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Centene Corp. said Tuesday it is suing Kentucky, a state that has generated heavy losses for the Medicaid coverage provider, as it reported an 87 percent plunge in third-quarter earnings.
The St. Louis-based managed care company also cut its 2012 earnings forecast again, but its stock climbed on a down trading day for the market.
Centene said it filed a lawsuit against Kentucky over the state's "failure to completely and accurately disclose material information." The company said last week that it is planning to end its contract to administer Medicaid coverage in the state.
"In our two decades working with states, this is the first time we have failed to achieve a partnership with the state," Centene Chairman and CEO Michael F. Neidorff said during a conference call with analysts. "We have experienced significantly higher than expected medical costs in Kentucky."
Medicaid is the state and federally funded program that provides health coverage to poor and disabled people. States typically hire private insurers to administer the coverage.
The insurer's Kentucky subsidiary has lost more than $120 million since it started the Medicaid contract Nov. 1, according to the lawsuit filed in Kentucky state court. The complaint alleges, among other things, that Kentucky officials misrepresented the volume of Medicaid neonatal intensive care admissions and emergency room use when the subsidiary was preparing a bid to cover the population.
Those categories can both generate expensive claims for insurers.
A spokeswoman for the Kentucky attorney general's office said they don't comment on pending litigation.
Neidorff said Centene also is dealing with an "unprecedented amount of retroactively assigned members" in Kentucky.
Uninsured patients are retroactively assigned to a Medicaid coverage provider after they go to a hospital to seek medical care. The insurer then becomes responsible for all medical services the patient receives, and this population can hurt an insurer if it generates more in claims than the insurer receives in premiums.
On Tuesday, Centene said it took a $63 million hit in the third quarter because the premiums it is collecting in Kentucky aren't matching the medical costs it is incurring for coverage in the state. The company last week warned that it expected such a hit due to its Kentucky operations.
Centene's net income dropped to $3.8 million, or 7 cents per share, in the three months that ended Sept. 30. That compares to earnings of nearly $29 million, or 55 cents per share, in last year's quarter. Not counting the Kentucky hit and some one-time benefits, the company earned 47 cents per share.
Centene's revenue climbed 88 percent in the quarter to $2.45 billion, as the insurer added members in several states.
Analysts expected, on average, earnings of 47 cents per share on $2.22 billion in revenue, according to FactSet.
Centene wound up with a "very messy quarter," as expected, Goldman Sachs analyst Matthew Borsch said in a research note. He added that the company's underlying growth prospects remain strong despite the operating issues it faces.
Centene cut its annual earnings forecast in June and lowered it again on Tuesday but also raised its revenue guidance. It now expects 2012 earnings to range between 56 cents and 66 cents per share. That compares with a forecast it made in July for earnings of 95 cents to $1.15 per share.
The company expects premium and service revenue to range between $8.1 billion and $8.3 billion, up from $7.7 billion to $8.1 billion.
Analysts expect, on average, earnings of $1.50 per share on $8.3 billion in revenue.
Centene shares climbed 15 cents to $38.56 Tuesday afternoon, while broader trading indexes fell more than 1 percent.