Good day, and welcome to the Centene Corporation Second Quarter 2022 Earnings Conference Call. [Operator Instructions]. Please note, today's event is being recorded. I would now like to turn the conference over to Jen Gilligan, Senior Vice President, Finance and Investor Relations. Please go ahead, ma'am.

Thank you, Rocco, and good morning, everyone. Thank you for joining us on our second quarter 2022 earnings results conference Call. Sarah London, Chief Executive Officer; Brent Layton, President and Chief Operating Officer; and Drew Asher, Executive Vice President and Chief Financial Officer of Centene, will host this morning's call, which also can be accessed through our website at centene.com. Any remarks that San team may make about future expectations, plans and prospects constitute forward-looking statements for the purpose of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors including those discussed in Centene's most recent Form 10-K filed on February 22, 2022, and other public SEC filings. Centene anticipates that subsequent events and developments may cause its estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The call will also refer to certain non-GAAP measures. A reconciliation of these measures can be found in our second quarter 2022 press release, which is available on the company's website under the Investors section. Please mark your calendars for our next earnings conference call scheduled for October 25. With that, I would like to turn the call over to our CEO, Sarah London. Sarah?

Thanks, Jen, and thank you, everyone, for joining us this morning. Centene entered 2022 with a focus on value creation. As a reminder, value creation at Centene means becoming a better partner by simplifying and strengthening our operations. making it easier for our members and providers to work with us. It means focusing on our core business and leveraging trusted local relationships to fuel disciplined growth and it means allocating capital to innovation that delivers better outcomes. Value creation is not measured solely in earnings per share, but importantly, in the impact that we have on the members we serve and the communities we support. Over the last 6 months, our value creation program has gained momentum and scale with efforts that span our local health plans and enterprise-wide functions. At the same time, the team is executing well on our day-to-day objectives and doubling down on our work to define the long-term trajectory of the organization for 2025 and beyond with a focus on sustainable growth and market leadership. This morning, I'll provide headlines of our quarterly performance and cover a few more recent value creation updates. Before handing the call over to Brent for an update on product line performance, I'd also like to touch briefly on what I've observed over my first few months as CEO about Centene's ability to differentiate in the marketplace. Let's start with the quarter. Second quarter results were directly in line with the guidance we provided at our June Investor Day. Thoughtful product positioning across lines of business, initiatives to enhance medical management and a more balanced approach to capital allocation, all contributed to our strong first half performance, which provides an excellent foundation to build from as we look to the balance of the year. Today, we once again increased guidance…

Thank you, Sarah, and good morning. I'm happy to talk about the performance of our core business lines during the second quarter. Centene is the leader in Medicaid Managed Care, and I'm pleased to say we continue to grow. Earlier this month, we were honored to be notified by the state of Delaware of an intent to award Centene contract to serve a statewide Medicaid managed care program. Beginning January 1, 2023, Centene's Health Plan Delaware First Health, will provide integrated services for physical and behavioral health and long-term services and supports through the Diamond State Health Plan and Diamond State Health Plan Plus programs. This is Centene's 30th Medicaid state. It's quite an achievement, and we look forward to this tremendous opportunity in Delaware. In addition to our new estate, earlier in the quarter, we were successful in the reprocurement of our Missouri contract serving TANF, Chip and expansion membership. We were also awarded the sole source specialty plant for children and foster care in Missouri. These contracts began July 1, and we're serving nearly 50,000 foster children and children receive an adoption subsea assistance in the state. This is our industry-leading fifth sole source and specialty contract serving children and young adults involved with the child welfare system. We are incredibly proud of our innovative programs and outcomes for this membership. In our existing Medicaid membership has increased to 15.4 million members at the end of the second quarter. Medicaid growth continues to be aided by the ongoing suspension of eligibility redeterminations. As you're all aware, that PHE is now extended to at least mid-October. As states consider their programs and budgetary needs post redetermination, several states beginning to process to transition new populations into managed care. The state of Indiana has recently released an RFP for long-term…

