Universal American Corp. CEO Presents at UBS Global Healthcare Conference (Transcript)

| About: Universal American (UAM)

Universal American Corp. (NYSE:UAM)

UBS Global Healthcare Conference Call

May 22, 2013 09:30 a.m. ET


Richard A. Barasch - Chairman and Chief Executive Officer


Unidentified Analyst

All right. I think we will get started here. Next up we have Universal American here. And we have the company's Chairman and CEO, Richard Barasch talk about it. So over to you I look forward to your comments.

Richard A. Barasch

Thank you. So I am in a three pitch presentation, a conversation between me and my old friend, Rob (Gia), who I have to say, probably 10 years ago was the first guy to recognize Universal American as something other than a traditional life insurance and (inaudible) company and an emerging player into that health insurance, health services business and always appreciative of Rob's prescient view of Universal American. So I am glad to see him here, filling up the whole right side of the room.

So you can see in these chart for these whole ten years, we started with the Medicare opportunity and we were just chatting before, there is a lot going on in the Medicare advantage market, rate cards, changes, regulatory issues, But this chart really oversee a period of time will overwhelm anything that's going on in the market, in the year-to-year piece of the market. I think that's absolutely correct.

The big change for Universal American over the past 1.5 year has been our determined effort to get into the Medicaid market as well, a place for all of our strengths, our flexibility, our ability to deal with multiple types of issues in healthcare. We are doing -- we don't have a lot to talk about just yet and I just hope everybody's got a little bit more patience with us about this part of the story, but it isn't going to emerge. And I think Universal American will have a very important place to play in the Medicaid market as well, the government programs and if you include the exchanges of the government program which it is on quasi basis is going to dominate healthcare for the next several, several generations. We are adept at this. We know how to work with the governments, we know what they are looking for and we think this is absolutely the place to be in the healthcare services business.

Now I won't spend a lot of time on our P&L for the first part of '13. We had a lot of prior periods where nobody should be multiplying this number by four, but you can -- even as we are in this transitional period we continue to make money, we continue to have a strong balance sheet, continue to do a good job on our bidding and our risk management continues to do well. So really the point here is really to one is, we are in a period of transition, we are still making money, still have a very strong balance. And number two, very importantly and I will about this some more afterwards, is our risk management capability.

Same balance sheet; we are fortunate when Rob met us 10 years ago, 12 years ago, whenever it was, we are insurance guys. We are -- capital return, equity returns by multiples of balance sheets were the way companies were valued, Bob Waegelein, who is our CFO and I were all insurance guys. So we continue to have that mentality and have continued to build the balance sheet. That gives us a ton of flexibility. Now we have spent a lot of talk about what we are going to do about this and I think these issues will emerge as well. We have too much capital at this point and it's a hard thing to stay with a straight face, having too much capital being a bad thing but we understand that frankly it's not our money and we have to do something about it for the benefit of our shareholders.

Let me talk a little about the healthcare landscape. 2014 is coming on as the (inaudible) starts in '14 and October 1, 2013 were the first big issues on the exchanges come, the headline is the implementation of the Affordable Care Act, the expansion of Medicaid, the exchanges and there is going to be noise. I don't think anybody should be surprised that there is noise. I think back to the first year of Part D, when everybody was scrambling to get ready for 1/1/2006, I know there were plenty of issues, plenty of noise, plenty of static, but once it's settled down, it became a wonderful program. And I kind of think that will happen with the exchanges and may take a little bit longer, because it's not a one product, single drug program but it's -- and it's more complicated and it's state by state and there is lots and lots of regulations.

But as time goes on, I think what we will see is that this is not socialism, this is not government takeover of healthcare, in fact it's the opposite. It's government regulation of healthcare, but all being done through the private sector. So it's actually the macro in our business continues to be very strong. These are large amounts of money that are currently getting paid in other ways, are all going to get, some are going to get shifted and almost all of the shift finds its way into the private sector at some point during its life cycle and we feel that being in that trip is going to do well for us.

