Vanguard Health Systems' CEO Presents at Barclays Global Healthcare Conference (Transcript)

Mar.13.13 | About: Vanguard Health (VHS)

Vanguard Health Systems (NYSE:VHS)

Barclays Global Healthcare Conference

March 13, 2013 4:45 pm ET

Executives

Keith B. Pitts - Vice-Chairman

Phillip W. Roe - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

Joshua R. Raskin - Barclays Capital, Research Division

Joshua R. Raskin - Barclays Capital, Research Division

We're going to do some audience response questions so we can keep everyone up and on their toes to start off. So grab your handhelds, we're going to -- these -- as a reminder, we're asking all the health care services companies these questions, so some of them seem obvious. But you'd be surprised, some people are getting the questions wrong as far as I'm concerned. So is -- for Vanguard Health, is health reform going to be a positive or a negative? Very positive is 5, very negative is 1, and please respond.

[Voting]

Joshua R. Raskin - Barclays Capital, Research Division

The music is groovy. All right, I think people get the gist on that one. So next question. Contracting and exchanges, will Vanguard be stuck with Medicare rates, is a 1, or commercial rates is a 5, or something close to or in between? What do you guys think?

[Voting]

Joshua R. Raskin - Barclays Capital, Research Division

All right, all right. Yes, we've been a little bit higher usually.

Keith B. Pitts

Real potential for suicide with that one.

Joshua R. Raskin - Barclays Capital, Research Division

Well, what are volume trends going to look like for Vanguard in '13? Significant increase all the way down to a significant decrease?

[Voting]

Joshua R. Raskin - Barclays Capital, Research Division

So flat to slightly up. I think the company would probably be comfortable with that sort of expectation. Next question. How should we use our capital? M&A, share repurchases, increase the dividend, some debt to repay as well or invest in the core business. I guess we'll include CapEx in there as well. What do you guys think?

[Voting]

Joshua R. Raskin - Barclays Capital, Research Division

Well, regardless of whether your debts there -- your leverage ratio is highest or not, we're going to buy more stuff. I like it. All right.

Keith B. Pitts

It's not the highest.

Joshua R. Raskin - Barclays Capital, Research Division

Are you the second highest now?

Keith B. Pitts

[indiscernible].

Joshua R. Raskin - Barclays Capital, Research Division

All right. You guys think that -- or we've been saying earnings per share are going to be up in '14. Yes or no?

[Voting]

Joshua R. Raskin - Barclays Capital, Research Division

That's a quick response for that one, I noticed, and unanimous decision, I like that. That makes me feel better, too. Currently, do you own shares in Vanguard?

[Voting]

Joshua R. Raskin - Barclays Capital, Research Division

No. So there we go, a lot of opportunity. And last but not least, your current bias, positive, neutral or negative?

[Voting]

Joshua R. Raskin - Barclays Capital, Research Division

So no one negative and still not a lot of ownership, which means maybe liquidity or something like that and we've got some discussing to do. So to my left, Keith Pitts, who is the Vice Chairman of Vanguard, and I've been trying to figure it out since I've met him. But I'm pretty sure he's in charge of everything is really what that means. And Phil Roe to his left, who is the traditional Chief Financial Officer, a role that I'm actually more familiar with. So we've got their slides up here. We're going to go through that. We're actually going to stay here for the Q&A, as this is the last session of the day. And we'll give Keith the firing squad from there.

So with that, I'll turn it over to you, gentlemen, and I think this is your clicker right here.

Keith B. Pitts

All right. Since I'm trying to not change the trend too much, and I guess the trend is to sit here, so we'll do that. It's a small group, anybody can come forward if they want to. I can be like a Southern preacher. This is very familiar for those people who are Baptist preachers because all the Baptists do sit in the back.

So this is our Reg G and forward-looking information slide. So I know that all of you have -- can read that and see that we may be making forward-looking statements and that you can't rely on those forward-looking statements. So thank you for reading that.