Thank you, Brent. This morning, we reported second quarter 2022 results of $35.9 billion in total revenue, an increase of 16% compared to the second quarter of 2021 and 11% was organic with 5% from M&A. We reported adjusted diluted earnings per share of $1.77 in the quarter, up 42% from $1.25 in Q2 of 2021. Overall, I'd characterize this as a strong quarter consistent with the update we provided to you at Investor Day on June 17. Let's start with revenue for the quarter. Total revenue grew by $4.9 billion compared to the second quarter of 2021, driven by strong organic growth throughout the last year in Medicaid, primarily due to the ongoing suspension of eligibility redeterminations strong Medicare membership growth during the annual enrollment period, the acquisitions of Magellan and Circle and the commencement of contracts in North Carolina. Total membership increased to $26.4 million, up 7% compared to a year ago. Our Q2 consolidated HBR was 86.7%, and Medicaid at 89.1% was a little better than expectations. Medicare at 85.6% was right on track and our commercial business continued to make progress toward our margin goals aided by the results of risk adjustment, which in Marketplace is zero-sum across the industry and tends to settle out pretty quickly in the following year. Given the risk adjustment headwind we experienced in Q2 of 2021, we expected a big year-over-year improvement in HBR, and we got more than we expected. The commercial HBR of 77.5% improved 1,250 basis points year-over-year, also driven by pricing actions and a return to more normalized utilization compared to the second quarter of 2021. When we look at our consolidated data, our Q2 COVID costs were down about 2/3 from Q1, which included the Omicron variant. Utilization has largely returned to a more normalized…

[Operator Instructions]. Today's first question comes from Josh Raskin with Nephron Research.

I wanted to stay on Medicare Advantage where you ended up, Drew. And if I look at it, your revenues are up. I know you've got a bunch of products in there, but I'm guessing MA is probably up in the low 30% range. The MLR is down I think, about 150 basis points for the first half of the year, and that can be atypical. So I'm curious, what do you think is driving the MLR improvement, especially when a quarter of the book is new members what metrics are you watching more closely to confirm that MLR? And then lastly, is 2023 still a year where you're targeting further MA margin improvement? Or are you getting some of that this year already?

Yes, Josh, thanks for the question. I'd say probably the lion's share of the improvement in what we disclose as Medicare HBR is actually in our PDP business. Though, to your point, the Medicare Advantage book is doing a little bit better year-over-year. We priced -- or the company priced 2022, for stability in HBR back when those bids were filed right around June of 2021. But for 2023, we expect a meaningful move in margin expansion. We actually have Stars revenue in 2023. And we're going to balance that with more modest growth. You heard Brent at Investor Day mentioned low to mid-single digits. Medicare Advantage growth, which, quite frankly, I think is a good balance when you're pushing margin going into 2023. And then obviously, 2024, we've got a headwind to contend with that we have to think through the structure of the bids for that year with a recovery in Star scores in 2025.

That all makes sense. But just the PDP business, I'm assuming is roughly 1/10 the size of your MA book, just from a revenue perspective. So were we talking about over about 1,000 basis points of PDP improvement? Is it that big? Is that what we're looking at?

PDP is doing quite well. There is some of this coming from Medicare Advantage and its clinical initiatives. The metrics we look at, we're -- Jim Murray mentioned this at Investor Day, sort of having dashboards that enable you to react and execute. I mean, that's something we've we're not yet at where we want to be, but we've gotten a lot better at that. And connecting organized clinical initiatives from a centralized body across our health plans and then tracking the cost benefit of those initiatives, that's also something that we've gotten better at over the past, call it, 9 or 12 months.

Our next question today comes from A.J. Rice, Credit Suisse.

Hello, everybody. Thanks. Maybe I'll just ask a similar question but directed toward the marketplace, public exchanges. I know this quarter, the reported MLR looks quite low, but I think that's getting benefit from the risk adjustment true-up. Can you just give us a flavor for where you're at, you think, this year in your margin and your normalized HBR. And then is this a jumping off point that's sustainable? Do you think you'll give some of that back next year? How do you think about the long-term trajectory of the margins on the exchanges.

Yes. I mean I'm really pleased with the execution around member engagement, physician engagement sort of risk adjustment process, which is a lot of nuts and bolts execution. And so that's something I think we can carry forward into future periods and continue to leverage better execution. We're not quite at the stated pretax goal of 5% to 7.5% in marketplace this year, and we expect to push into that next year as we look at the momentum we have in execution and financially and then think about sort of the right pricing and making sure we maintain competitiveness, sort of balancing all those things as we submitted the bids for next year. So we expect a little bit of an advancement in margins even with the improved performance in Q2.

