Q2 2021 Clover Health Investments Corp Earnings Call
[music].
Good day and thank you for standing by welcome to <unk> Health's second quarter 2021 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.
And your telephone if you require any further assistance. Please press star zero. It is my pleasure to hand, the conference over to Derrick Neuman, Vice President of Investor Relations.
Good afternoon, everyone.
Joining me on today's call, our CEO feedback poly, our president and CTO Andrew.
And our CFO, Joe Lacher, we will discuss second quarter results recent trends and answer your questions. This call is also being recorded.
Before we get started I would like to remind you that our second quarter earnings materials, including the release are available on our website at Clover health Dot com.
Also like to caution you that we may make forward looking statements. During today's call that are subject to risks and uncertainties factors that may cause actual results to differ materially.
From expectations are detailed in our SEC filings, including in the risk factors section of our annual report on Form 10-K for the year ended December 31.2020.
And in our other periodic SEC filings, including our quarterly report on Form 10-Q for the quarter ended June 32021.
Information about non-GAAP financial measures referenced including a reconciliation of these measures to GAAP measures.
Also be found in the earnings materials available on our website.
With that I will now turn over the call to be back.
Thanks, Derek and thanks, everyone for joining us today as I have said many times before we havent vicious goals delivering on our aggressive growth trajectory improving health equity for America's underserved seniors, regardless of economic standing and aligning incentives across the broken healthcare system, we are making progress toward those goals both on a scale basis.
And serving more seniors.
Getting into the key points from the quarter, we delivered $412 million in total revenue up 140% year over year. We think this is important to note because we're going after the entire $1 trillion, plus Medicare market, including both Medicare advantage and fee for service.
Our lives under corporate management nearly doubled to 129000 versus last quarter. This growth was driven by the launch of direct contracting and our MA business continuing to grow steadily.
<unk> system continues to be a differentiator, which Andrew will address in his commentary we continue to do a better job on health equity the most Medicare focused companies by serving more minority or underserved beneficiaries.
As a reminder, corporate MA plans over index towards underserved populations and historically over 50% of our members are minorities versus an industry average of a little more than 30%.
We expect these growth trends to only continue and we believe we are building a strong foundation as we go after a bigger piece of the <unk> one trillion dollars plus Medicare market, we just referenced.
Specifically.
We recently announced our MA plans are expanding to another 101 counties in 2022 subject to CMS approval and we are preparing for the fall annual enrollment period.
We're adding more DCE providers and moving into new states as evidenced by their recent press release announcing our dce's expansion into Florida.
The D. C efforts will also provide us with the ability to expand our MA plan more aggressively in the future is to help us build network adequacy faster and importantly, also bring the kovar assistant to many more physicians.
While we have these long term structural tailwind in our business COVID-19 continues to create near term challenges and makes it difficult to holistically evaluate our progress.
Specifically it has impacted revenue would be a risk scores and medical expenses, especially in our largest market in new Jersey.
It's worth pausing here to discuss corporate mission as well as our economics. Our mission is to improve every life and Covid has brought some of the most challenging conditions to our core markets, most notably in New Jersey.
We are proud to have helped our members. During this time, we have paid more for care relaxed utilization management protocols.
Focused on vaccinations and we're proud to have done so we even maintain Caribbean colver assistant in any communication mechanism that our members can support video or just pure voice, even if the latter is not recognized by CMS at the face to face visit.
While this has of course had an effect on our medical expenses and risk adjustment revenues, we were that as a badge of honor. We will continue to do this through the pandemic. As this is who we are as a company and we are proud of it.
That said to help investors better evaluate clover and get through the COVID-19 noise, we are providing additional disclosure around these impacts.
This includes looking at direct COVID-19 costs risk score changes and shifts in utilization the.
The key takeaway from this exercise is that closed plant performance has been heavily impacted by COVID-19 in.
In Q2.2020, this manifested itself with a record low MCR, we had GAAP MCR of 70% and in Q2.2021 with a record high GAAP MCR, 111%.
This quarter, we are providing an updated view of what management believes our business looks like on a hypothetical COVID-19 less basis.
We believe that these updated normalized measures better reflect the companys underlying fundamentals and provide a more meaningful view of the company's results outside of the Covid environment.
Applying this new normalized non-GAAP methodology last year, our normalized Q2, MCR was 97, 5% and this year. It was 97.0% it's hard to predict when the impact from COVID-19 will be gone, especially with recent variance, but we are pursuing long term improvements to MCR.
Including driving additional corporate assistant coverage significant benefit from potential improved star ratings and potential upside from improvements in internal processes, such as <unk> management, which are underway.
Shifting to our Org, we continued to strengthen our team and we recently made two key hires to help propel our growth.
We welcomed prompt deep thing, our chief growth Officer, and Justin Joseph Our New Chief strategy Development Officer, Prob brings robust experience from disruptive tech companies, such as Uber and we work and will lead our member growth and service area expansion efforts.