Just a little bit about us. We are a Fortune 500 company operating integrated health and health care delivery networks in urban markets. So we have about $6 billion in revenue. $1 billion of which today is risk-based revenue. 28 hospitals and related outpatient facilities make up the rest of the $6 billion of revenue. We are publicly traded as a control company on the New York Stock Exchange. Blackstone, Morgan Stanley, Capital Partners and Management own 60% of the company, roughly, and the public owns 40% of the company, of which management owns 12% of the company. And we are very committed to health system transformation. We believe that, ultimately, the best folks to transform health care and change the cost curve are the people who actually provide care and the people themselves. So we are trying to move on a forward basis towards that. We believe that volume-based reimbursement probably will not survive the decade as the predominant payment methodology for health care, and so we are trying to not get too far ahead of that but to get far enough ahead to be a winner in that kind of a model, we think, in the future. And we have hospitals that have been recognized by many organizations, whether it's U.S. News & World Report, we have top 100s, top 50s. We have Magnet Status hospitals for nursing, we have U.S. News & World top 50 ranked hospitals, as well as many highly regional ranked hospitals.

Just a little bit about us today. We are in 5 states. We tend to concentrate in geographic areas that are more urbanized, so 6 in Phoenix, 4 in Chicago, mostly on the West side, 3 in Massachusetts, down Route 9. If you're from Massachusetts, we own the Route 9 health system. So you can start [indiscernible] can go all the way to Worcester. Most of you from Boston would turn around at 495, I recognize that, but we have a fabulous hospital in Worcester. In Detroit, we have 8 hospitals in Southeast Michigan, of which 6 of those are actually in the city of Detroit and the other 2 are in Oakland County. And we have 2 systems in Texas, both Baptist systems, the Baptist Health System in San Antonio with 5 hospital system, or the Valley Baptist Health System in Harlingen and Brownsville, which is in the Rio Grande Valley. It's the leading system in Cameron County, Texas. And we also have a campus underway north of San Antonio on the way to Austin called Resolute Health. It's actually under construction at this time.

Our strategy is to really transition to what we think will be more of a fee-for-health or fee-for-value system in the future to transition rationally but also be on the leading edge of that transition in many of our markets. So we want to build and support regionally scaled, high-performance, patient-centered integrated care networks. We may do that in partnerships with others where we think we need to do that to get the scale we need regionally to manage a decent amount of population in a market. Fully engage in health and wellness, starting with our own employees, and building clinically integrated networks where we move our employees into those with our clinically integrated physicians and start to really change the health status and change the cost curve of our own employees so we can demonstrate that to many of the employers. And employer-sponsored coverage, we believe, will still be at the top end of the pinnacle of the business that we have in our markets. So that's one that we'll continue to try to focus on nurturing relationships with from a B2B standpoint. And then strengthen our growth and reputation through local trust, national scale and sustained access to capital markets. And the local trust becomes really important because our best reference for any potential acquisition target, since 36% of you did say we should spend money on M&A, and we -- that's how we built the company in 16 years, from 0 to Fortune 500. But we've also done a lot of things along the way to grow the business that we've acquired. But we really do see that keeping our promises in markets and really making a difference in the markets that we go into is our way of getting into the next market. That's very important to most boards of sophisticated health systems. We tend to buy more sophisticated hospitals and more sophisticated health systems. In terms of being urban, more teaching, higher acuity, et cetera.

So we have a 3-pronged approach to growth right now, same-store being obviously very important. We've now been standing up dedicated sales teams in our markets. We've refined some of our strategies. We built some new Internet strategies around marketing as well. And we bought a new customer relationship management system called Tea Leaves. We're one of the early users of that, that also has some physician relationship management tools in there. Again, all about trying to learn more about our customers and drive customers that do need health services into our facilities.

On the same market basis, we've got some -- a lot of in-market development on the ambulatory side. We've made a home health acquisition or 2. De novo inpatient and ambulatory development, I mentioned a hospital before, I'll talk a little bit more about that. And then strategic partnerships in markets. Generally, the strategic partnerships are around a shared vision about moving from fee-for-service to sort of fee-for-value or fee-for-health.

