Q3 2021 Privia Health Group Inc Earnings Call
Good morning, and welcome everyone to the <unk> 2021 third quarter conference call. All lines have been placed on mute to prevent any background noise. There will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
I would like to withdraw your question press the pound key now I would like to turn the call over to our first per sensor for today, Mr. Robert Borchert SVP of Investor and corporate Communications, Sir you may begin to contrary.
Thank you Henry and good morning, everyone. Joining me on today's call are Sean Morris, Our Chief Executive Officer Park, Mehrotra, President and Chief operating Officer, and David Mountcastle, Our Chief Financial Officer. This call is being webcast and can be accessed from the Investor Relations section of pretty health Dot com.
Okay.
Today's press release, highlighting our financial and operating performance as well as the slide presentation accompanying our formal remarks are posted on our IR website pages.
Finally, Sean and parse opening comments, we will open the line for questions. We ask you. Please limit yourself to one question and one follow up so we can get through the full queue in a timely fashion.
The financial results reported today and in the press release are preliminary and are not final until our Form 10-Q for the third quarter ended September 32021, as filed with the Securities and Exchange Commission some.
Some of the statements we will make today are forward looking in nature based on our current expectations and our view of our business as of November eight 2021, such statements, including those related to our future financial and operating performance and future business plans and objectives are subject to risks and uncertainties that may cause actual results to differ materially as a result of these.
Statements should be considered in conjunction with the cautionary statements in today's press release and the risk factors described in our company's most recent SEC filings.
Finally, we may refer to certain non-GAAP financial measures on the call and reconciliations of these measures to comparable GAAP measures are included in our press release and the accompanying slide presentation posted on our website now I'll turn the call over to Sean.
Thank you Robert and good morning, everyone.
This past weekend I had the privilege of spending time with more than 60 of our physician leaders from around the country that.
They came together to learn and share ideas with one another they were all engaged and invigorated by their mutual desire for autonomy and to truly align with a partner that helps them deliver cost effective high quality care to all their patients our previous platform rewards them with this great care they deliver no matter the reimbursement struck.
<unk> and I am honored to be a small part of the opportunity.
Today I'll provide an update on our combined business momentum and summarize our recent financial performance.
Then park will offer an in depth review of our value based care strategy and framework and close with an update on our financial outlook for the remainder of 2021 before we take your questions.
We continue to see tremendous growth and momentum in our business, we delivered better than expected performance in our third quarter and year to date and are raising guidance on all key metrics for the year 2021.
We've also set new records for signed providers. This year, both in existing markets and new markets as park will discuss later, our updated guidance for implemented providers at year end implies a year over year growth rate of approximately 30% driven by these new additions. This is a leading indicator of an acceleration of our top line.
As we implement these providers in the coming months.
We're also seeing record high provider retention year to date as we continue to demonstrate our ability to optimize workflow.
Reduce administrative burden.
Successfully transition to value based care and increased profitability for our physician partners.
This supported our strong same store growth in the third quarter, which was driven by the strength in ambulatory utilization across all our markets on a seasonally adjusted basis in person visits were at or above our pre COVID-19 baseline and virtual visits were approximately 10% of total.
This volume as well as an increase in both implemented providers and value based attributed lives helped deliver topline performance and solid margin expansion ahead of expectations this quarter.
Ambulatory access and utilization is also a critical component in managing patient outcomes and driving success across our value based care platform.
Our balance and revenue diversity is a valuable attributes of our model.
Another key component of our growth strategy is our active business development pipeline in which we are in advanced discussions with many provider groups and health systems and.
In mid October we entered California, with one of the San Francisco Bay, Here's leading healthcare multi specialty groups.
<unk> Medical group has more than 400 providers spanning 42 specialties and over 125 locations.
We are very excited about our opportunity in California, a state with more than 28000 primary care physicians and over 115000 specialists.
Our affiliation with bass highlights <unk> ability to replicate our operating model and uniquely differentiated markets as we look to build scale high performing provider networks nationwide.
We also expanded our footprint in Texas through a partnership with the Abilene diagnostic clinic, a multi specialty group with more than 30 providers with the launch of previous medical group West, Texas, We now have a presence across the state, including our established markets in north and South, Texas, which comprise over 600 providers today.
Park will dive deeper into our value based care programs.
But I wanted to highlight our proven value based care model continues to deliver excellent performance and results with approximately 760000 attributed lives and more than 70 at risk contracts across all types of programs that premium network is one of the largest value based care platforms in our sector today.
