Q2 2021 Signify Health Inc Earnings Call
Ladies and gentlemen, welcome to signify health second quarter 2021 and it's cool my name is Lisa and I'll be operating you'll coat day. If you wish to ask a question for Bill comment you made day say by pressing star followed.
By one on your telephone keypad I will now hand over the cool, Yeah, Hi, Jennifer to Barradino head of Investor Relations. Jennifer. Please go ahead.
Good morning, and welcome to signify health second quarter 2021 earnings conference call.
This call is being webcast live and a recording will be available on the events page of our investor website at signify health Dot Com through October 11th 2021.
Throughout the call. This morning, we will be referencing the financial tables that appeared in our press release dated August 10th 2021.
On today's call, we will discuss signify health business outlook, and we will make certain forward looking statements within the meaning of the federal Securities laws. Please.
Please note the cautionary language about our forward looking statements as presented in our earnings press release and in our quarterly report on form 10-Q, which will be filed later today that the same cautionary language applies to this conference call.
We will also discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin reconciliations to the relevant GAAP numbers for these non-GAAP measures are included in the earnings release filed on form 8-K yesterday and also in our form 10-Q, which will be filed later today.
We intend to participate in industry or sulfide sponsored conferences.
In lieu of issuing a press release to announce each conference we will be posting our conference attendance on the events page calendar of our Investor Relations site at signify health Dot com.
I encourage you to register for alerts on the investors site. So that you receive an email notification each time, we add a conference any event or other updates to the Investor Relations calendar.
Joining me on the call today are Kyle arm, Bruster, Chief Executive Officer, and Steve Senneff, President and Chief Financial Officer.
While we will provide a business overview, followed by Steve with a financial overview, we will have an operator facilitated question and answer session. After our prepared remarks, now I will turn the call over to Kyle.
Thank you Jennifer good morning, Thank you for joining us.
Even signify continues to drive significantly better outcomes for individuals across the continuum of care, while supporting customers with that value based payment platform our.
Our second quarter and year to date performance reflects the hard work, we've put in and the investments we've made deliberate value for individual customers and shareholders.
Yesterday.
We announced record financial results for the second quarter and first six months from 2021.
In the first half from 2021 revenue grew by 50% to $392.8 million.
Adjusted EBITDA increased 56 per cent to $89 million from the six months period a year ago.
For driven by continued positive momentum in our home <unk> community services segment.
As we reported for episodes of care segment, we experienced COVID-19 related impacts and the recently received <unk> reconciliation, although we delivered strong savings for our customers.
We remain confident that the program size run rate will recover to pre pandemic levels of $6 billion as we are.
Is it 2021 and that savings rates will resume the previous growth trajectory.
Steve will go into further details on the reconciliation during his remarks.
Our HCS and episodes businesses are highly complementary as we sit between payer and providers to help our customers measure understand and manage risk.
For the segment serve health plans and risk bearing entities, which enables cross selling for existing customers.
Our episodes segment also serves large health systems and physician groups, who are increasingly assuming risk and value based payment programs and therefore need the capabilities of our home and community services segment.
Our home <unk> community services segment derives the majority of its revenue from Medicare advantage and managed Medicaid health plans, who are customers and who rely on our nationwide network of over 9000 clinicians to reach their enrolled members in their homes.
These conditions are supported by our membership engagement teams and our logistical software to conduct comprehensive in home evaluations, which we refer to as IHS.
Our health plan clients value the devaluations, because they paint the full picture of the health status and acuity of health plan members and allow appropriate triage and care coordination.
For the six months ended June 32021, we performed approximately 959000 eiichi <unk> an increase of nearly 60% from the same period in 2020.
Virtual evaluations in the first half of this year continue to trend downward from 2020 pandemic levels and only represented about 17% of total eiichi is completed.
We believe virtual valuations will continue to play a role in the second half.
But we have found that health plan members prefer our in home evaluations, which can go much deeper in their assessment, including determining social and behavioral needs and performing diagnostic tests and other preventative services.
We also provide access to social services to address those needs through a network of about 200 community based organization and delegated social workers.
Commenced continued demand for diagnostic and preventative test in the home also contributed to our each the us results.
