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AMERIGROUP Corporation

Q2 2008 Earnings Call Transcript

July 24, 2008 8:30 am ET

Executives

Julie Loftus Trudell - SVP of IR

Jim Carlson - Chairman and CEO

Jim Truess - EVP and CFO

Dick Zoretic - EVP and COO

John Littel - EVP of GR

Analysts

Josh Raskin - Lehman Brothers

Tom Carroll - Stifel Nicolaus

Greg Nersessian - Credit Suisse

Matt Perry - Wachovia Capital Markets

Scott Fidel - Deutsche Bank

Peter Costa - FTN Midwest Securities

John Rex - J.P. Morgan

Daryn Miller - Goldman Sachs

Operator

Welcome to AMERIGROUP Corporation’s Second Quarter Earnings Conference Call. During the presentation all participants will be in a listen-only mode. After management’s presentation, you’ll be invited to participate in a question-and-answer session. (Operator Instructions). As a reminder, this conference call is being recorded today, Thursday, July 24th, 2008.

I will now turn the conference call over to Julie Loftus Trudell, Senior Vice President, Investor Relations of AMERIGROUP. Please go ahead.

Julie Loftus Trudell

Good morning and thank you for joining AMERIGROUP’s second quarter earnings conference call and webcast. I’m Julie Loftus Trudell, Senior Vice President, Investor Relations, and with me this morning are; AMERIGROUP’s Chairman and CEO, Jim Carlson; Chief Financial Officer, Jim Truess; Chief Operating Officer, Dick Zoretic; and Executive Vice President, Government Relations, John Littel.

Following our prepared remarks, we will be pleased to respond to your questions. The press release announcing our second quarter earnings was distributed yesterday after the close of the market. A replay of this call will be available shortly after the conclusion of the call through Thursday, July 31st. The numbers to access this replay are in your press release. The conference call will also be available through the Investor’s page of the company’s website approximately two hours following the conclusion of this live broadcast for 30 days.

The press release and this conference call are intended to be disclosures through methods reasonably designed to provide non-exclusionary distribution to the public in compliance with Regulation Fair Disclosure. The Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to this call and some of the statements we will mention today are forward-looking including, among other things, our estimates for 2008. We can give no assurance they will prove to be accurate because they are of a prospective nature.

The actual results that we produce in the future could differ materially from those we discuss today. I encourage you to read our annual report on Form 10-K for the year ended December 31st, 2007 that we filed with the SEC and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K filed or furnished with the SEC for certain known risk factors that could cause our actual results to differ materially from current estimates.

We will be discussing financial information that includes non-GAAP financial measures on our call today. Certain financial figures that Jim Carlson and Jim Truess will comment on are non-GAAP numbers, which exclude the effects of the one-time charge for litigation settlement. Please refer to our 2008 second quarter earnings press release issued yesterday, or our current report on Form 8-K filed with the SEC yesterday, for the most current direct comparable to GAAP financial measures and a reconciliation to non-GAAP financial measures discussed today.

At this point, I would like to turn the call over to Jim Carlson, our Chairman and CEO. Jim?

Jim Carlson

Thanks, Julie. Good morning and thanks for joining us. We have a plethora of important developments and accomplishments to discuss today, and since it’s our practice to be as thorough and transparent as possible, we have a longer narrative than usual.

After some general comments, I’ll open with the settlement of the qui tam litigation and then discuss the resolution of financial issues in Tennessee; the thinking behind our expansion into New Mexico; my perspective on the current market environment; and Q2 highlights including rates. Jim Truess will then cover the financial impact of the settlement, the quarter’s financials and our updated guidance for the year.

2008 has been a challenging year for most businesses for all the obvious reasons. But today, we feel justified in asserting that we have been navigating quite well through challenges unique to AMERIGROUP. As we hope you will appreciate upon hearing Jim’s comments on our updated view of 2008 guidance, despite having taken the unusual but necessary step of suspending our guidance last month due to several uncertainties, we have now come to closure on those issues and are providing guidance for the balance of the year.

As you saw from our press release, AMERIGROUP is on pace to deliver solid operating earnings in 2008 and results that represent respectable growth over the results achieved in 2007 despite having more modest interest income. Shortfalls in interest income and medical cost developments in Tennessee have been offset by a combination of securing necessary rate actions from our states and implementing a range of midcourse corrections in order to adapt to the changing environment.

We are making an important strategic investment through our entry into New Mexico. While this endeavor is initially dilutive to earnings, we believe this is a fundamental step in order to establish a significant presence in a new geography and position the company to harvest an important and hopefully growing opportunity.

As we’ve discussed in the past, long-term care spending accounts for approximately $110 billion of the approximately $335 billion in total Medicaid spending and almost none of it is in managed care. So, this market represents an enormous opportunity for our company in the years ahead and New Mexico may be a model for other states to follow.

Before we discuss the quarter and core operations let me start by making what I hope will be my final prepared comments on the Illinois legal situation. When I took over here last year I was certain of two things related to this case; first, that I was inheriting the responsibility to resolve this matter; and secondly, that I was determined to resolve this situation and do so with the best possible outcome for our shareholders, associates and our business going forward.

We loathe having to settle the litigation at the reported economics; nevertheless, I am convinced coming to closure on this matter is unquestionably the right thing to do however painful financially.

By concluding this litigation now we have removed a source of significant legal and financial uncertainty for our organization as well as a potential distraction from our operational focus. With this matter resolved, we can concentrate fully on meeting the healthcare needs of our members now and in the future and growing our business.

In settling without an admission of wrongdoing, I do not want our shareholders, associates or government partners to mistakenly conclude that we have not learned lessons in several areas including disciplined contracting and market practices, selection of our leaders, government relations, and yes, the practicalities of our judicial system. Rather than enumerate them, let me simply say this; we did not do all that we could have done in this market at that time. To think otherwise is foolish and we vow to learn from our experiences and not repeat them.

With that in mind, it is time that we close this chapter and move ahead even better prepared for the future. I would like to thank our General Counsel, Stan Baldwin, for his hard work, leadership and counsel. I would also like to acknowledge the thousands of our associates who never let this burden affect their fundamental belief in what we do, who we are and who is depending upon us.

Moving on to Tennessee, I’ll let Jim detail the specifics of the financials there, but I do want to give some perspective. We are pleased with how the leadership of TennCare worked with the industry to solidify the program for future success, enabling us to renew our participation in that program.