Over the last seven years, we successfully built our care delivery network with deep clinical operations capabilities and partnership with physicians to maintain a high degree of influence over value based care operations at scale. This gives us confidence that we will continue to be able to move providers and lives at risk contracts profitable group review.
As well as for our physician partners.
We are also excited to share that previous care partners will formally launch on January one 2022 with more than 25000 attributed lives. This is in partnership with over 300 providers and about 100 care Center locations.
Premium care partners increases our total addressable market as we now have a flexible and scaled solutions for health systems Ipas, other independent providers and Acos as well as clinically integrated networks, who wish to remain on their existing EHR for the time being.
This is exclusively a value based care option for providers, who will be supported by our integrated technology solution and clinical operation capabilities as they successfully transitioned to at risk arrangements.
Moving on to our third quarter performance. Our operating momentum has continued to drive strong results our growth in newly implemented providers in value based attributed lives combined with ambulatory patient volumes led to an 18, 1% increase in practice collections compared to the third quarter a year ago.
Care margin was up 31, 5% and our top line outperformance.
Operating leverage drove margin expansions with a deep with adjusted EBITDA growth of almost 52% in the third quarter compared to the same period a year ago.
On a year to date basis practice collections was up more than 17% care margin increased 24, 5% and adjusted EBITDA grew almost 46% over the first nine months of 2020.
Our strong year to date performance and provider metrics position <unk> very well for the remainder of the year and into 2022 as we work to capture a larger share of the almost two trillion dollar physician label market and growing value based care opportunity.
This momentum also gives us confidence that previous partnership model continues to gain traction as a clear alternative for providers across the country looking to maintain mail autonomy and be able to improve outcomes for their entire patient populations.
We intend to continue to drive growth and profitability by increasing same store growth and attribution and risk based contracts, adding new providers opening new markets and identifying opportunities to expand our platform now I'll ask mark to provide a value based care update as well as details on the outlook for the remainder of 2020.
One.
Thank you as Sean noted trivia health has one of the largest and highest performing platforms in our sector today across commercial Medicare shared savings and Medicare advantage programs.
The <unk> medical group and ACO are the center of our value based care operating structure.
Our acos are the risk bearing entities that hold value based care contracts, while our physician led governance drives decisions for the medical group on a local market and national level.
<unk> platform provides our technology solution, they are contracting and actuarial analytics among other core clinical operations capabilities.
Our providers enter into professional service agreements in which we agreed to share both upside benefits and downside risk and performance based arrangements typically 60% of the providers and 40% to premier.
Our next generation care delivery network is structured such that alongside our physician partners. We have substantial influence over outcomes. Despite not owning the individual care centers or employing the primary care physician.
The single <unk> Medical group and contracting ACO entity align around a common risk pool once our practices implemented on our technology solution. We manage all walks follows data and drive insights to help improve care protocols and outcomes.
The more the operations of the practice integrate with our comprehensive suite of clinical operations capabilities, and our staff, which I will elaborate on shortly.
An important element of our model is a clear financial alignment with our physician partners.
It is critical for us to share both upside and downside risk without providers and providers are incentivized to learn and perform value based care and the highest level and profitably across their entire patient battles.
As a result, we believe the <unk> model is highly differentiated and its structure to achieve success at scale across the spectrum of value based arrangements and across different geographic markets.
Our physician partners ultimately want to want to provide cost effective high quality care across their entire patient panel no matter, what the reimbursement structure risk.
The first two boxes on this slide are the foundational elements, we believe all physician practices need to do well regardless of the reimbursement method.
As we progressed towards the right and our providers move deeper into value based programs.
Supports them with a broader suite of clinical operations capabilities and correlates with the level of risk we have taken.
We continue to invest heavily in our clinical operations and have already developed capabilities for supporting all types of risk arrangements for practices, just starting out and value based care, we want them to engage with a physician led governance structure and to become fluent and clinical documentation quality metrics and performance reporting.
As they move into more extensive at risk arrangements. They are able to leverage our comprehensive capabilities for care coordination various disease specific clinical programs and network management, and finally and in advanced value based care model that takes cap of data risk care coordination and network management takes on greater importance with additional network.
Abilities.
We have an extensive clinical operations team behind all capabilities that I just laid out supporting every physician practice to succeed in value based care.
<unk> is deeply integrated and is driving the everyday workflows of the practices, whether it's helping to see patients off hours building practice level same store growth plans and driving execution, while providing data analytics support on how to improve performance. So when a practice joins <unk>. They are joining a larger medical group and participate in.
