Q4 2021 Bright Health Group Inc Earnings Call

Okay.

Hello, and welcome to today's Brighthouse Group fourth quarter 2021 earnings Conference call. My name is and I'll be COVID-19, you're cool thing if you would like to register your questions. During the presentation. You may do so by pressing star followed by one on your telephone keypad.

I'd now like to hand over to our host Stephen Hagan Director of Investor Relations. Please go ahead.

Good morning, and welcome to Brighthouse group's fourth quarter 2021 earnings Conference call. A question and answer session will follow bright health group's prepared remarks as a reminder, this call is being recorded leading the call today are Brian Health group's President and CEO , Mike Mike.

<unk> and Chief administrative officer, Cathy Smith.

Before we begin we want to remind you that this call may contain forward looking statements under U S. Federal Securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found.

And the reports that we filed with the Securities and Exchange Commission.

Including the risk factors in our current and periodic reports, we file with the SEC, except as required by law, we undertake no obligation to revise or update any forward looking statements or information. This call will also reference non-GAAP amounts and measures a reconciliation of the non-GAAP to GAAP measures is available in the comp.

<unk> fourth quarter press release available on the company's Investor Relations page at investors that bright health group Dotcom information presented on this call is contained in the earnings release, we issued this morning and in our form 8-K dated March 2nd 2022, which may be accessed from the Investor Relations page.

The Companys web site.

Before we start the call I'd like to note that bright health group will be participating in two upcoming investor conferences management will be presenting at the Cowen Health care Conference on Monday March seven and hosting investor meetings at the Barclays Healthcare conference. The following week with that I'll now turn the conference over to Frighten Health Group Chief Executive.

Officer, Mike Mike.

Thank you Steven.

Good morning, everyone and thank you for joining bright health groups fourth quarter earnings call.

I'll provide some brief introductory comments and then turn the call over to Cathy Smith to discuss our fourth quarter and full year 2021 results.

I will then conclude our prepared remarks by going over the specific actions, we're taking to improve near term performance and best position Bright health group to drive sustainable profitability and long term success.

We always start with our mission, which is central to what we do at bright Health group.

Making health care REIT together is built on the belief that by connecting and aligning the best local resources in health care delivery with the financing of care, we can deliver better outcomes at a lower cost for all consumers.

Great Health group is building a truly unique model that we believe will transform how health care is delivered.

We believe when health care is delivered in a fully aligned and integrated care model, we can bend the cost curve and most importantly enhance value for both consumers and providers.

Great Health group achieved substantial growth in 2021, reaching over $4 billion in revenue and we are enthusiastic about our positioning for 2022.

Having reached the milestone of over 1 million Health plan members. We now expect enterprise revenue for 2022 up six eight to $7 $1 billion due.

Due to the strength of our member growth in OUP in AEP as well as external payer growth at new health.

We have always expected some variability in our results as.

As we executed on our strategy to quickly gain scale in the business.

And as we closed out 2021, we saw that play out.

The meaningful growth we delivered in 2021.

Which was a combination of higher than anticipated growth to start the year.

And additional growth from the special enrollment period.

[noise] outpaced our operational and system capabilities.

In addition unique factors in 2020 , one that we have previously highlighted including a once in a century pandemic an.

In our large group of new members without risk scores.

Combined with scaling up our organizational capabilities in emerging technologies impacted our results into the fourth quarter more significantly than anticipated.

As Kathy will discuss in more detail. These factors impacted our ability to engage with our members in order to accurately capture their underlying health conditions and impacted prior period medical costs as we caught up on claims processing.

Despite a challenging 2021, our larger base of business along with continued growth in 2022 affords us a tremendous platform to continue executing on our strategy and driving long term shareholder value.

We have conviction on the differentiator results that we can drive through a fully aligned care model and are taking specific actions to focus the company.

Improve our systems and processes and drive profitable growth.

We are continuing to invest in building out our new health business and have successfully expanded new health own clinics outside of the Florida market. While also continuing to build our affiliated care partner network across the country.

All of the challenges we encountered this past year can be attributed to specific areas that we're already on our list for improvement.

But the growth we experienced exasperated the gaps in performance.

We made significant progress correcting these issues and our operational capabilities in 2021, which will help drive improved 2022 performance.

And we see opportunities for substantial further improvement over the course of 2022.

Great Health groups differentiated model continues to attract members and drive strong growth.

We remain on the path, we outlined at our Investor Day in December and our core strategy Hasnt changed as we look to serve consumers with a fully aligned care model that drives better care and lower medical costs.

Within this strategy, we are refining our model and we are taking actions to drive better performance in 2022 and beyond as we continue to target breakeven adjusted EBITDA in 2024.

Our 2022 guidance reflects the pricing actions and medical cost initiatives, we took and the improvements that we've made to our business balanced with the work that is still outstanding for this year.

Well, we appreciate the team that got US here as we move to the next phase in our growth and strategy, we need different talent and skills and have taken action accordingly.

Consistent with this evolution, we were pleased to announce yesterday that Matt Manders joined our board as an independent director.

Matt recently retired from Cigna as the president of their government and solutions segment and is an experienced healthcare operator.

