AMERIGROUP's CEO Presents at Deutsche Bank AG Health Care Conference (Transcript)

| About: Anthem, Inc. (ANTM)
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AMERIGROUP Corporation (AGP) Deutsche Bank AG Health Care Conference May 8, 2012 10:00 AM ET


James Carlson - Chairman and CEO

James Truess - EVP and CFO


Scott Fidel - Deutsche Bank

Scott Fidel - Deutsche Bank

Okay, good morning. Our next presentation is going to be from AMERIGROUP. I'm Scott Fidel, managed care analyst with Deutsche Bank. Here today from the company we have the two Jims, Jim Carlson, the CEO of the company and Chairman and then Jim Truess who is Chief Financial Officer. So our forum will be Jim Truess is going to just to give some, a few prepared remarks and then we're going to keep most of the time for Q&A.

So with that, I'll pass it on to Jim.

James Truess

All right, thanks Scott. Good morning everyone. We appreciate the invitation to the conference and both Jim and I are pleased to be with you this morning. I'm just going to make a few start-up comments here and just cover a few things that we recently discussed on our earnings call, and then we're happy to open it up and take questions from the floor and cover anything that's of interest to you.

So let me just start off here. We have our normal disclosure statement. As you know we're going to make some forward-looking statements here and for a variety of reasons, actual results may differ.

Let me start off here and just cover a couple of highlights from the first quarter. We were certainly pleased with our results in the quarter. You can see we're approaching almost 2.2 million members as of quarter end. We did revenue of $1.8 billion and at a health benefits ratio of 85.3%, which was a nice number for us, a little lower than we had expected. As we talked about on our earnings call, we recorded some favorable development, primarily from the fourth quarter of last year and that certainly helped our benefits ratio during the quarter.

Our SG&A ratio at 8.4% was in line with our expectations as we've talked about over the last few quarters. We're incurring a fair amount of start-up costs as we're entering new markets, and so that pushed our G&A ratio up for the quarter, but that was as we expected.

Net income at $33 million was strong, and as I say ahead of our expectations and our net income margin of 1.9% a little below our long term average, but actually above our expectations for the first quarter given all the start-up activities that are going on in the new markets that we are entering. So a real nice start for us to the new year and a good place to get going as we move into the remainder of 2012.

Let me just make a couple comments about how we're deploying cash this year. For those of you that have followed the company, you've probably seen this slide before or something like it, but this is where we kind of describe our hierarchy of how we invest dollars.

First and foremost are, at the top of the chart there is invest in the business. To the extent we have good growth opportunities, which we're certainly experiencing right now, that's usually where we find the highest returns, and so we like to invest there first when we have that opportunity. Second if there's good acquisitions available, again that we believe can provide a favorable return on capital, that's the second leg in our list. And then finally, again, if you've tracked the company over the years, you know that periodically we engage in share repurchases. We've done a certain amount of that over the last few years. And when we have excess cash and we're doing everything that we want to do on the first two items there, we will buy shares when we find that appropriate as we believe that can also be an effective way to deploy cash.

Now, in 2012, the picture looks a little bit different than maybe we've seen in most recent years. Our unregulated cash position at the end of the quarter was quite high at $824 million and that's because we've put in place all of the financing that we need in order to manage this large expansion of our business that's going on right now, as well as we have a scheduled maturity on some of our financing that's coming up here actually on May 15th, just a few days away, our convertible notes mature.

So you can see there on this slide the second line, we're going to pay down those convertible notes with some of our available cash, and a part of that's a function of we raised financing at the end of last year for one of the intents was to pay down the converts when they mature. So that's the first use of cash this year. The second is that we closed our Health Plus acquisition on May 1st and the purchase price for that transaction is $85 million. So that's the second use of funds that we're taking advantage of this year.

And then finally because our business is growing so much, partially in New York as part of the Health Plus acquisition, but as well as in other states across the country, we're putting additional capital down into our health plan subsidiaries. And so in any given year there's often dividends that we're bringing up from health plans, but then there's also money that we're putting down into health plans. And so this year on balance there's more money going down than coming up. But when we start here at the end of the first quarter and look through the remainder of the year, we're estimating that we're going to put down net of dividends that we collect about $165 million.

So when you put all those numbers together, that's approximately our resulting cash position. There's other favorable cash flow factors at the parent level that could certainly cause that number to be higher than $314 million. But we just want to be clear with everybody, starting with that very large cash position at the end of the first quarter, we do have specific uses for a majority of that amount and that brings us back down to an unregulated cash position that's fairly consistent with where we're seeing over the last few years.

