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October 15, 2003
Is Molina Healthcare a Socially Responsible Investment? Don't Ask The Company
    by William Baue

The president and chairman of Molina Healthcare leaves it up to investors to decide for themselves if the company is a socially responsible investment.


Creating economic opportunities and services in distressed communities have long been priorities of socially responsible investing (SRI). Investors typically have done this through community development financial institutions, such as by providing the capital for loans to low-income individuals and the businesses serving them. Fewer opportunities exist in equity investments, however. California-based Molina Healthcare (ticker: MOH), which tendered 6.6 million shares on the New York Stock Exchange in a July initial public offering (IPO), is an exception.

Molina is a managed healthcare company founded in 1980 by C. David Molina, an emergency room physician. Molina provides care to low-income individuals on Medicaid, the State Children's Health Insurance Program (SCHIP), and other government programs.

"Because they did not have a primary care doctor, these patients frequented the emergency room for non-emergency conditions," said J. Mario Molina, M.D., the founder's son and current president and chairman of the company.

From its humble beginnings as three clinics in the Long Beach area, the company has grown into a health maintenance organization (HMO) serving 530,000 members in four states: California, Michigan, Nevada, and Washington. Molina provides both outpatient and inpatient services along with covering medications and ancillary services.

"We provide these services at no cost to our health plan members--the costs are born by the state Medicaid agency who pays Molina in turn on a prepaid or capitated basis," Dr. Molina told SocialFunds.com. "In other words, we are paid a fixed amount per member per month to provide for all of the health care needs delineated in our contract with the state."

"Our profitability has less to do with the income of our members, as they are not financially responsible, than it does with how well we manage their care," he added.

Molina's primary publicly-traded competitors are Amerigroup (AGP) and Centene (CNTE), who similarly limit their business to Medicaid and SCHIP recipients. By definition, all of Molina's members are poor, roughly 75 percent are children, many lack adequate education, and a significant portion have limited or no ability to speak English, according to Dr. Molina.

Molina also helps address the social needs of its clientele indirectly, by supporting charitable organizations that serve them. These organizations include the YMCA and Boys and Girls Clubs. Molina also supports health care-related organizations, such as the American Heart Association, the American Cancer Society, and the Red Cross. For example, Molina employees have donated nearly 900 pints of blood in the past six years.

On the environmental front, Molina's 21 clinics in California generate less biological hazardous waste than even one hospital, according to Dr. Molina. The company also practices energy conservation and recycling as extensively as possible.

"I don't know if any of this makes us socially responsible," he admits.

Dr. Molina is unaware of any SRI analysts that cover Molina, or whether the company is included in any SRI funds. He is also wary of correlating the company's success with social responsibility.

"If we assume that the company is indeed socially responsible, and we examine the growth in shareowner value over the last 5-7 years, has our success come as the result of or despite being socially responsible?" he asks. "I don't know."

Trading of Molina stock closed at $27.25 today, up almost $10 from the July 2003 IPO price of $17.50.

"My view, and the culture I am trying to foster at Molina comes from the values taught by my parents, the founders of the company, who raised me to believe that one does the right thing because it is the right thing to do, not because of any extrinsic reward," Dr. Molina concluded.

 

 
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