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Basis of Presentation (Notes)
9 Months Ended
Sep. 30, 2013
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation
Basis of Presentation
Organization and Operations
Molina Healthcare, Inc. provides quality and cost-effective Medicaid-related solutions to meet the health care needs of low-income families and individuals and to assist state agencies in their administration of the Medicaid program. We report our financial performance based on two reportable segments: Health Plans and Molina Medicaid Solutions.
Our Health Plans segment comprises health plans in California, Florida, Illinois, Michigan, New Mexico, Ohio, Texas, Utah, Washington, and Wisconsin, and includes our direct delivery business. As of September 30, 2013, these health plans served approximately 1.9 million members eligible for Medicaid, Medicare, and other government-sponsored health care programs for low-income families and individuals. The health plans are operated by our respective wholly owned subsidiaries in those states, each of which is licensed as a health maintenance organization, or HMO. Our direct delivery business consists of primary care community clinics in California, Florida, New Mexico, and Washington.
Our health plans’ state Medicaid contracts generally have terms of three to four years with annual adjustments to premium rates. These contracts typically contain renewal options exercisable by the state Medicaid agency, and allow either the state or the health plan to terminate the contract with or without cause. Our health plan subsidiaries have generally been successful in retaining their contracts, but such contracts are subject to risk of loss when a state issues a new request for proposals (RFP) open to competitive bidding by other health plans. If one of our health plans is not a successful responsive bidder to a state RFP, its contract may be subject to non-renewal.
Our Molina Medicaid Solutions segment provides business processing and information technology development and administrative services to Medicaid agencies in Idaho, Louisiana, Maine, New Jersey, and West Virginia, and drug rebate administration services in Florida.
Market Updates - Health Plans Segment
California Health Plan Tentative Rate Settlement Agreement. In the third quarter of 2013, our California health plan reached a tentative settlement agreement with the California Department of Health Care Services (DHCS), conditioned on final government approvals. The tentative settlement agreement settles rate disputes initiated by our California health plan dating back to 2003 with respect to its participation in California’s Medicaid program, or Medi-Cal.
Under the terms of the tentative settlement agreement, DHCS has agreed to extend each of the California health plan’s existing Medi-Cal managed care contracts for an additional five years, including its contracts in San Diego, San Bernardino, Riverside, and Sacramento counties. In addition, effective January 1, 2014, the settlement establishes a settlement account applicable to the California health plan’s Medi-Cal, Seniors and Persons with Disabilities, and the dual eligibles pilot programs. The settlement account will be established with an initial balance of zero, and will be adjusted annually to reflect a calendar year deficit or surplus. A deficit or surplus will result to the extent the plan’s pre-tax margin is below or above a specified percentage, subject to further adjustment as specified in the settlement agreement. Cash settlement will occur after December 31, 2017. DHCS will make an interim partial settlement payment to us if it terminates early, without replacement, any of our Medi-Cal managed care contracts. Upon expiration of the settlement agreement, if the settlement account is in a deficit position, then DHCS will pay the amount of the deficit to us, subject to an alternative minimum payment amount. If the settlement account is in a surplus position, then no amount is owed to either party. The maximum amount that DHCS would pay to us under the terms of the settlement agreement is limited. See Note 18, "Subsequent Events," for further information.
We do not expect the tentative settlement agreement to impact our consolidated financial condition, cash flows, or results of operations for the year ending December 31, 2013.
Florida. On October 23, 2013, our Florida health plan and the Florida Agency for Health Care Administration (AHCA), agreed to a settlement under which our health plan will be awarded three contracts under the Florida Statewide Medicaid Managed Care Managed Medical Assistance Invitation to Negotiate. The three contracts are expected to commence in the second or third quarter of 2014.
On February 14, 2013, we announced that AHCA awarded our Florida health plan contracts in three regions under the Statewide Medicaid Managed Care Long-Term Care Program. As a result of the awards, we will now enter into a comprehensive pre-contracting assessment, with the program currently scheduled to commence on December 1, 2013. Under the program, we will provide long-term care benefits, including institutional and home and community-based services.