In the new markets, we're very active in the M&A market. We tend to be selective, so we don't look at everything. And if we don't think we could get -- if it's a big market, we can't gather a market position either in partnership with someone else or actually ourselves where we think we can get to a reasonable level of scale in that market in terms of share over time, then we won't enter those markets. We do have 2 letters of intent in Connecticut. And we have some other strategic partnerships that we're in discussions with to build out integrated networks.

Turning to the pipeline. Just some of the things we have going on. Many of you know and have asked about the Detroit projects. A couple of those projects -- or particularly, the 3 projects there, Harper-Hutzel and Sinai-Grace are our 2 big -- 2 of our big 3 projects there, and they're very much underway. I'd say they're about halfway complete. Most of those should be operational at the beginning of calendar '14. There's a number of projects at Harper-Hutzel Hospital, the Heart Hospital being the biggest part of that. And then Sinai-Grace will have a very new way of entering for ambulatory care, emergency care, as well as inpatient care when we get done with that, redone facility and the addition there. And then we've also done work to Detroit Receiving. We have a de novo hospital that -- in New Braunfels, Texas, with 120 beds expected to open no later than July of '14, sometime in the -- between April and July of '14 right now. And that hospital of full steels up, is topped off, and they're already starting to fill in. In addition to that, there is a large medical office building. We already have ambulatory assets on the ground in that market. We started with ambulatory assets. North Central Baptist Hospital has a 6-floor vertical expansion going from 2 to 8 floors. That's underway right now as we speak. St. Vincent Cancer Center, I think, opens this summer, if I remember correctly, Phil?

Phillip W. Roe

Correct.

Keith B. Pitts

Yes. And that's a brand-new cancer center across the street from our large facility there in downtown Worcester. West Valley Tower and OR expansion is underway as well. That's a 5-story tower addition. Not all will be built out, we'll have some shelf space in there as well. But that is in Arizona, that's in our fast-growth area. We're also moving up as we expand that OR. We're preparing for moving our trauma levels up a couple of notches and becoming, hopefully, ultimately, the major referral center in the Western part of Maricopa County. We're the westernmost hospital in the state of Arizona on I-10 as you go towards California, and that's a pretty big drive still from there. But we are the westernmost hospital along the I-10 corridor. And then we have 2 letters of intent that we signed, that we're still finalizing due diligence and regulatory filings in Connecticut as we speak.

We also continue to think that the industry is kind of reaching in an inflection point, which I think will spur major consolidation. We don't see -- I know there's a lot of rhetoric about the FTC getting more involved and everybody worrying about the -- what's happened to pricing. A lot of that is being pushed, we believe, by the insurers and others -- purchasers. But that's sort of history. That's already been done. As I said at the conference the other day, too bad about that and the Lindberg baby, it's done. I mean, you've already created the monsters, and you've had 15 years of open access networks, no closed networks, fee-for-service pricing, taxing the poor hospitals to pay the rich hospitals. And so, really, consolidation now is about cost, appropriate network size and scale to manage risks and not necessarily about being able to drive fee-for-service price. And we think as the competition changes from a cost per encounter basis to more of a bundled cost or even a per capita cost over time -- and you see that for those of you that read some of the Massachusetts public files. We'll see analyses that compare not only fee-for-service pricings, but then how do hospital systems or physicians do when you look at their total per capita global spending? And so I think as we start to look more at that, I think we see that as the reason for consolidation. We've obviously track -- our track record is we've acquired a lot of facilities, in fact, in the last 2, 3 years, 13 hospitals. We think we're best-in-class partner position with not-for-profits, particularly sophisticated not-for-profit systems. And we have a good robust pipeline of opportunity today. We do remain very disciplined. We think on reform, some of the things -- the impacts of Obamacare have already started. We do think that the rollout particularly start in '14 will bring significant opportunities for us, particularly in -- certainly right now. In Arizona and Michigan, we had the governors behind us. Excuse me, as I start to talk about Texas, I choke up. We don't have Perry where we need him yet. At least on a fair market value basis, which is 2 people agree on something without a gun in the room. No, I think Texas is a place that's looking for an elegant solution and hasn't found one yet. We'll certainly watch what's happening with Arkansas in that discussion, which still has a lot of details to be worked out, but we are today transitioning fee-for-value pretty quickly. When I say quickly, I mean, if you look at our attributed lives in our markets, they are the millions. We have health plans now in ACOs and other models that would total about 300,000 lives in some form of either a risk or a fairly heavy pay for performance. Understand that 4 out of our 5 ACOs are Medicare shared savings, so there's really not a downside risk or just of pay-for-performance opportunity on the upside. And our reason for doing ACOs to -- and bundled payment initiatives, but particularly ACOs, is to start to get our doctors to organize where there's a line with us to try to start coordinating care and managing patients differently, particularly focus on readmissions, which is the #1 driver in the shared savings program of bringing costs down immediately but you can't really manage. You can't tell the patients where to go, and you can't really manage when they have open access. So the best thing we can do is follow them when they go in the hospital to make sure they don't go back in the hospitals is the #1 lever you have to really push there. And, of course, that works very well into the value-based purchasing side of our risk side of our business on fee-for-service. So we think that's a very good thing for us in a transitional standpoint.

