Q3 2021 agilon health Inc Earnings Call
Hello, everyone and welcome to today's agile on how third quarter 2021 earnings conference call. My name is M&A and I'll be coordinating nikko today. During the presentation you have the opportunity to ask a question by pressing star followed by one on your telephone keypad I'll now hand, you over to al.
Hi, Matthew Gilmore, Vice President of Investor Relations Matthew. Please go ahead.
Thank you operator, good morning, and welcome to our third quarter Conference call with me. This morning is our CEO.
Steve.
Our CFO.
Following prepared remarks from Stephens.
The Q&A session.
Before we begin I'd like to remind you that our remarks and responses to questions may include.
Looking statements actual results may differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with our business.
Risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward looking statements. Additionally, certain financial measures. We will discuss in this call are non-GAAP financial measures.
Believe that providing these measures helps investors gain a better and more complete understanding of our financial results.
Consistent with how management views our financial results a reconciliation of these non-GAAP measures to the most comparable GAAP measure is available in the earnings press release and form 8-K filed with the SEC with that I'll turn things over to Steve.
Thanks, Matt Good morning, and thank you for joining us for.
Hosting today's call from Pittsburgh.
Before I get to the details of the quarter I'd like to take a minute to discuss the positive results from our partnership with a leading independent physician group in this community preferred primary care physicians, which has served the greater Pittsburgh area for nearly three decades.
In 2019, we collectively establish the preferred senior care advantage line of business and moved all of the group's Medicare advantage patients into a total care model in which the primary care physician is responsible for a senior patients total health.
In just two years Pittsburgh has become one of agile on its most successful markets and speaks to our ability to serve diverse geographies.
Pittsburgh is a unique market in several ways.
Medicare advantage is the predominant product with a penetration north of 60% and the majority of coverage and specialty care is delivered through two regional health plans with integrated provider capability.
Against this backdrop, our partnership with preferred has yielded impressive quality experience and cost results.
80% of Preferreds, MA patients receive recommended cancer screenings, and 90% our adherence to our adherence to medications for cholesterol blood pressure and diabetes.
Both indicators are in line with five star level care.
Our concentrated scale in this geography and preferred long history. In this community have enabled us to do creative things like execute on a preferred skilled nursing facility strategy that drive length of stay reductions and improved hospital readmission rate.
In April 2021, we further strengthened our local scale and partnership through the direct contracting program.
Now all of preferred senior patients are supported by agile on total care model.
The high touch high visibility visibility model used by preferred has delivered world class patient and physician net promoter scores of 80 plus percent and our medical cost structure well below the community benchmark average.
As a result.
Growth has been three times that of the overall market and medical margin has accelerated faster than we have seen in prior year two markets.
Our success in Pittsburgh reflects the power of the echelon platform and partnership model to get smarter drive accelerated success in our newer markets and export these learnings to diverse markets across the country.
Now to the focus of our call I will cover four areas in my prepared remarks first highlights from our third quarter results.
Second our 2022 membership outlook.
Third an update on our pipeline for the class of 2023 and fourth an update on direct contracting and the broader federal policy environment.
Starting with a few highlights from the quarter.
We were again pleased with our performance both in terms of growth and medical margin.
Our results were especially encouraging given broader dynamics around medical cost and the delta variance.
Total members live and the platform increased 83% to 237000, including 184000 Medicare advantage members and 53000 direct contracting beneficiaries are consolidated Medicare advantage membership increased 43%, including 15% growth.
Within the same geographies.
St Geography growth was again broad based and continues to benefit from our ability to be a first mover and perfect purposely deploy a focused strategy in geographies that are earlier in their MA penetration lifecycle.
The growth in our MA membership translated into 47% year over year growth in total revenue.
Medical margin was $43 million in the third quarter.
Nine 5% of revenue, reflecting our year to date medical margin P. M. P. M of $93. We were pleased with this performance, which was slightly ahead of our expectations and consistent with the leading operational indicators, we use to help manage the business.
We did observe an increase in COVID-19 costs due to the Delta variant search in numerous geographies.
This was offset across the Agila network by lower non COVID-19 costs, including including lower utilization of inpatient and skilled nursing facilities.
Our ability to drive medical margin improvements and predictable quality outcomes. Despite macro volatility is a function of our platform and physician centric partnership model.
Our partnership model with existing physician groups creates a unique level of proximity to a primary care physician.
Leverages, an established relationship between patient and Doctor.
Thinks practice economics with patient outcomes and provide the level of scale and history in a local geography to influence the health care system locally.
Our platform is uniquely developed and leverage through these partnerships to impact multiple levers that are central to the success of operating in a value based Medicare model.
We continue to increase our focus and how we influence the way patients access the health care system beyond the primary care physicians office.
