Molina announces $230 million loss for second quarter

Molina Healthcare announced its second quarter results and a restructuring plan shortly after an announcement that 10 percent of its workforce would be laid off.

Joseph White, chief financial officer and interim president and chief executive officer said:

We are disappointed with our bottom-line results for this quarter and have taken aggressive and urgent steps to substantially improve our financial performance going forward. Following a thorough review of our business operations, we have begun to implement a Company-wide restructuring plan that we expect will reduce annualized run-rate expenses by between $300 million and $400 million by late 2018 when fully implemented, with approximately $200 million of these run-rate reductions expected to be achieved by the end of 2017 and in time for full realization in 2018. In the past, we have been focused on top line growth, often at the expense of bottom line results. While we expect to enjoy continued RFP and organic growth in our Medicaid managed care business, we are now intensively focused on improved operating performance and efficiency as the path to greater profitability and shareholder returns.

Key points from the Q2 report include:

  • Net loss of $230 million for the quarter, or $4.10 per diluted share.
  • Restructuring plan now underway is expected to reduce annualized run-rate expenses by $300 million to $400 million upon completion in 2018.
  • $200 million total reduction to annualized run-rate expenses resulting from staff reductions expected to be achieved by the end of 2017 in time for full realization in 2018.
  • Annualized salary eliminations of $55 million achieved so far in the third quarter of 2017.
  • Direct delivery operations will be restructured during the second half of 2017.
  • 2018 Marketplace participation to be terminated in Utah and Wisconsin; additional states in review.
  • 2017 earnings per share guidance withdrawn.

The significant losses were attributed to higher than expected medical care costs from 2016, Marketplace costs, and restructuring and separation costs.

Molina reported ongoing poor performances in Florida, Illinois, New Mexico and Puerto Rico health plans, and announced it would exit the Utah and Wisconsin ACA Marketplaces in 2018.

Premiums for 2018 will increase by 55 percent. Had funding for cost sharing reduction subsidies been confirmed for 2018, premiums would have only increased by 30 percent.

Molina will reduce the scope of its participation in the Washington Marketplace, and may withdraw from other counties or states.

Molina outlined a Restructuring Plan as a result of poor operating performance and management changes. According to their website, Molina will take the following actions:

  1. We are streamlining our organizational structure, including the elimination of redundant layers of management, the consolidation of regional support services, and other reductions to our workforce, to improve efficiency as well as the speed and quality of our decision-making.
  2. We are re-designing core operating processes such as provider payment, utilization management, quality monitoring and improvement, and information technology to achieve more effective and cost efficient outcomes.
  3. We are remediating high cost provider contracts and building around high quality, cost-effective networks.
  4. We are restructuring our existing direct delivery operations.
  5. We are reviewing our vendor base to ensure that we are partnering with the lowest-cost, most-effective vendors.
  6. Throughout this process, we are taking precautions to ensure that our actions do not impede our ability to continue to deliver quality health care, retain existing managed care contracts, and to secure new managed care contracts.

Molina hopes to reduce annualized run-rate expenses by $300 million by late 2018, $200 million of which will be from staff reductions.

“This reduction in our workforce is a difficult, but necessary, step as we concentrate our efforts on achieving operational excellence and improved efficiency. By transforming the entire enterprise into a leaner, more streamlined organization, we can enhance our decision-making, improve our operating performance, and grow our margins,” said White.