We expect bright health will benefit from his experience and the consumer directed health care space, and then health care solutions given his deep expertise in both areas.

And now Cathy Smith, our CFO and Chief administrative officer will take us through our results.

And then I'll provide some additional comments on the actions we have taken to drive improved results in 2022.

And position us for long term success Kathy.

Thank you, Mike and good morning, everyone.

I'll begin by going over our fourth quarter and year to date results and will then provide updated guidance for our 2022 full year outlook.

In many aspects we accomplished a lot in 2021.

However, we did not deliver the financial results we had plan.

Let me be clear.

We are very disappointed in our financial results and our swiftly working to improve and provide more predictability into our results.

Our fourth quarter top line results continue to reflect the strength of our 2021 number and revenue growth.

Health group consolidated revenue increased 167% year over year to $962 3 million in Q4.

Great Health care segment revenue for Q4, it grew 169% year over year to $949 $8 million and new health fourth quarter segment revenue of $175 million compares to just under $10 million in the prior year.

Our fourth quarter gross margin was a loss of $351 $2 million and our adjusted EBITDA was a loss of $790 $1 million with both items impacted by our increased risk adjustment and IV in our estimates continued COVID-19 Cai.

And a noncash $103 million 2022 premium deficiency reserve.

The significant deterioration in our result, since our guidance was due to specific identifiable issues, including COVID-19 costs catching up on claims payments and resulting resubmitted claims.

This was compounded by our lack of visibility into lagging medical claims on our legacy operational systems, which require manual processing.

We have improved our claims processing operations and procedures and as we started 2022, we were operationally in a significantly stronger position.

A key driver of improvement is the move to our new claims management and administrative platform for our new markets and improved processes and workflows for all of our markets.

The increases in medical costs due to COVID-19 and the topline headwinds.

Associated with risk adjustment are reflected in our medical cost ratio in the quarter.

On a reported basis, our fourth quarter 2021, NCR at the enterprise level.

34, 1% up from 105, 4% in the fourth quarter of 2020.

Covid had a negative impact on our MCR in the fourth quarter of 860 basis points compared to 650 basis points in Q4 of 2020, the fourth quarter 2021, Covid impact to our MCR included $56 $5 million of Covid costs related to prior quarters.

<unk> contributed 580 basis points of the MTR impact recognized in the quarter.

Our risk adjustment performance in the fourth quarter also reflected the claims processing issue, where our challenges and capturing the risk of the population was in part due to the lack of timely insight into data, which drove the insufficient engagement and care management.

We increased our risk adjustment payable estimate by $148 million, reducing fourth quarter revenue of $111 million relates to prior quarters.

We also recognized $139 million in prior period medical costs in Q4.

The combined impact of the prior period risk adjustment estimate changes and the prior period medical costs were $26 four percentage points to our medical cost ratio in Q4.

Our expense ratios were also impacted by the noncash GAAP premium deficiency reserve of $103 million, we book in anticipation of future loss contract in certain markets in 2022.

Turning to our full year 2021 results compared to the full year 2020, our revenue increased 234% reflects strong membership growth, including the contribution from S&P.

All your 2021 Bright health group revenue was over $4 billion.

Our membership growth throughout the year the inability to capture the risk of the population research and direct COVID-19 costs drove substantial MTR deterioration in 2021.

Our full year adjusted EBITDA declined to a loss of $1.08 billion, including the $103 million PDR booked in the fourth quarter.

Versus an adjusted EBITDA loss of $239 million in 2020 as I laid out at our Investor Day, we expect to drive improvement in our operating cost ratio each year.

Made significant progress on our operating cost ratio in 2021 with a full year ratio of 37%, reflecting a 320 basis point improvement compared to 2020.

But it was above our target for operating cost ratio due to higher expenses, including the PDR and the pressure on revenue from risk adjustment. We continue to view 2021 as the peak of inefficiency as we consolidate our systems and processes and as Mike will discuss we are taking.

To drive our operating cost ratio and meaningfully lower in 2022.

The 2021 MCR performance in both of our businesses was impacted by the confluence of Covid unprecedented growth and the extended 2021 special enrollment period.

With a 2021 NCR of 101, 3% compared to the 88, 7% in 2020.

Covid costs in 2021 impacted our NCR by 530 basis points compared to 400 basis points in 2020.

I wanted to spend a minute unpacking the 2021 medical cost ratio in a bit more detail given the magnitude of the variance to our previous guidance.

While we are overall pleased with our book of business. We are disappointed in the operating results and can point to specific areas that drove the variance most of which we believe are onetime in nature and won't reflect the run rate NCR of our business.

I will speak to our forward expectation for these items and the implications for our 2022 adjusted EBITDA in a minute.

For 2021, the challenges we had in risk coding accuracy drove 650 basis points of MTR pressure compared to 2020.

This was related to our delays in attributing members in part due to our rapid growth in 2021 as well as the impact of the.

Our unique 2021 special enrollment period.

Operational inefficiencies contributed 310 basis points to the year over year MCR increase through.

Higher than expected medical cost and other medical cost management issues.

Medical costs related to the SCP population and other mix changes contributed 180 basis points to the increase.

Finally, there was an incremental 130 basis points of year over year Covid costs in our GAAP MCR, resulting in a total COVID-19 contribution to 2021 MTR up 530 basis points.