Our next question comes from Matthew Borsch at BMO Capital Markets.

Yes. I was hoping you could maybe just give us another walk through as you see it today on 2023. I know you're not guiding yet, but can you talk about your latest thinking in terms of what you're seeing as headwinds and tailwinds going into next year, you're obviously looking at few areas of margin improvement that you've made this year. What's your -- what's going to be your jumping-off points for 2023 if you could?

Yes. Once again, we're pulling levers this year that we expect to bear fruit not just as we pull those levers in '22, but that will set us up for '23, '24 and beyond. But specifically, if you think about the progression, we're sort of in the mid-5s, a little bit, mid-5s plus right now to that low 6s range that we've been targeting for the last 6 or 9 months as we laid that out. Our tailwinds -- thinking back to the Investor Day slide, if you can picture that, we had $300 million plus of SG&A towards our $700 million bucket. Obviously, the real estate execution, that's $200 million of that $300 million on a run rate basis. And then there's other initiatives, as Jim and Sarah laid out at Investor Day sort of giving us that tailwind. Gross margin, we just talked about a little bit more move. We made a big move in margin in '22, and that's going well. There's a little bit more we can get in '23, and that's how we constructed the bids. We just talked about Medicare margin. That should be a decent-sized advancement tailwind. Then you go over to that third bucket of the value creation plan, the $0.50 bucket -- we'll get the -- we've talked about share buyback. We get the annualization, the benefit of some of that share buyback this year. We've divested a couple of businesses. Those are largely in the neutral zone even though we're deploying those proceeds to both share buyback and to reduce interest expense and debt load, investment income would be another element in that $0.50 bucket. But then there are some headwinds, too. Redeterminations. We talked about it at Investor Day, that's a run rate, $7 billion to $7.5 billion revenue headwind at some point when that annualizes depending on the timing of the commencement of redeterminations, Enhanced APTCs are still outstanding. Jen can probably -- when one of you guys ask that, John can answer that a little bit later. And we're always tracking carve-outs of pharmacy in the Medicaid business. And then there's the ever-present Medicaid rates and trend that could go either way. So obviously, it's our job to influence and manage those.

And our next question then comes from Justin Lake of Wolfe Research.

I wanted to ask you about the Medicaid MLR. Over the last couple of years, you've talked about paying about $1 billion of COVID-related margin corridors back to the states. Wanted to hear what you're seeing here year-to-date and expecting for the year overall, both in terms of the number of states they'll have in these in place and how you expect that to trend going forward? Reason I'm asking is just your MLR is up over 100 basis points year-to-date. I'd assume you'd have to eat through on a year-over-year basis, a lot of that $1 billion at the state level before your own MLR will be impacted. So just trying to figure out what's going on there.

Yes. No, that's a good question. I think the COVID era in those previous disclosures really isolated the new risk corridors largely that popped up and some acuity adjustments that popped up during the COVID era. That's down to a couple few hundred million as expected because the sun setting of those risk corridors. But maybe what's more relevant to your question is the total amount by which we expect to be into risk corridors, paybacks, other mechanisms, whether they originate in the COVID era or not. And that's -- we expect to be at about $1.3 billion in payback this year across our portfolio of 29 states.

And that $1.3 billion compares to what last year, Drew, in total?

Well, a couple of billion because the COVID piece of that with the COVID era risk corridors were more present in '20 and '21, and they began sunsetting in '22. Some are still out there, but that was more like a couple of billion.

So Drew, I guess the point is you're at $1.3 billion of what you're paying back. So by definition, I would think your at max margin in all those states where you're paying back. So how is your own MLR up 100 basis points when you're still paying back $1 billion. I would assume your couldn't have changed at all in those states? Or am I thinking about this small?

Yes. It's not sort of all or nothing when you get into risk corridors. There's different stair steps. There's grades of of corridors, and we're not at max in all of our states. There's many states -- there are states that are underperforming that we need rate action in to improve them over the next couple of years. It's the benefit of having a portfolio.

And our next question today comes from Kevin Fischbeck of Bank of America.