We offer multiple diagnostic and preventative tests through our connected device hub and we have a strong pipeline of additional tests and devices.
For the fire season additional fee per test performed while our customers benefit from enhanced information and lower costs.
We also coordinate with the members primary care physician and provide them with additional data on their patients.
Most importantly, the individual member benefits because he or she doesn't need to leave their home to visit an office for facility obtained the same test.
Our episodes of care services segment provides a comprehensive platform that serves government programs health plans employers and health care providers, we deliver software analytics and clinical and operational services as well as develop contracted provider networks to help these organizations and their value based payment programs.
Our episodes services are critically important to the financial and operational success of the customers, we serve and more importantly significantly improve patient outcomes.
With the BP CIA program as the anchor for episodes segment, we continue to build out deep provider networks in three geographic regions represented by our current non BPA per clients to establish this business as a future growth driver.
We're still in the early stages, we are gaining traction and building provider networks, and having productive conversations with plans for employers and providers beyond our three current payer contracts.
As an example, along with the regions yesterday, we announced from Washington State Health Care authority. The state's largest purchaser with 363000 members joined the region's episodes of care program effective January one 2022.
Through these episodes, we can support not only procedure based bundles, but also condition such as maternity oncology and substance abuse.
From an employer perspective conditions like these drive a significant amount of health care costs for self insured organization and we can facilitate substantial savings through episode management.
Our consumer engagement and assessment capabilities in our HCS segment are being leveraged to improve the performance of our episodes of care programs through higher share in savings and better patient outcomes.
Our transition to home solution demonstrates our extensive capabilities and engaging patients in and around the home for our provider partners, who are participating in episodes and other value based programs.
<unk> solution is designed to reduce the clinical and financial impacts of avoidable and patient Readmissions and unnecessary emergency department visits.
Hospital, Readmissions cost Medicare approximately $17 billion per year.
An analysis of readmission results for 800000 episodes of care managed by signify under Medicare value based bundled payment program P. P. C. I a shows that nearly 44% of all readmissions occurred more than 30 days following discharge from the hospital.
To address the risk of readmission. During this critical phase our transition to home solution provides evidence based clinical and social care coordination services to patients.
These services are provided not just during the initial 30 days following discharge, which is the market standard, but rather for a full 90 days following discharge early.
Early results showed the solution has statistically significant effect on reducing re hospitalization rates.
We have activated our transition to home solution and 50, plus hospitals within the industry's most visionary health systems and health care providers.
<unk> Arden Health services Beaumont health.
<unk> theory value health and Premier health.
We are experiencing strong consumer interest in virtual post discharge care coordination support with upwards of 60% of patients contacted engaging with the signify chair team.
Facilitating the time to transition to the home and extending our partners reach beyond the hospital setting enhancing patient care.
Experience achieves better outcomes and improved financial performance through the elimination of costs associated with avoidable Readmissions.
We are excited to see this key synergy between our divisions driving such a positive impact in individuals' lives, while also removing barriers to recovering at home.
Our long term vision at signify is to drive positive outcomes for our partners as their platform for value based care we.
We simplify highly complex payment programs and enable health plans and health systems to successfully transition to value based payments.
We made supplement our strong capabilities with acquisitions or partnerships with other companies to either to add further functionality and innovation to our platform to drive increased value for our customers I will now turn the call over to Steve to walk you through our second quarter and year to date financial results. Thank you Kyle good morning, everyone. We ripped.
<unk> had a record second quarter and year to date financial results yesterday afternoon, I'm happy to be able to walk you through the details.
Strength in our home <unk> community services segment is driving our results as Kyle mentioned episodes of care results are being impacted in the short term by the effects of COVID-19 on the Beach day program, which I will discuss in detail momentarily.
During my commentary I will be referring to the tables for the appeared in the earnings press release issued yesterday.
As you can see in table, one we had record total revenue in the quarter of $212.8 million, an increase of 63% when compared to the same period last year <unk>.
Revenue strength in the quarter was primarily driven by H. She has growth of 109% to a quarterly record of $175.4 million as we had record in home evaluation volume.
Total evaluation volume for the second quarter was approximately 497000, including virtual evaluations compared to 298000 in the second quarter of 2020.