And just and brings a wealth of experience driving global business development for healthcare. Most recently a talented he will be instrumental in helping Clover bridge healthcare and technology to drive strategic partnerships. We also announced that our CFO, Joe Wagner will be moving on Joe has been a true partner on our journey and we wish him and his family the very best.
Mark Herbers will serve as interim Chief financial officer, while we conduct a search for a permanent CFO.
Mark has served as CFO for a number of public and private healthcare organizations and has over 20 years of experience in this sector.
He has been working closely with Joe and our entire finance team since the announcement and I am confident it will be smooth transition.
We are in an exciting phase of growth, we're passion that we can make healthcare better for seniors, especially those that are underserved.
Look forward to delivering on this goal providing proof points as our journey progresses Andrew.
Thanks Vic.
I'm really excited about the growth and scale, we are reporting this quarter, especially around the right contracting.
I have a few comments to point to what I think are indicators of success are unique clover assistant model.
As a reminder, our vision is to transform healthcare through personalized data driven primary care powered by the Clover assistant.
And unlike most other approaches we aim to do that over a wide open network of physician that gives us maximum flexibility and choice to our <unk> members.
By doing this we believe we can access the full potential of the trillion dollar Medicare market as evidenced by our ability to use the clever assistant in both the Medicare advantage market and the fee for service market via direct contracting.
Both cases and in contrast to other models Medicare eligible has continued to see the physicians they wish to see and we believe we can then deliver better outcomes at lower cost.
We believe that the success, we've demonstrated building and scaling both programs combined with the fact that very few healthcare companies even participate significantly in both of these programs is evidenced of our differentiated ability to access this larger total addressable market.
This is why I'm, so excited that the <unk> system to the fee for service population in the last quarter via direct contracting.
This is our lives under Clover assistant management to around 95000, which represents growth of 249% year over year.
At the same growth puts us on track to manage over $1 billion of annualized Medicare revenue via VIX liver assist us.
This growth is not only important to driving our financial results, but we believe it enables the clover assistant to get better from a direct feedback loop with physician, a key engineering differentiator and vote for CA development.
We currently have over 2007 thousand Clover assistance sessions, a month with an average of nine data informs tasks servicing per session and our engagement rate has remained strong at around 90%.
We're thrilled by this level of engagement with physicians and we continue to build more features to enhance our capabilities. In this area for example by EHR integration.
To that point, we see that the <unk> system is making a real difference in terms of our medical care ratio as we help our providers with data to better diagnose and treat conditions.
Returning members in the first half of 2021, who saw CA enabled provider continue to have lower normalized ncr's than those who did not 89, 8% versus 97%.
Additionally, this 720 basis point differential grew compared to the 2020 differential.
A reminder, this is on a normalized basis.
On a normalized basis this incurred NCR differentiable, which we have historically reported EBIT more significant approximately 1700 basis points.
Ultimately this is critical because the returning member MTR is the number we consider to be the most appropriate statistic to assess our ability to manage Medicare over a wide PPO or fee for service network.
As you can see the Kluver assistant have consistently delivered strong impact and we will aim to accelerate our future launch cadence going forward. For example, we recently announced the new supporting CA for fire interoperability standards, and we expect that to streamline our capabilities in the area of EHR integration.
We also are always looking to launch new clinical capabilities to help manage the chronic conditions that are endemic to our member populations, whether that be around oncology diabetes, chronic kidney disease or other.
These features launched we expect engagement reach and efficacy of the Clover assistant platform to only increase.
With that I will now hand, it to Joe for the financial update.
Thanks, Andrew.
We are thrilled to have delivered $412 million in revenue in the second quarter up 140% year over year.
This growth was driven by the launch of direct contracting and growth in our MA membership.
As of quarter end, we now have approximately 129000 lives under Clover management, roughly double the second quarter of 2020.
This is comprised of MA membership in direct contracting lives of 66000.662000, respectively as of June 32021.
Moving to MCR, our net medical claims incurred for the quarter were $459 million up year over year, primarily due to the inclusion of direct contracting.
Z that discussed COVID-19 continues to impact the GAAP mcr's as we incurred significant direct cost carrying for members that were diagnosed with COVID-19, though less than last quarter, and we saw increased utilization from outpatient deferred care and chronic conditions that weren't diagnosed during the pandemic.
This impact was amplified as our largest markets are in New Jersey, and New York or the impact from COVID-19, and the measures to mitigate it had been outside.
In Q2, our MAA GAAP MCR was 111%.
We estimate the direct Covid costs were 490 basis points prior period development was 200 basis points.
Excess utilization due to Covid was 330 basis points and risk adjustment normalization was 380 basis points.
This equates to a normalized non-GAAP MTR of approximately 97%.