Maybe just building on that question from a little bit different angle. I guess one of the reasons why companies have kind of said that redeterminations won't necessarily be a headwind to margins has been kind of these risk corridor dynamics. And I guess it's just kind of -- I struggle with a little bit the thought when companies say things like the risk pool hasn't gotten better during redetermination. So it shouldn't get worse when the terms come back in. that risk quarter thing that leaves me a little bit questioning that because if you're at kind of max margin in a number of states, then doesn't that speak to somehow the risk pool being better than average. And so then why won't that be a headwind, again, more broadly, either because of the dynamic you mentioned where it's not all or nothing or then be the dynamic that you mentioned where you're not in risk core in every state. Just trying to understand the MLR implications or redeterminations a little better?

Yes. I don't know that anyone would characterize or try to minimize losing $7 billion to $7.5 billion of revenue in the associated margin. So that's clearly a headwind. What I pointed out a number of times is that as we exit the fact that if you look at our growth since the first time we actually gave a preview of 2022 revenue, we've grown well beyond that $7 billion to $7.5 billion. So when we exit, we'll actually be a bigger company than we originally expected, even though sequentially at some point, we're going to be giving back $7 billion to $7.5 billion of run rate revenue. As to the risk pool underneath that, we spent some time at Investor Day going through a bunch of the analysis because I agree with the hypothesis, but as we look at the data, we looked at the 0 utilizers. And I mean the Medicaid expansion population was actually down from a base period of 2018 and 2019. That was pleasantly surprising. TANF was up a little but there was really nothing alarming, and we jumped to the, okay, let's look at the 0 to 25% HBR population. And that was up slightly to your point, but not alarming, especially in the context of being in payback in some states. So yes, being in the payback position is not a panacea, but it's one of many factors you look at when you assess all right, what could the impact be on this population? And that's sort of -- as we sit here today before we have any data, that's our best assessment.

What I would just add, I think to Drew's point, it doesn't change all the work that we are doing to prepare the redetermination process, and that includes bringing forward that data in conversations with state partners because I think as we said at Investor Day, we believe that it's manageable, but that still creates the mandate for us to manage it in partnership with the states and supported by data.

Maybe just a follow-up on that point, though, I guess, a little more time. The fact that the risk hasn't gotten worse, I guess, redeterminations are suspended, then helping people and sick people stay on the roles. In theory when redeterminations get reimplemented, the healthy people will drop off because they know how to qualify because they got jobs or they don't qualify for the other classifications. But the sick people stay on. So I guess, why is that the risk pool hasn't changed a whole lot necessarily mean that it won't change a whole lot, respectively.

Well, I mean, you're talking a theory, and I'm looking at data. So I mean, we're not going to declare that there won't be any difference whatsoever between the pools of stayers and levers. But when we look at the utilizers. We look at sort of the minimal utilizers, it's that it's not that concerning. And the other mitigating factor is that 88% of our membership is in states that we believe not based upon some Kaiser study, but we believe based upon our boots on the ground and the local presence that Sarah talked about that those states will take 10 or more months to redetermine and therefore, that's why we've got sort of this amped-up rate process in place where we're working with the states sort of forewarning them and then are going to be prepared if there is a differential in the risk pool that we need to get compensated for that.

And our next question today comes from Lance Wilkes of Bernstein.

Yes. Can you talk a little bit about 2023 and 2024 Medicaid pricing, how are the states looking at inflation and I guess in discussions you're having with the states, if you could also talk a little about, in addition to redetermination, what sort of recession planning are the states starting to engage in?

Yes. On the pricing side, we're constantly sharing data with our state partners. I mean we're still in '22, and we still need to get some finality on rates in the back half of the year. So sort of not -- don't yet have visibility on what our forecast will be for 2023 rates will we usually give out that number at the December Investor Day. But the discussions are constructive. The states are thirsting for data. That's one of the keys of being able to sort of influence and convince your state partners of what's necessary. Not a lot of movement yet on inflation. I mean we're not seeing a lot yet but we're vigilant there. And once again, forewarning our state partners that to the extent we see those pressures, that's going to have to be reflected in the rates.