Through the agile on platform, we leverage algorithms to better identify specific cohorts of patients or physicians stratify, where care should optimally be delivered within that network and deploy the clinical support alongside our partners to drive sustainably lower costs and improve quality.
Two recent examples where our investments and connecting data to clinical process is translating to changes in how care is delivered differently.
First in Buffalo and Columbus, we have implemented a palliative care program for patients at end of life to improve the experience for the patient and the family, while avoiding and in personal and costly health care stay in the hospital.
And second in multiple markets across multiple specialties, we have redefined the specialist network to tier providers based on quality and meaningful improvements in the use of our highest tier network.
Turning to our preliminary 2022 membership outlook, we project total members live on the platform, including Medicare advantage and direct contracting will increase more than 45% in 2022.
Tim will provide details in a few moments, but I did want to call out some key drivers of that growth in both MAA indirect contracting.
First in Medicare advantage, we now anticipate higher membership in our new geographies, reflecting progress with our implementation work and better visibility with health plan contracting.
Additionally, we see continued strong momentum in same geography growth.
This is driven in part by a growing and powerful local network effects community based physician groups in our existing geographies are choosing to join the agile on platform.
Our role in introducing risk for the first time in these markets provides a first mover advantage that along with the success of our partners is attracting more groups to the Agila network.
We believe more physicians joined the platform in our same geographies will be an important growth driver over the next several years.
Second as it relates to direct contracting more of our partners are seeing the benefits of operating a single Medicare line of business encompassing MAA and direct contracting.
This creates a single experience for the physician and allows our partnership to maximize the scale advantage, we have within a market, allowing us to proactively shape, the senior patients health care journey, and effectively manage cost quality and experience across both programs.
Partners in four additional markets will join the direct contracting program in 2022, bringing us to a total of 10 of 17 markets with both Medicare advantage and direct contracting.
Moving to the 2023, new geography partner pipeline, we continue to make great progress in the structural interest in high value.
Primary care has never been stronger among providers.
On the back of growing MA penetration demographic changes that challenge physician practice economics, and the adoption of value based care models like direct contracting we are seeing broad based interest in our partnership model from a diverse set of geographies and a diverse group of partner.
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We have now signed definitive agreement and letters of intent of intent for groups in new and existing states. We have begun implementation work for several of these new partners, which will help us drive strong performance out of the gate.
We will enter new states in 2023 and will immediately apply our hub and spoke model to unlock additional markets within those states.
<unk> It took us just three years to expand from Columbus to for other cities.
We think there is potential to move even faster within some of our newer states given our successful track record and growing network.
Overall, we are very confident in our ability to execute against our new market growth objectives for 2023 and look forward to providing details during our next earnings call and the corresponding analyst day.
Let me close with an update on direct contracting performance and the broader policy environment.
We are encouraged by the early results in this new program, we are seeing the leverage and scale benefit from operating a single consistent approach across all senior patients sooner than we had expected.
In Q4, we will receive interim updates on two critical elements specific to the program.
The retroactive trend adjustment and the coding intensity factor.
We have incorporated a reserving estimate for these elements within our Q3 results, but continue to work with the innovation center on improving the visibility and predictability of these annual program components that will not be finalized until mid 2022.
As a result, our Q4 forecast has a cautious outlook on the program's expected financial performance in 2021, but we do foresee the potential for direct contracting to be a larger contributor to our long term financial performance.
On the broader policy front it has been a productive last quarter and advocating for the funding and expansion of high value primary care and we have seen positive movement in both near and long term commentary from key policymakers.
October 20th the Medicare Innovation Center released its refresh strategy for the next decade, which embraces total cost of care models and centrally positions accountable care and advanced primary care as core elements of innovation.
With this release CMI embrace a recent National Academy of Medicine report that declared high quality primary care is the foundation of our high functioning health system and the key to improving population health improving the experience of patients and court care teams and reduce.
<unk> costs.
This language has been a centerpiece of our work as part of the primary care for America Coalition.
While the strategy itself does not speak to the future of the direct contracting model. We have been encouraged to hear the agency staff speak publicly about plans for expanding the program with a potential 2023 cohort and their willingness to consider economic adjustments that will improve long term.
<unk> financial stability for participants with that I'll now turn the call over to Tim. Thanks, Stephen Good morning, everyone. I'll review some highlights from our financial statements and provide some additional details on our updated guidance for 2021, and our membership outlook for 2022.
Starting with our membership growth rate for the third quarter total members live on the agile on platform increased 83% on a year over year basis to 237000, including both Medicare advantage and direct contracting our.
Our consolidated Medicare advantage membership increased 43% to 184000 and direct contracting members ended the quarter at 52000, while our direct contracting members are not consolidated in our financial results. We wanted to provide a clearer view of the total members on the agile platform is this better reflects our growth and scale.
For our Medicare advantage membership our growth rate was driven by two factors first the impact of three new geographies that went live in January Hartford, Buffalo, and Toledo, which now have approximately 36000 members.
