HealthSpring, Inc. (NYSE:HS) today announced its results for the third quarter and nine months ended September 30, 2009. Highlights for the 2009 third quarter include:
- Net income of $42.3 million, or $0.77 per diluted share, compared with $29.4 million, or $0.53 per diluted share, in the 2008 third quarter;
- Premium revenue of $649.8 million, up 26.0% over the 2008 third quarter; and
- Medicare Advantage membership of 186,635 at quarter-end, up 19.4% over the 2008 third quarter-end, and up 15.1% compared with 2008 year-end; stand-alone PDP membership of 303,975, up 11.6% over the 2008 third quarter-end.
Commenting on 2009 third quarter results, Herb Fritch, Chairman and Chief Executive Officer, said, “We are pleased with our strong performance in the third quarter of 2009. Performance in the quarter was driven by improvement in inpatient admissions in most of our markets that more than offset any higher trends we continue to experience in outpatient and professional costs. Our Florida and Part-D operations also continue to outperform our expectations for the year. These positive trends have caused us to increase our earnings per share guidance for 2009. We believe that our intense focus on physician engagement and the value proposition we offer to Medicare beneficiaries have led to the current year’s strong performance and position us well for a strong 2010 open enrollment season.”
(1) Weighted average shares outstanding used in the calculation of net income per common share - diluted, were 54,700,390 and 55,811,236, respectively, for the three months ended September 30, 2009 and 2008.
Operating Highlights
Revenue
- Medicare Advantage premiums (including the prescription drug component of HealthSpring's Medicare Advantage plans, or "MA-PD") were $580.0 million for the 2009 third quarter, reflecting an increase of 27.3% over the 2008 third quarter. The premium revenue increase is attributable to a 19.4% increase in membership and a 6.7% increase in premiums per member per month, or “PMPM.” Additionally, the 2009 third quarter included $6.4 million of premium revenue for changes in estimates for current-year retroactive risk settlements related to the first half of 2009. This change in estimate had a favorable impact on net income of $3.5 million, or $0.06 per diluted share, in the current quarter. By comparison, the change in estimate for the 2008 third quarter was insignificant.
- Medicare Advantage PMPM premiums were $1,043.09 in the 2009 third quarter, compared with $977.38 in the 2008 third quarter. The PMPM premium increase in the 2009 third quarter resulted from rate increases in CMS-calculated base rates as well as rate increases related to risk scores.
- Stand-alone PDP premium revenue was $69.0 million for the 2009 third quarter, an increase of 16.8% compared with the 2008 third quarter. The higher revenue resulted from an 11.6% increase in membership and a 4.7% increase in PDP premiums PMPM in the current quarter.
- Investment income decreased from the 2008 third quarter by $2.9 million, or 76.9%, to $0.9 million for the 2009 third quarter, primarily as a result of a lower average yield on invested and cash balances.
Medical Expense
- Medicare Advantage medical loss ratio, or "MLR," was 79.7% for the 2009 third quarter, compared with 79.2% for the prior year’s third quarter. The impact from risk-adjustment payments relating to prior periods of 2009 was favorable by 0.7% on the 2009 third quarter. Higher outpatient expenses and increases in physician expenses in the Alabama, Tennessee, and Texas health plans resulted in an increase in the current period MLR, compared with the 2008 third quarter. Increasing pharmacy trends for the drug benefit component of the Company's MA-PD plans during the current period also contributed to the increase in the MLR. These increases were partially offset by improvements in inpatient admissions across all markets and continued strong performance in the Florida plan. On a year-to-date basis, the MA MLR was 81.1%, compared with 79.2% for the prior year’s first nine months, as adjusted in both periods to exclude favorable final CMS settlement adjustments associated with prior years.
- PDP MLR was 81.5% for the 2009 third quarter, compared with 85.1% in the 2008 third quarter. On a year-to-date basis, the PDP MLR was 90.2%, compared with 93.3% for the prior year’s first nine months. The improvement in the PDP MLR was primarily attributable to higher PMPM premium revenue. Higher utilization of generic prescription drugs in the 2009 period also contributed to the improvement in the year-to-date PDP MLR.
Selling, General & Administrative (SG&A) Expense
- SG&A expense as a percentage of total revenue in the 2009 third quarter decreased 110 basis points to 10.0%, compared with 11.1% in the 2008 third quarter. The improvement in SG&A as a percentage of revenue resulted primarily from improvements in the Company's operating model and revenue increases. The $7.2 million increase in the 2009 third quarter compared with the 2008 third quarter was primarily the result of additional personnel costs associated with membership increases. On a year-to-date basis, SG&A expense as a percentage of total revenue in 2009 was 10.1% compared with 10.8% for the prior year’s first nine months.
Interest Expense