Our final financial results for direct contracting will not be finalized until the CMS reconciliation for year. One occurs so there remains a lot of moving parts with that said direct contracting net medical claims incurred on a GAAP basis were $241.9 million and were impacted by the same COVID-19 factors.
Our MAA planned as roughly 75% of our DCE lives are in either New Jersey or New York.
Not yet have enough data to provide a normalized results for D. C E, but plan to do so in the next quarter or two.
Two other factors also worth highlighting we understand that CMS may retrospectively trend adjust benchmarks, which could benefit us, but it's unclear whether and to what extent that will happened and as the <unk> program is new we expect financial performance to improve as a result of ramping of clinical initiatives.
<unk>, a stop loss recruitment and other processes that will take some time to fully optimized.
Second quarter non-GAAP, adjusted operating expenses, which excludes noncash stock based compensation were $64.8 million, representing 16% of total revenues compared to $39.2 million and 23% of total revenues in the second quarter of 2020.
This was in line with our expectations.
Our adjusted EBITDA loss for the second quarter was negative $138.7 million compared to last year's second quarter adjusted EBITDA of a positive $24.8 million driven by the higher MCR and operational investments.
After normalizing our business for the estimated impact of Covid, which includes our Covid MCR adjustments are related premium deficiency reserve and the fact that we don't yet have a normalized MCR for direct contracting our normalized adjusted EBITDA loss for the quarter was negative $58 million.
This quarter includes a noncash loss of $134.5 million relating to a change in the fair value of the warrant liability.
We had approximately 408.3 million shares outstanding at the end of the second quarter.
Note that our share count will increase in the third quarter due to the cashless redemption of our warrants and assuming all warrants are redeemed this would equate to $9.6 million additional shares.
Our cash cash equivalents and investments totaled $633 million as of June 32021.
Despite near term impacts and volatility, especially around expenses due to COVID-19. We expect to continue delivering solid revenue growth as we continued to expand our market share and optimize the direct contracting segment.
For full year 2021, total revenues are expected to be in the range of $1.4 billion to $1.5 billion.
This reflects an MA revenue of $760 million to $790 million and Medicare direct contracting revenue of $650 million to $700 million.
We are reaffirming our guidance that Medicare advantage membership is expected to be in the range of 68000 to 70000 by December 31.2021.
Direct contracting beneficiaries are expected to remain roughly flat for the remainder of the year.
Further we expect a significant increase in total aligned beneficiaries on January one 2022, when claims are lying beneficiaries for 2020 to become active.
Normalized non-GAAP MCR for Medicare advantage, which again adjusts for the impacts of COVID-19.
Specced it to be in the range of 94% to 97% for full year 2021.
We estimate full year non-GAAP, adjusted operating expenses, which exclude stock based compensation expense.
We will remain within the range of $250 million to $270 million.
As a percentage of revenue. These expenses are expected to be 16% of revenue in the second half of 2021 compared to 21% in the first half of 2021 and 22% for full year 2020.
Normalized adjusted EBITDA loss is expected to be in the range of negative $250 million to negative $210 million. This range does not reflect a normalized MCR for direct contracting something again that we plan to have in place in the next quarter or two.
Or any adjustments to the benchmarks as we don't yet have enough information on potential timing or magnitude.
Note that we are not providing net loss guidance due to the potential for significant variability of several components of net income, including Mark to market accounting of the fair value of the warrant liability that we discussed earlier.
Wrapping up I'll reiterate what I said last quarter, we are seeing encouraging traction across our business, but we are only in the early innings.
We continue to build <unk> for the long term and we have several levers to drive growth and initiatives underway to improve our cost profile.
I look forward to watching <unk> achieve its massive potential although I will be doing it from the sidelines I'll now hand, it back over to Vivek for closing remarks.
Thank you Joe.
I am proud of the corporate team for accomplishing so much already this year. Despite the impact of our achievements. We are only scratching. The surface. We believe that we are pursuing operational initiatives that demonstrate our commitment to our guiding mission to improve every life. We will continue to focus on delivering on our strategic priorities and we look forward to demonstrating our.
Yes in the quarters and years to come operator, we're ready for questions.
Thank you and we will now begin our Q&A portion of today's call. Following the live Q&A with discovery Novelis Plovers management, we will be addressing questions from the retail community.
Again, if you have a question press star one on your telephone and to withdraw the question press the pound or hash key please standby, while we compile the Q&A roster.
My first question is from Jay Lynn dressing with credit Suisse.
Yes. Good afternoon, everyone. This is Carlos I am sorry, I am for Jill Indra.
And great quarter. So the first question I had for your guidance I. Just was wondering if you could flush out a little bit on the utilization trends what kind of risks are you built into your assumptions for a second.
From here and also any bat around what percent of your members are currently vaccinated.
Okay. Thanks for the question I appreciate the kind words.