Covid costs in total were a major headwind to our 2021 results with full year COVID-19 costs of $208 million well.

While COVID-19 costs for care delivered in the fourth quarter were better than our expectations to $56 $5 million of Covid costs in the fourth quarter of 2021 for care delivered in prior quarters is an example of the catch up on the backlog and claims I mentioned earlier.

Well not how we manage our business. It is worth noting if you exclude COVID-19 and other likely one time impacts on performance such as elevated risk adjustment 2021 would have been closer to a 90% medical cost ratio consistent with our expected MCR given the growth and diversification of our book of business.

<unk>.

Looking at our new health business, we served over 175000 patients under value based arrangements at the end of Q4, reflecting strong organic growth and the closing of the syndrome acquisition at the start of Q3 2021.

New health is well positioned for 2022 through the expansion of our owned clinics growth of affiliate care partners and new external revenue streams.

2021 revenue for our new health business was $493 $2 million, reflecting strong organic growth two quarters of contribution from the Central Medical Holdings acquisition and the contribution from investment income.

The year to date revenue represents growth of over 200% compared to the prior year.

Our new health business in the fourth quarter experienced a headwind from investment income of approximately $29 million, resulting in full year investment income of $80 million excluding.

Excluding the contribution from investment income the 2021 revenue growth rate for new health with over 1000%.

We will continue to grow and expand our new health footprint in 2022, as well as drive growth through multiple external revenue channels turning to our balance sheet as of December 31, 2021, we had approximately $198 million in nonregulated liquidity, including $78 million in highly liquid cash.

And investments and $120 million in the passive equity investments classified as short term.

In January we closed the sale of series, a preferred stock, which contributed $750 million in proceeds.

The nonregulated liquidity figure does not include $1 $7 billion of additional cash and equivalents held by our regulated insurance subsidiaries.

<unk> on our 2022 plans, we believe we have sufficient liquidity to meet our near term liquidity needs and support the continued growth of the business.

We are updating our full year 2022 outlook and we now expect enterprise revenue to be in the range of $6 eight to $7 $1 billion above our prior guidance range on external pair growth at new health and the strong bright health care membership growth in AEP and L. P partial.

Offset by a more conservative view on our estimated risk adjustment payable.

We expect our enterprise medical cost ratio to be above our prior guidance and are forecasting a reported MCR range of 90% to 94%.

This upward revision reflects the higher medical cost trends in 2021 offset by the efforts we are taking to improve performance.

We are also updating our forecasted guidance on adjusted EBITDA for full year 2022 to a range of a loss of $500 million to $800 million.

Included in 2022 guidance, our cost savings actions, we have already taken this year.

And combined with our higher revenue expectation, we expect to outperform the 22% to 23% operating cost ratio outlined at Investor day.

We have widened the guidance range for medical cost ratio and adjusted EBITDA to reflect various scenarios for the remainder of the year.

On a segment basis, our revenue forecast reflects an estimate of approximately 1 million end of year members for bright health care consistent with a positive enrollment update we provided in January .

We are also forecasting full year 2022, new health revenue of $2 3 billion.

With the increase to our new health forecast, reflecting a modestly higher expected by health care contribution strong external payer growth and greater visibility on the direct contracting program. We now expect approximately 40% of the new health revenue will be generated from external sources, we are growing the pipeline of opportunities for new <unk> external revenue.

Including bringing in new pairs and expanding our existing payer relationships.

CMS recently announced the 2022 participants for the direct contracting program with new health named as a participant through our positions plus organization participating in six states.

We expect to have approximately 50000 lives under management in the D. C model and a total revenue contribution of approximately $700 million.

We see the direct contracting program and the newly announced ACO reach model as a great long term opportunity for addressing the Medicare fee for service population and believe new health is well positioned for success in that program.

For 2022, we expect to drive a significant improvement in our adjusted EBITDA.

We have provided a bridge in the slides posted to our Investor Relations page today to help show the impact of the actions we have taken and key tailwind that we expect will support our 2022 EBITDA improvement in.

And Mike will provide further details on each but first I'll lay out the financial impact.

We expect the benefit of increased ISP volume net of the changes two P. M. P M revenue expectations to drive $200 million and incremental gross margin and EBITDA benefit year over year.

We expect the significant progress we have made in our efforts to better manage medical costs combined with our expectations for Covid expenses relative to what we have included in our planned pricing to contribute $325 million in gross margin and EBITDA benefit.

We expect our risk adjustment efforts and the business tailwind for 2022 to drive $175 million benefit to EBITDA.

We have also taken targeted actions around operating expenses combined with the 2021 impact of the $103 million noncash PDR to driving approximately $200 million EBITDA benefit.

Operating expenses to support the continued growth of the business and other smaller items are expected to be negative to the 2022, adjusted EBITDA bridge by $470 million.

The combined approximately $430 million impact of the items I detailed results in a bridge to the 650 millions of dollar loss at the midpoint of our 2022 adjusted EBITDA guidance range.

Before I turn the call back to Mike I want to appreciate our amazing breakout team across the country working together, we are changing health care. Additionally, I want to thank our shareholders for your continued support as we build a national integrated system of care.