Strong growth within our same geographies, which was 15% for the quarter.
Revenues increased 47% on a year over year basis to $459 million year to date revenues increased 53% to $1 $3 7 billion.
Revenue growth was primarily driven by membership gains in new and existing geographies on a per member per month basis or P. M. P. M revenues increased 2% during the third quarter.
Medical margin was $43 million during the third quarter compared to $51 million in the prior year on a year to date basis medical margin was $151 million compared to $165 million during the same period last year.
The year over year change in medical margin, primarily reflects the lower utilization experienced in 2020 due to the Covid pandemic.
On a P. M P M basis medical margin was $79 or nine 5% of revenue.
Utilization during the third quarter of this year was in line with our expectations with higher COVID-19 costs offset by lower utilization of inpatient and skilled nursing services.
Our Covid costs peaked in August and early September but remained below levels from early 2021 Covid.
Covid costs doublets subsequently moderated during the second half of September and into early October.
Network contribution, which is medical margin after surplus sharing with our physician partners was $17 million during the quarter compared to $26 million in the prior year.
On a year to date basis network contribution was $72 million compared to $90 million last year the year over year decline in network contribution reflects the impact Covid had on our prior year medical margin as well as the relative contribution of medical margin across our geographies.
Platform support costs, which includes market and enterprise level, G&A increased 32% to $34 million.
On a year to date basis platform support costs increased 25% to $93 million the growth in our platform support cost remains well below our revenue growth and continues to highlight the light overhead structure of our model.
As a percent of revenue platform support was seven 3% during the third quarter down from eight 1% in the prior year.
Adjusted EBITDA for the quarter was negative $14 million versus positive $2 million in the prior year on a year to date basis, adjusted EBITDA was negative $12 million compared to positive $18 million last year.
Adjusted EBITDA for the quarter includes $1 5 million in net contribution from our direct contracting entities. The margin performance for direct contracting continues to run ahead of our expectations, reflecting modest favorability to revenue and better visibility into costs. While we continue to expect margins for direct contracting will be below Medicare advantage.
Over the long term, we have been encouraged with our performance to date.
We ended the quarter with a strong balance sheet position and we remain well capitalized as of September 30th we had $1 $1 billion of cash on hand, and $50 million in outstanding debt, which is essentially unchanged from the second quarter cash flow from operations was negative $19 million for the quarter, which was in line with our expectations.
Turning now to our guidance for 2021, and our membership outlook for 2022 for the full year 2021, we have increased our Medicare advantage membership outlook to a range of 185000 to 186000 and our revenue outlook to a range of $1 eight 2 billion to $1 eight to five.
$5 billion we.
We have also increased our adjusted EBITDA outlook and now expect a loss of 40 million to $37 million.
We continue to expect utilization will approach pre COVID-19 levels as we close the year.
As Steve mentioned, we expect another strong year of growth in 2022, we project total members live on the platform, including Medicare advantage and direct contracting will increase over 45% by year end 2022.
We expect our consolidated Medicare advantage membership will increase more than 40% and direct contracting membership will increase by 60%.
Based on our 2021 membership outlook, we expect total members live on the platform will increase to over 340000 in 2022.
For Medicare advantage or 40% growth outlook assumes 50000 members from new geographies and low to mid teens membership growth within same geographies for new geographies, we anticipate onboarding approximately 49000 members in the first quarter and this should build to over 50000 as the year progresses due to attribution.
Work in commercial agents.
For same geographies, we expect to benefit as more physician groups joined the Agila network through our anchor partners.
In aggregate, we would expect to end 2022 with more than 260000 Medicare advantage members.
For direct contracting in 2022, we are now able to share that approximately 30000 to 35000 attributed beneficiaries from seven partners will join the program in January this will bring our total direct contracting members to 80000 to 85000 entering 2022 for.
For direct contracting we would anticipate some moderation or membership as we move through the course of the year.
With that we're now ready for your questions operator.
Thank you very much if you would like to ask a question. Please do so now by pressing star followed by one on your telephone keypad. If you change your mind. Please press star one to ask your question patients show that youll devices and muted likely.
Our first question comes from Lisa Gill from Jpmorgan.
Your line is open.
Thanks, very much and good morning, I just wanted to go back to the comments around utilization and just make sure that I understand your expectation for both the fourth quarter as well as going into 2022, Tim I heard you talk about the fact that.
You expect to go back to pre Covid as we close out the year can you just remind us what that would mean from a utilization perspective, and then you talked about.
Covid offsetting.
Non COVID-19 during the quarter do you see any pent up demand that that will flow through to 2022.
Yes, Thanks, Lisa So composite utilization was in line with our expectations in the quarter as we said that was despite this COVID-19 surge.
Tim and I talked about in August and September and we saw that across the majority of our of our geographies.
