Q3 2022 agilon health inc Earnings Call
And tightening our adjusted EBITDA.
This reflects strong performance in our MA business and an appropriately cautious approach in forecasting direct contracting.
Looking forward to 2023 and beyond we continue to make great progress and fundamental areas that drive future performance, such as renewing payer contracts Onboarding, our new markets for 2023, and supporting our physician partners for its successful annual enrollment period.
For payer contracting we are on track to complete important renewals that are in line with our base case assumptions.
This renewal activity with 10 different health plans constitutes a significant portion of our membership revenue and earnings the overall positive tenor and success of this falls renewal season reflects the significant value health plans enjoy with a scaled first mover partner.
Like agile on that moves the entire market to value, while providing best in class member growth and consistently strong quality and member experience.
Next year with the addition of several new Health plan partners, we will have full risk contracts with nearly 30 different payers.
Pivoting to the class of 2023.
The on boarding of our largest class to date has gone quite well in terms of integrating with our partners various electronic medical records synthesizing payer and clinical data negotiating value based contracts hiring and training local market staff and most importantly, increasing the level of access and volume.
Of high quality visits for senior patients.
In short we are creating the building blocks for these partners to shape and control value based care in these markets for decades.
The significance of successfully Onboarding partners in four new states cannot be overstated.
While Medicare is a national program healthcare ecosystems are effectively built at the state and local level.
The ability to expand within a state and add additional doctors and senior patients in full risk models is far easier once we have deployed local infrastructure and connected the ecosystem.
Similarly, the ability to actually change care delivery and reduce wasteful healthcare spending while improving quality is materially improved when you are able to scale around the trusted medical group.
Our experience in Ohio.
Exit and now Michigan are excellent examples of this phenomenon in these states. We have added approximately 450 doctors and 190000 senior patients since our initial year one anchor partnership.
Our growth in these states reflects both success within our partners local geographies and the expansion with new partners into other cities or markets within these states.
The concentration and scale within these markets has allowed agile on with our partners to make substantial infrastructure investments to improve care delivery with enhanced care team resources, including nurse practitioners pharmacists embedded nurses at high volume <unk> and in home care teams for our Mo.
Complex patients, including those with complex kidney disease or end stage renal disease.
These investments and the resulting improvements in patient quality and cost have allowed the newer partners in these states to enjoy accelerated performance immediately in year, one which creates even more satisfaction and engagement for our partners. We will have the opportunity to replicate this performance across more than.
More states over time.
Before updating you on our future growth in the class of 2024 I wanted to highlight our performance on quality and stars measures and how that connects to better patient health.
Our partnerships continue to generate quality outcomes that are well above national benchmarks, which reflects the alignment between <unk> and their patients supported by <unk> platform.
For 2023 Star ratings are significantly higher percentage of agile on members will remain in four plus star rated plans compared to the national average.
Additionally, drilling down to agile on specific performance, we've maintained four plus star performance across all of our partner markets in our mature markets performed meaningfully above this average we continue to excel in areas such as preventative cancer screenings medication it.
<unk> and diabetes management.
These measures were at five star performance levels across the entire network. Additionally, we have consistently demonstrated year over year improvements in quality gap closures well in excess of national trends.
As an example for diabetic patients are PCP partners had driven a two times greater improvement in <unk> control compared to the National average, we know that patients with better control diabetes spend less time in the ER and hospital and in the long run they are less.
Likely to lose their vision or a limb go on dialysis or suffer a heart attack or stroke.
Preventing these long term potentially debilitating complications and keeping our patients well is really the goal of our model and why our PCP partners are so deeply committed to our mission.
Looking ahead to 2024, our business development team has made significant progress over the past few months, the breadth and depth of the pipeline for 2024 remains very strong and includes diverse partner types and geographies, including independent groups and health systems in both new and existing.
States.
The acceleration in demand we are seeing reflects both the success of our partners and powerful macro forces, including payer demand for value and the growing senior population.
These dynamics have also shortened our sales cycle I am pleased to report that we have now signed four new partners for the class of 2024.
These four new partners include groups in existing states in New States and include primary care only.
Multi specialty and network organizations.
We are excited to have made this much progress at this point in the cycle for 2024.
The longer implementation for these groups along with their quality and strong governance will position, our new partners to generate outcomes earlier in their lifecycle with that let me turn things over to Tim Thanks, Steve and good evening, everyone. I'll review highlights from our third quarter results and our guidance for the full year 2022.
Starting with our membership growth for the third quarter consolidated Medicare advantage membership increased 45% to approximately 267 above the high end of our guidance range.
<unk> contracted membership increased 71% to approximately 89000.
Total members live on the <unk> platform, including both Medicare advantage and direct contracting increased to 356000.
Our Medicare advantage membership growth was driven by the addition of six new geographies in January and 14% same geography growth in existing markets.