I think in terms of overall utilization, it's actually from our perspective really and maybe for other planes all pretty difficult to project out for second half just particularly the in terms of Covid impact.
So hence why we.
And presented our data on a normalized basis.
From a vaccination perspective.
In terms of data we have access to from a claims perspective, it's not going to always be complete.
From.
Unclaimed in terms of who has got vaccinated, but when we look at overall.
Data take New Jersey for example, where we.
We have a large majority of our members in New Jersey data shows that over 80% of individuals' over 65 are fully vaccinated.
So we believe that that's where.
Membership stand, but we're still pressure testing that data.
Outreach surveys and so forth.
Okay.
One other question just really quickly on direct contracting.
I think you guys noted.
Flat if I heard it correctly I was just curious since I think in your guidance for 7100, K before and just wanted to double check on that thank you.
And just what is your question around rest of year guidance I, just want to make sure I'm answering the yes.
Right.
Yes, So I think just in terms of the program itself. So a lot of the rules are still.
A bit in flux from Cms's perspective, C&I loss perspective in terms of what what is permitted and not permitted on involuntary lineup.
In terms of process wise, So I think we'll learn more about that over the next quarter or two.
And in general.
Our direct contracting model is is much more focused on signing up net new practices with the vast majority are majority of our lives. We think will come from from claims alignment.
Practices are signing up now we will see an impact on claims alignment starting January of next year.
Putting that aside.
As.
Some of the guidance.
It gets clarified in terms of voluntary alignment, we do think there is a meaningful opportunity overtime.
General folks here voluntary alignment.
In terms of members sorry, maybe I didn't make that clear in terms of in terms of lives.
Yes, our lives if it was flat.
My question was.
Yes, I think I think for the rest of the year, it's hard for us to really project out what that what that is going to look like.
But I think what we can say is that the vast majority of increase.
Generally is going to come from year over year.
Driven by claims alignment.
Great. Thank you.
Our next question comes from Kevin Fischbeck with Bank of America.
Okay, great. Thanks, I guess just.
Maybe to follow up on that point.
So then I guess is the right way to think about it that.
Whatever growth rate, we were expecting you to pick up next year it should be off of that lower base. It's not like the number necessarily it's been pushed back to a bigger January one increase per se. It's just it's just that it's more going to be about.
Claims alignment then it's going to be about voluntary alignment so.
It's really kind of a lower base that we should be using as well as <unk>.
Ending <unk>.
Run rate.
Yes in terms of next year.
We're not giving any incremental guidance.
We do understand we haven't shared any data externally yet with any of the conversations and status of conversations we've been having with.
New practices that have yet to join our D C.
And so we are aware of that and it probably does make it a little bit difficult we understand in terms of projecting next year, but at the appropriate time.
We'll share more information around that.
Okay, and then I guess this is one of the questions and ask them pretty much all of the companies is just.
When we see like.
MLR coming in higher.
And in this case negative PPD as well I guess, how confident are you that.
Whats happening here is is purely COVID-19 related versus some underlying higher.
Long term trend I guess.
What's your visibility into.
Getting back to normal trajectory for next year for MLR should we expect MLR to be higher next year as well.
Yeah. So.
So and we've definitely been.
Following.
Other companies as well just to make sure we're getting a complete perspective, because it's definitely.
Ah phenomenon and unfortunate phenomenon for for all organizations in healthcare obviously individuals.
I think when we think about our normalized MCR calculation.
We feel really good about it from the perspective of we bill.
I'll leave it intellectually honest and importantly, it's really how we we look at our business internally.
So if we just think about kind of high level.
<unk> has two components, you've got the revenue side and you've got the Medicare side. So.
So.
Last year, you had a couple of components.
Ed.
A lower utilization of services.
So essentially a artificial compression in medical expenses, but then you also had an artificial <unk>.
Drop in.
Primary care visit specialist visits which in turn leads to an artificial dropped and risk adjustment this year artificial meeting not not normal.
And so there is an imputed normalization of that risk adjustment that will impute into next year's revenue.
To kind of the latter part of your question. If if there is a component of <unk>.
<unk> this year to your point that.
Could be driven by exacerbation of conditions.
It's also going to show up in risk adjustment next year, because we're we're talking about complexity of conditions.
Just as a basic example, diabetes took maybe diabetes complications.
So that's why we're reasonably confident that.
Next year, just in terms of the way the calendar years, working Medicare front I'm CRM perspective.
There'll be.
Much closer to what we think will be kind of the normal MCR.
For next year.
Yes, Kevin.
Joe One thing I'll add is we.
We enhanced our analysis of our claims over this quarter with.
Using third party Actuaries in addition to our in house team.
What we learned from that was.
We were able to kind of say, okay. Theres a piece of this that clearly is deferred.
And that piece will likely be moderated later in the year as patients.
Complete their services.
And then there's kind of this.