There was this non COVID-19 offset most significantly in terms of inpatient and sniff reductions.
Outpatient is back up to that 2019 baseline and we did see elective procedures.
In the third quarter as.
As we look towards Q4, we expect that that baseline is going to return in that composite utilization towards the 2019 trend overall and will continue into <unk>.
Into next year.
So that's how we're looking at it.
No I think that's right, Steve I mean I think.
Good morning, Lisa I think if you.
If you think about exactly what you said, we did see COVID-19 utilization jump up although that's as I said in my prepared remarks, that's really moderated quite a bit in the second half of September and now into October from from what we're seeing.
And again that was more than offset by non COVID-19 kind of acute utilization.
In terms of how much pent up demand I mean, perhaps the increases we're seeing in an elective outpatient procedures might be an indication of some of that catching up now although again overall the composite utilization we've seen although increasing in Q3 is still below 2019 baseline we are seeing that number increasing those so we just wanted to be clear that.
As we move into the fourth quarter, we are expecting the composite utilization to continue to approach and move back to 2019 baseline and that's reflected in our Q4 guidance.
Okay, great and if I can just sneak one more in.
You talked about direct contracting now in 10 of the 17 breach and state grid is the goal over time to have direct contracting and all of the regions that that you have.
Physician membership.
Well, Lisa we certainly see the benefit and our partners are seeing the benefit of operating a single line of business for their over 65 senior Medicare population.
And it gives us tremendous leverage and scale benefits when we're able to do that both within the primary care practice and then in terms of downstream costs.
In terms of specialty care in terms of palliative care.
And so that that is certainly something that we're driving towards I think as we think about 2023, we believe youll see a similar pattern to what we talked about in terms of the class of 2022 in that some of our existing geographies that are in MAA, but don't currently have direct contracting will add that.
And then some of the new entrants and new geographies through 2023, we will start with both MAA and direct contracting on day one in year. One. So our goal is to get more geographies to have MAA and direct contracting side by side and I think.
<unk> gives us those benefits in terms of experience in terms of predictability it really leverages, our partnership model and so that's what we're working hard on and what I tried to call out in my prepared remarks is we're seeing a lot of interest from groups around the country in doing both of those side by side.
Great. Thank you for the comments and congratulations on a great quarter.
Thanks Lisa.
Our next question comes from Justin Lake from Wolfe Research Justin. Please go ahead.
So one of the first follow up on direct contracting.
Sounds like you booked.
Yeah.
Hey return there are positive results in the second quarter in the third quarter. What are you what is kind of in your guidance in terms of assumption for the fourth is it kind of to return to breakeven so kind of losses in the fourth quarter and then I'm curious you mentioned the true ups in the fourth quarter.
<unk>.
Around risk adjustment, especially I'm curious with those true ups.
How close is the risk scoring.
It would be in the revenue.
Oh, Hey, DC.
Each patient to a Medicare advantage patient in terms of.
Effectively how close do you get from a risk scoring perspective got it.
Would that Maxim our revenue that you were able to get out of our Medicare advantage patient because I know that was a big question as we went through DC.
Yeah.
I mean, there's a lot in that question Justin.
First let me start by saying we are encouraged right. We are seeing results in the first two quarters with the program that went live in April that are ahead of our expectations.
At the back half of your question there is a natural cap on the risk adjustment factor in the direct contracting program and so most of the.
Better than expected performance is based on lower medical costs.
Hum.
There's two factors that we are awaiting updates on one is the retro trend factor, which is a relationship between your local trend and in the in the six markets that we're in right now.
Versus a national trend.
And so if your local trend is lower than the national trend when when everything is rolled together at the end there will be an adjustment in your revenue that is separate from the second factor, which is the coding intensity or or RAF factor that you talked about.
Both of those will get resolved in the middle of next year, we will get interim updates on it.
Think as we said we're encouraged by what we've seen but we really need to go through a full cycle with this program to be to be definitive around that.
And then you want to talk about guidance for Q4, Yeah. Yeah. Good morning, Justin Yeah, I think that's all that's all Reits even in kind of just to follow up on the on the end of that and then I'll talk about the first half of your question. I mean, we are of course constantly looking at the looking at our numbers examine them, we stay in contact with CMI and we're trying to stay as close as possible to where.
We think those adjustments might come out and of course, our baked that into our results.
But as Steve said, we won't really know the final numbers until until sometime into mid next year.
In terms of our performance yeah, exactly right I mean, we booked about $4 million of positive EBITDA contribution from direct countries. So far this year one five of that in Q3, I'm very obviously encouraged by the results, particularly as we get better visibility to claims we're seeing better overall cost performance in direct contracting and would that rat.
Then kind of an overall impression of direct contracting being you know in the breakeven area for the full year and we would expect direct contracting to be most likely around breakeven for the fourth quarter now.
Got it that's helpful. If I could squeeze in one more.