Let me briefly touch on our outlook parameters again. On our earnings call, we have reaffirmed the majority of our factors, made a couple of adjustments here and there. But we reaffirmed our estimate of approximately 40% revenue growth, and that's a very impressive number particularly when you come off -- we did over $6 billion in revenue last year, so to be able to grow your revenues 40% on top of a relatively large base is something that we're certainly happy about and looking forward to and are off to a very nice start on growing our business in 2012.

We didn’t lower the health benefits ratio and now have set that at 85.6% to 86.8%, and that's really because as I mentioned our benefits ratio was lower in the first quarter than we had previously anticipated. So we brought down the range for the full year.

We made a slight adjustment upward on the G&A ratio. We're now at 7.3% plus or minus 20 basis points. And we made that slight adjustment primarily because we're going to enter the Washington market with some start-up costs in Washington. And so that was one of the factors that caused us to nudge that ratio up slightly.

We reaffirmed our net income margin range from 1.5% to 2.5%, unchanged from our previous number. Although I did mention on the call that our expectation that we could fall at the very lowest end of that range, the probability of that today I'd say is certainly lower than we might have expected a quarter ago. And that again is a function of our good results in the first quarter. Our diluted share count range remains the same at 49.5 million to 50.5 million.

We've been talking a lot for the last couple quarters about the fact that we're in a year this year where the first half of the year is going to look quite a bit different from the second half of the year and we call that kind of a story of two halves. And really simply speaking, it has to do with the fact that we're starting up a significant volume of new business, and during that start-up phase, we're incurring higher administrative costs as well as we're incurring higher medical costs. In some cases both because generally when you start up a new market you're going to incur underlying medical costs above your normal sort of run rate level that you might see in your mature business. And you're also building actuarial margin on your balance sheet which causes your reported benefits ratio on new business to be even higher than it otherwise would be.

So all of those factors, they're all good items for the future in the sense they're a component of us building our business and building the earnings potential of our business, but they do cause downward pressure on earnings. And so we wanted to describe to the investment community that throughout this year we're expecting a much more significant rise in earnings as we move through the year than we might normally see. There's always a certain amount of seasonality in our business that causes some quarter to quarter deviations, but the steepness of the earnings path this year is quite a bit higher than it normally would be.

When we get to the second half of the year, we're generally through the start-up phase other than we're still going live in Washington, but the largest bulk of the new business is up and online as we move into the second half of the year. So just our ability to get past the start-up cost phase, to get past the actuarial margin build phase, all of those factors are favorable for our earnings for the second half of the year.

We did provide a fairly detailed set of directional indicators with regard to our expectations as we move into the second quarter and then even into the third and the fourth quarter and part of the reason we wanted to provide a little more clarity, it does have to do with all this new business coming on and the fact that that is impacting our earnings progression this year in a little bit different way. And so we wanted to have as much transparency out there as we could with regard to our expectations and how we see things playing out.

So let me just touch on a couple of the high points here. One is the fact that the movement from the first to the second quarter we expect to provide the largest sequential increase in revenue of any sequential quarter progression this year at more than $400 million. We do expect a significant favorable impact on medical costs from normal seasonality, and that generally happens every year from the first to the second quarter. The only thing I would add this year is that because medical costs were -- the seasonality factor that we used in the first quarter was higher than it normally would be because of the extra day in the first quarter, so the favorable seasonal impact as you move from the first quarter to the second quarter is actually more significant this year than it otherwise might be.

Now I think it's important to recognize though that we reported a favorable health benefits ratio in the first quarter. We actually expect the reported health benefits ratio to be higher in the second quarter and more than anything that has to do with the fact that we're bringing on all this new business. Generally, we record new business above 90%. That's often where our underwriting puts us. So because the new business is large enough, it's causing that weighted average benefits ratio to come up. So in spite of the seasonality factor that I just mentioned which is favorable, the new business effect is actually leading us to estimate that our benefits ratio is going to be higher in the second quarter.

Now the G&A ratio we expect to actually come down quite a bit, and that's going to come down because we're moving past the start-up phase to a certain extent in some of these markets. You're really seeing the large bolus of new revenue and so the rate of revenue growth is just flat outpacing the growth in SG&A. So that's why we expect the ratio to decline.

We do expect interest expense to be down sequentially, and that's because the converts mature in the middle of May. So we're not going to have any interest on those in the second half of the quarter, and then actually as we move into the third quarter, we won't have any interest expense from the convertible notes.