Virtual evaluations as a percentage of total valuations continued to decline, reflecting customer preference to perform the evaluations and the home.
HCN segment services also include diagnostic and preventative testing services and we are seeing attachment rates increase which is additive to HCS revenue.
As I mentioned on our first quarter call in May our expectations are that HCS revenue growth will continue to be strong in 2021.
After a COVID-19 impacted 2020, we expect revenue to follow a more typical seasonality pattern in 2020, one where our costs and utilization are better spread out across the year, we still expect higher first half IHG volume compared to the second half of the year with the fourth quarter are projected to be our lowest quarter of the year.
<unk>, which will be a decline year over year from the 2024th quarter.
Still on table, one second quarter 2021 ECS revenue was $37.4 million, a 20% decline compared to the same period last year.
Despite the headwinds from COVID-19 on savings rates and program size, we still delivered strong savings to our partners across the program, while ensuring individuals' received excellent care within their episodes.
There were two distinct areas that the savings rate was negatively impacted in the latest reconciliation.
The first area relates to patient case mix adjustments in Michigan Comorbidity diagnosis codes, there's a 90 day period prior to an acute episode being triggered that CMS incorporate diagnosis coding, which ultimately adjust and episodes target pricing.
During the pandemic Medicare patients, we're avoiding routine health care visits and there is result, comorbidities, where not being diagnosed and coated.
As individuals' entered episodes for coding for associated Comorbidities did not fully reflect the acuity of the patient and therefore was not reflected in the target price for that episode. This in turn contributed to the lower savings rate and lower shared savings for the second quarter.
The second area relates to the next site of care transfers during the pandemic when skilled nursing facilities, we're facing reduce bed availability due to COVID-19 outbreaks and staffing shortages patients were being discharged from acute care facilities to inpatient rehabilitation facilities and other post acute so.
Cities with significantly higher cost than skilled nursing facilities in total we believe the COVID-19 impact on these two areas impacted the weighted average savings rate for 2021 by at least one percentage point.
We believe the patient case mix adjustments will normalize as individuals' resume routine visits to receive outpatient care. Our data shows this utilization trend is improving and supports our assumption for more normalized health care utilization for the balance of 2021, unless a COVID-19 resurgence shutdown occurs.
Guarding the next site of care transfers skilled nursing facilities are recovering from the pandemic, making them. Once again, a viable next site of care choice for those who need.
More importantly, we believe that the traction Carl described in our transition to home solution.
For more frequently make homeless services the best site of care for appropriate individuals, leaving that acute care facilities and reduce costs and readmissions all of which we believe should increase shared savings.
Assuming that the worst for dependent because behind us in the country will not go into another COVID-19 variant locked down we expect to end the year at a 6 billion dollar run rate for program size setting our episodic business up for a strong 2022. We also believe the savings rate will rebound in 2022.
Once the country becomes more fully vaccinated and the impacts of the COVID-19 fade in the rearview mirror.
Moving to table for total company adjusted EBITDA for the second quarter increased 55% to $54.6 million compared to $35.4 million for the second quarter of 2020, driven primarily by the strong revenue growth and home <unk> community services.
Back to table, one second quarter total net loss was nearly breakeven at a loss of $100000 compared to net income of $7 million for the same period a year ago.
Operating income for the quarter was offset by the quarterly revaluation of the equity appreciation rate agreement or ears of $14.5 million and a loss of extinguishment of debt of $5 million due to the June debt refinancing as disclosed last quarter. The incremental expense reflects the increase in value of the <unk>.
Years, largely related to the change in fair value of the company upon our IPO as these instruments are directly linked to the value of our equity.
Year to date results through June 30th for 2021 largely reflect the continued overall strength in our home <unk> community services segment was strong IAG volume for the first six months of 2021 of approximately 959017% of which was virtual for comparison for the full year 2020 Approx.
<unk>, 38% of total <unk> volume was virtual we expect virtual evaluations as a percentage of total <unk> volume will continue to decline from pandemic levels.
Besides of carrier services results for the first half of 2021 continue to reflect the COVID-19 impact on health care utilization, but we expect utilization to improve as the year progresses moving on as you can see in table. Two we ended the quarter with $631.9 million and non restricted cash a decline from the <unk>.