Budgets right now are stable. And I would say it's as stable as we've seen for many, many years. And the states are focused on PHE when it ends, and ultimately, states actually want their citizens to have access to health care and health insurance. And most of our time is working with the states and help planning for whenever the PHE ends and all the paths so that their citizens can have health coverage, whether it's commercial or the exchange or Medicaid or wherever they qualify. So the recession planning, I would say, is not there yet, but where the planning is, is around the PHE and making sure people have coverage.

And just a quick follow-up on that. For the recession, and this might be more of a policy question for you, but would a recession require something different than the existing FMAP increases in the current COVID bill and tied to the PHE or is that really kind of equivalent to what one might normally see during a recession?

A state at the point as far as getting a federal match in the time of a recession, which would be different than the public health emergency would be whatever their normal state match is between the state and the federal government.

And our next question comes from Scott Fidel from Stephens.

Obviously, there's going to be a few different moving pieces to modeling revenue impact from the divestiture. So I thought it may be helpful if you can maybe just walk us through the incremental annualized revenue when we think about incremental from Panther, then the sale of MagellanRx and the sale of the European assets that you talked about yesterday really trying to figure out sort of what's now reflected in the updated revenue guidance versus how we should think about modeling the impact of divestitures when we think about annualized out to 2023.

Yes. So we reduced our premium and service revenue by $1 billion for the back half of the year. Panther was a little over $2 billion, although it's growing quickly. And the Central and Spain assets were about $700 million in annualized revenue. And we don't expect to close Magellan Rx until late this year, really, I guess, late this year is our best estimate. So it wouldn't impact 2022.

Okay. And still related.

I was just going to add, and when we announced that in conjunction with Panther, think of it as neutral to slightly accretive, the combination of those 2 assets, so minimal, if any, impact on earnings.

Got it. And just a related follow-up. I think as Sarah had mentioned in the prepared comments that you're still pretty actively reviewing the portfolio and looking at other potential divestitures or sort of opportunities for value creation. I know that you've now announced a number of the sort of signature assets that you had identified initially to us as sort of potentially non-core. Just interested, maybe if you can just give us an update on sort of what else maybe we'd be thinking about where you're focused on now where there may still be some continued divestitures?

Yes. Thanks for the question. We're obviously pleased with the progress to date. We got a lot done in the second quarter, but we still have the broader portfolio of non-health plan assets, and we're sort of methodically working through those so if you think about the assets that historically have sat within health care enterprises, and some of our other non-health plan businesses, all of those are going through a consistent process. And we're looking to prioritize that work where we're going to have the greatest impact. So there is still a lot of work going on, and you should expect to hear additional announcements about that. But again, and I've hit this a couple of times. The answer in all cases, not necessarily divestiture. In some cases, these are very strategic assets that can be positioned to actually strengthen the core. And so that's part and parcel of the conversation, too, particularly as we think about positioning the company for growth in 2025 and beyond.

Our next question today comes from Nathan Rich at Goldman Sachs.

Drew, you had talked about taking price actions in the marketplace business for '23 as you work back toward target margins in that segment. I think across the market, it looks like average premiums will be up in the neighborhood of 10%. I guess like when you think about your business and enrollment for next year, how are you expecting the consumer to react to type of price increases, I guess, in the current environment? And do you have any kind of preliminary view on what you think enrollment in that business could look like?

Yes. There's a number of moving parts still. We have to see how the enhanced APTCs end up before the August recess because that's a pretty decent size swing factor. We also have to see the timing of the commencement of redeterminations because that's another swing factor. And then to the extent that the family glitch if that gets improved, so that it's sort of better applicability to marketplace. So too many things moving around at this point. And we're still waiting on Congress on the enhanced APTCs, so can't really predict whether it'll be up a little, down a little or flat. The pricing, we made a pretty big pricing move coming into 2022. It wasn't quite as high as you referenced in the aggregate on a composite basis. So maybe that's a good thing that we didn't have to increase our rates 10% on a composite basis, and we still are achieving meaningful margin expansion this year. And next year, not as big of a move in terms of margin expansion because we need to pierce into that 5% to 7.5%, whereas we were jumping off a pretty -- quite frankly, pretty lousy performance in 2021 in marketplace financially.

