Humana Inc.

My name is Myra, and I'll be your conference operator today. At this time, I would like to welcome everyone to today's Humanus Second Quarter 2019 Earning Conference Call. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question and answer session. If you would like to ask a question, simply press star, then the number one on your telephone keypad. If you would like to withdraw a question, you may press the penalty. Thank you. With that, it is now my pleasure to turn today's program over to Amy Smith, Vice President of Investor Relations. Amy, the floor is yours.

Thank you and good morning. In a moment, Bruce Broussard, Humana's President and Chief Executive Officer, and Brian Kane, Chief Financial Officer, will discuss our second quarter 2019 results and our updated financial outlook for the full year. Following these prepared remarks, we will open up the lines for a question and answer session with industry analysts. We encourage the investing public and media to listen to both management's prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the investor relations page of Humana's website, Humana.com, later today. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our second quarter 2019 earnings press release, as well as in our filings with the Securities and Exchange Commission. Today's press release, our historical financial news releases, and our filings with the SEC are all also available on our investor relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. With that, I'll turn the call over to Bruce Broussard.

Well, good morning and thank you for joining us. Today we reported adjusted earnings per share of $6.05 for the second quarter of 2019 and raised our full year 2019 adjusted EPS guidance to approximately $17.60, primarily reflecting improved results in our retail segment. We are pleased to deliver these strong results while experiencing the highest individual Medicare Advantage membership growth we have seen in the last decade, which is reflective of our operating discipline and execution, investments in our integrated care delivery strategy, and our relentless focus on creating a simple and personalized healthcare experience for our members. Today we are raising our full year 2019 individual MA membership growth guidance to a range of 480,000 to 500,000 members, primarily reflecting improved rest of the year growth projections for agents and our dual special needs plans. Through the end of the second quarter, our DSNP membership grew approximately 21% or 46,000 members from the prior year, demonstrating our ability to serve the unique needs of this population through our benefit offerings and the deep clinical programs and services we've built over the years. Seniors are increasingly choosing Medicare Advantage because the program rewards high quality of care, fosters deep relationships, aligns incentives under a consumer-based model designed to manage the sickest, most vulnerable beneficiaries, encourages a holistic view of member health, and creates a competitive market forces that encourage innovation. The aging population and the ongoing increased penetration of Medicare Advantage as a percentage of total Medicare eligibles, combined with our strong brand and value proposition, gives us confidence in our long-term membership growth prospects. And it is important to note that our growth trajectory is balanced across product lines, including HMO, PPO, and DSNP, individual Medicare Advantage offerings, group Medicare, and Medicaid. To drive this broad and balanced long-term growth, we are investing in capabilities that create sustainable member value with a focus on five key areas of influence, primary care, home, pharmacy, behavioral health, and social determinants of health, which we outlined at our March Investor Day. We also spoke to our consumer-centric health outcomes-focused operating model enabled by technology. As we invest further in these capabilities, our investment approach encompasses both the type of investment as well as the return horizon, balancing both short-term growth and long-term sustainability. We consider the implications of our investment in terms of their ability to advance our strategy and create sustainable competitive advantage. Important, too, is the risk profile of the investment in the context of structural changes in our industry and the speed at which those changes are occurring. Following this philosophy enables us to vary our approach based on both enterprise and local market considerations, which via wholly owned investments, both organic and through purchases, partnerships or direct contracting, Some examples of our success in deploying capital with risk-based return criteria include our primary care partnerships, minority investments in kindred at home, and minority investments in startup organizations to encourage and learn from innovation. Today, I'd like to highlight a few ways we are delivering on our commitments from our Investor Day. In primary care, our investment strategy comes to life through our multiple-pronged to expanding access to value-based care. We may own, partner, or contract with providers based on the local market dynamics and appetite for value-based contracts. Over the years, we've fostered deep relationships with providers, meeting them where they are as they evolve to value-based care. This oftentimes includes our supporting them through reporting and analytics complemented by dedicated human resources. As a result of these long-standing relationships, approximately one-third of our individual MA members are cared for by providers in full-risk arrangements, and another third are cared for by providers under value-based arrangements along the path to full risk. Included in our full-risk arrangements are wholly owned and JV Alliance clinics, which allow us the agility to stand up high-quality, senior-focused primary care in underserved markets. By the end of 2019, we expect to open 40 new clinics, nine of which have already opened, expanding our footprint to 272 primary clinics. This includes 12 new partners and primary care clinics, including five new clinics in Houston, as well as three additional pilot clinics with Walgreens in Kansas City and Anderson, South Carolina. In the home, through our minority investment in Kindred at Home, we are piloting value-based care models in multiple markets and continue to see encouraging results from a standalone financial perspective for Kindred at Home and from the standpoint of delivering improved clinical outcomes for our members. To usher in the next wave of integration, Humana and Kindred at Home have invested in an interdisciplinary team of clinicians responsible for taking the best practices gleaned from pilot markets and applying those learnings across Kindred's broad geographic footprint. In our pilot markets, we have seen 1,800 home health episode authorizations year to date. Under the new value-based model compared to 600 in all of 2018. The expanded coverage area includes six states, Georgia, Kentucky, North Carolina, South Carolina, Virginia, and West Virginia, representing over 90 kindred at home branches. For the full year, we expect a total of nearly 20,000 home health episode authorizations under the new value-based model for both pilot markets and expanded coverage areas. In addition, we are preparing for the upcoming changes in 2021 when individuals with end-stage renal disease will be