thought we were going to be. So that's probably a fair evaluation. Where we were a little bit more onerous with benefit changes and premiums, we probably got some more attrition.

Sarah James - Wedbush Securities Inc., Research Division

Okay. And then to follow up on another earlier comment. You said that MLR targets for new members were down 300 to 400 basis points versus last year. So what is the target now, and how long does that take to get to a run rate MLR?

James E. Murray

Yes. I think I said 200 to 400, and we're not wanting to share with you what our new member target is. And I think what happens over a period of about 3 years, it gets down to our ultimate target of around 85% to 86% MER. That's what historically we've been seeing in terms of improvement after that first year of new membership.

Sarah James - Wedbush Securities Inc., Research Division

Last question here is on the minimum MLRs. Do you have any insight on whether or not that's going to be state or contract level? And can you confirm if it's looking like we're going towards a rebate or just a prohibition if you miss it for a certain number of years? And sort of how far that prohibition would stretch?

Steven E. McCulley

Sarah, this is Steve. We still don't really have any insight on that. We're waiting for the regs just like you are, so.

Operator

Your final question comes from the line of Melissa McGinnis from Morgan Stanley.

Melissa McGinnis - Morgan Stanley, Research Division

At your Investor Day, you had disclosed that 29% of your enrollment was in the non-aligned physician structures with cost structures that run at 29% of fee-for-service, and a lot of people wondered about the sustainability of that against reimbursement going to parity. But if we were to break down that bucket of enrollment at more of a micro level, would the majority of it be in counties where the benchmarks are actually going to a 95% or 100% of fee-for-service? Or in some cases, are the benchmarks in those counties at 107% or 115% where that cost structure might, in fact, be sustainable?

James E. Murray

This is Jim. In addition to the 91 likely improving over time as we do better against the 15 Percent Solution, there's really no concentration in any one of the 4 quartiles. We're seeing different results in different parts of the United States that I wouldn't say that there's any particular takeaway in terms of how much the payment rates are in those particular counties. It's more a factor of our ability to get rates from the providers that we work with in those locations and our ability to put some of the utilization metrics in place like the nursing resources that we talked about a moment ago. It's really not as much a quartile rate driven as it is our ability to touch the members on a regular basis and manage them going forward.

Bruce D. Broussard

I think that was the last question. And so, first, I would love to thank the associates for all their help and the -- and continuing to ensure the success of our organization. And of course, I would like to thank you, our investors, for supporting us during this past quarter and for the upcoming year.

You guys have a great day and look forward to seeing you at some point in time in the future.

Operator

This concludes today's conference call. You may now disconnect.

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