<unk> that revolutionized the way they operate grow their practice and succeed in value based arrangements. This is why we are confident in our ability to influence value based care outcomes without providers, while preserving the autonomy and ownership structure.
With 760000 attributed lives <unk> truly has a unique platform that allows us to be successful across all cohorts of patients.
We have proven over the past seven years that we can succeed in more than 70 at risk value based contracts across commercial the Medicare shared savings program Medicare advantage and Medicaid with the support and expertise of our clinical operation structure and deep value based capabilities.
This program success across multiple types of value based programs is a highly differentiated value proposition being sought by both providers and payers today.
We are already successfully manages downside risk in many of our value based arrangements today, we will continue to take a deliberate approach to enabling our providers to transition profitably into increased risk and expect this to include caffeinated arrangements in Medicare advantage over time.
An example of our success is the Medicare shared savings program, where we take significant downside risk today.
In 2020 across our Acos in four markets. The publicly available results on the right show that we lowered utilization and cost significantly below that of PRA acos.
This performance was even better when compared to fee for service Medicare all while achieving a quality score of 97% or greater across all of our Acos and.
In the mid Atlantic region, we operate one of the country's largest acos with 69000 patient lives and the MSB enhance track, where we shared significant downside risk with CMS and our physician partners, we delivered over 9% in savings the highest rate of the largest hundred acos in the country.
Our performance over the last seven years is key to our collaboration with CMS as well as with other payers that offer value based arrangements across commercial Medicare and Medicaid programs.
It is important to understand that <unk> health recognizes only our share of shared savings in our topline today. This will change meaningfully when we begin to move lives into cap a dated risk contracts. In this illustrative example, using MSP performance data for 2020 Premier House Acos managed more than 120 <unk>.
1000 lives representing over $1 $1 billion in medical spend.
However, we only recognized our share of the gross shared savings and a practice collections and GAAP revenue, which was approximately $56 million. If our MSP lives were converted into work appetite capitation arrangement than our topline would capture the underlying spend rather than just our share of the savings. This example loss.
Rates the breath of our at risk arrangements today under various value based care contracts given the large medical spend underlying these arrangements.
This also highlights our current revenue recognition significantly understates, the scale performance and capability of previous value based care platform.
In summary, our value based care platform has delivered programmed results across 70, plus contracts and all payer entities with very large pools of attributed lives and we have generated more than $576 million in shared savings since 2014.
Health is uniquely positioned to enter into value based arrangements across the risk spectrum based on market dynamics in each state and more importantly, our proven ability to influence outcomes in partnership with physicians to generate results, we see a significant opportunity to increase our topline as we move into <unk> arrangements in Medicare advantage over time as part of our thoughtful deliberate.
And sustainable approach for transition to increase risk.
Turning to our financial update for full year 2021, we are very pleased to see the progression of our guidance during the course of this year.
This quarter you can see we are meaningfully increasing our guidance across all of our operational and financial metrics. In fact, if you exclude the impact of a new market entries into California, and West, Texas, then each metric is expected to be above the high end of our previous guidance ranges with implemented providers near the high end.
This reflects our better than expected performance in existing markets.
It is also important to note that our full year adjusted EBITDA guidance includes new market entry and development costs in the third and fourth quarters.
We expect to enter new markets as part of our ongoing operations and do not add back these costs to arrive at adjusted EBITDA.
Capital expenditures are expected to be less than $1 million for the full year and with our strong positive cash flow cash of approximately $330 million and outstanding debt of $33 5 million at the end of the third quarter, we have sufficient capital and liquidity to invest in our business and pursue our growth initiatives.
In closing Premier health as a next generation physician organization partnering with independent providers health systems, and health plans to build large scale medical groups and delivery networks in each state or.
Our proven model supports all providers in all patients across all reimbursement models and we are directly aligned with providers financial success, while facilitating their autonomy and ownership structure. We believe <unk> is highly differentiated with accelerating growth expanding margins strong positive cash flow and a scalable integrated care.
Delivery model with deep value based care capabilities with that operator, we're now ready for the first question.
Thank you as a reminder, this time in order to ask a question Press Star then the number one on your telephone keypad.
Your first question comes from <unk> <unk> Credit Suisse. Your line is now open.
Okay. Thank you and good morning, everyone. Congrats on a good quarter.
Following up on your last comment about 2021 guidance.
Going up even after excluding these new markets.
The implied <unk> outflows across the various metrics unless I'm doing my math right. It seems like your guidance reflect some step down from <unk> to <unk>.