The outlook for our performance is much more stable due to rate reduction taken by the state – due to the rate resolution taken by the state that better correlates premiums with underlying medical costs, placing our health plan’s performance much closer to where we originally would have expected at the end of the year. However, much work remains to get Tennessee to perform at desired levels.

In addition to the rate actions, two important program attributes are being deployed to optimally administer the important private duty nursing benefits upon which TennCare members depend. Let me tell you what we’ve been doing as well as what we will be doing in the future.

First, since April we’ve been assessing individual members’ health status in collaboration with them, their families and their caregivers to mutually agree upon the so-called least costly alternative to make sure people are getting the necessary services but in an appropriate setting.

Going forward, we will be administering a benefit in line with what Medicaid programs typically provide as TennCare has arranged for a more sustainable benefit level which CMS approved this week. This benefit change will occur in early September and will limit the number of hours of home health benefits that certain members can receive on a weekly basis. As of the effective date, we will transition to implement these new benefit limits which should ensure appropriate levels of care, accelerate the moderation of our costs and better align them with premiums.

There are two key points I would like to make on this matter. First, firms like ours are frequently faced with responding to episodes of outlying medical costs. What is so unusual about the challenge in Tennessee is that the population is comparatively small, easily identifiable, confined to one market and the remedies are so obvious; assess, counsel and implement.

Second, in working with TennCare to more appropriately arrange for these services we are in no way at odds with our stated conviction to help people live independent lives. Making this benefit work well for a small number of people ultimately enables the state to use their resources to help as many people as possible live independently. We are hopeful that all those involved will work together to ensure a financially viable TennCare that provides the most value and best service for as many people as possible.

We were very pleased to recently announce the finalization of our agreement to enter New Mexico by participating in their coordinated long-term care program. This program is unique for a number of reasons. First, unlike most long-term care programs, participation is mandatory. Members will have the opportunity to select a preferred carrier, but otherwise will be auto assigned. The population is spread out geographically and we are already preparing to serve new diverse populations including members of Native American tribes.

Second, the program will roll out in stages which we prefer, because all members in this program have specialized needs, so we can utilize the time in order to build our local care team, introduce ourselves, and more importantly, complete individual member of assessments and service plans.

Next, investors should anticipate that, unlike some of the big RFP expansions we have experienced, the start-up costs and ramp to profitability will be different since the run rate revenues will build over time and the operating leverage is also unique.

Finally, New Mexico has combined several waiver programs making the scope of services in this program among the most comprehensive in the industry. The nature of these services, which will include responsibility for some members residing in nursing homes, will present some new care and service challenges for us. But as a reminder, we have vital experience upon which to address these challenges and add to our capabilities.

Our long experience in Texas’ Star+Plus program, Florida’s Diversion program, our special needs plans and our leadership serving aged, blind and disabled populations provide a foundation upon which we can build and deliver. Again, we currently generate over $1 billion in annual revenues from these programs and they are performing well.

There is a sufficient level of newness here and PMPM premiums are much larger than our average reflecting the broader scope of services, so let me give you a sense of what to expect from an economic perspective. The composite per member per month premiums for this population are in the $1,500 range.

While SG&A expenses PMPM will be higher as required to accommodate the needs of this population, with the higher revenue PMPM, SG&A as a percent of premium will be in the single digits. This will result in an acceptable profit for this market segment, but we do anticipate this product will bear a higher HBR percentage than our legacy business.

We also expect this business to take a longer timeframe to become accretive due to two reasons; the comparatively slower ramp up from a membership and revenue perspective and the unique nature of the services being utilized, including nursing home care which may respond to our coordination activities at a slower pace than a typical TANF SCHIP population.

We describe this program in our New Mexico press release using the word “incubator” in that we believe there will be substantial interest in other states in this very forward thinking approach to long-term care services. If we are successful, our oft repeated predictions are more likely that a large market awaits firms who can prove their ability to manage the needs of the 30% of the Medicaid program that accounts for 70% of the spending.

I would like to make a few comments about the market environment as well as what we are seeing with respect to state budget challenges. We continue to see the market for providing solutions to government sponsors as vast and relatively under penetrated. Clearly, competitors are concluding the same and we see their interest manifested in an abundance of bidders for new business opportunities.

On the other hand, some competitors are walking away from business where the pricing doesn’t acceptably correlate with their cost experience as we did in both the Illinois and DC markets. At a superficial level this could seem like a mixed message. Upon closer examination we believe the correct takeaway is that we have entered a cycle characterized by significant state budget challenges, an abundance of competition, and significant variation in the financial health of and relative attractiveness of the various market opportunities.

Such environments favor firms with comparatively lower costs, superior government relations, core competency in the space, discipline and patience. If history is a guide it’s rational for plans running high benefit ratios or not focused on government programs to exit this segment, or at a minimum, individual markets. We believe the broader market will continue to show these characteristics until state budgets normalize.

Ultimately to be successful serving Medicaid populations, carriers must consistently manage medical costs effectively and deliver their administrative services around the 10% range regardless of the premiums. It is clear to us that for many of our competitors these levels aren’t being achieved and may not be achievable. We plan to discuss this in more detail at our Investor Day on September 5th.

In the meantime, we want to reiterate that we do not intend to chase new business at the risk of compromising our strategic plans or earnings expectations. We will be disciplined as we consider new markets and the premium environment in current markets. The market is not going to go away; in fact it will almost certainly get much bigger. The states need our solutions more than ever.

Without prematurely getting into 2009 guidance, we continue to anticipate long term, meaning three to five year, double-digit top-line growth, but given a choice between superior growth and solid profitable growth, we will be managing for the latter.

Let me take a minute to run through highlights from the quarter excluding the impact from the litigation settlement charge that we detailed in our press release. We are reporting earnings per share in the second quarter of $0.68 per diluted share, excluding the one-time litigation charge supported by quarterly revenue of over $1 billion, reflecting a 12.5% increase over the prior year.

Our total membership of approximately 1.7 million represents a year-over-year increase of 193,000 members or 12.6% when compared to June of last year. Sequential membership increased 32,000 members or 1.9% reflecting membership increases in Texas, Maryland and Florida. The underlying health benefits as a percentage of premium revenues were 82% for the second quarter of 2008.

We generated strong cash flow from operations of $102 million for the three months ended June 30th with unrestricted cash and investments at $180 million. This certainly has been an eventful quarter and after factoring the economic implications of Tennessee, New Mexico and the rating season, we are issuing our 2008 guidance in the range of $2.30 to $2.40 per diluted share, excluding the one-time charge for the litigation settlement.