No you've talked about I believe are giving us an update on the <unk>.
Like kind of the maturity curve.
Your markets over time, and I think you said you've tried to do that by the fourth quarter.
Without getting specific I was curious just what should we expect there or is there going to be is there has there been variability or do you feel like there has been a pretty consistent curve. So that when we see that it's following that orchid type model that we Bob.
Would that we've heard about during the IPO process, Yeah, No just Justin Thanks for the question I mean, I think we're seeing.
A cohort maturation.
And improvement.
In our in our partner markets, particularly in our earlier markets, we're sitting here with the Pittsburgh team in.
In Europe in a year or two market, but the class of 'twenty. One the class of 20 class of 19 are all accelerating at rates.
Faster than what we had sort of initially projected as we look at that and I think that portends well as we move into <unk> into 'twenty. Two we will give that update on on the analyst day that will immediately follow our Q4 call and kind of walk through that.
And then we're looking at making investments in our non partner market of Hawaii to get that to see the similar sort of trajectory that we're seeing in these in these partner markets.
So that's sort of the way that that mix is kind of coming together, but I think the power in this partnership model and then the scale benefit that we're getting with adding direct contracting more the ability to be able to invest in the programs that.
Are the biggest cost drivers in.
The over 65, Medicare population like end of life in the examples that we gave like the skilled nursing facility program. We've got here in Pittsburgh can really impact that.
Great. Thanks for the color.
Yes.
Our next question is from Brian <unk> from William Blair Bryan. Please go ahead.
Yes, I wanted to ask a bit of a follow up question to Gary's looking at the.
Cohort models and the advancements you've seen there number one and the fact that it appears that once youre in a market you really get a first mover advantage, meaning both same store growth and adding new groups and physicians and then the additional value with direct contracting I'm curious philosophically, how that changes your intermediate or longer term thoughts on new market ramp meaning that.
Markets are probably more valuable.
Doing better than they were just a few years ago. So how do you balance kind of the consistent growth work versus the the ability to get a first mover advantage in the market.
Well, we like being that first mover Ryan Thanks for the question and good morning.
And I think as we with the class of <unk> 22, and as we look at the class of 23, we're seeing.
More interest from diverse geographies and diverse partners, where we could be that that first movers. So we are we are full speed on that our business development team is making great progress on that as I talked about it but I do think that part of our update to you on 2022 membership really.
It reinforces the power of this same geography growth.
This scale the critical scale that we're starting to reach in these communities.
15, 20, 25% of the adult primary care capacity in these markets.
The ability to leverage across a practices commercial business doesn't run through our P&L, but when we start to do referral programs like the specialists can impact that.
Is super powerful and that is what we believe is driving.
Some of the acceleration our platform is getting smarter.
The Pittsburgh team in year, two the Pinehurst team that is implementing for January 2020 to go live are benefiting from the learnings that have gone along the way. So it's a balance but we're pushing hard on both fronts. This local network effect that I talked about.
Within the same geographies. He is something that's accelerating I think its driving 22 growth I think it's going to.
Drive our growth for a long time in addition to landing in new geographies as a first mover.
Okay. That's very helpful. And then as a follow up a little bit different question thinking about the investment opportunity for the company in two regards one youre sitting on more than $1 billion of net cash and number two there's probably an ability to advance internal technologies and infrastructure. So I'm curious if you could just speak a little bit too.
Capital used both internally and maybe through Nonorganic.
Investments thanks, guys.
Yes sure Ryan.
So.
Capital use first it's growth right our partners sit in these geographies and they they have the ability to add additional physicians and and improve access within those communities and that's part of what's fueling that growth.
So that will be a use of capital for us.
Going forward the <unk>.
<unk> and the platform will be another critical area for us both from a technology perspective.
<unk> got this partnership and you've got this great patient physician relationship and a partner like preferred who understands the market the ability to provide them with actionable information around patient data.
<unk> data where care should be delivered is extremely powerful so it will be we'll be investing more in technology, and then and then clinical right as we're getting to scale what are the clinical investments, we want to be making around.
Palliative around skilled nursing facility partnerships et cetera that can really drive that so those are all the areas that we're looking at right now M&A.
M&A is a possibility for us there's nothing that we're prepared to talk about right now.
Our next question comes from Kevin Fischbeck from Bank of America, Kevin Your line is open.
Great. Thanks, I was wondering if you could talk about the competitive environment, a little bit it seems like more and more companies.
This year, it's a lot of cash obviously the managed care companies.
This out it sounds like Youre, having a lot of success in hiring new doctor groups, but can you just talk a little bit about.
The competition for those groups.
If you don't win a group what is it that they're looking for that that youre not.
We're able to get and then.
Beyond the timing of these anchor or getting the tanker groups on board.
The competition for these local physician groups, adding in.
Any color there thanks.