Marketplace, we do not see as kind of a generic national approach. We view it very much local like Medicaid. It's a market to market. And we had mentioned earlier that of our 29 states for [indiscernible] to be 30 with Delaware, 25 of those states we actually have an overlap of exchange. And so the relationship between provider and potential future insured or insured distribution and knowing the markets I think will play well for us and it actually played out quite well in 2022.

Great. Can I just ask a quick follow-up on just cadence of earnings for the back half of the year. Drew, you highlighted the outperformance in the first half. I think you had previously expected 40% earnings in the back half. It seems like that's gone down a little bit. Can you maybe just talk about like the big drivers for the back half of the year. Obviously, the Panther divestiture, but it sounds like some real estate savings would come through. So any other major moving pieces we should be thinking about?

Yes, right, right. At Investor Day, I was pretty explicit that the first half, we expected 64%. I guess that's now 63% now that we printed because we lifted the full year by $0.05 and that $0.05 to your point, it's actually a dime of benefit early benefit on the real estate run rate, minus $0.05 of investment Delaware is one example, but there's other ROI-based investments we're making in the value creation plan that we intend to make in the back half of the year. So that's why we increased guidance to net nickel. But otherwise, it's the normal progression, HBRs in like the commercial business and marketplace, those sort of rise throughout the year. And it's sort of a normal cadence thereafter.

And our next question comes from George Hill with Deutsche Bank.

Yes is another follow-up on the redetermination process. And I guess I don't know if it will be national or if it's state by state. I guess, could you talk about like the cadence for expectations for redeterminations once the PHE ends? Do you expect a lot of these lives to just kind of be dropped at once and then go through the paperwork process -- or will you guys -- or will these lives effectively stay on the Medicaid roles and then you'll go through the process of determining eligibility. I'm trying to think about the slope as I think about modeling redeterminations.

It's definitely a state-by-state process. So Brent, maybe you want to talk about what we're seeing operationally.

And well said, it is definitely state by state. And at the end of the day, all states are waiting to see when the PHE ends, and they're planning from that standpoint. Some states will take many months and that and some will be much faster. And it really depends both on how the state ultimately sees health care coverage and how they want to proceed in their state. But nonetheless, every state are having working groups and meetings and approaches through communication, through education and really trying to help everybody understand the options they have from that standpoint.

One thing I would add that we're tracking pretty closely are the ex parte numbers that each state is accumulating, which are those members that would be automatically either dropped or renewed at very different levels of maturity relative to the volume of members that could go through an automated process, but it's actually a helpful proxy for us to understand what would happen in early months versus, as Brent said, the states that are going to take a more measured approach in order not to create member abrasion and also reflective of the fact that the states have staffing issues and want to make sure that they have enough support for the process overall.

Our next question today comes from Michael Ha of Morgan Stanley.

Firstly, just a quick clarification, following up on A.J.'s question. how much exactly did the favorable 2021 risk adjustment benefit your exchange [indiscernible] quarter?

It's obviously a big contributor. We expect that every Q2 so the swing was pretty dramatic because if you'll recall, we actually had a -- we missed our expectation in marketplace in Q2 of 2021. So it's an anticipated driver because that's the quarter in which you get first [indiscernible] data and then the final CMS data. So -- but we outperformed that as evidenced by the 1,250 basis point year-over-year improvement.

And our next question today comes from Calvin Sternick with JPMorgan.

I wanted to circle back to the Medicare HBR comments you made, specifically on I guess how much of the PDP performance -- outperformance there is intentional in the way the business versus how much is coming in maybe a little bit better than expected? And then how are you thinking about the sustainability of those PDP margins in 2023?

Most of the year-over-year improvement was planned for in the bids. And plus each year as the yield drops because of the shifting of the responsibility and sort of the benchmarking that's unique in PDP. I mean it's a very low-yielding product. So the HBR has to be low because you have a certain amount of admin to reflected. I think the yield is sort of in the $35 to $45 PMPM range depending on the product. And then there's a little bit, to your point, there's a little bit of outperformance on top of that, but most of that was planned.

And our next question today comes from Gary Taylor at Cowen.

I appreciate the way you keep front riding the MA stores. So everybody is on the same page with respect to that. I had a couple smaller knits, I might see if you can force a little bit. The first would just be on days claims payable, you talked about a couple of factors that temporarily pushed that up this quarter. Did those reverse right back out next quarter, just so we should be anticipating a couple of days, at least sequentially on DCP. And then the second one would be investment income. So to hit your guide -- is that going to be running $150 million a quarter in the back half, just so we're anticipating higher investment income contribution to earnings in the back half?