Let me review a couple of brief market highlights including recent rates received. First, in Texas we will receive a 5.9% increase effective September 1st. This includes some pass-throughs for provider reimbursement increases and is generally in line with our expectations.

We also increased membership by 17,000 members sequentially, reflecting a further reduction of the eligibility backlog with the state’s enrollment program. As we discussed in our first quarter call, this backlog was expected to be temporary and the state’s efforts have in fact reversed the decline in membership that we experienced in Q1. Membership in Florida sequentially increased 11,000 members or 5.2% to 221,000 members.

Since our last call Florida Healthy Kids approved awards under their program-wide RFP. We are pleased to retain our existing business and add five additional counties bringing our total to 13 counties. Currently, we serve 62,000 Florida Healthy Kids in eight counties. In these eight counties the company currently competes with other care management organizations in six.

With the October 1st go-live we will become the sole care management organization for Florida in the five additional counties which currently have a combined enrollment of about 20,000 members. We are still in discussions with the Medicaid agency as to rates that will be effective on September 1st.

This was a very tough budget year in Florida with virtually every state program receiving some level of cuts. The state and its actuary have been examining trend data and we expect to finalize rates within a month. With that said, we want to be clear that our 2008 guidance reflects a lower contribution from Florida in light of the budgetary challenges in that state. We are also working with the Medicaid agency for program changes that would help moderate expenses.

In Georgia, we closed the quarter serving 197,000 members in that market. Membership declines due to decreases in the state’s overall Medicaid population appear to have stabilized. On the rate front, we will receive a 6.4% rate increase in Georgia retroactively effective July 1st.

Maryland had a midyear rate decrease, which lowered our previously reported increase from 5.8% to 5.2% largely reflecting changes in hospital unit costs within the state. In New York, we received a 1.5% rate increase effective April 1st, 2008. New Jersey also faced a very tough budget year, causing the rate environment to become tighter. The increase effective July 1st, 2008 is 2.9%.

In Virginia we received an 8.1% rate increase retroactively effective to July 1st. In Ohio we received a midyear rate increase of 5% effective July 1st, 2008. Recall that we previously announced a 2.7% rate increase in Ohio effective January 1st, 2008. This midyear rate increase includes a pass-through rate representing increases to providers that were planned for January 2008, but was delayed because of the state’s budget situation as well as some rebasing for DRG payments.

Finally, we did exit the District of Columbia as anticipated on June 30th working closely with them to ensure a smooth transition of our members. Separately, the district has filed a motion to dismiss its legal complaint against AMERIGROUP Maryland.

This has been a tough budget cycle for the states. Rate increases were better than expected in some states while others were disappointing. We believe that net year’s cycle will be every bit as challenging and we support and will be closely involved in discussions in Washington about the potential of an FMAP increase as part of an economic stimulus package later in the fall to assist state Medicaid programs.

Additionally, we continue to believe that there will be action early next year to expand the CHIP program significantly which will require states to free up some funds to meet this opportunity.

So with that, I would like to turn the call over to Jim Truess, our CFO. Jim?

Jim Truess

Thank you. Good morning, everyone. Today I want to walk through the highlights of our income statement, including the details of our Tennessee market, and then I will talk about the balance sheet and cash flow before providing color on our full year 2008 guidance. There is a lot to cover this quarter.

On a GAAP basis the loss in the second quarter was $162.5 million or a loss of $3.07 earnings per share. To make the conversation more relevant to understanding our operating performance in the quarter, I will focus the rest of my discussions on our adjusted results, which exclude the impact of the one-time litigation charge of $199 million after-tax which we recorded this quarter.

For the second quarter adjusted net income was $36.7 million, resulting in diluted earnings per share of $0.68 versus $32.8 million or $0.61 in the second quarter of 2007. This compares to $35.1 million or $0.65 in the first quarter of 2008.

Before I detail the components that drove our earnings this quarter, I want to spend a moment recapping what has happened in Tennessee over the last 90 days. It has had a significant impact and I want to make sure we’re all grounded in the specifics.

In our first quarter earnings call we discussed higher medical costs in Tennessee due to private duty nursing expenses running above our underwriting expectations. Private duty nursing costs have inflated rapidly in Tennessee, even prior to our participation in the program, due to the benefit design, programmatic requirements, provider dynamics as well as other market specific characteristics.

While we had a level of visibility on the cost challenges in Tennessee at the end of the first quarter, we discussed in June that an additional two months of paid claims activity indicated that the issue was more acute than previously estimated. Fortunately, we had been in active dialogue with the state since early in the year regarding the situation, and as we concluded the second quarter we were able to reach agreement with the state regarding rate actions that would allow us to continue our operations in the state.

The rate action is composed of three pieces; first, a one-time premium adjustment of $47.3 million applicable to the first 12 months of operation in recognition of the high trend on private duty nursing costs prior to the start of the new managed care program. Second, an off-cycle rate increase of 6.2% for the second quarter of 2008 based on our mix of membership. And third, a further rate increase effective July 1st, 2008 that equals 5.5% based on our projected membership.

While this composition of rate changes was certainly different than we had expected, on balance we believe that it is reasonable and enables our organization to continue in the program. With that as background let’s go through the details.

Second quarter total revenues were approximately $1.1 billion reflecting a 12.7% increase in premium revenue compared to the second quarter of 2007. Sequentially, premium revenue increased $45.4 million, 4.3% compared to the first quarter of 2008. The primary driver of the increased revenue was a $47 million retroactive rate increase in Tennessee. Further premium rates were increased in Tennessee effective April 1st, worth approximately $7.5 million in the quarter.

Partially offsetting these increases in the sequential comparison was the elevated level of premium revenue recorded in Georgia during the first quarter due to the $10.4 million retroactive rate increase. The balance of the change is primarily due to net membership increases, member mix changes and other routine premium rate adjustments.

Second quarter investment income and other revenue was $18.5 million compared with $17.8 million in the second quarter of 2007. Sequentially, investment income and other revenue decreased approximately $4.1 million or 18.3% from the first quarter of 2008 due to the ongoing reinvestment of maturing fixed income securities at current market rates which are lower than the yields on the maturing instruments.

Health benefits as a percent of premium revenues were 82% for the second quarter of 2008 versus 83.1% in the second quarter of 2007 and compared to 82.1% for the first quarter of 2008. Given the significant activity in Tennessee this quarter I want to spend a moment detailing a few of the parts. Including the increased revenue, both the $47 million in the 6.2% rate increase recognized this quarter and the elevated medical expenses, the health benefits ratio was 86.5%.