Now here's my for additional insight on our strategic efforts, we are making to drive better operating performance and improved profitability.

Thank you.

You heard from Kathy 2021 was a year of both challenges and opportunities for bright health group and we expect results to be meaningfully better in 2022 or.

Our strategy has always been focused on driving the business to scale, which.

Which we reached an important milestone on this year.

This level of growth however, created challenges for the business compounded by the unique circumstances of an extended SVP and COVID-19 .

While important to reflect on those challenges I wanted to spend a few minutes speaking to the specific actions we have taken.

As well as the tailwind for the business that I believe will position us well for 2022 and beyond.

We have taken specific actions against several areas that will impact near term performance.

One <unk>.

Net pricing action in core markets we.

We took pricing action in excess of our expectation for underlying medical cost trends for the majority of our membership in legacy <unk> markets.

While still being able to demonstrate meaningful growth.

In addition, we priced in Covid at 2% across our book for 2022 to reflect the risk of future Covid related expenses.

We also are focusing on pricing is an important lever in 2023, as we continue our path to profitability.

Two unit cost and medical management reduction initiatives.

We identified several unit cost and medical management opportunities in 2021 across both our ISP and Medicare advantage businesses that candidly, we were unable to capitalize on in 2021. However, those efforts are demonstrating significant value in 2022.

These medical cost efforts are in addition to the net pricing actions we've taken.

As we gain scale and optimized our processes, we were able to renegotiate ancillary and pharmacy contracts.

Reduce out of network rates optimize existing contract structures more closely manage high cost cases, and improve our specialty provider network.

Optimizing the care network is an ongoing process that requires data on our members and volume.

Which we now have significantly more of each and better systems to provide visibility.

Three risk adjustment actions.

Accurate risk adjustment was a challenge due to several structural issues in 2021 as I have discussed.

However, those challenges drove us to make significant investments in our risk adjustment capabilities.

It starts with faster attribution of our members to a larger network of owned and affiliated physicians that have better ability to engage with their members earlier in the year.

Equally important are the tech and operational investments, we have made in suspecting analytics.

Outreach and engagement teams and our end to end risk adjustment process to ensure we are accurately capturing the risk of the population we manage.

We are also working to help members better manage and navigate their care, which we expect will drive better in network trends.

Four.

Claims and clinical platform stabilization.

As I mentioned in 2021 our growth.

Caused us to out kick our coverage.

Not only in the capacity of our fully aligned provider networks.

On our administrative operational and clinical systems as well.

This growth was taken place, while we were building or transitioning from numerous vendor solutions to bias our end state operating platform.

And as we go into 2022, we have.

First fully transitioned to our new finance and people systems.

70% of our membership is on our proprietary clinical system Panorama.

And all of our new market membership.

He's on our new claims administration platform with the remainder of our ISP membership to migrate on 112023.

Having our business on by US provides us greater visibility and efficiency.

The benefits of which we are already seeing today with faster claims processing times more accurate payments.

<unk> standard denial rates and more timely and complete consumer data just to name a few.

And five we are addressing talent and cost structure.

A high performing team is critical to our ability to improve performance and drive sustainable results.

We continue to evolve our team adding expertise as needed.

And have taken specific actions to reduce the cost structure eliminate redundancies and drive efficiencies across the organization.

While we appreciate the team that got US here, we have made some specific management changes to position us for the next chapter of profitable growth and performance.

Shifting to the company and industry tailwind.

Wanted to highlight five specific items that alongside the actions. We took we believe we'll have a demonstrable impact on 2022 performance.

One scale.

And diversification.

We achieved solid growth in this year's annual and open enrollment periods, starting 2022 with significant scale.

At more than 1 million health plan members.

And 400000 lives under risk based contracts.

This scale not only allows us to better manage population risk and reduce volatility, but our density in specific markets such as California.

Texas, Florida, and North Carolina.

Allows us to better engage with providers and be a more meaningful portion of their overall business.

Two.

Higher retained membership.

Inclusive of the impact of.

Approximately 85% of our <unk> membership was new to us in 2021.

While new members to start 2022, including new markets account for approximately 55% of our enrollment.

We also benefit from strong renewal rates with a retention rate of approximately 79% in our mature existing markets.

This has numerous benefits to performance, including more data and information on our members to help us better manage the population and accurately capture member risk.

Three normalized special enrollment period.

The 2021 special enrollment period, while providing us with continued growth over the course of the year came.

It came with it unique challenges with regards to performance.

The shorter member duration and higher acute care cost for those members.

All against the backdrop of Covid made it very difficult to engage with this population and accurately capture their risk.

We expect a much more normalized S&P this year.

For rich.

Reduced operational backlog.

The operational challenges, we saw because of our 2021 growth caused us to spend significant time and effort last year working through an operational backlog.

Like our challenges with risk adjustment, we made significant investments in the team and systems I mentioned and.

And we're far better prepared for the growth we saw this year.

This will allow us to better engage and respond to issues and more effectively manage performance within our population.

And last five endemic Covid.

Finally, while I believe COVID-19 will be with us in some capacity for the foreseeable future. We don't expect it to be nearly as acute as it was last year.