Direct contracting growth was also driven by the addition of four markets that joined the program in January as well as growth within existing markets.
Revenues increased 52% on a year over year basis to $695 million during the third quarter year to date revenues increased 47% to $2.0 billion to $1 billion.
Revenue growth was primarily driven by M&A membership gains from our new and existing geographies.
Third quarter revenue included a modest benefit associated with member retroactivity on a per member per month basis, or <unk> revenue increased 3% during the quarter, which primarily reflects benchmark updates market and member mix along with year to date true ups with health plans.
Medical margin increased 74% year over year to $76 million during the third quarter year to date medical margin increased 62% to $244 million.
EBIT with the dilution from our membership growth along with a higher proportion of members in year, one markets compared to last year medical margins increase as a percentage of revenue and on a <unk> basis met.
Medical margins were 10, 9% of revenue during the third quarter compared to nine 5% last year and medical margin <unk> increased 19% to $93 compared to $79 last year.
Medical margin growth was primarily driven by the maturation of our year to plus partner markets for these markets medical margin <unk> increased 24% from $104 to $128 on a year to date basis. Additionally, as Steve mentioned, we are also seeing stronger performance across our year one market this year.
Yes.
Utilization trends were consistent with our expectations inpatient services remain below pre pandemic baseline levels, while outpatient utilization is now in line with pre COVID-19 levels.
Physician office visits have seen a strong rebound among our members as we actively promote preventive visited preventative visits particularly for high risk patients.
Network contribution, which reflect agile ensure medical margin increased 84% to $32 million during the third quarter.
Year to date network contribution increased 53% to $110 million. This year over year increase in network contribution reflects the gain in medical margin as well as the relative contribution of medical margin across our geographies.
Platform support costs, which include market and enterprise level, G&A increased 4% to $35 million.
On a year to date basis platform support costs increased 13% to $105 million.
Growth in our platform support cost continues to trend well below our revenue growth and highlights the very light overhead structure of our partnership model.
As many of you know agile on incurs the minimum sales and marketing costs as our partnerships leveraged existing TCP patient relationships and member churn is very low.
As a percentage of revenue platform support cost declined to 5% during the third quarter compared to 7% last year.
Our adjusted EBITDA was negative $4 7 million in the quarter compared to negative $14 million last year.
On a year to date basis, adjusted EBITDA was positive $14 9 million compared to negative $11 $9 million last year.
The increase to our adjusted EBITDA reflects the gain in medical margin and network contribution combined with leverage against platform support this.
This more than offset the negative adjusted EBITDA contribution from direct contracting in the quarter.
Adjusted EBITDA from direct contracting which is reflected on a net basis within other income was negative $3 million in the quarter. This was below our expectation of positive low single digit adjusted EBITDA for DC, primarily due to ongoing updates to the retrospective trend adjustment.
For 50% year over year to 353000 to 357000 with revenue growth of 46% to a range of $2.67 billion to $268 billion. We continue to expect significant gains in medical margin and adjusted EBITDA, We know anticipate medical margin and a range of 300 million.
To $309 million and expect adjusted EBITDA in a range of positive $2 million deposit a $7 million, which.
<unk> a year over year gain an adjusted EBITDA of approximately 40% to $45 million would that we're not ready to take your questions.
Operators you could open up the line.
If you go ahead and upright tasteful.
Okay, one telephone keypad if for any reason you'd like to leave your question. It's a staff followed by.
Please remember to limit your questions to one question and one follow up.
At our first question.
Comes from the line of least account of J.
J P. Morgan Your line is now open. Please go ahead.
Thanks, very much thanks for all the detail just really two areas I wanted to start with and one would be just around medical costs. As we go into the fourth quarter, you talked about the third quarter coming in.
Roughly in line with with your expectation inpatient below outpatient in line how do we think about how you were thinking about the trend into the fourth quarter and will flu play any part of this I mean, we're kind of watching the southern hemisphere in different parties are saying different things around flu. So that that would be my first question and then I just had a quick follow up.
Yes, Lisa I'll start I think that.
From a medical cost perspective.
We feel like our high touch model is really helping us manage within kind of the range is that that Tim talked about.
We are seen a real uptake in terms of flu shots in this period. Similarly to how we saw high vaccination rates around Covid boosters and so we think that that is going to help us as we've thought about kind of our guidance I think are we're looking at sort of a.
Regular flu season, and what we've laid out three Q for based on based on those dynamics suit, Tim Yes, Yeah, Hey, Lisa Thanks for the question and the only other thing I would say as we have seen kind of on a yearly basis are pretty nice pickup year over year and.
And however, you want to look at this either on medical costs and MLR basis I.