We are trying to leverage our scale, and I think there's a lot of projects in process that's going on right now. We've started with a revenue cycle, and we've also collapsed in our data centers into a full redundant 2 data center sites in the country, again, to try to leverage some of the IT infrastructure costs.

In addition to that, our next project that we're looking at is to sort of consolidate our ERP, which would be supply chain, HR, payables, all those things. So we're looking at standardizing systems there and potentially consolidating those things. So again, these are other opportunities that we have. Now that we've reached decent size scale, they really start leveraging that scale and lowering our costs.

And then kind of preparing for the future, we're working very hard on network development as well. We're trying to position our networks in our hospitals as Tier 1 providers, if you will, by major payers. We certainly have that status in Massachusetts. We're having some discussions in other markets early on, but we really are very, very early in any discussions around how exchanges might play out in our markets, our non-Massachusetts markets, which I know is interesting given the fact that these things are supposed to roll out in 9 months or so. We have done the pioneer, plus the 4 shared savings. We have some community-based care transition grants. We have a CMMI innovation grant actually on teleradiology and imaging reads and productivity in Chicago. We acquired a Medicaid HMO in Detroit in anticipation of the expansion, as well as the dual-eligible demonstration project. And we're starting to roll into -- we're going to start -- we've been approved for some bundled payments. Many of you that have followed us remember we were one of the 5 systems that did the ACE Demonstration. So we have 4 to 5 years of bundled payment experience with CMS now. So it's a natural evolution for us to expand that somewhat. And then on the payer/provider side, we've been trying to develop physician networks that are aligned with us. We've got risk MSO assets inside the company. We have very strong insurance skill sets, particularly in the Medicaid and, somewhat, Medicare areas. And we've done a joint venture with MedSynergies called Guardian to develop a scalable basic physician MSO not only for our own employee doctors but also for independent physicians that we had hoped would ultimately be a very cost-effective way for -- to help physicians remain in the practice model of their choice for the last years of their practice as we transition to what's probably going to be, and particularly in primary care, much more of an employed model, particularly around the lives game, if you will, in the future, as we see different kinds of graduates coming out of school that are more interested in that type of model versus an entrepreneurial model.

