Humana Inc.

Good day and thank you for standing by. Welcome to the Humana third quarter 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lisa Stoner, Vice President of Investor Relations. Please go ahead. Thank you and good morning.

In a moment, Bruce Broussard, Humanities President and Chief Executive Officer, and Susan Diamond, Chief Financial Officer, will discuss our third quarter 2023 results and our financial outlook for 2023. 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 latest Form 10-K, our other filings with the Securities and Exchange Commission, and our third quarter 2023 earnings press release as they relate to the forward-looking statements along with other risks discussed in our FBC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news releases, and our filings with the SEC are 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 GAPs. 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.

Thank you, Lisa. Good morning, everyone. Today, Humana reported financial results for the quarter of 2020. $7.78, slightly above our expectations. Results for the quarter include outperformance in our Medicaid and primary care businesses and a continued focus on driving sustainable operating efficiencies, offset by the impact of the modest, higher-than-anticipated utilization in our Medicare Advantage business. We reaffirmed our full year 2023 adjusted EPS guidance of $28.25, reflecting a 12% increase over 2022. In addition, we are pleased to raise our guidance for full year individual MA membership growth by an additional 35,000 members to 860,000, driven by continued higher than expected new sales. Our full-year membership growth estimate now reflects a 19% growth rate, significantly outpacing the industry. As we've shared previously, our ability to deliver on our targeted earnings growth rate in 2023 while also achieving this impressive membership growth is supported by the strength and scale of our organization, underpinned by a continued focus on disciplined investments, driving sustainable productivity improvement, and delivering consistent fundamentals, including industry-leading STARS results and higher customer satisfaction as reflected in our net promoter skills. Further, our strong membership growth creates significant momentum as we advance towards our 2025 adjusted EPS target of $37. Susan will provide additional details on our third quarter performance and our full year expectations in a moment. I'll now provide an update on our operations and outlook, including a view of the 2024 Medicare Advantage landscape and exciting growth we've seen in our primary care business. before turning to an update on our ongoing productivity initiatives. Beginning with Medicare Advantage, we took a thoughtful approach to 2024 bids, recognizing the need to balance the rate environment with our commitment to achieve industry average or better membership growth. Our 2024 strategy was informed by extensive consumer and broker research and in-depth analytics regarding what Medicare eligible consumers prefer. We preserved or enhanced key benefits across our portfolio that were identified as most important to consumers and continue to provide differentiating offerings that focus on improving health outcomes and member experience. More specifically, we continue to prioritize zero premium offerings, low cost share for highly utilized services, including primary care and Part D, and maintain highly valued supplemental methods like dental and Part B give-backs. From a dual eligible special needs plan, or DSNP, perspective, all plans include zero co-pays on covered Part D prescriptions and offer healthy option allowance with a rollover feature, a key differentiator in the marketplace. Our product enhancements are coupled with Humana's leading position in quality and experience. Humana continues to deliver exceptional quality to our members as measured by our CMS star ratings. For six consecutive years, Humana has maintained the highest percentage of members in four star or higher rated contracts among national health plans. In 2024, 94% of our members will be enrolled in plans rated four stars or higher, and 61% in plans rated four and a half stars or higher. Four of Humana's contracts covering approximately 790,000 members nationwide receive a perfect five-star rating, more than doubling our five-star membership from 2023, enabling year-round enrollment in these plans. In addition, for the third year in a row, Humana has been ranked number one among health insurance for customer quality and Forrester's proprietary 2023 US customer experience benchmark survey. Humana also ranked number one in customer satisfaction with MA plans in Florida based on a comprehensive 2023 study by J.D. Bowers. And we're proud that Humana once again has been named the best overall Medicare Advantage insurance company by U.S. News and World Report, which created an honor roll based on CMS's newly released star ratings for MA plans. Additionally, Humana ranked as the best company for member experiences and was declared the best company for low premium plan availability. Collectively, these results are testament to our commitment to putting the health and wellness of our customers first. From a distribution and sales perspective, we are building upon our omnichannel strategy in 2023, where we've seen a 50% increase in our internal sales year to date, which is our highest lifetime value channel. Our goal is to deliver best-in-class agent and customer experience and have made investments in AI-powered tools and telephonic infrastructure to reduce consumer hold times and transfers. Finally, we are excited about the strong growth of our internal pair agnostic channel, which is expected to double its sales production year over year this AEP. All in, we expect our balanced approach to our 2024 product strategy positions as well, and we anticipate 2024 individual MA membership growth to be at or above the overall industry growth rate. We look forward to sharing more in the coming months. Within our