As we move into the third quarter, we continue to anticipate further revenue growth as we'll have a full quarter of our new Health Plus operation in New York, and we'll also have a full quarter in the full expansion in Louisiana. The other thing I think is a good reminder and this is nothing new, this is the way it is ever year. When we look at our seasonality factors across quarters, we generally expect that the third quarter has the lowest medical costs on a per member basis, and that's just the normal seasonal cycle of medical costs.

Now that starts to reverse when you get into the fourth quarter and this is a normal thing that happens every year. We’ll start to see our medical costs rise a bit in the fourth quarter as we move into the fall and winter seasons and the consumption rate of healthcare services starts to increase. And so we do generally see that our earnings start to taper a little bit as you move into the fourth quarter.

And then finally, we talked a little bit about investment income and other revenue. We are going to record a bit of other revenue in second and third quarter primarily, again associated with our Health Plus acquisition. And so that's going to cause our investment income and other revenue to be a little bit higher than it otherwise would be, and at approximately or on an average of $7 million for each of the remaining three quarters.

So a lot of granularity there, I know that's more than we normally do and probably more than we'll do in the future, but just given this progression this year that's a little different than normal. I think that's helpful to have that information out there.

Okay. Just briefly on our view on the growth opportunities that are ahead. I mean, what's really exciting about our business right now is, as I mentioned, we expect to grow about 40% this year. But there's still a tremendous growth pipeline in subsequent years after we get done with this year. And so whether that'd be the $50 billion pipeline, which as fast as some of the Medicaid procurements have happened and there's been business rewarded or awarded, there's been new business that's been put into the pipeline and new RFPs that we can see. So we're sizing that pipeline at approximately $50 billion over the next couple of years here. So lots of opportunity that we're looking forward to.

The other big trend that's going on, and we've been talking about this for a few years now, and I think in some cases it still tends to be underappreciated is the volume of expenditures that the states are making for long term care services that are provided to Medicaid beneficiaries that by and large still remain in the fee-for-service system. So if you're in a state and you're responsible for managing the Medicaid budget, one of the things you know is this is one of your largest pieces of expenditure you're making and one of the ones that's least penetrated by managed care.

So we think as an organization we have some particular distinctive competencies in this area. We have a lot of experience where we're providing managed care services in this arena in quite a few states, and we really do think this is part of the next evolution of implementation of managed care into the Medicaid space. As you can see at the top of this chart, we're still only estimating that about 21% of Medicaid expenditures are in at-risk managed care. So there's a huge opportunity for further penetration in this business, and that really comes about from the first and second box.

And finally, I think everyone is, if you're following managed care you know something about the dual opportunity. It's been talked about a lot in the last six months. And that's because it's a very large opportunity that I think the whole industry is excited about, encouraged about and also represents a fairly profound opportunity in the sense that it's the first time that CMS is really thinking holistically about how you take a large piece of the Medicare expenditure, couple it with Medicaid expenditures and really see how you can put that into managed care.

So we're very excited about that opportunity. We feel optimistic about our ability to secure a material amount of this business and really bring our skills and competencies to bear for many of these people that we actually have some relationship with today in our states. So we're certainly excited about the dual opportunity.

And then if that wasn't enough, there's this thing called healthcare reform that while nobody can say with absolute certainty today, it is scheduled to go live with the Medicaid expansion on January 1st of 2014. And we're certainly preparing our organization to be ready to handle that business and we're excited about that.

There's also the possibility that we may participate in exchanges. We particularly like the idea of participating in the subsidized exchange because individuals who receive a substantial subsidy they're really not a whole lot different than the members we're managing in the Medicaid population today. And again, we think our skills and competencies can be brought to bear on that population as well. So there's a lot of growth out there for an organization like ours, and we certainly have every intention of availing ourselves of that opportunity.

Here's just a little graphic of the pipeline as we see it. There's a lot of opportunities in many different states. Not every one of these will we pursue. Some of them we will, some of them we won't. I think we've demonstrated a pretty strong track record over quite a few years about being thoughtful and disciplined and really trying to pursue the best opportunities that we see, and those opportunities where we think we have the greatest opportunity to build market share, be successful, reach economies of scale and ultimately provide the sort of earnings accretion that is attractive to our organization.

But I think the nice thing about this map is there's obviously a lot of dots on this map and they're in a lot of different states. So having a platform like we have to cover the whole country if we so choose is a great place to work from, and it's allowed us to -- all the blue states are states that we currently have contracts in. So we have a lot of the country covered, and it's certainly possible in the future that if we're fortunate we may be in a few more states as well.