But other than Obamacare, other than the ACA, the real issue is that and this is underlying this, when Obamacare was passed, Affordable Care Act, people were kind of upset that a lot of regulations were done but very little attention was given to cost. And whether it was on purpose or inadvertent, the whole conversation about Affordable Care Act that have continued now three years later, there is so much conversation underneath about how do you control costs and while maintaining quality that even though there is not anything legislated in the bill to do that, the market is driving that. If we talk to large employers, they are finally at a tipping point where they understand that they can offer open policy, they are narrowing it out further and further. Providers are reacting to this and creating products that are narrow and less expensive and high quality. I mean there is -- I think you can have a very hard time making arguments that narrower networks are lower quality than more broad networks.

At the state level Medicaid, all 50 states have the same problem. They've got fiscal issues. So if they don't solve Medicaid they can't solve their fiscal issues. I was lucky enough to hear Jason Helgerson, who is the Medicaid Director of New York State by the way. If you don't know who this guy is, just put him on your radar screen. He is going to be an increasingly important guy on both New York States scene and the national scene. Those of us who are New York tax payers which my guess is, some portion of you -- $58 billion tab for Medicaid in New York is double on a per capita basis for California which is really hard to believe but it is.

In order to make the changes that are necessary to bring costs down this administration and interestingly this is Governor Cuomo, this is a blue governor, this is pretty progressive liberal blue governor, has basically said that every life they touch is going to be in some sort of managed care in the next two-three years. $58 billion also coming into the system, in California. And this is -- it's a little bit of high probability that's it's not entirely, California Medicaid demonstration is the single largest procurement in history, just think about that, bigger then battleships, bigger than the aircraft carriers, just it's an enormous amount of money that's getting shifted from direct fee-for-service pay to providers and to members to be done through insurers. So this is an example of how all of these underlying trends are all working towards getting us to a, what I call a revolution in healthcare.

Medicare, you listen to blue guys, red guys, purple guys, straight guys, everybody's got a little bit of view of whether we need to cut Sesame Street and Big Bird and NIH and some of these frankly rounding error projects in the federal budget. Everybody gets that we have to deal with Medicare over the next 10 years. So it's not a this year problem or a next year problem, it's probably a five to ten year problem. And actually the -- as far as there is a little bit of a consensus emerging around what this all going to look like, and the private sector is a big part of this.

Again one of the very interesting things that will happen with the 45 day letter is that there was some -- I guess I went to one conference right after that. And almost every question was is this President Obama way of killing the program. He never liked it, always spoke poorly about it, is he finally putting the Kabash on this program. And the answer came through pretty clearly during the 45 day period, comment period.

First of all the rhetoric from the administration was wait a second, let's try to figure this out. But the real impetus to make the change they got to make came from the Democratic caucus, both in the House and in the Senate, led by Senators like, Senator Schumer, Senator Nelson, Senator Casey, these are -- the California Senators even were a little bit vocal about it. And I didn't get the phone call at 20/4, that Friday, I have to admit. But I knew that this was going to -- I actually made my prediction that this was going to happen when I saw a letter from all fourteen Congress people from Massachusetts advocating for a change in the 45 day letter.

So that gives you a sense of what the politics of Medicare Advantage are. So we are above 25% now, it's going to keep growing. And if they, frankly if they get to, where I think they are going to get which is some sort of defined benefit premium support this is high contribution premium support program, Medicare Advantage is in a great spot. By the way the ACOs are in a great spot for that too and I will talk about that in a couple of moments.

So just as another aside, as sort of to the healthcare (wonks) in the room, fundamentally the exchanges are defined contribution program, defined contribution voluntary programs too. Fundamentally what's going on is if you can afford it you pay it, if you can't the government's going to pay for you. That's kind of a voluntary program. And there is no reason for that to stop at age 65. And I think at some point that is where we are going to be headed from beginning to end, including Medicaid, Medicaid is going to be a sort of choose your program, kind of choose your coverage kind of program as well.