Yeah no. Thanks for the question, Kevin I mean, I think the momentum that we're seeing with this local network effect.
With the success of our partners locally and nationally is fueling.
The acceleration in the same geography growth that we talked about and the interest in the new geographies.
From a competition perspective.
We are not finding ourselves in a lot of competitive situations. We do have the top of the funnel with more and more groups talking to us about an interest in making this move because of the macro factors that I talked about are really tailwind towards the move towards value.
So I think that the biggest competition, we typically face is inertia and probably not going to make that decision. This year, but even that is shortening Kevin based on those macro factors I talked about and the power of what we've been able to demonstrate with our network and that sort of referenced.
Capability.
That's helpful. I guess it gets to that intercept point I mean would you expect.
A bolus of these new additions to be really the next kind of three to five years, because it seems like there's a lot of momentum behind moving to these types of payment models and I wonder what would cause the physician groups can make that decision in 10 years rather than.
The next three to five.
Yeah, I mean, the delays are typically a year right do we do this on an annual cycle right and so you would join on on January 1st It's a year, maybe two years, but I.
I would agree with your thesis that I think youre going to see a tremendous acceleration in same geography over that three to five year period.
And I think youre going to see us and in many more new geographies over that over that period of time.
Alright, great. Thanks.
Yeah.
Our next question comes from Stephen Baxter from Wells Fargo. Stephen. Please go ahead.
Yes, hi, thanks.
Hoping you could talk a little bit more about the same geography outlook you provided for 2022 feels like it should look more like this year. There was sort of the overall growth rate of 10% I was wondering how we should think about how much visibility you have into that growth rate at this stage how much of it's coming from physician recruiting how much of it comes from any conversions from fee for service how much of this is coming from that.
Growth of the market, but love to understand that a little bit better.
Yes, so I mean, 15% same geography growth year to date.
In 'twenty, one super pleased with that components that drive that Steven obviously, the organic growth in which existing patients. In these practices that are turning age 65 choose Medicare advantage our fee for service folks that move over that kind of the bread and butter.
And we tend to do a little bit better than the local growth rate just on that component alone given the shop and compare program. We've got the retention rates that we're able to get the multiplayer experience.
Whats, becoming a growing piece of this is this improvement in access and other physicians joining locally.
It's the biggest part of that 22.
40 plus percent growth in.
In EMEA and 45% growth overall and in terms of membership is really the visibility we know who those groups are that are joining in January. We know those groups are who are joining further out in the year, the timing might slide a quarter, one way or the other but we have those groups are effectively in.
An implementation period of their own right now and so that that visibility forward.
The 22 and even into 'twenty three is really pretty strong around that and that will be a continued.
Continued driver of same geography growth, that's why we've talked about.
Low to mid teens same geo great growth on a sustainable basis.
Got it thanks, and then just a question on <unk> I guess would love to just know a little bit more about like what's the decision point for physicians about whether they're going to participate there I mean, they are clearly bought into the model on the Medicare advantage side. So I guess what is it that theyre not participated in DC like what's given them hold up and then just can you confirm again.
Like if it's not a downside protection question. It sounds like Thats still provided I guess, what would keep them from wanting to take risk on that population as well.
Yeah, I mean, it's kind of a.
A couple of factors that could have a group make a decision to not go. So we had two groups that did not go live in April.
Existing M. A groups that went live in January.
And in one case they were below our member threshold you have to have 5000 within a direct contracting entity and so they were too low and so by January they were up above that so that's just kind of a technical thing that affects SaaS.
In other situations, we've had people sitting with an ACO with local systems and others and so they want to get to a point at which they could make make them move beyond that all of our partners have had their patients in an ACO and theyre, making the move into direct contracting. So by definition you are making that.
That move over and some of those local dynamics could affect that.
But as I said sort of earlier to Lisa's question in 'twenty three I think we'll see more of the seven current markets that are in M&A, but not DCE make.
Make that move into direct contracting and then I think we'll have new geographies that will come on with both.
Got it thanks, and then just one last follow up on that topic.
I'd Love just could you remind us why does it you cant consolidate those results today, but you obviously can consolidate the Medicare advantage results and do you think this is something that could change at some point down the road. Thank you.
Yeah, Yeah, it's something that we could certainly consider in the future I mean at this point, we specifically set up the governance and the structure of the DC he's too not consolidate part of it as we talked about earlier in the year was just around an abundance of caution of Hey. This is a new program, we're not sure exactly where it's going and we thought it made more sense to do it in an unconsolidated.
And structure.
And so that is specifically the way that we set it up is it something that we could revisit in the future I mean, yeah.
Once if the program stabilize in and out in future years, we can certainly revisit that decision.
I think getting through a full turn in the annual program is going to give all of US a lot of visibility to all of these components and.
And how this plays through we're encouraged for all the reasons, we've talked about but we need to learn more.
Our next question comes from Gary Taylor from Cowen Gary. Please go ahead.