Along with that the pent up demand and then to <unk> point to the extent that there is a morbidity change. That's the piece then it's going to be captured the risk score. So again, it's tough to predict where it's going to be in the second quarter or I'm, sorry in the second half a year, but again.
We took a really really hard look at this obviously you can see from the press release that we spent a lot of time kind of helping them understand what pieces really went into a normalized MCR calculation and to the next point, we feel comfortable there's a piece of it that's likely going to continue which will ultimately be capturing risk scores. But then there is a piece that that will be moderated as patients.
Complete those deferred services.
Okay.
Another MLR should look better next year.
Thanks, Joe just kind.
One more interesting point.
To add to that is very relevant to how we think about our business internally. So.
We realize the press release, we shared savings with fairly lengthy but.
Buried in there.
It's the first time, we've given an illustrative breakout.
MCR.
Across counties in terms of Gist cohorts.
So youll see that.
Top six counties in terms of.
Size of number of ships.
It's just about 1% of the total members.
We use Q1, there just because it's more fully run off claims, but you'll see the normalized MCR. There is 86, 5% and.
And you'll see.
Individuals in those counties, we add over a 70% see visit rate and you'll see in the <unk>.
And the rest of the counties.
<unk> was.
A little over 100%.
Let's see a visit rate under 40% and again newer counties and so.
We'll share more information in the coming quarters and some of these breakouts, but that's really to kind of give folks an understanding as to how our counties evolved how mcr's evolve as we get.
More and more coverage as.
As well.
And actually.
Answered my last question, but.
I was going to ask about the.
The improvement because you guys are looking at this adjusted.
MLR number and kind of saying that that's your best view about what underlying trend is and it looks like it went from.
97, five down to 97.
And what isn't.
Terribly big improvement year over year and is the answer just this new counties versus old counties or is there anything else that you would kind of point to as to.
How to think about a 50 basis point improvement versus what the kind of the long term.
MLR targets are.
Yes, I think.
Yes.
Appreciate that call out so I think Directionally, what you said on the latter point is totally accurate I would the only adjustment I would make to that is it's not.
Necessarily newer or older but there's definitely a correlation between length of time, we've been in a county and CA tougher.
And so the.
The way to think about whether it's the the 92% normalized MCR in Q1 or the 97% normalized in Q2 or the little over 94% normalized for first half this year.
The way, we think about it is.
How are markets doing from a coverage standpoint and so.
So I think yes.
That's really the the lever so as you think about building your financial models.
The biggest lever for us is to see a coverage.
And this is sort of the first data point, we shared externally from an illustrative perspective on on the impact of obscene coverage.
Okay, if I can maybe ask.
Maybe then just a follow up on that point, then do you have any stats about like how fast <unk> coverage is expanding in those two types of geographies.
I guess it would be interesting to see kind of what the progression normally is for.
Our county, so we can kind of maybe built into our models a little bit better.
Yes, I think.
I. Unfortunately can't give you sort of the most pre.
<unk> answer.
Right now just in a sense of.
Or is it this way, which is our ability to scale clover assist and achieve coverage.
Today is more rapid than it was a year ago or two years ago.
I think theres a couple of reasons for that so.
Reason number one is Andrew and his team.
Pretty pretty meaningful size.
Wholesale move off of our original Clover assistant platform onto our new platform, which do you see he was built off and so thats going to dramatically ease of use of <unk>.
The process of Onboarding.
And we shared some information yesterday on on our first kind of what we think is a pretty meaningful accomplishment on.
Being able to first version of relevant integration too to various EHR platforms, that's going to help as well and I think the other really interesting thing when you think about.
The ability to leverage corporate assistant across different lines of business.
And so if a practice that.
Let's say.
Has cobra Ma lives.
He is not yet on corporate assistant, but let's say signs up for a direct contracting let's say that practices going live in January 1st.
That contract would have essentially been the prong two to unlock coverage.
For for that practice. So if we can take practices that might have less than 10, corporate MA lives, but then signs up for direct contracting the probability of that practice getting live on on Clover assisting goes on.
Okay makes sense. Thank you.
Our next question comes from Lisa Gill with JP Morgan.
Yeah, Hi, good afternoon. This is <unk> on for Lisa.
Can you just walk through some of the changes in the direct contracting revenue recognition, because obviously, there's sort of a big step up in your guidance versus your prior expectations and I just want to be clear on what the mechanics are and what changed.
From the first quarter.
Yeah.
Yes, I can take that one.
Yes, I mean, we have been aware since last year that many of our.
Other publicly traded companies with a presence have been giving direction that the entirety of their at risk Medicare spend would be fully recorded as revenue on the income statements.
The one thing I'll say is every every direct contracting entity is unique in terms of the relationship with the physicians.
We are fully owned some are contracted and so we knew what kind of all along there was not one answer and there continues to be kind of not one answer.