eligible to enroll in MA. We are contemplating how we can expand options for these members and incorporate the home as an alternative site of care. We are also working with CMS on ways to enhance care. address structural barriers that exist in the dialysis market today, and ensure appropriate funding. The methods and systems in place today do not incentivize dialysis providers to focus on slowing disease progression and result in provider payment rates in excess of original Medicare. Accordingly, we are working with dialysis providers on potential alternative contracting models, including risk contracts and value-based models, to make care more affordable while driving desired clinical outcomes. Turning to our technology strategy investment, let me first highlight the key elements of our approach. We are focused on building an enterprise technology platform that can be leveraged across all our business channels, bringing together disparate systems and data, both inside and outside the company, with the end goal being the creation of a single, intuitive, longitudinal health record for each of our members. It is through an interoperable platform like this that we are able to deliver a seamless, simple, and personalized healthcare experience. Creating this platform requires developing several layers, specifically data, analytics, and experience layers centered on focus, customer-focused use cases. The data layer includes the governance and structure that allows for ease of integration and the consumption of multiple data types, including, for example, free text, images, and voice. This layer then facilitates deep analytics in the next layer. The analytics layer includes a set of contemporary tools for the use by our data scientists to develop advanced models while creating user-friendly intuitive tools for data analysts and others in the company to access in the experience layer to improve insights, capabilities, and ultimately allow for more proactive care. The experience layer enables a user experience that is simplified and personalized in the context of members' circumstances and preferences. By integrating the insights from the analytics layer through a convenient and contemporary mobile app, We increase consumer engagement and ease for providers, which in turn enables the capturing of additional contextual information that informs our interaction and enhances our data and analytics to determine the next best action. Most importantly, we are building an integrated platform utilizing the most contemporary technology and partnerships. Our deployment is modular and based on specific customer use cases, with clear business needs. Let me share a few examples. Last year, we announced the creation of Studio H in Boston. While it's early, Studio H is beginning to launch innovative products. Humana is the first health insurer to make member ID cards available in Apple Wallet. Also in Greenville, South Carolina, we are piloting a care management application for care coaches in our clinics. which integrates the electronic medical records and provides a view of the members with the most critical and immediate needs. As a result of the success of this pilot, we plan to roll out the application to all partners and primary care clinics by the end of the summer. In addition, we organically built OneMedList, a medication therapy management tool that enables the provider and caregiver to have a real-time view of member adherence, improving clinical outcomes. We also recently announced a collaboration with Epic, the most widely used comprehensive health record system that will integrate technologies to enhance patient, provider, and payer access to health information. We are the first national healthcare insurer to collaborate with Epic to power value-based care. We believe interoperability is a core consumer principle and are fully behind CMS and HHS's push to free data for the benefit of healthcare consumers. Together with Epic, we are advancing interoperability to promote open communications and information transparency that will give patients and their clinicians integrated and real-time access to the patient's medical history, health insight, and treatment options, which in turn enables cost reduction, improves quality, and increases patient satisfaction. To enhance the prescriber's experience, we are integrating our real-time benefits check tool, IntelligentRx, directly into EPIC's e-prescribing workflow, delivering real-time pharmacy data throughout its network. Physicians will be powered to weigh evidence-based outcomes with patients' individual medication costs and coverage. All these advancements in technology and our integrated care delivery model, along with many other initiatives designed to personalize and simplify the consumer experience, have resulted in continued recognition of our leading position in customer satisfaction. In June, we were ranked the number one health insurer among all for-profit and non-for-profit health insurers in Forrester's 2019 U.S. Customer Experience Index. which measures how brands build loyalty with the quality of their experience. This achievement reflects the dedication of our employees to helping our members achieve their best health, and we are pleased that we expect eligible employees across all levels of the organization to receive higher than targeted compensation from our annual incentive program. The expected higher payout is due not only to above-target individual membership growth and earnings per share, but also as a result of improved customer satisfaction, as measured by our Net Promoter Score. Before turning the call over to Brian, I'll touch briefly on 2020. Consistent with our comments last quarter, we continue to expect reasonable growth and adjusted earnings per share in 2020. and believe we struck the appropriate balance between membership growth and margin for our individual Medicare Advantage business. As Brian will discuss further in his remarks, we are making significant investments in 2019 to create sustainable customer value and lessen the impact of significant 2020 headwinds and member benefits and premiums in 2020. That being said, millions of seniors across the industry will likely see a reduction in benefits and or increased premiums next year from the expiration of the health insurance fee moratorium. As we've mentioned before, there is a bipartisan support to eliminate the HIF. Given the significant positive benefit the removal of the fee would have on members, we continue to urge Congress to repeal the HIF. In addition, we are committed to our standalone Part D, or PDP, product as it is an important product for seniors and Humana. We acknowledge that in the last two years our PDP portfolio hasn't achieved our growth expectations. Our PDP design focus for 2020 was to evolve our portfolio to ensure we can offer competitive products to consumers to achieve our long-term membership growth targets. As we look beyond 2020, we are proactively pursuing initiatives designed to advance personalization and simplification, investing in technology and clinical programs to move more proactive, holistic health interventions, while also continuously pursuing productivity initiatives. In addition, we're working to shift the broader healthcare conversation and focus to include healthcare policies that address not only coverage but also the cost and affordability of care. With that, I'll turn the call over to Brian.