As I mentioned on our last earnings call, the Tennessee market was running a loss ratio above 100% during the first quarter. While the large amount of incremental revenue we recognized this quarter drove the ratio down, we recognized both elevated incurred estimates for medical costs in the quarter as well as approximately $19 million of unfavorable reserve development.

If we look back 90 days it is fair to say that the events in Tennessee played out differently than we expected. That being said if you include all the pieces that hit the income statement this quarter, higher premiums and higher medical costs, on balance Tennessee contributed about $0.09 earnings per share above our expectations for the second quarter.

The balance of the company, excluding Tennessee, produced a health benefits ratio of 81.1% in the second quarter reflecting effective ongoing management of medical costs. While we saw the normal variations across our markets, overall results were ahead of our expectations. More specifically, Maryland and Georgia yielded results in the quarter ahead of expectations while Texas continued to be a strong contributor to our core Medicaid and aged, blind and disabled lines of business in that market.

Our performance in Texas is now such that we are sharing a large portion of upside results with the state. As we have moved deep into the gain sharing tiers, the state’s share of incremental performance is becoming large on a percentage basis.

In contrast, the Ohio HBR continues to run at elevated levels. While percentage-wise this is a smaller share of our revenues, we haven’t made the progress on HBR that we would have liked. We are implementing some significant changes to provider reimbursement along with other actions, but the premium rates continue to be inadequate.

As we have experienced in recent quarters, outside of Tennessee the company benefited from net favorable reserve development equal to $8.4 million after accounting for the associated impact of incremental experience rebate expense in Texas.

Selling, general and administrative expenses were $148 million or 13.1% of revenue for the second quarter of 2008 compared with $144.5 million or 13.3% in the first quarter of 2008. The second quarter reflects a $9.7 million charge or $0.11 per diluted share associated with the exit from the District of Columbia and the discontinuation of operations in West Tennessee that will occur later this year. Of the $9.7 million in one-time charges, $8.8 million represent a non-cash write-off of acquisition-related goodwill. The balance are cash costs for things such as severance payments.

I had previously indicated that the non-cash portion of these charges would be recorded on the D&A line, but as we refined our accounting we concluded that the impairment charge should be recorded on the SG&A line. There is some severance expense remaining in the third and the fourth quarters, but we have probably trimmed $0.02 to $0.03 from the total expected impact of these market exits relative to the estimates we established last quarter.

The second quarter adjusted tax rate was 37.1% versus 38.1% in the first quarter of 2008. The rate decrease is primarily attributed to a decrease in the blended state income tax rate. Cash flow provided by operations totaled $95.8 million for the six months ended June 30th, 2008 and $102.4 million for the three months ended June 30th, 2008.

Cash flow in the quarter was positively impacted by adjusted net income, non-cash charges for goodwill impairment, growth in claims payable and the net change in timing of premium receipts. Cash and investments at quarter end totaled $1.5 billion; unregulated cash and investments were $531.4 million of which $180 million was unrestricted, compared to $172.8 million in the first quarter of 2008.

Days in claims payable was 54 days, up one day from 53 last quarter and remains at the higher end of our expected range of 45 to 55 days. During the first quarter of 2008 we announced a stock repurchase program. In the second quarter, we repurchased 600,000 shares of common stock for approximately $15.7 million. Year-to-date, we have purchased approximately 700,000 shares for approximately $19.3 million and we have 1.3 million shares remaining under the existing share repurchase authority.

Turning now to our 2008 estimates. Following the suspension of our guidance in June pending the Tennessee rate resolution we are now ready to issue new guidance. Excluding the impact of the litigation charge recorded in the second quarter, the company expects 2008 annual earnings in the range of $2.30 to $2.40 per diluted share. Each quarter we always build our guidance from the bottom up and make a range of adjustments as appropriate. I want to highlight a few of the changes we have incorporated.

Full year 2008 guidance includes a net dilutive impact of starting operations in New Mexico which the company has valued at $0.08 per diluted share during the second half of the year. The loss of interest income on funds used to pay the litigation settlement which the company expects to reduce earnings by $0.03 per diluted share during the second half of the year, moderated expectations for Florida rates effective September 1st.

And regarding Tennessee, in the second half of the year we have included two important changes. First, rates will increase again, effective July 1st, by approximately 5.5% based on our projection of member mix. Second, we are forecasting a decline in medical costs due to a range of medical management initiatives, most importantly the implementation of new benefit limitations on home healthcare and private duty nursing services that have been established by the state.

Our 2008 earnings estimates are predicated on the assumption that all products and markets operate at underwritten levels. Additionally, these estimates include the following assumptions, among others. Organic premium revenue growth is expected to be approximately 13% to 14%, reflecting our entry into New Mexico.

Investment income and other revenue is expected to be consistent with the prior year. Health benefits ratio in the low 83% range as a present of premium revenues for the full year; selling, general and administrative expenses in the 12.5% to 13% range as a percent of total revenue; shares outstanding of approximately 53.5 million, which includes common share equivalents that have a dilutive potential when the company reports net income.

Let me close with a few comments on the financial impact of the announced agreement in principle to settle the qui tam litigation. As you know, we have $351 million held as restricted investments on our balance sheet for this issue. When the terms are finalized, we will pay the plaintiffs $234 million from these restricted investments. The balance of $117 million will be released and available for general corporate purposes. We expect these disbursements to occur during the third quarter.

A portion of the settlement is tax deductible, and the company expects to achieve tax benefits of approximately $35 million. We expect to have realized these benefits by the third quarter as tax payments will be reduced. The release of funds that will be achieved as part of the settlement provide the company with a substantial increase in unrestricted cash. We are in the process of evaluating how these funds will be deployed once they become available.

Our current $100 million term loan does place restrictions on the amount of money that can be dispersed for share repurchases in a calendar year. For 2008, that limit is approximately $31 million. We plan to utilize the full limit as appropriate.

Please be assured that we are evaluating all our options, including appropriate changes to our debt structure and share buyback ability, in order to maximize returns for our shareholders while maintaining an appropriate capital structure. At this point, I think it’s premature to be any more definitive than that, but I would want you to know that we have only factored into guidance share buyback activity that can be accomplished under the existing debt structure.

With that, let me hand the call back to Jim.