Okay, let me stop there and I'm going to sit down and we're happy to open it up for questions and discuss whatever is on your mind.

Question-and-Answer Session

Scott Fidel - Deutsche Bank

Okay, great. So I'm going to kick it off with a question, and Jim first of all, thanks for the quarterly guidance, granularity. For a company that doesn't give guidance, that was probably the most guidance any company has given actually, so thank you for that.

Want to pull you guys in and just first just talk a little bit about what's going on in the industry and what we saw with first quarter results, separate from having worked in the Medicaid industry for a long time, both of you also have significant commercial experience. So want to get your thoughts in terms of clearly, we saw a lot of variability across performance in the sector in the first quarter. We saw some very good reports, some poor reports, and some average reports and clearly investors right now are trying to get a handle on what exactly is playing out with the sector and particularly have we reached an inflection point in cost trends and where we're going from here in terms of just moving towards a moderate consumption environment, or are there signs that we can get to a more active level of healthcare consumption.

So just interested in your views on sort of where you see the sector and what you think we're seeing sort of having played out here in the first quarter across the industry.

James Carlson

Well, thanks Scott, appreciate your invitation here. Jim, maybe I'll start with some of the broader strategic observations and if you want to fill in on trends and things like that, we can tag team this a little bit. But we tend to major in our own company, so we wouldn't get too far out there talking about what the others have reported. So I think there's a few things we can look at.

There's obviously a lot of growth available to the industry right now. But I think we're pretty much getting the ratification of the whole principle that it's really on the government side of the payer spectrum. So you see, I think some variation in terms of the attractiveness of different growth opportunities, quite frankly. We talked purposely on our call about pursuing profitable growth, being disciplined about market selection, looking pretty carefully at the details of a bid before committing and so forth. We've got ample growth, ample ways to grow the company and so some companies are really burdened by some of the decisions they made about market entry and having to work their way through something that may not be priced at the level that they'd like it to be or the cost structure doesn't quite fit. And so you've seen some variation in performance relative to the nature of the growth that the companies are fighting off.

I mean, from our standpoint we go back about a year or so ago, we were pretty pointed to talk about the difference between growing in an existing market and adding de novo markets. And so we were very -- this time last year, we were very focused on the Texas rebid for instance. And we thought that were we to do well there that would be good for our company because we had an existing management team and we’re sort of new to provider community. It takes a little while to ramp some of this new business up to perform to company averages. But that said, we approached it with a sense of great optimism, and we feel pretty good. I think Jim's words on the earnings call were so far so good about that sort of decision.

And other than that, I think everybody is sort of trying to figure out exactly the nature of the dual opportunity and a lot of talk about positioning and so forth. We like our positioning. We think that if only a handful of the markets that we're already operating in continue to go on a planned launch of a dual integration project, let's say for 01/01/14 and we were effective in Texas and Tennessee and New York and Washington state, markets that have already indicated their desire to work with existing Medicaid contract holders, we'd have plenty of work to do just to receive our piece of the duals in those markets.

But you hear some large companies who really have not been active in Medicaid talking about partnering to get into markets and so forth. So I think the lines of strategic direction are sort of getting a little blurry as more and more companies are understanding the nature of growth on the government side. The duals is fueling a lot of that. And we like our positioning and probably be talking a lot about this between now and beginning of 2014 as it crystalizes and we get more clarity. And Jim, relative to cost trends and so forth and some of the variation of the markets, how would we think about that?

James Truess

Yes, I think just to maybe go back and touch briefly on sort of kind of our history on this issue, go all the way back, a ways back. Now you go back to 2010 was a period of time when we saw very low trends in our space and as we came out of 2010 into 2011 cost trends continued to stay low. We saw last year when we got into the second and the third quarter that the rate of cost growth started to come up a fair amount. And now we can see in hindsight that toward the end of the third quarter and end of the fourth quarter, we actually saw cost trends come down, certainly below our expectations in the fourth quarter. And then I think trends stayed pretty moderate in the first quarter.

When you look at the industry more broadly, my impression is that in some of the others market spaces in particular, it looks like there was a fair amount of cost trend deceleration that continued through 2011 and then maybe in the fourth quarter didn't decelerate anymore, kind of went -- the rate of change kind of went flat. And

I think certainly in our experience those inflection points can be -- it's always tough to gauge where that exact inflection point is and certainly with the benefit of hindsight you can see exactly, but it's always a little tough in the moment. But my impression is that maybe we start to hit that inflection point or the industry started to hit that inflection point in the fourth quarter or maybe the first quarter.