That is relevant for the entire industry and so because of that we took a conservative position based on discussions with our auditors at the time.
We continue those you know again as we continue those discussions we knew there was a chance that the flight risk revenue wouldn't be permitted to be recorded.
New government program and new final consensus view.
As we looked at it more.
Had more discussions with with the SEC via not only our auditors, but other accounting firms.
So we determined really in this quarter there was appropriate for all of our at risk Medicare spend to be recorded as revenue and therefore, that's why we are adjusting our not only our accounting for that but also our guidance going forward and I think for us It makes sense.
Because of the fact that we had we viewed that business very much based on benchmark is.
As opposed to kind of a small piece.
Revenue and obviously that has that has an impact on our revenue guidance, but again. It was really just about the unique circumstances of each individual DCE and or our desire to be conservative and to not over promise something on the revenue side that would it be end up being materially smaller.
Thanks, sure and I think just to add to that.
Yeah.
The revenue.
Our revenue recognition is definitely not a surprise to us, but I think to Joe's point, given it was a new program.
Hmm.
Our auditor.
Tom we were.
Making terminations around this they were not in a position to give 100 personal confirmation on.
How accounting would work we felt that was appropriate.
Take that into account as we were having conversation externally.
Okay, and you also mentioned that CMS could retrospectively trend the benchmarks.
Can you just maybe elaborate a bit on how that could impact your revenue recognition and when you'd expect to get some more guidance back on that.
Yeah.
I can handle that one.
On a quarterly basis CMS has the ability to.
To make retroactive adjustments to that trend factor that was used in determining benchmarks and so.
As opposed to MAA.
Where you've got a lot of things that are fixed.
And you've got I would say limited movement, you've got your scores, but obviously.
Your underlying bid data.
Germany revenue is fairly fixed on direct contracting again there are there is some movement in some of that may not be complete until the final settlement for a given year and so again. These are quarterly adjustments that CMS makes looking at both a national data as well as regional data to the trend factors that they use to determine benchmarks.
And so for US we can't.
We don't know exactly which way it's going to go obviously, we will provide CMS our data early.
Early initial data that we have but those are adjustments that we will record as those trend adjustments are made by CMS. It.
It could be Q3, it could be Q4, we don't know, but we do know that CMS has the ability to retroactive retroactively make those adjustments under the confines of the program.
Got it and then for direct contracting I think a while ago you guys had suggested that it could be roughly breakeven for the year.
And it looks like the MLR is above this quarter, but how are you thinking about margins and profitability for direct contracting for the balance of the year.
I think at this point.
Does it all we have is is Q2.
And there is still.
I think we may have only received.
April and May data enough enough format for us to form any initial views with the approach we took is.
As to.
So really not form any conclusions on.
On a normalized basis, we think probably in the next quarter or two as Joe referenced earlier, we will be in a better position to have a clear understanding.
And Theres a lot of programs that we're putting in place as well that will take effect in the back half.
Okay.
Alright.
Just last one for me.
You mentioned you saw some higher outpatient costs can you talk about anything is there anything notable youre seeing on the inpatient side.
And then how do you see direct COVID-19 costs, and non COVID-19 utilization tracking from where things stand today.
And then on the PDR also.
How much of that charge is related to Ma versus direct contracting laws.
Yes.
<unk>.
Do you want to hit the PDR inpatient I can hit kind of our thinking on COVID-19 going forward.
Yeah.
Yes, so I'll answer two of those on the PDR, that's really related to our to our MA business.
And again, that's just an intra year charge. It basically we it was accrued this quarter, it's going to be amortized in over the next two quarters. So that's just really just a timing issue on the MA side. So that's fully on the MH side, and then I'll hit the inpatient and then B that can maybe talk a little bit about just trends.
Forward.
[music].
On the on the inpatient side.
I mean again.
Obviously, we've seen a direct COVID-19 costs, which we call out in a normalized MCR calculations. So that's kind of there for all to see.
We have not seen necessarily in acuity increase on the inpatient side that we view kind of in any material way again.
What we're seeing as we call out in the normalized calculation is.
Exacerbation of some conditions.
That are manifesting themselves on the outpatient side.
I would say nothing worth calling out on the inpatient side.
But we.
It's kind of you know.
From a future standpoint that does give us pause just in terms of of higher inpatient acuity at this point.
Okay.
Thank you and just in terms of as we think about.
Yep.
Covid impact for remainder of the year.
Obviously COVID-19 doesn't care about calendar years so.
Just in terms of just from my personal view, so not represent corporates here, but just my personal view on.
How do I think about Covid.
Covid impact and so on.
Obviously, the Delta variant is really what's driving.
An uptick in in hospital utilization.
I think at the same time.
<unk> is FDA approval comes pretty soon probably starting with Pfizer maternal.
To my knowledge I think it's probably the first approval for an mrna vaccine and so subsequent approvals of booster shops are going to be I think pretty pretty rapid and youre seeing.