And you've called out some incremental market entry costs, but anything else, we should be aware of some puts and takes for <unk>, what's the <unk>.
Yes. Thanks Alondra I appreciate the question. So I think thats, two or three key elements as you know that number one we are increasing full year guidance on adjusted EBITDA to $39 million to $41 million.
At the high end that implies a $7 million Q4, and I think there are two or three key components. One is as we noted there are new market development costs that were not adding back. So if we were to add those back in.
Blessedly, what we are saying is the guidance would have been higher than that 39 to 41 number.
<unk>.
Secondly.
There were some if you look at the where the differences in Q3 and the extent of the beat its mainly in the value based care line. There was some dollars.
Some of the programs that move up from Q4 to Q3 from just a recognition perspective is we got the data. So there was a little bit of that movement from Q4 to Q3, and then finally I would say still utilization and performance in some of the remaining value based programs.
We'll see how we close out the year, it's tough to predict utilization, but again, if if the trend continues the way we are seeing we should see some tailwind.
Okay, and then my follow up on the previous care partners, you've got called out in slide deck 25000 attributed lives and BBC programs effective January plus can you provide some more details there.
Is this one provider group out of multiple and could you remind us how should we think about <unk> margins on this book of business compared to your traditional <unk> margins any color there would be helpful.
Hey, Julien this is Shawn I'll kick it off let park kind of touch on that last part of the question, we're not providing details on the breakout of specific states or payers at this time, we expect.
It would be new stage as we as we grow this and it really the initial license we spoke in our prepared remarks 300 providers.
It's balanced over our commercial and government beneficiaries, primarily scale skewed towards the Medicare shared savings program and obviously that just like our other business will move into higher levels of risk as we get to know these providers organize them building the foundational services <unk> implemented park.
I'll address the last part just entered these ought to be clear separate provider groups. So this is not one big group with 300 providers. These are independent multiple groups.
And then on the last part of the economics to <unk> would be the same so it's going to be the 60 40 shared savings split that we have in our in our medical group value based programs.
Albert margins, especially when you think about they're not using your tech stack buy from are they any better than your traditional margins.
Yes, they will progress over time, so there'll be implemented on a version of our tech stack data analytics capabilities operations clinical operations capability. So so there'll be a layout of the underlying EMR might be different.
But over time as we perform in these contracts as we've seen with the with our existing book of business. This is a multiyear journey.
Mix off they are contract types of arrangements. The markets. We are in that all of that influences our ability to increase risk over time as we work with these providers also increases the ability to get a higher share of savings.
On a percentage and an absolute basis and then obviously we are accruing a big part of that so you would expect to see margins increase over time and over time get to a same level.
Thanks, and congrats again.
Thank you.
Your next question comes from Ryan Daniels of William Blair. Your line is now open.
Hey, guys congrats on the quarter. Thanks for taking the questions. Maybe one for you you spent a lot of time in your comments talking about the <unk>.
Value based care platform and there's a lot of differentiators here, whether it's the broad coverage across different payer types, whether its the revenue recognition the different partnership models et cetera. So I'm curious if theres one thing as you talk to investors as a newer company that you think is kind of misunder appreciated or maybe the one big differentiator that you Paul.
Out versus your peers, given kind of all the nuances that you laid out earlier.
Hey, Ryan Thanks for the question I appreciate it.
We have three key interrelated aspects that may be.
Slightly underappreciated and as the education process continues with a lot of the young public companies in our space of course is fundamentally our operating structure.
I think we are very unique in that we have a medical group a risk bearing entity and a tech enabled clinical and operations platform. All as part of one one entity here at <unk> I think that combination is the special sauce and allows us to have real influence on outcomes and generate the results that we've proven to generate over the last month.
And I think a lot of folks might just focus on the last component, but not the first to win the interrelationship.
Second element I would say is the sheer scale of the value based care book of business that we have.
Is probably underappreciated theres a lot of focus on full GAAP MAA, we think thats an important part of the market.
It's a small segment, but growing growing and important part with the highest.
For capital spend but payers and providers are really looking for us to provide a solution across the patient panel.
And move a lot of those patients into value based arrangements and I think our book of business is spread across.
As we've stated between commercial MSP MAA in Medicaid.
We don't think anybody else is doing just to an extent that we do and then lastly, I think more from a peer company comparison perspective, the revenue recognition becomes important as we highlighted pretty clearly with an example here.
If you are comparing topline.
For a lot of these companies.