We think that Vanguard is very well-aligned with the definition of a winner in the new world as an integrated health system. We think we can operate successfully. And what we think in fee-for-service is going to be a lot of price headwinds in the market. So we think while we're in a volume and a coverage tailwind coming up, we're going to be in a pricing headwind or fee-for-service. So we think by positioning ourselves to better control the delivery network in partnership with our physicians and other partners and local market, that we can own the risk for large blocks of the populations in those markets and have an opportunity to not only control but also manage how patients move through the entire health care system. So we think scale is going to matter in the regions. Obviously, national scale is helpful with a lot of things, we think, but the market scale is going to be essential. We also think that we will be able to build more innovative as we build out network's more innovative access points for patients into the system. They don't necessarily involve a very large box hospital but might involve some small box emergency hospitals and things. We actually have a partnership with a little group in San Antonio. We've opened 3 now -- we just opened our third out of 5 planned emergency hospitals. And so far, the success has been very good. They're sort of ERs with observation, and then they have an outpatient floor -- a daytime ambulatory floor on as well so we can, again, build our primary care access points out with that. We're also continuing to build up our physician -- our population management capabilities and analytics, as well as continuing to try to deliver and keep access to the capital markets strong.

With that, I'll turn it over to Phil to talk a little bit about our performance on a balanced scorecard.

Phillip W. Roe

Thanks, Keith. I'll walk you through a few of the financial highlights here quickly. The trend that you know is going on in the industry and we're certainly seeing that trend as well is the pressure that we received -- or that we see observation cases. We're trying to give you a sense here on a consolidated basis the level of growth over our last 3 fiscal years, as well as the two 6-month periods into December for the most recent year compared to the prior year, where we're seeing double-digit growth, and then that same information on a same-store basis there in the bottom left. That obviously has an impact on volumes. We've been in an environment with low volume growth on a pure discharge basis, but you're seeing adjusted discharge continued to outpace that. That's because observation cases get counted as an outpatient stay. And so continuing to see nice adjusted discharge growth overall, but that does include those observation cases.

For the 6 months into December on an adjusted discharge basis, we're actually slightly negative. The September quarter was negative on an adjusted basis, and December was positive. And 6 months year-to-date basically flat. That same phenomena of additional observation cases, you get paid significantly less for those patients even though they're utilizing many of the same resources as an inpatient, and that has an impact on the net patient revenue per adjusted discharge in most of the fiscal periods presented here. And as you can see, we've been in approximate 2% range for the last several fiscal periods that we have reported.

A little bit more information on observation cases. We wanted to give you a little bit of sense of what it means to our legacy 15 hospitals, those that we own prior to this most recent round of acquisitions. And you can see, from 2008 through 2012, we had total ER visit growth on the far right-hand side of the scale here of a little over 16%, almost 17%. And as you move to the left, you can get a sense of the disposition of those ER visits. The number of those that were treated and released in the high-teens, the number that were actually put into patient beds, just a little bit over 5% growth in that same 4-year period, 5-year period. However, the number of observation cases increased 26% plus for that 5-year period. So a significant number of people are coming into the ER, even in an environment where we're seeing ER growth. A lot of those people are ending up in observation visits, having the impact on volumes and revenue per volume that we discussed on the previous slide.

We have been on a quality journey for 3 or 4 years now and have focused our entire management team on quality and quality outcomes. And the data you see here is Vanguard's experience over that period of time, that we also know relative to a number of the other publicly reported measures that we're doing extremely well. This first box on the left, the core measure all-or-none bundles, if you take all of the core measures and bundle them into 4 categories where you have to hit each measure in order to get the score in that bundle, you can see we've moved up into the high-90 percentile, 95, 96 percentile over the last 3 to 4 years, which would put as very highly rated relative to the public-reporting companies. And if you're a patient, this one's probably the most important. One of those measures is the mortality score, where an expected score is 1. We are at 0.6, and that's across the entire portfolio. We have some hospitals as low as 0.2. And so the ultimate measure perhaps of quality, we're making significant progress there.

Serious safety events that are -- get reported per 10,000 days, you can see the progress being made there. It's a focus area. We report those out every week within the company, and every market is encouraged to not only report those but to put processes in place to continue to drive serious safety events out of the company. And then one, again, just 1 particular quality measure, pressure ulcer scores. You can see the downward trend is what's desired there and the progress we've made over the last 3 to 4 fiscal years. Quality is something that we believe is going to become increasingly important, as there's more transparency around reporting that. And as you move more and more to fee-for-value payment system, the quality outcomes of the facilities that we own will be more and more important.

