Centene Corporation Reports 2006 Second Quarter Earnings

Business Wire, July 25, 2006

ST. LOUIS -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended June 30, 2006.

Second Quarter Summary

--Revenues of $495.3 million, a 41.7% increase over the 2005 second quarter.

--Earnings from operations of $6.3 million compared to $22.3 million in the 2005 second quarter.

--Earnings per diluted share of $0.11 (includes $9.7 million of adverse development in the first quarter 2006 medical claims reserves) versus $0.34 in the comparable prior year quarter.

--Operating cash flows of $5.1 million.

--Quarter-end Medicaid Managed Care membership of 1.1 million.

--Medicaid Managed Care G&A expense ratio of 12.3% and Specialty Services G&A ratio of 17.4%.

--Membership growth of 33.5% over the 2005 second quarter.

--Days in claims payable of 42.6.

Other Events

--Commenced operations in Georgia with 216,000 members.

--Acquired MediPlan Corporation, adding 13,600 Medicaid members in Canton, Ohio.

--Acquired Cardium Health Services Corporation, a Connecticut-based chronic disease management company.

--Acquired managed vision business of OptiCare Health Systems, Inc. effective July 1.

--Awarded two long-term care contracts in Arizona for Maricopa and Yuma/LaPaz counties.

The 2006 second quarter results include approximately $9.7 million of adverse medical cost development in estimated claims liabilities from the 2006 first quarter. The adverse development was largely attributable to: (1) increased medical expense for maternity related cases, including NICU, (2) increased physician costs, (3) increased costs associated with injectibles such as Synagis and Somatropin, and (4) increases in the estimated days for members hospitalized as of March 31, 2006. Approximately $3.7 million of the development occurred in Indiana and $2.2 million occurred in Texas. There has been a slight positive development for 2005 claims. Approximately $7.1 million of the development related to March claims and $2.5 million was for February claims.

In Indiana, there were a number of factors which affected our results. We saw a continuation of increased medical expenses associated with the members added in late 2005, higher percentage of admissions for NICU births and increased Synagis and Somatropin utilization. In addition, our estimated hospital inpatient days increased significantly primarily because of the deteriorating condition of several complex and high-cost cases and missed patient bed-day estimates. Pharmacy costs stabilized in the 2006 second quarter and are expected to decrease in the 2006 third quarter.

In Texas, we are currently experiencing higher costs because of a case mix shift to a higher percentage of members in the pregnant women and newborn categories driving increases in related costs such as NICU, radiology and Synagis, and from members moving out of Primary Care Case Management into a managed care environment. We also had several deteriorating complex and high cost cases.

In Georgia, our subsidiary Peach State Health Plan, Inc., began managing care for 216,000 Medicaid and SCHIP members in the Atlanta and Central regions effective June 1, 2006. The state of Georgia has scheduled membership operations to commence in the Southwest region in September.

During the 2005 fourth quarter, we were awarded contracts in Texas to expand operations to the Corpus Christi market, and operations are scheduled to commence in September 2006. We will also begin serving Medicaid members in Lubbock and a small number of SCHIP members in Austin, effective September 1. In addition, we were recently awarded a contract to provide managed care for SSI recipients in the San Antonio and Corpus Christi markets, for which membership operations are scheduled to start in January 2007.

Our Specialty Services segment has experienced significant year-over-year growth largely due to acquisitions and contract awards. During this past quarter, the Arizona Health Care Cost Containment System awarded our subsidiary, CenCorp Health Solutions, two managed care program contracts to provide Long Term Care services in Maricopa and Yuma/LaPaz counties. Bridgeway Health Solutions, a member of the CenCorp family of specialty companies, will provide those services when the contracts become effective October 2006.

Michael F. Neidorff, Centene's Chairman and Chief Executive Officer, said, "While we are truly disappointed with our second quarter results, we have identified the issues and we are undertaking steps to resolve them in a sustainable manner. We have initiated some very specific corrective actions at the corporate and health plan levels to protect against issues of this magnitude in the future."

The following table depicts membership in Centene's managed care organizations by state at June 30, 2006 and 2005:

2006              2005
                                  ---------------   ---------------
  Georgia                                216,000                 -
  Indiana                                193,000           152,800
  Kansas                                 117,100           103,000
  Missouri                                32,900            39,900
  New Jersey                              59,000            52,900
  Ohio                                    73,100            59,600
  Texas                                  235,800           243,800
  Wisconsin                              174,600           173,400
                                  ---------------   ---------------

  TOTAL                                1,101,500           825,400
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