Now, that doesn't necessarily mean that cost trends are high or going to be high in the future. It probably just means they're not decelerating anymore. I think our general view on things is that, at the moment, I think the environment continues to seem fairly benign from a cost trend perspective. The one thing though that's a little different in our business in 2012 is in some cases states implemented certain unit price reductions as part of premium rate changes and that sort of thing. That's putting a little bit of downward pressure on the rate of change in medical costs between the years. And I think when you get into some of the other business sectors they're going to be a little bit different where in some cases other sectors are seeing still a lot of unit cost inflation, partly due to cost shifting and that sort of thing.

So that is a little bit of the difference between the sectors, but it does feel like there's a little bit of cycle of change and I think that's maybe why the quarter played out for the industry a little differently than people expected.

Scott Fidel - Deutsche Bank

Okay. I want to talk a little bit too about the new market expansions in Medicaid and all these $50 billion of books of business that are being rolled out. And specifically in terms of how you drill into getting comfortable around pricing on different projects and particularly in the markets where the states are establishing the pricing relative to this unique dynamic that we have, a ton of new business that's now being launched after a period of very benign cost trends where healthcare consumption rates were well below what we've traditionally seen. So the states are looking at a couple years of data and saying these are the trends, and we're building out the pricing on that. But clearly there's the risk that those aren't the normalized trends.

So how do you balance that, and between looking at the states' data, understanding your own view on trends and figuring out which markets are going to be adequately priced and which ones are really risky?

James Truess

Yes. First off, we do spend a lot of time looking at all the information we can get from the state or other sources to really understand what the underlying cost experience in that population and then we do a lot of comparative analysis in the sense of saying okay, does this state's experience, would it be similar to another state? How do the reimbursement levels compare? How do utilization levels compare? How can we in essence kind of benefit from our experience as a way to inform ourselves how this might play out? And I think one of the things that we've developed over the years, and in some cases it's been education, school of hard knocks, but it's a little bit about what can you do with these populations. Where can you find savings? How large can those savings be? And I think that over the 15, 18, almost 20 years of experience now that the company's developed, we have gained a lot of insight into how this may work by doing so many new market entries and new market start-ups.

So you certainly try to apply that, that level of experience. I do think that one of the points you raise is a good one is how in the future if medical cost trends are different in the future than they've been in the most recent past, how does that play out? And I think one of the things that we've tried to be careful about and are always careful about is you generally don't want to make multi-year pricing commitments if you can avoid it because for exactly that factor. It's one thing to go to a state and say, well okay we think we can lower medical costs by 10% given your population and the utilization levels that you're incurring. We do all our analysis and say, okay we think we can save 10%. So that's an okay rate for the next year.

But really in the subsequent year we want to be engaged in a normal sort of conversation with the state using good actuarial analysis as to what the cost trends will be for that second year and really have a price reset based on the experience in the medical cost trends and not try to say oh gee, we know three years from now what medical costs are going to be, because we don't. And I think we're mindful of the risk profile associated with doing that. So that's certainly one thing we think about when we're looking at a new business opportunity.

Scott Fidel - Deutsche Bank

Jim, quick question just on sort of the way that you framed the net income margin range and you have a guidance of 1.5% to 2.5%. Can you help us think about how you think about sort of framing out the ranges between low end, midpoint and high end? I mean, do we typically think about that breaking down into 30 basis point increments or so or just thinking about that?

James Truess

Yes, something like that. I don't think we've tried to put a particularly fine point on sort of where in the range or the quartiling and that sort of thing. I think as we go further along in the year, obviously, we'll be able to evaluate more closely as to the precision of that range. But I think one of the things that we expected throughout this year and so far, at least only quarter under our belt but it's played out so far, is the fact that we expected to have a low percent -- a low absolute net income number in the first quarter. And as I mentioned, we ended up reporting a little better than our expectations.

But that because of this earnings progression, we're going to come up during the year, and in fact we've talked about in the past and then we get in the second half of the year we expect to be -- we may not be in our historical sort of long term range of 2.5% to 3.5% but we certainly could be approaching the lower end of that range. So that's a nice trajectory to be on, and I think it's still a ways away until we get into 2013, but we feel like we're on a nice glide slope as we move into 2013. And this has been a year, because the revenue growth has been so substantial and just the extra cost that you carry associated with bringing on all that revenue, that's causing us to work within this lower range than we might normally have been in over the last couple of years. But it's a good place to be as we move into 2013.