Bad debt, revenue cycle. We wanted to show you -- we know in our fiscal year '12 that ended June 30, we had a significant investment in AR, driven principally by the acquisition at Detroit and Valley Baptist, where we had some third-party revenue cycle firms that were under contract when we acquired the facilities. We gave contract termination notice as soon as we could on those contracts. And during that termination period, between the time we gave notice and they left, we saw our discharge, not final billed or unbilled AR, increase significantly. We had been in the high-30, low-40 days of sales in AR for the 2 or 3 prior fiscal years, did see that blip up in '12. You can see the impact of those acquisitions there. We're back down to 48 days at December and think we'll continue to make good progress on our investment in accounts receivable as we move forward.

Our total uncompensated care does continue to move up, and you can see it's in direct correlation to the self-pay discharges that are in the box below that. We were at 7.9% for the most recently reported period. Much of that has been driven by the eligibility changes around Medicaid in Arizona over the last 18 to 24 months, people that were previously eligible for Medicaid and loss that eligibility being classified as self-pay in these last 18 months or so.

Nice growth on revenue, much of that driven by acquisitions, but also good same-store growth in those historical periods as well. And you can see that we've converted that to EBITDA nicely as well.

On the balance sheet. At December, we had $360-some-odd million in cash and about $2.7 billion in gross debt. On a net basis, we're leveraged right at 4x. That's a level that we're comfortable with. You may see us go up from time-to-time for an acquisition but always with a very clear path to get back down to that 4x or under. And we're very comfortable with the maturities and the liquidity that we have on the balance sheet.

So a well-established company, large urban markets, experienced management team, been around. I think we're positioning ourselves well for the future as we move for fee-for-value. And we would love to take any questions you have.

Question-and-Answer Session

Joshua R. Raskin - Barclays Capital, Research Division

So you guys talk about this fee-for-value reimbursement methodology that's going to happen in the future, and you're pretty much the only one that's really out there today doing that. You admit that you're trying to stay ahead of the curve but not too far ahead of the curve. So maybe -- could you give us an example of a pilot where you guys have some tangible results that you're going to be able to start showing the market and saying, "Okay, here's the reduction in costs, here's where our occupancy levels are, here's what our margins are in this specific facility." How should we think about the impact on Vanguard?

Keith B. Pitts

Well, I mean, I guess, at the end there, I don't -- that's going to be interesting to how to answer that part. But first of all, against the entire industry, I'm not the only one talking about it, so just to be sure. For things that folks here that have to invest to understand, you're absolutely right. We may be probably the only ones. But -- and as we're only 20% of the industry and we're only the fourth largest -- I guess, third or fourth largest player out of the 20% of the industry, I don't believe anything we're doing is either both an outlier or a bellwether. But we clearly look like an outlier within the sector. So part of the thing that's really hard for people to understand, I guess, or comprehend sometimes is you have to actually -- we have to actually modify our strategies to actually work in the markets that we've chosen because geography is destiny, so if I'm in a market where I've got pretty strong competition in that area, in some of these areas, and I have to move in that direction. So that's why not every market within a portfolio of 5 states is going to move at the same pace. We demonstrated very well with ACE Demonstration project that in a bundled payment scenario, we can align incentives with a physician, give physicians the empowerment to manage processes and controls. And we did a huge amount of work to lower expense, improve outcomes. We were able to increase the physicians' pay because of being able to share up to 25% of their professional services and incentive payments. And we were able -- beneficiaries actually got a check back in the ACE Demonstration project. The Medicare got a discount in the ACE Demonstration project. And then when you netted that all out, we made more margin on it. We didn't gain any share. We lost a few docs over implants and things like that. So it was not a market share gainer. What we learned is it works really -- if you're able to market it right, it probably works for elective procedures a little easier than it works for some of the emergency procedures. The heart was more emergency than orthopedics, for example. But we did demonstrate that's already past history. I think in the future, our ability to be competitive in the lives game is going to get measured ultimately in our ability to gain enough market share to overcome what we think is going to be a headwind on utilization -- inpatient utilization rates and a headwind on sort of transfer pricing, whatever that is by transactional price under fee-for-service pricing. I mean, we don't see a lot of tailwind on the government side of fee-for-service pricing. Obviously, the payers, there's still a reasonable dialogue, but as -- they become under more premium pressure. And there's more competition with exchanges. And by the way, I mean, everybody's talking about public exchanges, but we also are seeing a growth in interest in private exchanges, which could change the transparency level around this. So I think the way we would demonstrate that ultimately is our ability to gain more lives and continue to make a margin on the medical management side, as well as continuing to make a margin on the inpatient side and any of the other steps of the way. So if -- our belief is we have to be -- we have to offer our own network the best quality cost, i.e., best value, even if they go into an inpatient stay. So we're very focused on continuing to take out costs using lean. And as part of what we call Vanguard approach in the company to take out unnecessary processes, to reengineer things, to take costs out of the system, take costs out of patient care in case types -- one of our big focuses now is observation. We need to get over is not going away. It's going to continue to grow, particularly with this pressure on bundled pricing. And down the road, we think we're going to get more pressure on observation. So we're now rethinking completely how we've managed those patients, and we're using lean processes to do that. So I think there's a lot of things we can look at success, but we think that while we get a lot of new customers that have payment here, hopefully, over the next 2 or 3 years, at the same time, we're going to have to continue to get better at what we've traditionally done, while we learn how to do things differently and learn how to create processes that keep patients that don't need to be in hospitals out of hospitals. Yes, sir.