Hey, good morning, three quick questions as I look at your 22 membership guidance, it's a little ahead of our exit.
Expectations, which is great, but I want to make sure I just understand the implications of that when we think about the modeling.
And newer cohorts coming in at higher medical service expense.
To the extent, you're guiding above expectations on membership, we should think percentage medical service expense.
In a vacuum higher but dollars of medical March then a vacuum higher my thinking about that correctly.
I think thats correct right. So we will have higher 22 membership there is a dilutive effect.
All of these members coming on so they come on at a lower medical margin.
They historically have come on at a loss to breakeven from an EBIT perspective.
And so we would affect summit I expect some of that dilution. So as a percent of revenue you are correct in the way you characterize that in terms of total dollars you are right that medical margin dollars would be higher.
As a result of that.
Got it.
And then my other question was I think Tim said.
But 1.5 million direct contracting contribution to adjusted EBITDA This quarter.
And I'm, just trying to understand that versus the <unk>.
Q disclosure that shows.
Touch worse than breakeven. So are there just is the difference just.
New geography.
Adjustments for D C.
It is and so if you look at the disclosure you are looking at note four that has a slight loss and a net income basis and then you just refer back to the back of the queue, where it shows the <unk>.
Net income to adjusted EBITDA walk, you'll see a line on there for those.
For those entities and you can see that we've got geographic entry costs for the new ones coming in that basically bridge that gap.
Okay last question can you remind us over what trailing period is a surplus to a physician group.
Calculated so.
Obviously.
This week. This month, there was a surplus I'm sure that doesn't get paid out, but what's sort of the trailing period, where you calculate that surplus before it's paid to the groups.
So we have a pre or is it just correlation.
Now we have a very structured quarterly payment to make it predictable, but there is an annual true up that's done on the lag and there is sort of this this hold back component Gary.
Similar to how you would see in other sorts of programs for that that final true up with it. So if there is.
Significant red.
Our retroactivity that is ultimately flow through in terms of those payments but.
We really big part of our partnership is really being predictable with our partners.
So we've set up a structure that allows us to do that and sort of calculate out final result.
Is that a <unk> annual true up across the platform or is that practice specific states.
Yeah, I'm just trying to think about do we do we do we have to think about like at the end of the year in the <unk>. If there was something that's when we'd see a bolus of this or is it really more specific in terms of timing.
No I mean, I don't think there would be immaterial move in in Q4 with that I mean, there. There is a true up that occurs in the composite level, but it's a function of those practice level specifics Gerry if that's what you're asking yeah, I mean, I guess to the extent that there were some wild deviation.
As we've flowed into next year with run out it could drive something but I mean, generally speaking where we're pretty close on it. So we're keeping that we're estimating obviously those are reporting those out on a quarter to quarter basis, and I wouldn't expect that Ed.
The true up for the fourth quarter year end would be it would be any large number versus what it is every other quarter.
Okay. Thank you.
Yes.
Okay.
Yes.
Okay.
Our next question comes from Brian <unk> from Jefferies. Brian. Please go ahead.
Hey, Good morning. This is Jack Levine on for Bryan.
Thanks for all the color, thus far and wanted to continue on with that Pittsburgh case study a little bit two questions there.
One.
Can you give us at least in a rough sense, what the percentage of your members in that market are coming from U P M C or high Mark plans.
And then two as we think about portability of the model and sort of the maturation curve on medical margin. When we look at a market with that profile sort of dominant health systems.
Is it possible that those are going to skew.
Quicker maturation towards sort of like.
The mature medical margin you've talked about.
Or should we think about a lag there I guess trying to work through whether or not having that health system and the ability to coordinate across it should help maturation or if theres a little bit of.
<unk> may be related to hindrances in inpatient spend thanks.
There's a lot of that question so.
The first part of it to split roughly two thirds of the membership comes through the two plans slash systems that you talked about.
As we highlighted Pittsburgh is accelerating faster than we've seen in other markets.
The skilled nursing facility program.
Really leverages the strength of our partnership and the relationship that people have with their primary care physician.
And given the data and insights from our technology, we've been able to really work with a local partner here that's trusted.
We're seeing a higher enrollment into these preferred skilled nursing facilities and what we see is when the primary care partners here in Pittsburgh C patients in those preferred skilled nursing facilities. There is a significant reduction in terms of the overall MLR.
Really driven by much lower readmission rates and <unk>.
So that's the power of this partnership and platform coming together.
I can't imagine operating in a market like Pittsburgh without the strength of our partner like prefer.
Their credibility their history here their knowledge of the ecosystem combined with the alignment we've got through the partnership and the insights from the platform allows us to drive those sorts those sorts of.
Success, So I don't know that a multi health system market says, we're going to see slower progression on medical margin I think our ability to serve diverse geographies like Pittsburgh doing it through a partnership model and with our platform is the key to that.