With the increase in vaccination rates, while cases of Covid may continue the direct COVID-19 costs, we expect will be more manageable.

We also continue to explore ways that we can work with Cigna and have identified several opportunities with work streams in process on these.

Well, we are just a few months into the relationship. We are excited about the potential of our two companies working together and the ways that can help strengthen our business and enhance bright health capabilities.

We are looking to the future and our confidence in near term steps that we're taking to improve our performance we will optimize the business for long term success.

In closing we remain convicted on our strategy for bright health and the strength of our fully align care model in the face of substantial growth and a uniquely challenging year in 2021.

We are confident that the combination of our bright health care and new health businesses are built for where the health care industry is going.

We are targeted at the growing consumer retail health care market and are leaning into serving this market through a fully aligned and integrated care model that combines the financing and delivery of care.

We are strengthening our foundational capabilities for a sustainable and durable results with greater visibility that will drive improved forecasting.

As I look to the future I want to conclude the prepared remarks for why my team and I are so excited about the future.

We have a scaled and diversified platform that is purpose built to integrate the financing and delivery of care we.

We are a market model that is flexible to meet local market needs one that drives differentiation through our care partner relationships.

We're developing a proprietary suite of technology that is specifically built to enable the fully aligned care model.

And finally.

We're seeing both performance and most exciting external growth and interest in our new health business, where.

Whether new external payer contracts that are looking to new health to manage their populations are new programs, such as direct contracting which we believe is at the leading edge of where Medicare is going new health is developing a robust pipeline of future opportunities.

I'd like to thank the more than 3000 bright health employees, who are hard at work executing on our strategic priorities and making health care REIT by working together.

I believe we have the team to execute on our model that is built for the future of health care.

Operator, now, let's open it up to questions.

Thank you for our Q&A, if you'd like to ask a question. Please press star followed by one on your telephone keypad now if you changed your mind. Please press star followed by two.

When preparing to ask your question. Please ensure your phone is on mute locally.

Our first question today comes from Lisa Gill from Jpmorgan. Please go ahead.

Alright, Thanks, very bad for all the detail.

I just want to go back to really understand a little bit better what happened between the Investor day in December our comprehensive in January and today, where your risk adjustment accruals came in much different than expected. So a few things one.

Are you, making any changes to the accrual process itself and then secondly, you did raise price right. When we think about the individual market, but what gives you confidence that you are able to price correctly as we think about going into 2023.

Yes.

Yeah, Hi, Lisa.

So.

With respect to what change between.

The time periods that you referred to is.

It's a confluence of factors as you can imagine.

The different areas that we talked about in terms of challenges is a compounding effect, but it starts with operational limitations.

And we were in the from the beginning of the year with all the growth that we had.

We had gotten from 2021.

We had to build out more network the coverage from akzo standpoints loading our contracts, we made errors in loading and so early in the year, we had a challenge.

With processing claims and so the later part of the year, particularly in the fourth quarter, we processed somewhere around 40% to 50% of our underlying claim expense.

In that time period, obviously with that amount of claim processing.

We didn't have the data or the insights to really understand how we were capturing the risk codes and what other underlying medical trends, where we've seeing and so as that came to fruition through January as we closed out our books, obviously, we determined our estimates and were impacted by an.

Kris and risk adjustment as well as claim processing when you look at risk adjustment.

Unfortunately for US you know there were many different factors that impacted us in the year. It had to do with obviously, starting with the new member base, 85% of members being new to us and substantial growth, but then the S&P kicked in and we got new lives.

And we were late to attribute them to our own medical centers in our affiliate network and so engaging with them why didn't occur until later part of the year, which is too late which we talked about in Q3, we talked about that in Investor day and onward.

What we didn't really understand was the impact of not having the data from the all the claims that we had denied early in the year and that impacted our understanding of the diagnoses versus the claims that were paying so there are cases, many cases, where we have now identified that we paid for certain <unk>.

This is but we don't have the original medical diagnosis because it happened prior to our watch and we cant cold for that effectively. So there are things like that that have been happening that happened to us in 2021 that we believe we're much better positioned for in 2022 and those are some of the actions that we've talked about it starts.

With we got to get on a new platform, which we made the decision to do the good news is all new markets or add a new platform.

The other good news is starting in the later part of the third quarter into the fourth quarter with our outside vendor on our legacy system, we were able to.

Build our own team or put our own team into that system. So we can improve performance. So it all comes down to you know.

Attributing earlier in the year, two providers getting that giving them the data to engage with those that have higher chronicity.

And then a better data to manage them going forward and we're starting the year in a much better position.

Then we were obviously in 2021.

With respect to pricing.

As I mentioned, we look to many different initiatives to improve underlying gross margin pricing is one lever pricing is a consideration for us we're going to look at markets that are that are we believe we've got opportunity to take pricing up and then we're also going to look potentially some markets.

Lisa that don't necessarily fit our long term plans and so where we can't see differentiation or a path to get the gross margin contribution we want to.

We'll consider those for potential exit so I recognize that's a long winded answer, but there's a lot in that two to answer that so I appreciate that.

Yeah.

Thanks very much.

Our next question comes from Kevin Fischbeck from Bank of America. Your line is open.

Great. Thanks.

I guess I wanted to drill into two of the issues that I think you cited as.