So I think this notion of consumerism transparency going directly with providers, all of these go to what the trends in healthcare are doing. So I could go on about this. By the way those of us who are in healthcare are very fortunate. We get to read about our business in the newspaper, probably not every day but every other day we get, the best thinkers in this country know that they have to deal with our problems. That's the good news. The bad news is we get all kinds of changes. For those of you who are good investors that's good news, for those of us who are trying to run a business it leads to a lot of sleepless nights. But it's certainly the most interesting sector, maybe energy is right up there with it that I can imagine being in.

Bottom line is that companies that know how to control costs, improve the quality of healthcare and deliver value are going to thrive and then it's pretty easy. I think about the world sort of dividing up between those who (are) cost and whose businesses are dependent on increasing spend and increasing cost..

And then there is the other side of the spectrum of companies that understand that controlling the costs while maintaining quality and access are going to be the winners. And I think that's -- we're trying to directly position ourselves on the side of the angels.

So how are we doing this, again this is-- I've got 11 minutes and 25 seconds to go. I could spend 11 minutes and 22 seconds on this. But what's worked for Universal America and its worked consistently over the period of time that we've devoted ourselves to healthcare is when we have worked in collaboration with healthcare providers, and we get our incentives aligned we enable technology, and we engage the physicians through either the incentives or the data that we give them the results are better.

It's pretty simple, it's human nature. All we've done is just taken human nature and applied it to healthcare. When and I have a lot of respect for docs, I have a lot of respect for people in hospitals. They are doing the lord's work trying to cure people from really nasty things and their problems. But they are also economic animals and if you get paid by the piece, they are going to do as many pieces as they can, they are paid by the bad days, they are going to try to create bad days.

If you have bond issue that's depended on selling your beds, 62% like a motel you just -- your economics incentives are to do that. If you flip the incentives and you basically put providers, and in our case it's largely primary health providers and an emerging thing with nursing home owners, that if you put yourself on the same side of the equation where all the incentives flow from, passes the payer and the provider to provider better care at lower cost and figure out a way to share the benefit with the provider it's a system their works.

We've been doing this very successfully in Houston for the past even before we acquired the company, it's now 15 years we've had it for 10 years and seeing how the docs work with us it's just fantastic. Now our job is to give them great data, give them great programs, we are out with Fannie out into the world, looking for good COPD programs, transitional care programs, all the kinds of things you can bring to the conversion that are and our attitude to workers not inside the doctor's office.

But it's really up to them to really drive this, and how this works. So we like this model we think this model works. And the last bullet point is really key, aligning the incentives. If you're in competition with providers it's we got I see 10 coming up with 62,000 new codes, and there's going to be -- every hospital administrator in the country is going to go to some outing and ask then or prompts them to learn our code better. This is not for doctors. What's for doctors is figuring out to work -- ways to work together to control cost and maintain quality.

So let me talk about where we're right now. We've got fundamentally the three businesses. First is our Medicare Advantage business and we had a good history in that business. We're down to a smaller number of members but it's more towards the core kind of Houston business and now expanding out to Dallas and Oklahoma City for kind of a core healthy collaboration model where we are in partnership with providers. We're moving the model out more into other places and moving kind of from indemnity to more managed care.

Now one of the side bars I had with Rob walking in is that in Medicare Advantage is no, it can't be an indemnity product any more, it's no longer getting the money from the government, paying-fee-for service to docs and trying to make it spread. Those days are either over or coming to a very quick conclusion. If you're not doing real some sort of real managed care, care coordination, case management whatever words you want to use at a minimum view of the high acuity members it's going to be a short lived business.

We still have work to do, we have our G&A has been too high, it's getting better. You can sort of see that coming through our numbers. And one of the story of the great things about the rate reductions that we're seeing now is that it really makes you focus on really what you need to spend and really kind of gets you even more disciplined about costs which we are continuing to work on the Stars and have some view that overtime we'll get the Stars to where we need to get them to.