Unknown Analyst

You mentioned, again, own hospital -- own health plans in multiple markets. Is that one of your slides there?

Keith B. Pitts

Yes.

Unknown Analyst

Do you really think this is a good time to get into the health plan business?

Keith B. Pitts

Well, we own them already. The only thing I acquired was a Medicaid HMO in Michigan, and that was a very small plan because we want -- we have to own one to be able to position to bid on the dual-eligibles, which are in our neighborhoods, as well as for the Medicaid expansion. And today, you have to understand, and we take care of almost 1/4 of the Medicaid in the state of Michigan. So there's -- we think Medicaid managed care, we've been in that business a long time. We did -- we've been in the business in Arizona for 10, 11 years very successfully. But we're not jumping into the commercial as much. We're more focused on the government business. We did pick up a commercial plan in Texas when we bought Valley Baptist, but it's a pretty small plan that we haven't done a lot with at this point in time. We're more focused on the areas where we think it's a fairly low margin business. And we think it's a business, particularly with Medicaid expansion, where in fee-for-service is very difficult to set up access points that ultimately can change the cost curve on those patients. But we think in a risk-based business, that we can use -- we can fund the access points, particularly ambulatory access points. We've been very successful with our physician providers in doing that and generating very low cost in Arizona for 10 years now, that we've owned that really for 30 years that the plan has been around. So we think there's certain businesses that make sense for us to be in potentially but others that probably -- others on the insurance side that probably doesn't. But not -- we're not doing as a risk financing strategy, it's more of a portal to a population health strategy. Josh?

Joshua R. Raskin - Barclays Capital, Research Division

On the health plan, you mentioned the health plan in Arizona. Any update on the Phoenix Health Plan? I think the JV sounds like we'll hear sooner than later. Does that sound right? Or if you guys have any updates?

Phillip W. Roe

On the Magellan joint venture for the behavioral health component, we actually expect to hear just any day now on that piece of it. And then for the medical health plan, the Phoenix Health Plan, the dates have been pretty set, and they're saying either March 22 or 23 for that piece of it. So both of them, we will hear within this month.

Keith B. Pitts

I guess it's March 22 because it's a Friday.

Joshua R. Raskin - Barclays Capital, Research Division

It's now 5:00. All right.

Keith B. Pitts

Well, thank you, all, for your interest, and we -- I've now kept you from your alcohol for -- if there is any to date. Thanks for staying until 5:20.

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