Jim Carlson

Thanks, Jim. I would also like to announce the addition of three seasoned executives to our team. Steve Larsen returns to us to lead our State Government Relations after serving as Chairman of Maryland’s Public Service Commission. Dr. Tunde Sotunde has been named CEO of AMERIGROUP Georgia and brings a wealth of experience as a physician and plan leader from United, Cigna and private practice.

And lastly, Bob Wychulis has been named CEO of AMERIGROUP New York. Bob is a native New Yorker who moved to Florida to lead a regional health plan and later served as president of our trade association in that state. I’m always aware that the organization’s mission and future are only as strong as the leaders we hire, so I’m very pleased to welcome these three executives on board.

I’m sure you will agree that it’s been a busy quarter. From my perspective coming up on my first year as CEO I am proud of how productive and disciplined our team has been. We’ve been able to eliminate the uncertainty caused by the Illinois litigation, which has definitely been an overhang on our business and for our investors. We have been able to move Georgia and now Tennessee from startup to more stable businesses.

We have proven that we can continue to grow in both our core business, like Florida Healthy Kids, and new innovative programs, like New Mexico’s CLTS initiative. We have been willing to make the tough decisions about where not to bid and even when to walk away from business we do not believe viable.

In a period of exciting uncertainty there are some things you can be certain about AMERIGROUP. We will continue to be disciplined and transparent, we will be innovative. We will be passionate about what we do and whom we serve. We will be focused on building a business that offers a return both to our shareholders and our state partners. I know this is more information than a typical second quarter call and I hope that we have been as thorough and clear as possible, so thank you for your attention.

Now let’s open the call for Q&A. Operator?

Questions-and-Answers Session

Operator

Thank you. (Operator Instructions). Your first question comes from the line of Josh Raskin of Lehman Brothers.

Josh Raskin - Lehman Brothers

Good morning. Appreciate all of the color there; obviously a lot of moving parts this quarter. But I guess what I’m just trying to figure out is what is the real run rate earnings that was reported in the second quarter? And I guess I’ll just give you a couple of parts I was looking at. Obviously backing out the settlement charge, take out the $0.11 for the exit in DC and Western Tennessee, the negative development in Tennessee, the [PRD] you talked about of $19 million, I guess that’s another $0.22, and then eliminating that retroactive, the $47.3 million, that gets me to $0.46. And then it sounded like there was favorable prior period reserve development that was another sort of $0.09 or $0.10 at $8.4 million. So am I right in looking at sort of a $0.37 core run rate number for the quarter?

Jim Truess

Hi Josh. This is Jim Truess. Yes, there are a lot of moving pieces and a lot of pluses and minuses, and I guess probably everybody is going to maybe slice and dice it a little bit different way. Let me tell you how I look at it and hopefully this is helpful. It’s hard to do a lot with Tennessee, particularly in thinking about it as a run rate because obviously there is a whole range of pluses and minuses on Tennessee in the second quarter. But the way I look at it to try to say, okay, what’s going on in our business. As I mentioned, Tennessee all in, you add all the pluses and minuses, was beneficial to our earnings, $0.09 in the quarter. So, it’s kind of like you can isolate that $0.09 and you can say okay what’s going on in the rest of the business then. And so, that’s the way I look at it.

And then you’re right, I agree. Obviously we took an $0.11 charge, as I mentioned, in DC and West Tennessee for the write-offs so that was put downward pressure on earnings. And then we had favorable development which is always a hard issue to deal with. Obviously it’s nice to have favorable development, that means our reserves are adequate. It means our trends are developing in a favorable fashion. So we’re certainly happy to see that. You can say, well gee, I want to carve it out because it’s out of period. And I understand that and accept that’s the way folks may look at it.

At the same time, by the fact that we’re experiencing favorable development is indicative of our prior periods being more favorable than we had previously expected. So, I feel that’s favorable as well. So, lots of different ways to look at it. I think we’ve given out all the pieces and I know people are going to cut it differently, but that’s how I’m looking at it.

Josh Raskin - Lehman Brothers

Jim, the $0.09 that you just mentioned, that’s above expectations. You’re not saying that Tennessee was $0.09 accretive for the quarter, are you?

Jim Truess

No, I’m saying it’s above expectation. So, if you look at what I expected Tennessee to produce given, as I said, if you go back 90 days we expected that revenues were going to be lower and medical costs were going to be lower. So, if you look back and say what was my expectation for what Tennessee would do, where did it end up with all these pluses and minuses, we ended up putting an extra $0.09 on the bottom line given the higher revenues and higher medical.

Josh Raskin - Lehman Brothers

Okay. And then Jim had also mentioned in the prepared remarks that New Mexico was going to come on slower, and I certainly understand the ramp in revenues, I think that probably reduces the risk significantly. But I’m trying to figure out, does that mean it’s sort of still dilutive in 2009 or do you think there will be contribution in 2009?

Jim Truess

Josh, a couple of things that made New Mexico dilutive in the second half is first off, as we always see in a new market, we record our medical expenses at our underwritten level, but then we also add on actuarial margin. So, in the first two to three months that’s a significant additional increase, as you establish that actuarial margin on the balance sheet.

Now the flipside of that of course is we’re going to be – the whole business is going to be cash flow positive in the second half of the year because we get our premiums in the beginning and the medical claims are paid later. But that’s certainly a dilutive factor in the second half. And then as Jim was describing, because the business is going to ramp up, membership is going to come on progressively, which we think is the right thing to do, particularly in this market, that means revenues build a little more slowly.

But we really need to have a lot of our administrative infrastructure in place from the beginning, particularly our people on the ground that are going to be doing case management and working directly with these individuals. So, you’re a little more front-loaded on administrative costs relative to the way the revenues are going to come than maybe what you might see in some other market. So, those are some of the factors that are driving the dilution in the second half.

Josh Raskin - Lehman Brothers

But I was thinking more about 2009, Jim. As we think about that is it going to take more than 18 months to ramp this up?

Jim Truess

At this point in time I don’t want to get too deep into talking about ‘09 and guidance. We have a lot of factors, certainly the ramp up on admin will be largely done by the end of this year and we won’t have this effect of actuarial margin build. But I think at this point in time we’re halfway through 2008 and I don’t want to say too much more about 2009.

Josh Raskin - Lehman Brothers

Okay. And then just last question for me, the repurchase limit of $31 million, is that included the $19 million year-to-date or was it a total of $50 million?

Jim Truess

A total of $31 million, so we have roughly $12 million to go.

Josh Raskin - Lehman Brothers

Okay, thank you.