First quarter, primarily related to our debt refinancing and deleveraging that we successfully closed at the end of June as a result of the refinancing we have reduced our annualized interest expense on the term loan by approximately $10 million, reflecting $861 million reduction in debt and more favorable.
Pricing, we ended the quarter with debt outstanding of $350 million and $173 million in capacity under our new revolving credit facility given our strong cash position at June 32021, which exceeds our debt levels. We ended the period with negative net leverage.
We are in a strong and flexible financial position to continue to invest directly back into the business and evaluate potential partnerships or acquisitions.
Given our record results for the first half of 2021, we are raising total revenue and adjusted EBITDA guidance ranges for 2020 one as follows.
Total GAAP revenue in the range of 745 million to $765 million and total adjusted EBITDA in the range of $155 million to $165 million.
The revised financial guidance assumes that the COVID-19 situation will not worsen and negatively impact IAG volume the weighted average savings rate or program size for the balance of 2021.
We are also updating estimates for the following key performance indicators for the full year 2021, reflecting continued strength in Acs and the ongoing impact of COVID-19 on the episodes segment.
HCS segment <unk> of approximately 175 to 1.815 million.
ECS segment weighted average program size of approximately $4 nine to $5.1 billion.
And ECS segment weighted average savings rate of approximately six 1% to six 4%.
I look forward to being able to update you on our financial results next quarter now I'd like to turn the call back over to Kyle for closing remarks.
Thanks, Steve.
I'd like to take this opportunity to thank our team signify for continuing to put in the hard work to grow our business and drive positive results.
Signifiers green their passion and energy to work every day to guide our mission to transform how health care is paid for and delivered so that people can enjoy more healthy happy days at home.
Now I will turn the call over to the operator to take your questions operator.
Thank you Kyle if he would like to ask a question. Please press star followed by one on your Stefanki patch. If you wish to withdraw your question or you feel like your question has it been onset. Please press star followed by T. Please night there'll be a short pause for questions I'll now being registered.
As a reminder that stock for that by one to ask a question. Thank you.
For your patience.
Our first question comes from Andrea I'll phone say from UBS. Andrea. Please go ahead. Your line is open.
Yeah.
Oh, Hi, it's Kevin Caliendo with Andreas.
First question is really about the HCS revenue per email it was up 10% sequentially.
Can you maybe discuss what's driving that.
Other additional services is this the kind of trend I guess as we think about modeling going forward and like is it expected that the baseline that you have on a on a per member eval.
The increase as the year goes on or is there a new baseline that's established that.
That would carry over to the next year.
Okay.
Hey, Kevin and Steve.
So are the are.
The reason that the average price is going up is a couple of things one it's going to be the virtual versus in home. So is that virtual number comes down as a reminder, it's about a 20% pricing differential that's going that's going to give us. Some some left and so you know last year, we were close to just under 40% as we.
Said here through the first half were about half of that so that that's going to be a driver of the other thing. That's that's also driving it as we continue to have our preventative and diagnostic testing. They continues to be a big driver for us in the attachment rates there have gone up nicely and we continue to to drive nice revenue there.
Those are really two of that two of the big Big drivers that we're seeing.
Okay.
Quick follow up topic, amongst all sort of providers nowadays is labor and wage costs.
Are you seeing any pressure either in terms of filling seats or cost per seat in terms of.
In terms of the people who are doing your assessments or any other any other labor issue any other labor related issues.
So I think the thing here Kevin is the.
The one beauty of our model is the flexibility that we have to.
Got over 9000 providers in our network, where we're able to to move them around so we're we're we're seeing not a lot of wage pressure per se, but more of like can you can you do you have the volume to get us more in home visits and so they're looking at their total compensation to more the more they can work.
More visits that they can perform the more money, they're going to make and so we continue to try and drive in and become more efficient and allowing them to have more visits per day and that's really been our focus we have a couple of areas that we continue to.
Focus on where there's real hotspots and getting the providers in there, but we've not seen any major wage pressure across across our network that does put any pressure on any of our margins.
Great. Thank you.
Yeah.
Okay.
Thank you. Our next question comes from Michael <unk> from Bank of America. Michael. Please go ahead.