Vaccine production capacity going up pretty dramatically, probably coming online closer to the back half or towards the end of the back half of this year.
So.
I'd say greater than 50% chance, we'll see more bearings, particularly coming from countries that have pretty low back the nation rates and derived from those who are.
Compromised, but I do think.
The increased capacity of vaccine production and the ability to rollout booster shots.
Taking into account new bearings that eventually come we will see at least in the United States I think.
Our path to more and more normalization over the next year to 18 months just from like a science science perspective.
From Microsoft seems like a probable outcome.
Great. Thanks very much.
Our next question.
It comes from Ralph Jacobi with SCB.
Hi, Thanks, just a quick few for me.
One the change in the normalized MLR definition from from <unk>.
Largely risk adjustment or is there other stuff in terms of the changes and how you looked at it <unk>.
Yes.
Good morning, John.
Yes, Ralph Yes, sorry, yes.
Yes.
That's essentially what.
What we.
What we determined really in the second quarter is.
The way that we run the business and internally as to.
Make sure that we are extracting anything that we think is temporary as it relates to COVID-19 and so yeah and so what we've done is say okay. In the second quarter. Obviously, you see our estimate of a pent up demand and deferred care. There as a result of Covid and then also really kind of finalizing firming up that risk adjusted piece with the help of our actuarial team. So yes. So those are the main difference.
And again this is just a definition that we really feel comfortable about as we think about how we run our business.
Okay, Alright fair enough and then the the.
<unk> revenue guidance.
I think a little bit lower but the lives stayed the same is that just related to risk adjustment or what changed that revenue assumption.
Yes, Rob that's more just timing more than anything else.
We see.
Seeing already kind of some more growth in the third quarter.
The growth is probably a little bit more back ended toward the back of the year, we instituted our grocery benefit that we think we are seeing some positive results of that and so there's nothing really related to risk adjustment. There I'd say, you've got a very very small piece is risk adjustment.
But it's mostly just due to the timing of some of the membership and how quickly it's come on board of the MH side.
Okay Fair enough and then.
I guess can you give us a sense of like how did you book.
MLR for direct contracting this quarter. So just run the math it looks like it's at 111% on a GAAP basis, which is obviously in line with.
The total aggregate.
Clearly, it's a new population base.
Youre adjusting that may still have some benefit from Culver assist I guess I guess I'm just trying to get a sense of how much visibility you really have on that point. It sounds like Youll had April and May.
So how comfortable I guess.
Are you guys in terms of how you're booked at this quarter from a from a GAAP perspective.
Okay.
Yes, no I think that those numbers are fairly right on Ralph and I think.
Because of the fact that we had very limited data.
We took a conservative position and how we recorded that.
There are some timing things later in the year as it relates to stop loss and some other things, which will end up flowing through that.
That will likely benefit us in the second half along with some assumptions on.
Pick up with Google assistant and things like that and so so I would say we booked it conservatively.
Yeah.
We feel really comfortable about where we are later in the year, but again because of the fact that we didn't have a ton of visibility we had kind of vehicle in may claims and not much else. We took we took a conservative view.
Of that and again, we don't have enough data yet to even normalize we do know that there were some COVID-19 costs in there and there's clearly some pent up demand, we haven't yet been able to kind of quantify that so again I think we haven't seen anything in that population that was different than what we had expected.
I do think that what you see here in Q2 represents a conservative view of MCR at least based on that limited data that we have.
Okay fair enough. Thank you.
Yes.
Alright, starting with some of the retail submit any questions. We got the first one is coming from auto.
On secondary and then still go to Andrew Tonight.
What advantages does clover assistant half compared to the competitor software you are trying to replace or compete with.
Yes, thanks for that question from auto as.
As we've discussed here, we're definitely seeing the effect of MLR.
Scales with corporate system does it rank in our top counties and Thats in the press release, and we think that there's a lot of advantages that are coming from quiver assistant because of that.
Quickly running through them.
One we are able to provide a longer cubital view of data, which means versus Jeff.
Internally to your EHR internally for your health system. Most of this is just how ACA for that information because we are the health plan and we can provide additional data from all aspects all the personal care team and that would flow through Cobra assist that's one big advantage.
First of all <unk> is designed to be used for five minutes per primary care visits and delivers personalized custom data on tax and that's something which is a lot easier.
For a physician to consume versus lull customized sort of annual wellness visits or software, which is what tends to be the norm. So we're very personalized very focused with those five minutes per visit and I think we get a lot of benefit from that as well and then thirdly.
We have a lot of effort from our clinical and product teams to provide analytics and analysis or what is the best use of time within any given visits to let people know where to focus their attention and so that might mean that we might even be directing their attention to help manage conditions that are outside the primary complaint drawing them to a third.