The underestimation of our topline is pretty key in stock.
Given given what the GAAP financials projected day.
Okay. That's super helpful. And then my question to follow up is a little bit different but if.
If we think about the market entry in both Texas, and California, I think another unique nuances those are multi specialty groups versus just a pure focus on PCP. So can you talk a bit about some of the advantages that gives you by latching onto multi specialty and does that allow you to go out and find more PCP groups and then defined referral networks more effectively just talk a little bit about.
The uniqueness of that market entry thanks, guys.
Hey, Ryan Thanks for the question this is Sean.
From day, one and I'll speak first to Bash.
When I met Inez one day I mean, just it was just glaringly apparent.
We had a highly aligned vision from that very first discussion and they were going to be a great partner to to kind of launch the state of California their desire for to have a seamless patient experience.
Along with their providers, just really kind of aligned with way, we kind of organize providers buying youll find that anchor organize it providers bring those foundational services and then really kind of move into value in a very succinct profitable manner and I would say the same thing with West Texas.
I mean, Dr hedged from their highly engaged really wants to build up a scaled medical group across west, Texas and using the adequately Abilene clinic, we're really excited about those two so as you mentioned there.
Multi specially but really engaging with primary care and looking to align with a very similar strategy that we've done in our other markets.
Okay.
Thank you. Your next question comes from Josh Raskin of different research. Your line is now open.
Hi, Thanks, Good morning, guys.
I guess my first question is just on implemented providers and how much of that was sort of timing sort of closing those partnerships earlier than expected and maybe how much of that was just the increasing interest in Caribbean and the conversations you guys are having.
Yeah, Hey, Josh it's part so obviously there are two components to implemented providers the existing markets and then the new markets. We entered as we stated in our prepared remarks.
We would have been at the high end of our previous guidance range, which is about 2900 <unk>.
<unk> providers in our existing markets. So that obviously reflects the record.
Sales and implementation that we saw in our existing markets a lot of momentum and just organically growing the medical groups that we have today.
I think for California, and West Texas.
These were ahead of our expectations from a timing perspective, as we stated before.
We did not expect to enter any new markets. This year. So that's that's a significant.
Step up from a timing perspective, it helps accelerate that growth and I think that reflects the broader momentum we are seeing in our business development pipeline discussions with medical groups health systems payers due to launch the <unk> model in many states here.
Gotcha, and then maybe could you speak specifically to bass in California, right one of the bigger groups out there I guess.
Interested just in terms of timing as you talk about this pipeline growing like when does the conversation start.
How long does it take to implement what really resonated with them. It sounds like everything moved a little bit faster than you expected.
Yes, sure. So number one is the structure of our.
Arrangement in California is no different than other markets, we'll have the medical group ended the single tax I'd.
We have the risk bearing entity, there and the management services entity that provides the platform so from that perspective, it's pretty similar.
Sean talked about the alignment of interests.
And the meeting of the minds, there with the vast group great set of physician leaders.
<unk> is a great operating leader and I think when you get that and they had a vision to grow that medical group and have done that in the past few years from a pretty small size to 400, plus and they wanted to go statewide we obviously see a big opportunity in California.
I think when that alignment happens.
The beauty of our model is things can move pretty quickly, it's very capital efficient.
Getting our relationship off the ground and launching the market does not take much time, but in general with these deals.
It can take anywhere from six to 12 to 18 months. It just depends on the nature of the relationship size of the markets and again alignment of interests. This one game did come pretty quickly.
Okay. Thanks.
Next question comes from Lisa Gill of Jpmorgan. Your line is now open.
Thanks, very much and good morning.
Perfect I want to go back to your comments around utilization, where you talked about utilization being at pre pandemic levels.
And virtually all still being roughly 10% of visits can you talk about what your expectations are going into that.
Fourth quarter of this year do you feel like that.
Concern around pent up demand Youre, just not seeing that in your practices is it where you are from a geography perspective can have a big impact or the delta variant.
My first question.
Hey, Lisa Thanks for the question, so obviously, it's difficult to predict.
Utilization as many companies have stated.
We are seeing.
The trend continuing into October schools are open businesses are open.
And it's across the board all our markets and as you know we are in Florida, Texas. So some of the states, Georgia has some of the states, where you had a higher incidence of the Delta variant.
The one key aspect is.
Our utilization is ambulatory utilization in the community within the community physicians and I think youre seeing that.