Accountable care I don't have a lot of time left. I want to make sure I hit this pretty hard. Inside the 2010 Bill was a program and very importantly big distinction, this is not a pilot this is a program called the Medicare Shared Savings program in which basically the government said if you and they really were talking to providers. If you providers in your population can save money while maintaining quality on a year-over-year basis, trend it appropriately with inflation, we will split the savings with you. So we saw that as a great way to expand the model that we had in Houston because underneath in Houston it's fundamentally what we're doing to docs.

We're getting the (card) payment, we have each taken some expenses and then we're splitting the pool at the end of the year with the providers. If you think about this it's truly the same thing but without premium. You got a benchmark; you got a number you got to work against for medical costs. And again same thing, it's us working with the providers to help them figure out how to do this. Now again we're not sitting in the clinical room. We're not curing people and we don't pretend to cure people. But what we think we do very well is help the providers, help the docs in particular, number one understand who their high acuity, high cost people are. So that you can get them in make sure they are getting their care.

So that's the kind of the other anomaly of being in the senior market, you want these people to come to the doctor. You are not trying to avoid them, you're not trying to kind of keep them away but then when they come in to see you then what you're trying to do is make sure that they get treated the right way both from a cost and a quality perspective.

A great example of this, we got a whole -- we got huge dumps of data from CMS of prior claims of our ACO groups. And one thing that you could see very, very clearly was that in referral patterns the difference in, if Dr. Jones with a similar patient mix as Dr. Smith. Dr. Jones plays golf at the country club with his buddy the orthopedist and is referring all of his members, all of his patients up there and the other doctor is referring to a doctor who he may be met at the Opera. A lot of this is random frankly. Dr. A doing surgery, 30% less, same outcomes, much lower costs, first doctor much more surgery, same outcomes and much, much higher costs.

And you fundamentally can create and these are things that doctors intuitively might understand but never pay attention to because they don't have to. If their incentive based on the size of the overall pool to help you manage your cost down all of a sudden of a doctor who is doing 30% fewer surgeries and a lot more physical therapy and getting some of the same results, he might want to move -- shift in that direction. I mean is there any justification for doing a shoulder replacement for a 89 year old guy. There is -- yes, in certain cases and again quality of life is important but you just don't want to send people to just do surgery, you want to send people to who are going to do sort of the right thing.

So these are just some of the examples of the way we can help providers do this. There is -- originally this program was designed to be direct with providers but we and some of our competitors have found very, very clearly that the providers really do need someone like us to help them figure all this out, get them the right data, get the right data in the right place, do the proper outreach to the high acuity members and get them in and get their cost controlled.

The last of piece of us, by the way we have a very successful 31 ACOs. We have a bunch more that are going to come through for 1/1/14 I am quite sure. We have got 328,000 lives at this point. One of the primary reasons why we are not doing guidance this year although I have to tell I love not doing guidance, it's very freeing. We may never do it again. But one of the primary reason this year we decided not to do guidance is it's just not clear how the data is going to flow out of the ACOs. It's further pretty clear that our revenue recognition's not going to happen till some time, later in the year, fourth quarter. So we are being cautious about this. But we do believe that over a period of time this is going to be a major part of our business both, profitability in and of itself and as a springboard doing other things with these groups.

Fundamentally we are working with these groups, to help them understand how to take risks, how to control costs and how to look at their populations differently than they currently do as pure fee-for-service provider. So quite optimistic about this. Again going back to the notion of this being just credibly intellectually interesting, we have -- we have 31 of these, some both (inaudible) gone, hopefully this not my computer because you will get to the (inaudible) operating service.

I have 32 seconds. And I may say just quickly that we got APS, didn't work out quite as well as we had hoped but having said that some of the work we are doing in Medicaid is starting to pay off. I think we are going to have some pretty interesting things to talk about at some point and I look forward to talking with you about them some more. So with 10 seconds to go, do you have any questions (Gia)

Okay, good thanks everyone.

Question-and-Answer Session

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