Good morning, Thanks for taking the question I wanted to stay on the topic of HCM and whole evaluations clearly had a very strong outperformance in the quarter you talked about the return.
More normalized seasonality and obviously, a ridiculously hard for to comp as you think about the performance in the quarter.
What was the main drivers of the outperformance there was the activity on the part of Europe.
Your clinicians was it something with regards to the patient population was it something regarding the availability of individuals' just curious, especially as we learn more about the business to get an understanding what drove that meaningful levels of performance.
Yeah.
Good to hear from Michael I'd say, it's a few things I'd say one demand for the services are at an all time high. So we have our conversion rates continue to trend very nicely. So we're getting better with our data better with her.
Engagement tactics. So we've invested heavily as I mentioned on the last call.
With SMS email and really multifaceted platform to bring new services more easily to folks.
So that'd be number one number two Steve alluded to it.
We are getting more and more efficient with our technology automating away a lot of manual work for the providers and so when they go and they are able to have a more seamless experience. It's been more face to face time with the individuals', which in turn have you been doing that for years leads to better year over year conversion too and then finally I would say.
Theres been a rash.
Radical shift in a lot of our health plan clients strategies, where the risks in quality and clinical groups of all come together in these visits are really taken on a genuine genuinely multi faceted nature, where we're going in.
We're doing everything to properly assess and evaluate somebody but we're doing a ton of follow up care.
Bringing in the devices, helping me schedule folks back to senior specialists for PCP.
It's really broadened the service the service line has really broadened substantially.
Which again drives more value into the.
Individuals' lives once we get inside the home. The final thing I'd say is we've had really great adoption.
Across the client base of our social care coordination services as well and so we've been able to go in and help with several national payers now too as we build out our social workers and community organizations, bringing non supposed to clinical perspective, but also from our more holistic behavioral and social perspective and that is true.
Moving substantially higher conversion in the markets, we've launched that and we've got a really great pipeline to continue to expand that throughout the year as well.
Got it.
Version conversion increased and Michael the conversion increase and the demand from our existing clients has been it's been great to see obviously, it's led to our third consecutive record revenue quarter and HCS gives us a ton of momentum and that's why we raised guidance for that area.
Yeah.
Understood and just a follow up to that relative to the guidance and as you think about the back half of the year and what's implied relative to where your expectations were prior to this quarter, how does that back half guidance on cheese on an implied HCS revenue shake out is there anything that you think.
Was pulled forward into the second quarter and relative to the implied growth rate, obviously normalizing for the <unk> comp is this in line with where you would expect your typical trends to be in where you would've expected it prior to this quarter.
Yeah, No. We're excited obviously, we've been mentioning all along that the seasonality would be returned back to normal versus last year, where we did you know a tremendous amount in the back half, particularly in the fourth quarter really due to the impacts of Covid. This year, what we're excited about it.
As you know at the end of Q1, we said, hey, where we're not going to raise guidance until we see it as more than just a pull forward.
Then thats going on and as we just said like the conversion rates the demand from clients that that's really allowed us to over perform and HCS and as we look to the back half yes. It's it will be less in the first half as it is in a normal year with seasonality, but we're excited we're still even with the over performance.
And what we've done.
We're right on expectations for the back half of the year and able to deliver that as well.
Yeah.
Thanks.
Thank you.
Question comes from Anne Samuel J P. Morgan. Please go ahead.
Alright, Thanks for taking the question I was hoping maybe you could talk a little bit about margins as you know, we think about lower ECS revenue in the back half of the year.
Are there any margin offsets for that or how is how should we be thinking about margins. Thanks.
Yes, so again, if we look at our margins in total we're really happy right. We continue to expand our margins in total.
H H T. S has done a nice job ECS has impacted theres very little variable cost in that side. So.
There's going to be some impact there is as we have the pressure on year over year.
So that that that side of the business is going to have lower margins are projected for the year, but when we look at it in total we're still able to manage the business and expand our overall margin base for the year.
That's really helpful. And then maybe just on the the rebound on the savings rate how should we think about the cadence of that I'm looking into next year or is it something that can kind of come back early on in the year or is it something that'll be more gradual.