Everyone is much more comfortable to get that access go see their doctor I think protocols are in place today, and so I think irrespective of the variant of what might happen with the pandemic I think that aspect of the healthcare ecosystem is working well can well we continue to see a good pent up demand I think people are going to visit their physicians and we are.
Pushing that from an access standpoint, both for the fee for service book as well as for the value based book I think it's important.
We're seeing it across the board so no specific.
State issues.
This is Sean let me just add I mean and.
And I would think all on the phone agree that.
The increase in ambulatory utilization as it.
Its access and access is the very first and but one of the more critical.
<unk> to managing at the highest levels of value based care contracts getting people in.
Building that relationship with them meeting them, where they are that patient and getting that accession.
Our doctors and as I noted I spent gosh.
Friday afternoon, Friday evening with over 60 of them and I mean, it is that integrated model, meaning that patient where they are virtually getting them in and then just building that relationship. They feel really good about that as we're managing risk and in growing deeper into capitation arrangements, but it's a it's one of the most.
Critical.
Attributes of a value based care model, that's going to succeed.
Great.
And then just as my follow up Sean would be.
Think about geographies going forward and we think about this.
This big group aspect that you have now and in California.
Does it change your outlook at all as far as how you're thinking about geographies going forward do you now look at California, and say Hey, we have an anchor here and kind of look to expand there or we have what we want in California, and we're going to look for other geographies. How do we think about that on a go forward basis.
Yes, I mean, I think I.
Think about California brand new state for US, we all know health in Florida, California is just into our economy generally, but 28000 primary care physicians and 115000 specialists.
Think about the model, we'd get an acre reorganized multiple doctors around their building one of the largest medical groups. In every state put the foundational services moved to risk now moved to West, Texas and expansion of an existing state into a into a market that we didn't have access into such and then we've got R. R.
Existing groups same store growth.
Growing value based care arrangements, adding providers moving into value in using our capital and resources to move into expanding into a national footprint.
I think these are just to add so on the whole country is open for us.
<unk> of our model is.
We don't need to wait for the right dynamics to happen.
Given our focus across the patient cohorts and I think thats.
Thats, probably underappreciated if youre focused on just one segment of the population.
You may want higher penetration high density of duals and things like that if if that's our only focus I think the beauty of the premium model is we can work with all kinds of providers all kinds of patients.
And really I don't think any state as out of bounds.
It's literally the density of the population and the size of the state that we prioritize obviously, but then any any state is open you need health care everywhere.
Great. Thank you for the commentary.
Okay.
Next question comes from Richard close of Canaccord Genuity. Your line is now open.
Great. Thank you Congratulates congratulations so obviously with the updated guidance we have a good starting point.
As we look to 2022, and I know youre not providing any formal guidance here.
Can you give us some high level thoughts on how we should be thinking about 'twenty. Two you essentially pulled forward that new market.
You discussed you would.
Do it.
In 2022.
This year.
Hey, Richard Thanks for the question. So obviously as we stated.
Implemented provide a growth year and $2020 to 21 will be now about 30%.
I think this gives us a lot of momentum you should see acceleration of what's offline, you'll see acceleration on practice collections.
<unk> corporate practice state so we don't own the medical group, but it will be reflected in and practice collections there.
I think more importantly, you'll see.
Growth down the P&L care margin all the way through EBITDA and I think that's a key attribute of our business you are getting.
An entity that is growing top line very meaningfully and then having a real positive EBITDA positive cash flow that is also growing and we're pretty excited about that so we will provide an update with.
With Q4 trying to close out the year really strong see a lot of momentum.
Across all our building blocks as Sean stated existing markets new markets attributed lives increasing the level of risk we're taking in these contracts.
So I think all of that hopefully will culminate into a pretty strong 2022.
Any update.
Okay.
As a follow up maybe flipping Ryan's question a little bit.
Towards the physician practices side of things in the pipeline and competitive market.
So.
So as you are out there have been discussions how noisy is the market.
With these new upstart companies.
In terms of the education process talking with the practice is explaining what you do.
You are different than some of these other models.
Yes, I'll start and then Sean will add.
Look I think we do time to time come across some of the other companies, but what really you have to realize.
Our customer here are the physicians and the physician practices are fairly sophisticated they have seen over the last 2030 years. Some of these groups have been around that long.
Versions of alignment they know what works what doesn't work, there's a lot of self selection.
The beauty of our business model is it preserves their autonomy and ownership structure, whether they are independent they are small the largest single specialty multi specialty.
Affiliated with a health system.
I think a very there's probably nobody else that compares to us in terms of the flexibility that we can provide.