New Mexico. On August 1, 2013, our New Mexico health plan closed on its acquisition of the Lovelace Community Health Plan’s contract for the New Mexico Medicaid Salud! Program, under which Lovelace’s Medicaid members became Molina Healthcare Medicaid members and now receive their Medicaid managed services and benefits from our New Mexico health plan. Additionally, in the coming months we expect to add membership currently covered under New Mexico’s State Coverage Insurance (SCI) program with Lovelace. See Note 4, "Business Combinations," for further information.
On February 11, 2013, we announced that our New Mexico health plan was selected by the New Mexico Human Services Department (HSD) to participate in the new Centennial Care program. In addition to continuing to provide physical and acute health care services, under the new program our New Mexico health plan will expand its services to provide behavioral health and long-term care services. The selection of our New Mexico health plan was made by HSD pursuant to its RFP issued in August 2012. The operational start date for the program is currently scheduled for January 2014.
South Carolina. On July 26, 2013, we entered into an agreement with Community Health Solutions of America, Inc. (CHS) to acquire certain assets, including the rights to convert certain of CHS’ Medicaid members who will be covered by South Carolina’s full-risk Medicaid managed care program. See Note 4, "Business Combinations," for further information.
Market Updates - Molina Medicaid Solutions Segment
U.S. Virgin Islands and West Virginia. In 2012, Molina Medicaid Solutions of West Virginia secured a historic partnership with the United States Virgin Islands (USVI). The partnership involves processing the USVI’s Medicaid claims using West Virginia’s certified Medicaid management information system. On August 1, 2013 the system went live, marking the first MMIS for a U.S. Territory, and the first to be shared between two government agencies on a single business processing platform.
Louisiana. In 2011, Molina Medicaid Solutions received notice from the state of Louisiana that the state intended to award the contract for a replacement MMIS to a different vendor, CNSI. However, in March 2013, the state of Louisiana cancelled its contract award to CNSI. CNSI is currently challenging the contract cancellation. The state has informed us that we will continue to perform under our current contract until a successor is named. At such time as a new RFP may be issued, we intend to respond to the state's RFP. For the nine months ended September 30, 2013, our revenue under the Louisiana MMIS contract was approximately $31.1 million, or 20.7% of total service revenue. So long as our Louisiana MMIS contract continues, we expect to recognize approximately $40.0 million of service revenue annually under this contract.
Consolidation and Interim Financial Information
The consolidated financial statements include the accounts of Molina Healthcare, Inc., its subsidiaries and variable interest entities in which Molina Healthcare, Inc. is considered to be the primary beneficiary. Such variable interest entities are insignificant to our consolidated financial position and results of operations. In the opinion of management, all adjustments considered necessary for a fair presentation of the results as of the date and for the interim periods presented have been included; such adjustments consist of normal recurring adjustments. All significant intercompany balances and transactions have been eliminated. The consolidated results of operations for the current interim period are not necessarily indicative of the results for the entire year ending December 31, 2013.
The unaudited consolidated interim financial statements have been prepared under the assumption that users of the interim financial data have either read or have access to our audited consolidated financial statements for the fiscal year ended December 31, 2012. Accordingly, certain disclosures that would substantially duplicate the disclosures contained in the December 31, 2012 audited consolidated financial statements have been omitted. These unaudited consolidated interim financial statements should be read in conjunction with our December 31, 2012 audited consolidated financial statements.
Presentation and Reclassifications
We previously reported that our Medicaid managed care contract with the state of Missouri expired without renewal on June 30, 2012. Effective June 30, 2013 the transition obligations associated with that contract terminated. Therefore, we have reclassified the results relating to the Missouri health plan to discontinued operations for all periods presented. These results are presented in a single line item, net of taxes, in the unaudited consolidated statements of operations. Additionally, we abandoned our equity interests in the Missouri health plan during the second quarter of 2013, resulting in the recognition of a tax benefit of approximately $9.5 million, which is also included in discontinued operations in the unaudited consolidated statements of operations. The Missouri health plan's revenues amounted to $0.2 million and $113.8 million for the nine months ended September 30, 2013 and 2012, respectively.
We have reclassified certain amounts in the 2012 consolidated balance sheet, and statements of operations and cash flows to conform to the 2013 presentation, including the presentation of premium tax receipts as a separate line item in the consolidated statements of operations.