Two recent hospitalization and we see a lot of engagement with those features as well. So I think that there's a lot of differentiation in the platform from both the technology fitting and the data point perspective, plus we're seeing that impact flow through to our our markets and our MLR as we just discussed.
Great. The next question will be targeted towards the back from living at two happens to post a lot of clever material on our rates upwards.
How is D C revenue being realized and how did the unit economics compared to Medicare advantage.
How often do contracted providers take on risk sharing arrangements with clover.
You bet.
Thanks, Andrew I, just want to echo.
That.
There's definitely been some great materials I think there was a medium post written by them on about that contract and I found to be one of the more thoughtful pieces out there.
Just in terms of.
And then just a quick question.
In terms of just unit economics of D C revenue.
Versus M&A.
I think it was really interesting.
The way we've constructed our business model is its.
It's very much provider focused and so when we think about traditional payer organization, we have a separate operating infrastructure.
To manage each line of business.
The way, we think about our business is really managing the relationship with the physician effectively.
And so as part of that.
The incremental opex to manage DCE lives as.
As much less rare.
Relative to the Covid EMEA lives that are in that practice. So there's a lot of.
Operating synergies as a practice partners with us not just in Covid Ma.
Under our contracting and then from a gross margin standpoint.
We do believe there is a.
Meaningful opportunity over time.
To generate pretty pretty reasonable and attractive margins on under our contracting.
I'm sorry.
I mentioned the other two.
So the question here.
The last part of the question was how often do you see a contracted providers take on risk sharing agreements with clever.
Yeah. So.
We definitely have a bit of a unique lens on as it relates to Medicare advantage.
And risk sharing so.
Within Medicare advantage risk.
Risk sharing is called full capitation.
That's where our practice, we'll we'll get.
A significant percentage of premiums.
And so those who who follow.
A lot of the news about Medicare advantage, there's definitely been a lot of controversy around.
Risk adjustment and risk adjustment inflation.
What we've seen and learned in talking to industry experts folks who've worked that Dara is large large payers.
Huge amount of the risk adjustment inflation.
<unk> within practices that are fully GAAP stated.
I think this is starting to get more and more well understood.
Bye bye folks out in the and the regulatory community and so forth and so.
We do think full competition a lot of times can actually incentivize the wrong behavior, particularly around.
Risk adjustment coding and.
So one of the things that.
We're very proud of our Clover is setting up our financial alignment physicians that removes any of those incentives.
And so when we think about alignment with physicians, it's really around <unk>.
Ensuring that they're using the Cobra assistant.
And getting value out of it from a clinical perspective for their patients.
Ensuring there is no incentives one way or the other.
Around around coding.
And so.
The right way to think about risk sharing is if it's really aligning folks around cost management in a way that makes sense for the patient, but unfortunately, a huge amount of the value.
That plant and practices get around risk sharing is actually around risk adjustment.
Yes.
Great.
Final retail question, which is going to be targeted towards Andrew pencil.
2017.
How do you market Clover assistant to physicians.
Yeah, great great.
Great question so.
As a reminder, Cobra is our flagship technology platform, but we don't charge for directly to physicians, we provided to them to help them provide better personalized data driven primary care, which helps our members that helps position that definitely helps clear of our plant performance from there. So we don't actually have to charge for the software. So we.
Don't actually go out there and market per se as a piece of software that we're selling but we do say, we want to pay more pay well for a data driven.
Primary care versus that of our means of doing that.
In addition to that we constantly measure our net promoter scores and we measure our satisfaction rate with physicians, which we then share and we tell them Hey, we are the feedback we're measuring what features you find most useful in our data we are spending more R&D time, there because we are very reactive to the feedback from physicians were.
Both of them continuing to be drive up that engagement rate that I talked about earlier, which then leads to the higher visit rates that you guys talked about in those top counties and so constantly invested over there. So when we're thinking of meeting with our physician group. We emphasize parallel about primary care, we want to share data on clinical insights to help them do a better job just like <unk>.
<unk> just now we also shared that we want to pay you very fairly for that without putting at risk or biodiesel cavitation methods, but we want to give them our software and because of that she is very very high engagement rates with Clover assistance.
The thing I'm really excited about as we achieved all of that without yet having launched our weibo EHR integrations, which are upcoming.
And those will be coming out very soon of the CHP got old platform and we think that will be drive those rates, even further up and we'll see more impact from VA.
Okay.
Great Operator, I think this concludes our retail portion of the call.
Jack you want to say anything for closing comments.
Thanks, Eric.
One again.
Thank you for the whole clover team on their on their efforts so far this year. Thank.
Thank you again for Joe.
You've been a great partner to all of us at quarter end.
We are extremely excited.
About the rest of the year.
Many many quarters to come.
Just to reiterate we believe are the very very early innings of what's possible.
Thank you and this concludes today's conference. Thank you for your participation and you may now disconnect.
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