Kind of.

Problems in 2021 that should.

Large or some degree be addressed in 2022, I guess first the systems issue does it was there any part of the business in 2021 that was on the current system, that's you're on it and if so.

Did that perform differently or better than the rest of the business and then to your model is about getting people into high performing networks, either third party or through new health and is there it sounds like the rapid growth kind of.

Meant that you needed to kind of pull together a broader network.

Than normal is there some way to kind of bifurcate. The performance of membership that was kind of more within that normal network that you would have seen versus the membership that kind of ended up being outside that so we can kind of see and give some proof points that the core model is performing better.

Yes with respect to the.

Go forward system.

122 was the first time, we put new markets on that and we made a specific decision to not migrate other markets to make sure that we were starting a new and make that we've had all our kinks worked out in 2022. So we can migrate for 'twenty. Three so we are looking at early activity.

We're very pleased with our so far performance.

So.

We're we're looking forward to that that migration in 'twenty, three but no. We don't really have any other experience on our go forward system.

Other than what we put on it which is about 30% of our membership today.

With respect to the the underlying performance of the cares our own care centers and the affiliate network versus the broader curated network, we believe that.

Managing our underlying medical costs and our own care centers.

As demonstrated with external customers that we've had not just bright health care that we can demonstrate we can.

Provide care at a lower cost.

The risk adjustment impact to both our own care centers and our affiliate network was pervasive regardless of whether it was in the.

The curated network versus our affiliate our own medical centers and that skews the results from a gross margin perspective, but with underlying medical cost we see <unk>.

Advantage and we do believe over time, we're going to see greater engagement and better integration with data with our specialist network our care partners systems, and what have you and we're going to do a better job of accurate coding with the integrated model. Unfortunately it is.

2021 was a challenge for us for the same reasons I talked about earlier on risk adjustment and Thats no different within the bright healthcare business versus new held for bright health care business. If you look at our external customers. We've seen the proof points. So they perform better than better than the average and that's what gives us conviction that our <unk>.

Model is is sound going forward.

Alright, great. Thanks.

We now turn to Steve Valiquette from Barclays. Please go ahead.

Hi, This is Eric Glynn on for Steve. So in January you gave an update that you had a little over 1 million members at the end of the annual enrollment period, and I think you confirmed that today.

And the guidance is calling for about 1 million at the end of the year. So is the current assumption that you'll have like the normal monthly attrition in the ISP business like.

Partially offset by gains in M&A throughout the year and.

Is there any assumption baked in for Medicaid members that are being re determined starting in call.

Two Q and then rolling into your IP book or is that just.

Pure upside to the guidance. Thanks.

Yeah enrollment you're right, we're assuming normal attrition, we don't expect the S&P activity.

That we saw last year. So that's what gets us to around end of year approximately million lives and we don't have anything in our assumptions for Redetermination. It's we don't understand the timing, yet and and how the states would roll it out or what impact it would have in 2021. So we didn't put anything in our forecast.

Our 2022, sorry, and I would add to your right on Medicare advantage than we do assume in year growth.

In Medicare advantage as well.

Okay. Thank you.

We now turn to Ricky Goldwasser from Morgan Stanley . Please go ahead.

Hi, This is Michael Hart on for Ricky.

For the question.

In terms of the capital position I know you mentioned you have sufficient liquidity, but most of that $1 7 billion. You mentioned, you can't really touch because of statutory capital reserves.

I'm looking at your current liquidity correctly, if you can confirm or not yet.

You have about 200 male and nonregulated parent cash which include short term investments. If you add the 750 no capital raise on top that's about 950, but you've already use about 150 to pay down credit facility borrowing 200 infused into your regulated insurance entities. That's about 600 ml and then you add on 300 Mil.

Under your current facility credit facility. That's about 900 is that correct and I'm missing something and if so you may have just enough to finding growth.

'twenty three but how do you view your capital position cash burn heading into 'twenty, four and 'twenty, five and with 70% growth how should we think about the balance of investment and cash conservation going forward. Thanks.

Yeah. So good morning, Mike Yeah, largely your mouth as I in the right direction, but what I would say is we feel based on our plans for 2022, we've got sufficient liquidity to meet our near term needs.

And with our path to breakeven more clear, obviously that will start to lessen our dependence on our on.

Capital needs as well and then growth in mix of the business are going to clearly have a big impact on what that capital need as you know we have many levers we can pull.

Additional cost structure, we can continue to look at regulatory capital quota share arrangement, which we have some of our pricing is always a lever growth as a lever and then as Mike.

I mentioned earlier, we can think about potential exit in non differentiated market.

Oh, okay.

Okay.

Go ahead.

Our next question comes from Jeff Garro from Piper Sandler. Please go ahead.

Yeah. Good morning, Thanks for taking the question I wanted to talk about the FY 'twenty for breakeven target and it seems like that now implies a steeper ramp of MCR improvements from FY 'twenty two to FY 'twenty four so what gives you confidence that you can approach your long term MCR targets.

By FY 'twenty four.

Okay.

Thanks, Jeff.

Scale matters and that drive significant opportunities for us to improve underlying medical cost we know the community better that we serve that's going to have a better risk coding opportunities.