And so we.
We can go to a lot of places to build around that right partner and have success.
Awesome, that's great color, thanks, and congrats on the quarter.
Thanks Jack.
Our next question comes from Whit Mayo from SBB Leerink.
Please go ahead.
Thanks, just a couple ones here.
Maybe you answered this but it wasn't clear to me to Gary's question is there anything about the characteristics of these new groups in 'twenty two that's different when I look at either the PPO HMO mix anything about the composition of their their panel that looks different than your legacy partners I don't know in pace.
And days per thousand.
You may receive for service or just anything when you sort of laid them side by side versus your legacy groups. You would say this is this is different which makes us more or less confident in the.
The implementation this year.
Yeah, I mean, I think we've got a diverse set of new geographies coming on in 'twenty two.
And in the implementations have been doing really quite well.
We look at the things like structured annual wellness visits that are going on we're feeling very good about where we're at but to those.
Your question about kind of how they lay out.
Got primary care only groups, we've got multi specialty groups.
We've got single 10 groups.
We do have one multi 10 group was kind of an organizing.
Entity across all of that and answer helped up in Michigan that is just leave the state in terms of quality and has an exceptional partner for us.
And so.
Those differences.
Don't lead us to different expectations in terms of.
Maturation around medical margins now they start at different places with and so as we've said all along we're comfortable starting with groups started different places great leader in their community great credibility.
Good alignment with us.
And with our platform, we're going to be able to and the partnership we're going to be able to drive that so PPO versus HMO mix for the class of 22 is roughly in line. We're still about 50 50 overall.
PPL continues to be the fastest growing product and growing faster than HMO and so my guess is that will skew towards the more significant majority over time.
But we feel really comfortable about our ability to manage full risk in a broad PPL market because of our focus around those those big spend areas those value areas within Medicare advantage.
Okay. So when you sort of average everything together they look.
Reasonably in line with the groups that you've on boarded in prior years is I think what I'm what I'm hearing.
I think I think that's correct yes.
Yeah.
Can we just go just the thing I'd add here with the class of 2022, and some of the L. O I's NDA for 2023, the enrollment growth in these markets is a touch higher and that that'll bring our overall average up.
So yes as a composite they are in the lower end may penetrated market. That's a good point, Matt and so we would expect that market growth will be higher and then our multiple on top of that.
We will drive strong same geography growth.
Okay, and one quick last one I just want to make sure I get this I wanted to unpack. This for a second because you've referenced palliative care and maybe redefine specialist networks, a few times and I'm not exactly clear are these are you, giving your physicians more tools and resources to me.
Manage this downstream risk I thought I heard something around maybe a narrowed or tiered network I'm just trying to understand exactly what's what's changing here and maybe just remind us on the specialist side, what your medical cost spend is.
Yeah. So I mean, two areas right, so palliative and specialty and what we're doing with is we're leveraging the heck out of that partnership and that patient physician relationship.
And their scale and history they they understand.
The players within the market, we're better identifying and palliative as an example.
Patients who are most likely to pass away in the next 12 months.
We're enabling that primary care physicians to have a a better quality conversation with that senior patients about what what they'd like to do over this next year and what the options are available to them and historically, that's a difficult conversation for.
<unk> primary care physicians to have.
In our markets, 25% to 40% of our costs sit in end of life. I mean, that's sort of the range that you see within that and so the ability to have a better identification of those most likely to pass away the ability to have a better conversation means you get a higher enrollment rate and then the ability to have.
A partner.
Local partner that you can refer those people into the primary care physician can feel really good about is very important.
In Buffalo, we've seen almost a 90% reduction in terms of hospital deaths based on the pre and post in terms of rolling out that palliative care program.
That is substantial its substantial from a cost reduction perspective, but we're also seeing patient and physician satisfaction go up with this this is an area of healthcare, that's really sort of under served and difficult.
To deal with and so that's where this partnership and platform together can really.
Affected and then specialist costs follow a similar thing we tier the specialists better identify them.
Our referrals go through a centralized referral empty, which means you end up with a higher pull through of people getting to that top tier specialist the specialist doesn't have to do that on their own and then theres a better outcome those top tier specialists. The cardiology example that we've given on our previous call it's like $100.
<unk> P M P M better for people being referred to top tier specialists.
So hopefully that gives you color.
Yeah, no. Thanks, a lot guys.
Yeah.
Thank you everyone for your questions. Unfortunately that is all the time, we have for questions. Today. So I will now hand back to the management teams any closing comments.
Thank you everybody for being on our call.
Think we're just really encouraged about our ability to drive predictable quality outcomes and in a volatile market I think we're excited about the scale that we're building locally in our communities and nationally and we're really bullish on our future. So talk to everyone soon take care.
Thank you everyone for joining the call today. This now concludes our conference and you may now disconnect your lines.
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