Operator

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

Tom Carroll - Stifel Nicolaus

Hi. Good morning. A quick question on Tennessee again, just to follow up. In thinking about the 2009 contracts, so looking forward, what is the new rate really predicated on? So maybe said differently, for the new rate to ultimately be viable as we look backwards a year from now, does AMERIGROUP really have to work some magic with the new rules so to speak? It seems there is still some work to do there. So maybe can you give us a little more comfort in terms of your belief and what you have to do is in line with the financial expectations that you’re telling us today?

Jim Carlson

Yes. I think I’d like, maybe it would be helpful if Dick Zoretic would just give you a sense of how we’re going to spend the rest of our 2008 test fee relative to everything we’ve told you this morning. We’ve got the compound effect of both the April rate increase and the July rate increase. We’ve got just this breaking news relative to CMS approval of the benefit plan changes that TennCare is implementing and some lead-times to get ready for that and so forth. So, we are certainly putting a lot of time and attention into how this is going to work. It would probably be helpful to give a sense of what we’re going to do operationally. Dick?

Dick Zoretic

Yes. Thanks, Jim. Yes, it’s important to note that at the beginning of the second quarter, roughly April, the state introduced the least costly alternative cost-effectiveness standard for home healthcare and private duty nursing services, which applies to all members except children and adults in certain categories. And essentially what that does for us, it limits the value of the private duty nursing benefits that we can provide on a monthly basis to roughly the cost of a nursing home. And so, we’ve been working with members and their caregivers and their family members since the beginning of the second quarter to transition members to lower levels of care. And those cost reductions, while we’re beginning to see them, really are not reflected rather in our current run rate. And we expect to see those cost reductions begin to materialize more significantly in our run rate in the third quarter.

In parallel, the state has been pursuing, as we’ve discussed, a formal benefit change with CMS that will create what they term a hard limit on covered expenditures. And CMS, as Jim described, just approved that benefit change which will go into effect in early and mid-September. So, the real value of that benefit change probably won’t be felt until the fourth quarter, but that value will exceed the cost savings that we think we’ll be able to produce with the least costly alternative in Q3.

So the bottom line, what you have going on is you’ve got a rate increase coming on board July 1st, an additional rate increase. We’ve got some additional medical cost savings that we’ll realize from what we’re describing as the least costly alternative activities in Q3. And then we’ll have a benefit limitation placed on the population in Q4 that will produce yet again some additional savings.

So, when you put all that together we expect to see our run rate for this business in the second half of the year improve significantly from the first, and by and large bring the HBR for this business roughly in line with our original expectations when we underwrote Tennessee.

Tom Carroll - Stifel Nicolaus

In terms of process in implementing the least costly alternative, what do you actually have to do? Is it a matter of going out and having a nurse going to someone’s home and spending an hour with them and counseling them and then you as AMERIGROUP get to check a box on that particular person and then immediately start paying a different benefit level? Is it as easy as that?

Dick Zoretic

Well, it’s not as easy as that, it’s not extremely complicated. But essentially, we have to have direct conversations with members and with their caregivers about the nature of the services that that member is receiving. Assuming that there is a nursing home bed available in the state of Tennessee, what the state of Tennessee essentially says is we should not be providing private duty nursing services that exceed the cost of that available bed.

So, we work with that caregiver, we work with that member. We work to achieve a care plan essentially that achieves a lower level of services and a lower level of costs associated with those services. And that’s an activity that takes place one member at a time. And we’ve been working through the membership that this new tool applies to since the middle of the second quarter and we’re making pretty good progress. So again, we’ll see the results of that progress more in the third quarter than in the second quarter and then we’ll get the benefit change on top of that in Q4.

Tom Carroll - Stifel Nicolaus

One last quick one. In finalizing the qui tam, why not take the excess funds of $117 million and just pay off the debt that you had put in place for that? Are you expecting to redeploy that in the next 12 months to more than cover the cost of that money?

Jim Truess

Tom, yes, that’s one of the options we are looking at. As I mentioned, there is a range of things that we’re considering. If you kind of step back, what I want to say is, or what I’m thinking about is now that we’re past this we have the certainty of what our balance sheet is going to look like, I want to be positioned with the sort of debt-to-cap level that I think is appropriate for the company, have the level of flexibility that I think is appropriate for the company, and kind of really position everything in a way that we see is the best place to be as we go forward.

And so, I’m just not ready here today to say, and this is exactly what that’s going to look like. I want to evaluate it. We want to spend some time internally thinking about it. It’s obviously something we’ve been thinking about for a while, but we really didn’t have certainty on this issue until just recently. So, I want everyone to know we’re thinking about this. We’re going to consider it carefully and we’re going to make a good decision, I think.

Tom Carroll - Stifel Nicolaus

Thank you.

Operator

Your next question comes from the line of Greg Nersessian with Credit Suisse.

Greg Nersessian - Credit Suisse

Hi. Good morning. Just to clarify the Tennessee situation. Maybe if I could just sort of walk through the numbers. If you take the $47.3 million one-time payment, and then it looked like the rate increase with the 6.2% worked out to be about $8 million. So that gets me to about $55 million of additional revenue in the quarter. You said there was $19 million of negative prior period reserve development and that the net impact was $0.09 which I get to being just under $8 million. So that would imply that there were actual higher costs in the second quarter related to the second quarter of about $28.5 million, is that right?

Jim Truess

Close. Greg, let me try. I mean let’s go back over a couple of the numbers. So, $47 million, you got that right. The dollar value of the April 1 rate increase was approximately $7.5 million. We had $19 million of unfavorable prior period development. And yes, costs incurred in the second quarter for the second quarter were above our expectations. Does that all make sense?

Greg Nersessian - Credit Suisse

Yes, am I sort of in the right neighborhood with that $28 million?

Jim Truess

Well, can you give me how did you get to your $28 million again?

Greg Nersessian - Credit Suisse

Well, if I take the $55 million minus the – $47 million plus the $7.5 million minus $19 million I get to something in the neighborhood of like $35 million, $36 million. You said the net impact was $0.09, so that would be about $8 million of benefit in the quarter. So that’s just the difference between the $36 million and the $8 million of benefit would mean that there would be an extra $28 million of cost in there?

Jim Truess

Yes. You sound like you’re in the ballpark. Honestly, it’s hard to follow all the arithmetic here across the phone. You sound like you’re in the ballpark. If you want to give Julie a call afterwards and we’ll zero in on that. All the pieces are there, it’s hard for me to do the arithmetic right with you over the phone.