And then also just our ability to price to our underlying capabilities. So now although we've got the scale you know.

Obviously, we've been in heavy growth mode up until this point, but by strategy. We wanted to get to scale. Obviously, we are hoping not to have the magnitude of the challenges we had in 2021, but between scale knowing the community better ability to capture code medical cost initiatives by re contracting in the network.

Sure.

Underlying medical management capabilities, and then getting on one system. So we have one record for the consumer overall that we can manage the population holistically.

And helped through care navigation, we believe by those different levers.

It's going to be a big contribution to that FY 'twenty four.

<unk> ability I'd also say our integrated model on new held the growth in external business and what have you provided another profit stream for us and another contribution to that.

That driver or that end goal or I guess next major milestone 2020 for breakeven. So those those areas plus new health gives us confidence that we're on path to get to a breakeven adjusted EBITDA for 2024.

Got it thanks.

We now turn to Justin Lake from Wolfe Research Your line is open.

Thanks, Good morning.

A few follow ups here a quick.

First Mike you know.

I appreciate the comments on repricing and maybe some market exits.

As you think about that path to 2024, given the repricing could cause some membership market exits what do you think the top line growth as you know I assume it moderates, but where do you think credit topline shakes out just from a broad perspective do you think it could be flat next year for instance.

Well Justin I appreciate the question and we are evaluating Jay Madhu Shack, our interim CEO and Bob and his team are evaluating all of our markets as we're going into pricing our underlying cost structure. Our carrier partner network that we have and just really how we are.

Position for differentiation. So we haven't made those decisions although were close to making those decisions. So I don't want to get ahead of that Justin but we still believe growth I mean, we're a growth company. We believe in scale, we believe will grow in our core markets.

At this stage and so.

But youre not going to see the level of growth that we've shown to get to this to this point and then I do you know that's on the bright health care side, we do see growth opportunities, what we consider to be more capital efficient growth with new health and we think that's a real differentiator and you've seen that business. We just put out guidance at two.

Three.

Dollars and opportunities with external payers in our existing markets new market potential that we use that.

We are considering the BCE or ACO reached a program that we think is right in line with our model care partner model around.

Physician owned practices. So all of that we believe is going to continue to drive growth, but the key is we need to drive the profitability, we need to get our underlying cost structure in line, we need to get to one system and then we need to drive other growth profitable or capital efficient growth opportunities within new health.

And we think that that bodes well for us.

Okay, and then Kathy you mentioned you know along the lines of capital that you felt like you have sufficient liquidity for the near term could you just talk about the.

But when.

When you say near term does that get us through at least the end of the year.

Or are you talking about you know over the last quarter or two.

Oh, Yeah, no through the end of the year to your point 12 months or so thats, obviously always what we look at it.

Focus on.

No I would mentioned Justin just you know.

We do.

I would just note the levers that Kathy talked about where we're managing to optimize capital we understand its importance. Obviously 2021 didn't turn out the way we wanted it to but we've been taking actions all along we didn't just start in January we've been managing to a better cost structure to improve medical.

Cost management all of those things in addition to the quota shares that Kathy talked about potentially exiting non core markets that.

Have a have a capital impact.

Impact in our cost structure, we took strong.

Strong action to reduce not just our forecast cost, but underlying costs and were going to continue to do that and as we migrate more to one system, we're going to see significant opportunities there Justin and Thats imminent, that's coming as we get there because we have a ton of redundancies, we had to add a lot of cost.

Last year, because we didn't do a lot of manual processing and we start the year in a much better position. So for all those reasons, they're going to help contribute hopefully to a better capital position and then I would just note this as well.

Entering into the biggest markets in health care, Texas, Florida, and what have you is it's taken a lot of capital where in those markets. We've got a strong capital position. So as we've talked about before once you get the scale you you don't have the capital burn rate that you do leading up to it. So you also feel favorable about.

The position there as well.

So let me just squeezing more and more of the.

<unk> hundred $3 million P D R.

Can you give us a ballpark estimate of how much of your 2022 revenue.

Premier was associated with that.

Yeah, I guess, just I'm not sure how to answer that question PDR or you know obviously that.

<unk> is a requirement when you have written a loss contracts up for 2022 we evaluate in aggregate the entire book So all of <unk> versus all of MAA and we have to look at what our expectations are for gross margin versus the a limited amount of the operating expenses and that sets up the rig.

Climate, So we actually look at it in aggregate for all of the ISP business versus all of the MA business.

But my understanding is that you would have to look at that business by business right and you want to take a loss. If you take a PDR and stuff do you expect to lose so I guess, all I'm asking is what percentage of your membership of premium.

You had to take a you have to take a P. D R.

Let us let us follow up with you.

Yeah on that question specific topics.

We appreciate it and we'll follow up beyond that Jonathan.

Thanks.

Our next question comes from Jason Casola from Citi. Please go ahead.

Oh, great. Thanks for the question I just wanted to go back to the previous question around Medicaid Redetermination. I know you noted that there was nothing that aren't guidance, yet, but maybe can you just help describe past experience for when individuals have rolled off of Medicaid and you pick them up in your Iot business and the ability to match payment the health status of those individuals' I'm just try.