That's one of the things that will be interesting to see in it but as we said in the call. It really came down to the reason the savings rate is where it is is the case mix adjustment, where we're missing comorbidity diagnosis codes that you know that as people return into the health care.
And they have their annual checkups and are returning back to the outpatient facilities that should naturally just come back is it going to happen tomorrow, all in a big Bang no, but we're already seeing that happen and in our trends today. We also you know that.
Worse, if we if we think back the there is skilled nursing facilities are back at the back half of last year, even into the first quarter. This year. There was a lot of them that were shut down and so it was just natural people were putting them at a higher cost centers like inpatient rehab facilities that trend is going away to us as the skilled nursing facilities.
These are back up and running so we were expecting the way that we're thinking about is gonna be a gradual rebound in the savings rate that will primarily we'll start to see in 2022, we've taken a pretty conservative approach for the rest of this year of keeping it around you know that that's six day.
616 for us kind of where we're guiding to keep it around there, but as we've said in the call. We think that the impact from those COVID-19 related where at least one percentage point. So if that if that hadn't happened we wouldn't be talking much about the ECS business and it would be a much better story.
That's great to hear and really helpful color. Thanks, so much.
Thank you.
Next question comes from Matt <unk> from William Blair. Please go ahead.
Yeah, Hi, good morning.
On the Q1 call I think you mentioned program size was kind of right, where you thought it would be in and then electrics for coming back online just curious from sort of mid may to June.
That trend did and any changes you're seeing in terms of NAV.
Program size rebuild here.
From the back half here.
Yeah. So that's that's where we're at we're still really encouraged and optimistic and that's why we kind of view. This 2021 is.
The impact of Covid is really a short term, it's really if we look to the long term piece of this that we're seeing that the program sizes coming back even today. So every month as we continue to look at the claims that program size is increasing we've said all along that our expectation was.
That we could end the year back to the 6 billion.
Dollar Mark all our trends are showing that that is underway and happening.
We're seeing the electives have come back even though the electives are actually a fairly small percentage of our total but our volume continues to trend and we feel very very optimistic about returning back to that 6 billion, Mark which is a it's a big number for us because with a weighted average of around $5 billion. This year that sets us up for a strong.
2022, as we its almost like as I've said on previous calls it's almost like we want a 1 billion dollar client to start the year and so that's going to be a really strong momentum as we head into 'twenty, two and then back to the previous questions around the rebound in the savings rate as the utilization comes back the case mix adjustments.
Issue subsides.
We're already seeing the earth issues subsiding that savings rate will come back in and set us up for a nice run in 'twenty two.
Okay.
But sort of to complement that.
Yeah, sorry, just a concept that really quickly to a lot of our core metrics are trending up to them and we've got patient <unk>, which is obviously critical to finding somebody in an episode performed services due to work alongside them, we've been integrating more deeply into charge capture fees, you've been overhauling our ADP infrastructure. So we really dove into the team's done a nice.
Job building better digital connectivity across the basin with some of our largest clients. So we've been very happy about that and then as I mentioned kind of in the prepared remarks, our transition to home service is really shining we're live in over 50 hospitals, our clients are asking us to do that beyond just the episode.
B PCI patients that we're working with we're looking at expanding it to the acos into other value based care lives inside of them, but that also is giving folks the opportunity to transition to home as the servicing team indicates into recover there versus.
And much more costly and unnecessary stay inside of our post acute facility. So we're excited about those elements as well.
Okay. Thanks, and then just a question about sort of what's built into your expectations for guidance, Steve I think you said part of <unk>.
Getting.
Back to normal attitudes vaccinations.
2022.
And that there wouldn't be a sort of another COVID-19 <unk> impact on its yes in ECS, we have seen a couple of states and health systems discuss the potential for delaying elective procedures in the back half of the year.
I guess just curious from your discussions with your clients or your observation of whats going on whats built into your.
Expectations for the back half for you.
Yeah, I think the good news is that we're the way. We're seeing this is we're not seeing anything significant as Ive mentioned.
It's only 10% to 15% of our volume is really driven by electives and so if there's you know there's a few facilities, it's not really going to have any impact for us and we're also seeing that the health care systems are much more likely to be able to deal with the situation. This go around so while there may be pockets.