Greg Nersessian - Credit Suisse

Okay. The reason I was sort of digging into it was just because I think I heard you mention that the benefit design changes in Tennessee go into effect September 1st. So, does that mean that you’re going to have two months of that higher run rate of cost in the third quarter before the benefit design changes go into effect?

Jim Carlson

No, I don’t think so. Let me go back to and I’ll just kind of reiterate a piece that Dick just described. As of April 1, the state gave us a new set of tools around this process that we call, kind of shorthand, least costly alternative. And so we have begun to work on those, as Dick was describing, patient-by-patient in the second quarter. Now, as you’re doing that work patient by patient you’re not really going to see a lot of effect of that in the second quarter, but we are beginning to see the effect of that now as we’re in the third quarter. We get some additional leverage when this hard benefit limit changes which further improves the situation.

So, one way to think of it is that we expect that our medical costs are going to improve sequentially from the second quarter to the third quarter, and then they’re going to improve again as you get into the fourth quarter from this benefit change. But that’s kind of how the progression works.

Greg Nersessian - Credit Suisse

Okay.

Jim Carlson

Part of the reason – let me step back for a minute, because I know a lot of folks want to take, they want to do a lot of analysis on Tennessee in the second quarter and figure out what the run rate is and all that sort of thing. Just remember, the second quarter in Tennessee is not really a good jumping off point, because of all this activity that happened.

Things are going to change significantly in the third quarter, because again, a rate increase is coming on and we expect that medical costs are going to come down. So, I realize we all want to walk it over and kind of crosswalk it. It’s just that’s hard to do and hopefully you understand that we’ve built that in and factored that into our guidance and that’s built into the guidance range that we’ve established.

Greg Nersessian - Credit Suisse

Okay. Would a better way to look at it be to take – to hit the midpoint of your range you need to do about, I think it’s like $1.02 or something like that over the back half of the year? And then to just add, I think you said there would be $0.11 of dilution from New Mexico and the interest rates plus whatever the Florida dilution is and sort of build up to a run rate from that standpoint?

Jim Truess

Yes.

Greg Nersessian - Credit Suisse

You think that would be a better jumping off point for 2009 than to back into it from 2Q ‘08?

Jim Truess

Yes, I think that’s a better way to do it.

Jim Carlson

We’re going to have to hustle through a few more calls here, folks.

Greg Nersessian - Credit Suisse

Can I just ask you a couple of quick ones? Just one was the debt pay down question that Tom asked. I just want to – the converts that you have, they’re not callable, correct?

Jim Truess

Correct.

Greg Nersessian - Credit Suisse

Okay. And then the last one was just Nevada, I think you guys finished third in Nevada a couple years ago in that RFP. Do you know what the process is there now that WellPoint is getting out? Are you back in the mix or have you been in touch with the state at all about that?

Jim Carlson

Perfectly unclear at the moment. We’re aware of that, there’s been communication, so I think the state does not have its path forward clearly defined yet.

Greg Nersessian - Credit Suisse

Okay. Thank you.

Jim Carlson

Thanks a lot, Greg. We’re going to hustle through a couple calls here.

Operator

Your next question comes from the line of Matt Perry of Wachovia Capital Markets.

Matt Perry - Wachovia Capital Markets

Hi. Good morning. Just want to think about not really Tennessee, but just all the other markets on a combined basis. Other than maybe a little pressure in Florida from a lower rate, is there anything you expect to either deteriorate or get noticeably better on a combined basis in the second half for all the other markets?

Jim Truess

Matt, there are always pluses and minuses. We build those into our analysis. I think certainly some of it is continuation of some real good performance that we’ve seen in Texas. Jim went through some rate increases that we got in some markets we like those. Certainly, Georgia is a nice rate increase. Florida, the one obviously that’s a question mark at this point and we need to see that. And we mentioned Ohio is not where we want it to be. So, there are some pluses and minuses there, but that’s kind of how it plays out.

Matt Perry - Wachovia Capital Markets

Okay. And on the limits in your credit agreement for amounts you can buy back, how easy or hard is the process of amending that, in the case that you’d like to do a larger buyback?

Jim Truess

Yes, there are a couple of things; you can amend it, if that instrument is callable we could pay it off. So, there is a range of options.

Matt Perry - Wachovia Capital Markets

That could be accomplished in a relatively short time frame?

Jim Truess

Yes.

Matt Perry - Wachovia Capital Markets

Okay. And then just last question from me. How should we think about Tennessee in terms of it’s a market you’ve been in a little over a year now; you talk sometimes about up to a 24-month period for an emerging market to become a more mature market. Is Tennessee going to be on that kind of timeframe for maybe mid ‘09 reaching a more normalized margin or is that pushed out?

Jim Carlson

I think the way I’d sort of look at Tennessee going forward is how effective do we execute with these benefit plan changes. What does that imply for the trends that drive the July of 2009 rate action? And what are the details and shape of the long-term-care opportunity that they would like to introduce next year? And if all of those things go the way we’d like I think the answer is we could very well be where we’d like to have been at the two-year mark.

So, what I think we take away from this experience is an improved dialogue and relationship with the state of Tennessee. As I said in the prepared comments, I think they are very responsible about this. They are completely dedicated to this program working. They understand the economic challenges that companies like ours are faced with. And I think the parties are going to work even more constructively as we go forward. So, we’re going to tend to have an optimistic bias about this recognizing that I think we’ve been pretty candid about the fact that we’ve got some wood to chop here to get this to perform all the way we’d like it to be.

Matt Perry - Wachovia Capital Markets

Okay, great. Thank you.

Operator

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

Scott Fidel - Deutsche Bank

Hi, thanks. First question, just if you can maybe talk a little bit about, without getting into quarterly guidance, how you think the seasonality of earnings should look in the back half of the year. And it looks like from the guidance that you’re implying maybe around the $1 of back half earnings. And I guess you’ve got the start-up cost in Arizona, so maybe if you could talk about how you think those are weighted between 3 and 4Q. And then should we assume a ramp in performance around Tennessee? So, when you think about those factors would that imply maybe a lower 3Q and then a higher 4Q when thinking about the back half?

Jim Truess

Generally, when you look at the seasonality of our business and then the way it flows through to earnings, you go back and look at our results over multiple years. Generally, first quarter is a little lower, second quarter is a little higher, third quarter is on the plus side and then the fourth quarter starts to the taper. And that’s just largely driven by the seasonality of medical costs. And then also a bit by the way our rate changes happen.