To understand how the capture of the Redetermination could differ from a 2021 I see key experience around the risk adjustment capture argument. Thanks.

Yeah.

I think it's best that maybe I would answer it in this way you know put S&P last year. Aside if you look at the typical life events that occurred during the year and enrollees come in we're able to do a really good job.

In normal run rate to be able to capture the risks and manage the population.

Obviously with the way SVP occurred last year, where we got a significant influx capturing the data.

Well posed to be a challenge so we.

We would be managing it very closely on how we would.

Pay commissions, how we would design our benefits for those type programs and we're going to manage it very closely because we don't want to incur the same situation that we've we dealt with in 2021. So I think that's the best way I can answer it at this point.

Yes.

Okay. Thanks.

We now move to Sarah <unk> from Goldman Sachs. Your line is open.

Hi, This is actually Lindsay on for me. Thanks for the question.

No MLR guidance implies me Tonight.

Basis points of improvement in MLR could you help us bridge from the 2021 MLR to the new guidance for 2022.

Yeah.

Yeah, I'm happy to start and we did provide a slide in our materials that were posted to the IR website youll see it in their slide 13 provides.

Pretty good bridge between 2021, and 2022 and Mike walked through each of those pieces as well, but yeah first and foremost youll see some gross margin impact of volume and rate.

For a couple of hundred million dollars. Some additional medical medical cost management initiatives that we've already outlined and taken or are taking as well as the.

The differences in Covid constant year over year as another $325 million.

<unk>.

Our estimates around risk adjustment in there and then operating expenses to support the volume offset by the actions that Mike said, we'd already taken.

And then obviously the PDR is and there are two in 'twenty, one but that doesn't expect to repeat so the combination of all of those help us to get a year over year.

Thank you.

I think my last question Gary Taylor.

Our next question comes from Gary Taylor from Cowen. Please go ahead.

Hi, good morning.

Just wanted to ask one more about.

The liquidity.

Position, given you've got a 930 <unk>.

$1 million.

<unk> adjustment accrual, which I believe you have to pay to CMS in 2000 and our in July .

And then so one I wanted to confirm that and two when you show on slide 13 that risk adjustment is 175 billion.

Good Guy from 'twenty two into 'twenty three are you, suggesting that you'll you'll accrue $175 million less for risk for risk adjustment. So.

Even though you are making this $900 million payment in July you ought to have about $750 million of current year.

Accruals that are noncash during 'twenty, two if that makes sense.

Yeah.

I wouldn't I wouldn't I don't know that that's exactly the way I'd think about it. So we think about risk adjustment as you know based on every single market for a second year market does expect to improve as we understand those.

Members, better and better and so that but then new market. Obviously, we have when you start at a higher expectation of a transfer risk transfer based on our position. So I don't know that I would have said that the year over year percentage because our that dollars went like you just said with regards to liquidity, though we've contemplated that all NR.

Estimates of capital for the year.

So when we say that we feel like we've got sufficient liquidity to meet our near term needs than we are at.

Obviously already taken that into account.

I think the way you were looking at it on a net net degradation in terms of the risk.

<unk>, we did grow our book of business. So that the risk payable will will go up what we're really talking about is specific initiatives, where we know that we are under a coded or weren't able to accurately capture the risk that we've got plans for to address that would take our underlying.

Apples to apples risk adjustment down.

Payable down as a result of those actions in a lot of it is what I was talking about earlier, where we've got.

We've got.

The data to demonstrate that we provided a service, but we don't have the underlying diagnosis and this year, we're going to capture those a lot earlier, because we're already engaged with the membership that we have we've attributed our lives to our to our care partner network to our affiliates and our own centers and we're already outreach into them. So we know we're going to be much better at it this year. So.

That's the net improvement year over year that we expect and we hope to do more candidly.

Most of US so thank you all for years.

Yep.

Yeah I'll go ahead.

Go ahead.

So I was just I was just going to say one follow on on that since since HCA risk adjustment as a zero sum.

Game I mean do you have data from actuarial firms that at this point in 'twenty two that.

Our affirming that how you're accruing that risk adjustment.

For 'twenty two is.

Is it better shape a more accurate.

Anything to point to there.

Yes, well, we use obviously, we use actuaries to price our business and we're closing out using our actuarial teams inside and outside team and then how we're booking going forward based on what we know and the data that we capture internally, obviously, we will get CMS data later in the spring, but we have the data coming through now.

And between what we ended the year at and how we were.

Trending we take that data the actuaries look at it and then we bacon initiatives, where we've got proof points to show that we can improve all of that is taken into consideration and as Kathy mentioned part of the increase in guidance vis vis the Investor Day Conference. We took a more conservative approach from that time period to now based.

On what we saw a closing out Q4 of course, we want to be optimistic we want to improve this but right now that's the approach we're taking in his actuarial supported.

Thanks for the question, so I think that caused net interest and.

We look forward to talking to you all of you again soon.

This concludes today's call. We thank you for joining you may now disconnect your lines.

Yeah.

Okay.

Yeah.

Okay.

[music].

Okay.

[music].

Okay.

Okay.

Yeah.

Okay.

[music].

Okay.

[music].

Okay.

[music].

Yes.

Okay.

No.

Yeah.