So yes, on investment income with $400 million. I think we were $94 million or so year-to-date first half. That includes we sort of wrote down the fuel investments, we cleaned up some things that hit other income and investment income in the first half of the year. And we had some equity investments that obviously took a hit with the equity markets. But yes, we expect around $400 million for full year. So I don't know if it will exactly be $150 million a quarter because there's a ramping up of the Fed rates, obviously, embedded in that. But you're correct there. And your first question DCP. Yes, the state-directed payments element, I would expect that. That's literally we're getting cash from our state, and we've got to push it out to hospitals. That typically happens the next quarter. It may take a couple of quarters depending on sort of the detail around that, but that's pretty much in and out. Pharmacy invoices are tough to predict. I mean we don't manage to a DCP. It's actually an output. It's interesting. I'm always looking to see where it came out when we closed the books. But often, there are balance sheet elements that impact that, that are just timing, things have stretched over the quarter. But fundamentally, I do believe in strength of reserves and that is a measure, an imperfect one, but it is a measure of the strength of reserves.

And our next question comes from Benjamin Flox at Jefferies.

I apologize if this was asked already, but I wanted to follow up on Star scores for plan year 2024 revenues. Our understanding is the industry as a whole is going to face some headwinds as some COVID era factors run off. So was the point in the prepared remarks that you kind of expect to underperform that industry headwind? And then can you just give us a bit more color on the key pressures you're expecting?

The answer is yes. And if you go back to first time we started talking about this Q3 of 2021, you're absolutely right. There's an industry factor and we benefited from that probably, I'm thinking an outsized amount relative to peers. But for the plan year 2022, so the 2023 revenue were just over 50%. As an example, we're just over 50% of our membership in Forestar that would be less than half of that, absent the disaster relief provision. But on top of that, as we started to see operational execution and indicators from sort of the end of 2020 and then into the first half of 2021 and then look at results throughout 2021 and now some of that's into 2022 in terms of that rating year '23, you're talking about, we believe we're going to underperform. And what we're driving now is what we can control, this management team can control, which is execution in 2022 and beyond, which will drive rating year 2024 STAR scores that result in 2025 revenue and those are the Star scores you'll get publicly in the fall of '23, hopefully attract me there.

Yes. Maybe just to quickly at Wave top sort of rehash the history lesson that we went through at Investor Day on the why. And again, the time period that Drew is pointing to is really that back half of '20 and early part of 2021. And those 21 days of service are what impacted revenue anticipated from Starz in 2024. And so early 2020, we brought Centene and WellCare together a couple of things happen, right? We tripled the Medicare book overnight. We brought 2 different parts together that we're operating in fundamentally different models. One was centralized at WellCare and one was decentralized very hard to run an enterprise quality program at our level of size and scale in a decentralized model. And then we send everybody home for COVID. And so what we saw was the degradation of operations and performance in the back half of '20 and first half of '21, which again will impact '24 caught that in the middle of '21 and added new leadership to the quality program in the back half of last year, tuck them under the value creation office in order for that to be sort of unified prioritized initiative. And then this management team, which is different from the past has committed to quality performance is a priority for the whole company, and we've baked it into our short-term incentive for every single employee. And so all of the work that Jim Murray talked about at Investor Day in terms of how we're watching operational performance for 2022 dates of service. The executive team watches those on a weekly basis because that is what is telling us that we can be looking for a meaningful rebound in revenue year 2025.

Let me add one more thing on that. This is a long answer to a short question, but we are still committed to driving and pulling levers to achieve our multiyear plan. So while this is going to be a headwind for in isolated 2024 year, and it will turn around will be a nice tailwind for 2025 based upon our execution. Our compensation is still tied to the targets we laid out, as you saw in the proxy, and this organization is going to drive towards executing on the multiyear game plan that we laid out for you.

Thank you. And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Jennifer Gilligan give for any closing remarks.

We want to thank everyone for joining us this morning. And if there are any follow-up calls, please feel free to reach out. Thanks very much.

Thank you, ma'am. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.