So, I don’t think any of those dynamics have changed. That’s still the seasonality of our business. And by and large we get September rate increases in a couple of our big markets. So, I think that’s a good guide, but that’s probably as far as I’m going to go because I really don’t want to get into giving quarterly guidance.

Scott Fidel - Deutsche Bank

Okay. And then just thinking about the enrollment expectations for the Arizona contract maybe if you can talk about what you expect for enrollment and revenue contributions for this year and then how you think, when that’s fully mature, the potential enrollment and revenue that you can see longer term from that business?

Jim Carlson

Just correcting for everybody who’s listening, it’s New Mexico.

Scott Fidel - Deutsche Bank

Sorry, that’s right, New Mexico.

Jim Carlson

We don’t get the full value of the membership until we get to the fourth quarter of 2009. So, the first membership we’ll report will be in the Q3 report of this year and then I don’t think we’d even want to be too prescriptive as to when the membership will fall by quarter because I’m sure the state might want to make some midcourse corrections based upon how things proceed. It’s a pretty revolutionary endeavor that we’re engaged in. And so if you just think about a six quarter period through which our share of a 38,000 member market emerges, I think you’d probably directionally be on target. We’re going to need to get a couple more calls in here, folks.

Operator

Your next question comes from the line of Peter Costa with FTN Midwest Securities.

Peter Costa - FTN Midwest Securities

Hi. Getting back to the Tennessee and sort of the other businesses, I kind of liked Josh’s view earlier on the call about run rate and where you got to, I sort of agree with that. And then a little math you come up with that your medical loss ratio in Tennessee was probably about 102% if you net out the one-time gain in the $19 million. So, that seems like about the same as the first quarter. And then if you get rid of the $10 million of extra premium in the first quarter you’re sort of at a run rate of $0.50 or so in the first quarter and a run rate of high $0.30 in the second quarter. What caused the drop there in those two from $0.50 to $0.37 or whatever?

Jim Truess

Yes, Pete, I’m not probably tracking with all your math. The 102%, I see where you get to that and I think we’ve talked about how we think that ratio would change in the second half of the year due to the rate increases and medical costs coming down. Probably what I’m not tracking is how you get to the 30 – whatever $0.37.

Peter Costa - FTN Midwest Securities

It sort of goes back to all the adds and subtracts that Josh used at the beginning of the call. I guess it seems like there is something else that deteriorated in the business and I don’t what that was and I’m trying to figure out what else deteriorated besides Tennessee?

Jim Truess

Did you miss the add-back on the exit costs on DC and Tennessee?

Peter Costa - FTN Midwest Securities

I have that.

Jim Truess

Why don’t we talk off-line and we can dial through your math. That certainly would not be my characterization of the run rate in the second quarter. But I’m happy to compare notes and reconcile that with you.

Peter Costa - FTN Midwest Securities

Okay, thanks a lot.

Jim Carlson

Operator?

Operator

Your next question comes from the line of John Rex of J.P. Morgan.

John Rex - J.P. Morgan

Thanks. I think you mentioned in your comments that for the second half for Tennessee you’re incorporating the expectation that the MCR goes to your original HBR expectation. Is that correct, is that what I heard you said?

Jim Truess

Yes, I think that’s generally right.

John Rex - J.P. Morgan

What is that? What are you baking into second half HBR for Tennessee? Since we’re all starting with run rate maybe we just forget 2Q and we think about what you’ve kind of built in for the second half?

Jim Carlson

Yes. Our expectation in the second half for Tennessee is in the ballpark of 90.

John Rex - J.P. Morgan

Okay, great. And then just thinking about, Jim, you had mentioned I think in your opening comments, you’re still comfortable with your long-term double-digit revenue growth target or top-line growth target. Are you still comfortable with your 15% long-term EPS growth target too as we think about moving forward?

Jim Carlson

Yes, I think we see on the three to five year horizon. We always use the word average to a company that number by the way.

John Rex - J.P. Morgan

Yes.

Jim Carlson

But although we’ve updated today’s revenue guidance, we’re at 13% or 14% and I think that includes an exit of a market. So yes, you could normalize that number if you wanted to. And when we looked very preliminarily into longer-term models, 2009 given the effect of the rate increases and New Mexico and so forth, I pretty confidently can say without 2009 guidance being out there we’ll have a double-digit number.

And if you looked into our pipeline of so many business activities, I alluded to long-term care in Tennessee. They may not be as big as what you’ve seen in Georgia and Tennessee in the past. But there’s no lack of opportunity for this company whatsoever. And I think the difficult challenges some of our states are facing exacerbates the challenge for them and turns them to the private sector more and more for solutions. I think that bodes well for the company’s future.

So, we’re not going to say anything more about that today. We’ll probably talk a little bit more about it when we’re together in New York. I need to move to the one final question here if we could, Operator. Thanks, John.

Operator

Your final question comes from the line of Daryn Miller of Goldman Sachs.

Daryn Miller - Goldman Sachs

Good morning. It sounds like you’re still crossing some of the T’s on the qui tam. Are there any potential risks there or is that totally done?

Jim Carlson

Well, it’s an agreement in principle, the documents haven’t been signed. I guess, never say never. But we wouldn’t have been on the phone with a disclosable event like this if we didn’t have the economics to a point where we really were obligated to have a disclosure. And we’ll be done when we’re done, let me put it that way.

Daryn Miller - Goldman Sachs

But you feel very good about it?

Jim Carlson

Yes, we think that – well, I don’t know if I’d use the word good. But as I said, it’s the right solution for the company given what we’ve experienced here. We do think that the corporate integrity agreement is something to be respected and fully implemented. But we’ve been assuming this ever since, it goes back a couple years. We built a compliance program inside the company anticipating operating under a corporate integrity agreement. So, I think that part of the work has sort of been done and we move on.

So, thanks operator. What we’re going to do here is just wrap up real quickly and thank everybody for joining us this morning. We do think we’ve solved a lot of our challenges during the second quarter. We’re pretty optimistic about the future. We’re excited about what we’re doing in New Mexico. We’re really pleased with the way the Tennessee situation has resolved. We’re not overconfident about it. We know we’ve got some work to do and we look forward to seeing everybody in New York in September. Thanks.

Operator

This does conclude today’s conference call. You may now disconnect.

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Source: AMERIGROUP Corporation, Q2 2008 Earnings Call Transcript
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