We don't we're we're obviously not forecasting that theres going to be any type of National's shut down like there was last time. So we feel like that we've baked in kind of what the new normal is for now into our numbers.
Baring any national shut down.
We feel good about.
The rest of the year, and then setting us up for 'twenty, two hopefully getting a lot of this behind us.
Okay, having having the.
Being the vaccination rates go up is obviously, a big piece of solving part of this problem as well and so I think that's another factor as we look at the numbers, we see the utilization returning back to health systems, they're all numbers and trends in our favor.
Alright, thank you.
Thank you. Our next question is from George Hill at Deutsche Bank. George. Please go ahead.
Yeah. Good morning, guys and thanks for taking the question I think Steve you Might've, just kind of preempted My question with your answer to the last question, but I was kind of a I was a little surprised on the ECS weakness year over year in the guidance given that I would've thought this would've been an easier utilization copper and easier medical costs for I'm thinking of it as it is growing medical costs year over year.
<unk> in Q2 versus what should have been the bottoming Q2 of last year.
But you talked about kind of the discretionary use versus the non discretionary use of the health care system. So I guess, just a little more color on what youre seeing as it relates to medical utilization and I think a lot of us for single a lot of the Ncos are starting the war on increased utilization.
Kind of how that rolls into your thinking on ECS and expectations there.
Yeah. So George one of the things here you have to remember too is like the reconciliation that we just received from CMS as is for the second half of last year and so the next reconciliation will be good for the first half of this year. So there is you know it is.
Significant COVID-19 impact going on in the second half and even the first quarter of this year now. It's now we're seeing an environment, where it's more in certain pockets in areas versus net nationwide, but that did that lag is kind of what's part of the impact why we've said that a 'twenty one was always going to be a tough year.
Or for us and so as again as that that case mix.
<unk> mix adjustment starts to rebound as people go back and we are seeing those utilization rates and it's as simple as you know if someone's having in an episode and they have not yet and there is no comorbidities that are not part of their.
Their history, what happens is their target price that we're going against is artificially low and so that's what's happened across the program over the last you know call. It six to nine months and as people return go back into their health still get those diagnosis is that will be part of part of their history and.
And that target price for back go back up and obviously the savings rates that we're driving will be based off that target price I think that I think the thing that where we're also.
<unk> seen in the trends is just as those people go back.
We feel that our.
The whole utilization process will just naturally drive drive that up so we're excited about that.
For the future. We know we have to get through the next six months of this year theres going to be some ebbs and flows there, but as far as our guidance were good and the last thing I would say George you know I know, we keep saying about.
The savings rate going back backwards.
It's still like I would still say that we believe it's leading the industry and so if we look at all of the participants yeah, 6% savings rate is certainly nothing to be ashamed about like where our clients are thrilled that we were able to manage that well.
Our savings rate during this really tough time, so we know it's going to bounce back. It's just a matter of the timing and when we get that adjusted.
No. Thanks, that's great color and maybe just a quick follow up for Kyle just as we think about the guidance and the strength that was delivered in Q2 basically the guidance that was raised for the year reflects the strength of <unk> I guess I would ask the question as it relates to HCS do you guys feel like you've seen anything kind of in the last six weeks as it relates to the Delta variant and the slowdown.
Oh, it's kind of tempered expectations in the back half or I guess kind of looking for some real time commentary.
Yeah, nothing nothing at all actually I mean, if anything we've continued to maintain.
Protective equipment providers.
We monitor.
Daily and weekly boardroom on any COVID-19 for everything.
The markets, we have zero documented transmission from a clinician to remember.
Remember, we've taken safety extremely.
Hi throughout this entire process I would say even in the last peak of the pandemic, we were operating in homes and a lot of folks are scared. They don't want to go into facilities still and so we're giving them a great alternative to bring health care to them.
And it's resonating right, having a doctor come check on you and make sure that you're getting clinical social and behavioral.
Their needs met so true.
For free as a really strong value proposition and so we've seen conversion continue.
So no softening from that front.
And our providers are your retention and.
Provider satisfaction scores are very high and they realize that they are going in and hoping to provide care and services to folks that are off the grid, sometimes and don't have easy access to health care for whatever reason aren't able to get in and manage their health care's proactively as they relate to potentially and so where we.
