Case: Centene Corp. 
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August 31, 2016 – Kaplan Fox & Kilsheimer LLP (www.kaplanfox.com) has been investigating Centene Corp. (“Centene” or the "Company") (NYSE: CNC).  Investors who purchased Centene securities between June 17, 2016 and July 25, 2016 may be affected.


On March 24, 2016, Centene issued a press release that stated “it has completed its acquisition of Health Net, Inc. The closing of the transaction follows the approval of each company's shareholders and receipt of all required regulatory approvals. Effective today with the closing of the acquisition, Health Net is a wholly owned subsidiary of Centene and no longer a publicly traded company.”


On June 17, 2016, the Company conducted an analyst/investor day conference. The Company’s CEO, President and Chairman, Michael F. Neidorff (“Neidorff”), and the Company’s CFO, Jeffrey A. Schwaneke (“Schwaneke”) participated in this conference. At the conference, Schwaneke represented that “[a]s of May 31, 2016, there has been no unfavorable development on the acquired Health Net medical reserves.” Further, in response to an analyst question, Neidorff and Schwaneke represented the following:

Christine Mary Arnold

Cowen and Company, LLC, Research Division


Okay. And then final question on the Health Net reserves, I'm sorry to beat up on it, but it's something that's really on people's minds. You said that the reserves, there was no negative development and – is that related to both the first quarter and 2015? Or how did 2015 developed?


Jeffrey A. Schwaneke

Chief Financial Officer, Executive Vice President and Treasurer

Well, that's really just the opening balance sheet so that's as of the time of the transaction. So as of March 24, for example. But the March 24 reserve balance includes all prior activity, right?


Christine Mary Arnold

Cowen and Company, LLC, Research Division


Okay. So that means you didn't see negative development related to '15?


Jeffrey A. Schwaneke
Chief Financial Officer, Executive Vice President and Treasurer

Well, you could have. I don't know. You could have, but it could be offset by January and February '16, right? So in aggregate, because the March 24th reserves includes all dates of service prior to the 24th, so that would include '15 and '16. So I don't have to split, but in total, we haven't seen any development on anything prior to the 24th, in total.


Michael F. Neidorff
Chairman of the Board, Chief Executive Officer, President and Chairman of Compliance Committee
 

So let me say, that's an important point. It's interesting that the reserves, the Health Net reserve issue stops at March 24, and it's prior to that period and how it's handled. And that's a lot of center on purchase accounting, if there was an issue. But going forward, it's just all Centene, the days payable, et cetera, it's all just combined with the total Centene [indiscernible] and it will be -- and it is managed that way.


Also at the analyst/investor conference, Neidorff represented that “I made a couple of comments during the break, so it is my hope that the Health Net reserves have now found a comfortable bed. Because I think it's that kind of issue, it's one that's kind of behind us at this point.”


Then on July 26, 2016, Centene issued a press release concerning its financial results for the quarter ended June 30, 2016.  The press release stated, among other things, that “[i]n the second quarter, we continued to make progress on the fair valuation of the Health Net balance sheet.  There has been no unfavorable development on the medical claims liability as established at March 24, 2016.  We did increase reserves for medical claims primarily associated with disputed substance abuse treatment center costs.  Additionally, we recorded premium deficiency reserves primarily associated with Arizona and the California individual PPO business.”


Also on July 26, 2016, on a conference call with investors, Schwaneke stated the following:


Although we have not experienced any unfavorable development on the medical claim liabilities established at March 24, 2016, we have increased reserves by approximately $90 million during the quarter associated with disputed substance abuse treatment center claims. We expect to continue to review the reserves for the substance abuse treatment facility claims. However, we have finalized our fair valuation of the remaining medical claims liability.


Additionally, we recorded premium deficiency reserves of approximately $300 million, representing the fair value of underperforming contracts for the period from March 24 through December 31, 2016. The premium deficiency reserves are primarily associated with unfavorable expected performance in the following areas: first, losses in the individual commercial business, largely in California, driven by increased utilization of substance abuse treatment facilities; second, unfavorable performance in the Arizona Commercial business, reflecting the unfavorable risk pool caused by the grandmother-ing of non ACA-compliant policies, further compounded by the lack of risk corridor benefit; and third, unfavorable performance in the Medicare business, primarily in Oregon and Arizona. We expect to continue to review the premium deficiency reserve for the substance abuse treatment facility utilization estimates. However, we have finalized our fair valuation of the remaining premium deficiency reserve liabilities.


On July 26, 2016, an analyst from Jefferies stated: “[w]e have held management in high regard for its consistent execution. However, credibility took a step back today as the $390mm of reserves were significantly higher than CNC suggested in June at our healthcare conference and Investor Day. Why didn't the company disclose the issues then? Further, if CNC wasn't fully aware of the magnitude, it increases uncertainty as to the completeness of the corrective actions. In other words, did CNC change pricing/benefits enough in recent months to fix the issues? We assume $65mm (nearly 25c) of the $390mm isn't rectified.”


On July 26, 2016, Centene shares declined from a closing price on July 25, 2016 of $75.26 per share, to close at $68.87 per share, a decline of $6.39 per share or approximately 9% on heavier than usual trading volume.


If you purchased Centene securities between June 17, 2016 and July 25, 2016, and would like to discuss our investigation, please contact us by e-mailing This e-mail address is being protected from spambots. You need JavaScript enabled to view it or by calling 800-290-1952.



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ttorneys: Laurence D. King, Jeffrey P. CampisiPamela A. Mayer