And in fact, there's a fair amount of a kind of tailwind, a revenue effect we're going to get into 2013 because when you think about we expanded in New York starting May 1st. We started in Texas in March 1st. So all of that business we're going to have a full year's value of revenue in Washington, Louisiana, all of that we're going to have a full year value in 2013. So I think those are a range of good factors that help us develop some optimism for 2013 and I think we're on a nice glide slope.

Scott Fidel - Deutsche Bank

Any questions out in the audience? Okay. Let me ask a question about New York and now that you've closed the Health Plus acquisition. Maybe first just give us your sense now that you're more broadly in the market, your view on the underlying cost trend and rate environment in New York. And then maybe walk us through the sequencing of new business opportunities. There's actually a lot going on in New York, so help us sort of grade through what you see as the most substantial opportunities and where you'll be focusing on.

James Carlson

Well, I think we're pleased to close the transaction last week. And we always thought that New York was a market that where we would benefit by having just a bigger footprint. It was our original intention seven years ago when we bought the first plan in New York that we would get larger faster, and it just never materialized that way until we found this opportunity for the transaction. I think we inherited a plan that was very well run, had a very strong brand in the community, had a nice ability to grow. When you sort of put two companies together you expect maybe that might flatten out a little bit as we get our arms around things, but so far so good.

I mean, it's certainly performed well between when the transaction was announced and closing. Right now we're focused on sort of reintroducing ourselves, under the common entity to the provider community and making sure we improve provider service and customer service. I think probably the legacy Amerigroup plan there did a little better there on those dimensions. So we're really focused intensely on bringing the Health Plus service levels up to what we otherwise would operate at.

From a medical cost performance, this is a plan that sort of on average performed in the high 80s. We've got to bring it onto our books and establish the explicit margin for adverse deviation and sort of take a bit of a conservative view as we put that on the books and get our arms around the business. But beyond that, we think that we've got a very small, managed long term care footprint in New York, but we think that the way in which the program will evolve will allow us to grow pretty nicely. And that segment is important to us, and beyond that, I wonder what else we would say at this point in time. It's a brand new business for us relative to putting the two together and right now the focus is on execution, implementation and getting ready for long term care.

Scott Fidel - Deutsche Bank

Maybe ask a question about Ohio. I know we're in a sensitive period of time in terms of the state, the appeals being evaluated. Clearly, there's been some recent local media press that's highlighted some of the issues that a number of the plans have already highlighted in terms of some of the controversy around the scoring of those awards. Maybe if you can just give us an update though in terms of where things stand in Ohio and the possibility or probability of potentially seeing a change in award status as a result of these appeals?

James Carlson

Well, it's pretty hard to speculate on how this will turn out. I mean, I think we're informed by the fact that on the one hand, true protests don't often work in this business. You see it in the TRICARE business with some success, but generally in terms of Medicaid protests there hasn't been many situations where a protest has actually worked. On the other hand, there have been times where the states have seen enough question as to the effectiveness of their process that they decided to redo their whole process. That has happened before.

So we really can't decide for ourselves which way this is likely to go down. It's probably more responsible to anchor yourself in the former comment that protests rarely work. But we do think there's a lot to be considered here in terms of what the state's intentions were, how they informed the industry through their bidders' conference, the way the RFP was structured, the way it was scored. Our appeal that our lawyer sent in really is pretty specific as to errors in terms of fact. I mean, things that were just fundamentally not true and were not scored correctly in the process. So we don't know exactly how it'll end up. I mean, we are disappointed.

We've operated in the state for a while. Our management team has done a fantastic job over the last couple years in particular to really perform effectively. I think they deserve a chance to stay in the market. Life doesn't always work out the way you want. We're going to pursue this protest vigorously because we think we're right. But we have our feet on the ground relative to whether or not it will prevail and remind everybody that it's 2% to 3% of our revenue. On the backdrop of growing our company 40% this year, it's not significantly harmful to us from an economic standpoint. Our concern more is about the people who work for us who deserve a better shot and frankly, the people they've been taking care of that we think our company has done a fantastic job for.

So we'll see how it all works out and it wouldn't surprise us if it got thrown out and it wouldn't surprise us if it didn't.

Scott Fidel - Deutsche Bank

Okay. Well, with that I think we're out of time. So thanks to AMERIGROUP for the comments.

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