We really haven't seen any degradation in any of our core metrics and in fact, we've got several clients.
Working with in earnest on a multitude of ways to expand and do more in the home I would say that's the most consistent.
Then moving with a ton of clients over the last few months and most of them.
Some think they're all asking us to do is you're in there with the doctor with a nurse practitioner performing office work with these connected devices et cetera, we want to expand clinical pathways and help you guys.
With us manage disease and risk and think more creatively about the lives that we touch I.
I think we've got a really amazing.
Amazing opportunity to expand into that given all of the tech investment in analytics and how broader network is as well.
To answer your question is no no softness in.
Demand is as high as ever which is why the HTS numbers continue to tick up.
That's great I appreciate the color. Thank you.
Yes.
Thank you final remind ladies and gentlemen, if you wish for TMA question. Please press star followed by one now.
Our next question comes from Jessica <unk> from Piper Sandler. Please go ahead.
This might be Sean on for Jessica can you hear me.
Hey, Sean and I can always you can only true Shaun alright.
Okay, Sean Weiland and for Jessica Task. This morning, good morning.
Hi, Thanks for taking my question. So what's your latest thinking on the outlook for the bundled payment program longer term.
Specifically with respect to mandatory bundled payment.
How does the role of the Convenor change in that environment and how this program size change.
Yeah. Good question, we spent a bunch of great dialogues, we've seen in my talk to them biweekly bigger monthly calls with them too.
It should be coming out with guidance on model year, five which is the next multi year any day now.
It's been drafted is that script or all the various levels of approval I mean, they're there.
They've been pretty steadfast in all conversations with it there in the anticipated an expansion.
And more energy and effort.
This program going forward.
We do.
They also fundamentally believes that it has led to dramatic changes for the positive across the health care landscape.
No more value based care centric work and also I'm, hoping to COVID-19.
I was hoping individuals' to navigate and manage their care beyond just the procedure or the work that they're getting done in the hospital and so looking at folks more holistically down into the home.
The other thing we've talked with them a lot about.
And our non BPA workshop, we are with the commercial folks the msos.
Self insured employers, we're working on prospective payments right. So when things get paid in real time, not the retrospective way that the BPA program has been run.
We spent a lot of time talking to seem them on that front and that's been well received we've also shown them. How we've moved beyond just the procedural work inside BTG I E for the broader chronic condition works for diabetes substance abuse.
<unk> and.
Inside of non BP share of episodes and that's resonated as well you had a bunch of thought leadership sessions with them. So we continue to see great engagement with them and I am anticipating.
News soon from them just on model year, five and the path forward here for folks and.
And there's a ton of conviction across our client base you know I've said this before there's still demand.
Last time that all of the health systems, we're able to add.
Bundles was during the pandemic right, where there was really.
Tumultuous time, we know there's a ton of additional service lines and a ton of additional volume again that would give the Medicare trust guaranteed savings that health systems are advocating for it. So we're hopeful to the human mind me might reopen.
The ability to add bundles through multiyear five when we don't have that forecasted.
My aspiration.
But we've been a good dialogue with them on that as well.
Alright, Thanks, and remind me when does model year five hit your P&L.
So model year, five will be next year right. So.
Is that the first half of next year, we will not hit until the first recon from that will not hit until October of next year now that that said John remember we are estimating along.
Every month on what that actual number is going to be but we as you know we develop a range usually take the low end of the range unless we see like significant uptick we wouldn't get that until the second half of next year.
Got it thanks very much.
Thanks, Sean.
Thank you.
We have a nice to have for questions from the audience. So I'll hand back for you to call for any final remarks.
Great. Thank you everybody and just wanted to get a big Thank you to our team members and appreciate all the work that they've put in for the this last quarter and throughout this whole year, it's been a big transition year for all of us in that country and Covid has ebbed and flowed an all day.
Remained resilient for home.
I hope you can make sure our visits an appointment to get book, but also.
With all the work that they've done on making sure that we get into the homes they help take care.
Manage their lives were responsible for which we which we take.
Take very very seriously.
You guys and we'll talk to you all soon.
Thank you for joining today's call have a lovely rest of your day you may now disconnect.
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