For our solution across their business.
There are other entities that are going in focusing just on one segment of the population of one book of business. The uniqueness that comes with align with revere to grow the practice holistically across their entire panel I think is really a differentiator to us yes.
Thats just right on right we're out of the almost the ability.
Exceed all patients have the tools to manage them.
Yes.
Very cost effective high quality.
Improving that experience.
Patient as well as the provider.
These guys are sophisticated and they are self selecting into our model subscription.
Alright, thanks congratulations.
Thanks Richard.
Your next question comes from Neil of SVP Leerink. Your line is now open.
Hey, Thanks, good morning.
First question, just the new groups that you're Onboarding in 'twenty two.
Are you standing in ACO up for them and maybe just an update on views around.
Any new Acos that you plan on introducing and launching in 'twenty two.
Hey, Whit. Thanks for the question. So we establish the ACO or the risk bearing entity in every state. So similar to other markets in California will establish a risk bearing entities. There's some attributed lives that bass has already that will start in some value based program starting $100 22.
And we continue to enter as part of our existing Acos in all our markets new value based arrangements. So you have some of them, which may be new some of them, which we are.
Moving towards the right in terms of spectrum of risk.
And it may be an existing program, but we are fundamentally changing the structure to take on more risk.
So our objective is to establish an ACO entity in every state and transition as many lives into value based arrangements and increase that attribution across our book.
Okay.
So.
Do you plan on launching are you going to have more than four acos next year. It sounds like there are when you said theres some attributed lives with with.
With bass said.
Intended to suggest theyre already participating participating so that's why so yes.
I misunderstood. The question. So if you were referring to the MSP program, we have four existing acos that participate in that program.
You'll see us participate in more than four acos in 2022.
I'll cover that lives in California, Florida and other markets.
Got it and I guess sort of a follow up question is just as you have conversations with your you're affiliated physicians today and the desire to think about more risk in the context of the enhanced track do you believe we will see.
For legacy Acos will any of those transition towards the enhanced strike.
Yes, we'll give an update on Q4, but we will we will have more than one enhanced track today, it's only in mid Atlantic and Youll see more of our other markets progress and Thats fundamentally our strategy not only in the MSP program, but in commercial and MA, where we usually start with upside only we move towards <unk>.
Increased downside and once we understand the attribution and these programs mature and we have more confidence that with increased risk, there's a probability to get increased return.
Lose money, we will you will see us move towards the right on the risk spectrum across across all of these programs. So youll see us stake.
Enhanced tracking MSB commercial downside risk and an MAA over time, Youll see us do capital arrangements as well.
Got it and just to follow up on that just remind me the final share rate on a enhanced track versus kind of a non enhanced.
Enhanced track model.
Sure.
70, 525, 75% coming to the party that states the significant risks such as Premier.
And then the <unk>.
We're working up we're up the spectrum on those from ABC to enhanced.
Got it okay. Thanks.
Next question comes from Shai, when I mean, Sean Wieland of Piper Sandler Your line is now open.
Hi, Thanks, very much good morning, a couple of questions about the California market entry. Thanks for the <unk> earnings call by the way out here.
Where does the Knox Keene license it and all of this.
Okay great.
Sean Thanks for the question, Yeah, apologies, we'll trying to enact balloon one next time.
Maybe.
Yes, you would expect us to take the Knox Keene license and we're working towards towards all of that as we look to take risk in California. So we will establish a risk bearing entity and go through that process.
In the state.
So you don't have a Knox Keene license in California, Yes, Doug bass.
They might not today not today.
Okay.
Goodbye.
I was going to say.
Think about our model we enter reorganized the doctors, we understand you have to understand where they are and we moved from to increasing levels of risk across the market.
So the Knox Keene license would come into play as we move across that continuum.
And the one other important element Sean as you know it doesn't preclude us from having lives in the MSP program.
<unk> ability to add.
Lives in California through an ACO that might that play out.
Doesn't require an oxygen so so you'll see us enter that program with attributed lives 122.
Okay, and so will you have the Knox Keene license by one 122.
You don't need it for the MSP program.
Got it okay.
Okay. So my question is when we had the Knox Keene license.
Just as it becomes apparently as we need it as we move to higher levels of risk.
We will move into them.
Okay, and I guess, Mike My follow up you know, California is Ed.
As you said is a massive market and.
An anchor tenant in the East Bay.
Is it is a pretty.
Long ways away from a doctor in San Diego. So you said that your strategy in California is similar to that of other markets, but maybe could you articulate a little bit some of the differences of rolling out a strategy in California.