center well segment, our primary care platform experienced significant growth in the quarter, now operating 296 centers serving nearly 285,000 patients, representing a year-over-year growth of 33% and 17% respectively. This includes the impact of the 24 centers recently acquired from Kano Health, approximately 12 of which are expected to be consolidated into existing centers as we integrate the business by year end. As a result of the 2023 de novo bills and M&A activity, we expect to end the year with net growth of 60 to 65 above our previously communicated annual center growth target of 30 to 50. Susan will provide additional detail on our CenterWell primary care performance in a moment. Turning to our ongoing productivity efforts, which span the organization, our focus on productivity continues to drive sustainable value for the enterprise while creating more streamlined processes, better experiences for our members, patients, and provider partners, and driving best-in-class quality and customer service results. Let me share a few examples of this important work. Our primary care organization is executing on a multi-pronged plan to mitigate the ultimate impact of the risk model changes that will be phased in over the next three years, including numerous operational efficiencies such as centralizing and streamlining administrative functions, standardizing the clinic operating model, and improving clinician productivity. As an example, we are enhancing our use of prospective risk stratification of our patient base, offering new and enhanced clinical programs and care team interventions to our highest risk patients, which we expect to further reduce avoidable hospitalizations and readmissions while we optimize our preventative test points with lower risk patients to increase connection capacity. In the home, as a complement to developing value-based home health payments, we've launched a comprehensive initiative to reimagine our scale home health operations. These efforts will be deployed across more than 350 branches and will include automation, consolidation, and implementation technology and AI solutions. This will minimize administrative tasks while improving clinician productivity, including optimizing their schedule. We believe these initiatives, some of which require incremental investment, will ultimately streamline our operations and lead to increased clinician productivity and satisfaction. As an example, Centerwell Home Health has introduced an innovative AI-enabled digital wound management solution, which allows our clinicians to effectively capture vital wound details with a simple picture. We are pleased to report a notable 18% improvement in visit efficiency, thus enhancing the experience both clinicians and patients. This has been instrumental in clinical decision-making, contributing to an accelerated wound healing time by 35%. Finally, within CenterWell Pharmacy, we've been focused on investments in digital channels and have seen greater than 800 basis points proven in scripts received through our digital channels year-to-date, now representing approximately 38% of our total scripts. Increased use of digital channels provides an efficient and user-friendly experience for patients, allowing for real-time formularity and adjunction of the ability to offer cost-saving alternatives in real time. In addition to our ongoing productivity initiatives, we remain committed to identifying additional sources of value for the enterprise through cost-saving and value acceleration from previous investments. Value drivers include areas such as streamlining our real estate portfolio as we continue to refine new ways of working post-COVID. We've also identified operations to rationalize our IT portfolio as we focus on building and leveraging enterprise capabilities, providing the opportunity to move away from and or consolidate certain standalone business-specific systems and applications that will meet the business needs of the future. In addition, there are certain initiatives kicked off as a part of our ongoing hard value creation plan in 2022. that required implementation of technology to improve processes and drive efficiencies, and would therefore take time to realize the full benefit. As we continue to focus on and advance these initiatives, we've identified additional value to be extracted. We anticipate activities related to the additional value creation initiatives to continue throughout 2024 and result in certain one-time charges that will be adjusted for non-GAAP purposes. Collectively, our ongoing productivity and value creation initiatives are driving sustainable value for the enterprise. We expect this work will create value beyond the 20 basis points of annual operating leverage on a business-mixed, adjusted basis that we committed to at our 2022 Investor Day, aiding in our efforts to offset the near-term utilization and reimbursement headwinds currently impacting the industry. Before turning it over to Susan, I'd like to touch on our recently announced leadership transition plan. We are pleased to announce that the healthcare industry veteran, Jim Rickson, will join Humana as a president and chief operating officer on January 8, 2024, as part of a long-planned CEO transition. Jim will report to me until the latter half of 2024, at which time, after leading Humana For over a decade, I'll step down and Jim will assume the CEO role. As we work to make this seamless transition in the coming months, I look forward to partnering with Jim. He brings a collaborative, thoughtful, and innovative leadership style to our organization, making him a natural fit for the culture of today and the future. Jim brings a strong combination of operational industry and CEO expertise. His first-hand experience leading through challenges and opportunities of changing health care services continuum will help him accelerate our integrated care strategy. We look forward to introducing Jim to our stakeholders when he joins the team in early 2024. With that, I'll turn the call over to Susan.