That's a good question the.
The best.
<unk> is our mid Atlantic market, Virginia, Maryland, and D C.
And look our strategy spans all were over 710 years here, how we develop a market we started with four providers in.
In Reston, Virginia, and it's over 1200 today across those three Maryland, DC and Virginia and in each of the micro geographies are different they're much similar to the example, you're giving about California.
What we see as these markets develop as we get we get one anchor group in one part of the state. They are other large groups that might be present in the southern part of the state where.
You can enter into arrangements in the premium model and they can join the medical group.
You have the opportunity to.
Carve out specific areas in the market, where dynamics are very different payer dynamics physician dynamics affiliations and so forth. So the flexibility allows us to go statewide and run the place we need to do to expand.
I think <unk> is at 400 providers, we have a shared vision in the near term try and take it to 1000 and then grow from there. So so again this is a multiyear journey and just doesn't happen overnight.
Okay. Thanks very much.
Thanks, Joe.
Your next question comes from Gary Taylor of Cowen. Your line is now open.
Hey, good morning, and good quarter.
Had a question just about the development costs you were talking about.
For the fourth.
Quarter appreciate the fact that you're absorbing those in your guidance when when most of the new companies exclude all kinds of things.
So certainly recognize that but can you give us a sense on.
Ideally for the fourth quarter, what you think you're absorbing that I'm thinking more about 2022, how do we think about whether accelerating your market entry, which is what we want you to do.
How much that might weigh on.
EBITDA just in the interim just really for modeling purposes.
Hey, Gary it's Mark.
Thanks for the question good question.
Look I think our model is very capital light so generally speaking.
The spend isn't huge it varies by the market by the opportunity usually.
You should think about this as low single digit million spend.
Again depends on how accelerated we are going we become profitable fairly quickly.
Some cases day one.
So while it would have a slight impact on EBITDA as we as we rightly spend that money to grow.
That's one of the uniqueness of our model, we have pretty significant positive EBITDA, we intend to increase and grow EBITDA year over year and if there is a good rationale will be pretty transparent about it but youll see us accelerate top line growth.
And grow EBITDA in absolute dollars and hopefully on a margin basis as well and if there are some puts and takes as we as we develop our plan for next year, we'll obviously communicate that but you should expect us to increase both EBITDA and breakfast collections next year.
It does the did the new market entry costs in the P&L. So those primarily show up in sales and marketing are split between sales and marketing and G&A, how do we think about that.
Yes, that'll be split between sales marketing G&A.
Also some of the operation spend.
We spend ahead of signing and getting you will provide those lives that you need the capabilities on the ground.
Implement to manage performance and so forth. So I think obviously sales is the leading spend indicator and then we'll have some in the operations cost line and then some in G&A.
One other question.
Earlier, you had talked about.
How net revenue would change as you took more.
Capitation.
Versus how revenue is recognized in the ACO and I just want to make sure I understood.
I think Youre point, I, certainly understand how your ace.
ACO spend under management is not grossed up into <unk>.
Revenue so on the Capitation example, where you just.
Suggesting as an example, that's another case, where significantly more revenue our medical spend under management or we actually implying.
There will be an accounting change that as you move into capital did arrangements. Unlike ACO those will actually be.
<unk> recognized on a grossed up basis.
Thanks, Gary that's a good that's a great question. So you'll see both on a <unk> basis and that example that we gave on slide 13, Youll see the benchmark is about $9360.
If you do full capitation and.
An MSP it just covered in that example, part a part B doesn't include <unk>. It doesn't include some of the admin spend at the health plan. So the <unk> for life, obviously goes up in a capitation arrangement, whether it's direct contracting with CMS in that example, with.
With that program or with another another national payer on MA the actual dollars for life per month would go up and then obviously you then start to recognize that full amount.
The 10000, plus four lifeboat month top line number so that's a <unk> differential.
This is what you have just recognizing and Chad savings today.
Okay. Thank you.
There are no further questions.
Now I would like to turn the call.
Call back to Mr. Morris.
Please go ahead.
I'd like to thank each one of your pro listen to the call today.
It's a proven model that supports all providers in all patients across all reimbursement models are scalable capitalized highly integrated care delivery model in combination with the business momentum Youre seeing positions our company for accelerated growth in 2022. We appreciate your continued interest and support of our company and look forward to speaking to you again have there.
Great rest of the day thanks.
This concludes today's conference. Thank you all for joining and have a great day.
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