I think year to date were up like 110 basis points or something year over year or on a <unk> basis, we talked about our medical margin pm PM, obviously being up significantly year over year as well as we move into the fourth quarter I think everybody understands in our model now that the absolute numbers fall off a little bit as we move through the year as our mix of members gets less profitable more age.
<unk> as well as kind of the older patients falling off that are the most profitable but in terms of improvement versus a year ago. We continue to expect to see the same kind of trends and improvement you can see that and if you look at the midpoint of our guidance for the fourth quarter of the full year.
That that's really helpful. And then just as a quick follow up I just want to go back to your comment on the renewal of the payor relationships being on track or in line with expectations is there anything that's new or unusual as to what parents are looking for and when we think about capitated rates are they roughly in line with.
We've seen historically, just any incremental color would be really helpful. Thanks.
Yeah lately, so I mean, I think we're extremely pleased with.
The renewal season that we've just come through and we're finalizing the new.
Contracts for the groups that will go live on January 1st, but all in it's been.
A very successful season, I think that what we're finding is payors C extreme value in working with our partners.
They are scaled within their regions.
Excellent retention in management with their their folks in PRC real value within that.
And so I think when we think about the payer renewals what we've heard from them as they are really valuing the scale that our partners are bringing the quality I talked about the four and five stars that were seen and I think that will surface very well and then just the retention key thing with the senior population is the.
You're in you're out management of complex conditions, and so the ability to have strong retention real really helps around that so we're first the value in these communities and moving that that way and payers see value in that but all of the things we provide along the way.
Alright, great. Thank you.
Thank you next question comes from the line of Justin Lake of Wolf reset. Your line is now open. Please go ahead.
Thanks, I'm Gonna apologize upfront guys I'm going to ask you about razvi and how this might impact you. So.
It's a painful topic, but getting a lot of questions on it. So maybe you first you can tell us the two questions I get the most often how do your contracts work.
In terms of if there is an audit and there is some payment back to the plan.
Or the plan is has to pay CMS I should say if it's if it's for your patient or your patient patients or a certain percentage of the panel would you beyond the hook for some percentage of that.
And then secondly.
The.
We all know that you guys do a good job on coding.
Do you have any feedback from the plans in terms of how the pledge of doing their own on it there.
Their population right just to see how they're doing do you have any feel for how you're performing in those audits relative to their more generalized population.
Thanks.
Yeah sure Justin.
So on the first one.
For our contracts if there was sort of a retro adjustment back on that payback, we would be on the hook for that I think the periods that are being looked at our earlier than except for the very earliest markets. So right now the window, we're in there's probably.
Not as much.
Of an issue on that but obviously as it would roll forward as they roll. These audits for it every year that that's how it would work if there was.
A claw back because you said on that.
And then feedback from plans on the audits.
I think we work very closely with them on those audits.
I think they feel like the information that we are providing to them and sort of the back and forth in terms of what we go through before they actually do that submission.
Is a is a fairly tight process. So that that's how I would answer both those questions yet.
And just the only thing that I would add is I think we've said it's a few times on previous calls we do risk adjustment, we believe the right way.
We have a very type process at the end and almost all of our risks risk adjustment is done in the office through annual wellness visits were through the through the provided themselves with the PCP.
The end of the day those are risk adjustment items have to be that conditions themselves of course are validated and agreed to by the by the primary care physician that sees the patient.
And when all that and we do it the right way in terms in a boat when there are new conditions, we obviously capture them and that's not only important for risk adjustment, but also important for the <unk>.
Plan of the patient, but also of course as conditions fall off the leaves we handle that very well and I think all of that shows up in the fact that when you look at our overall average risk adjustment score.
Our average rapids, not really meaningful above a one I mean, we're not really pushing the envelope in terms of having really out out of bounds risk adjustment. So I think across the board, we feel pretty pretty comfortable also that we just have a very tight process and just noticed that I think it's really important as part of our partnership that we do do this the right.
Way and we have a very tight process to Tim's point, we delete codes as well as add codes based on a constant review process. So I think integrity around this process is something that we pride ourselves on our partners pride.
Themselves on working with somebody that does this in the right way and so we feel good about our approach.
And if I could just go one layer deeper Steve on your on your contract structure I, just Wanna make sure I understand it from the perspective of the.
We know that they are only ordering a few hundred a couple hundred.
Right.
And a contract right. So the likelihood that they are actually ordering your member becomes in protest symbol right, especially but yes, given your size at the moment. So yeah. How does it work in terms of is it just if there is 100000 patients and your patience have to be happen to be I'm, just gonna pick a number 1000.
It's a 1% of the membership are sitting at the contract is in.
1000 patients out of 100000 do you have to pay 1% of whatever they're asked for is that the way it works yeah.
Yeah, So I think without getting into the specifics of each of the individual contracts or each of angel individual weighs a bit to come out I mean generally speaking if there is a <unk> and there is a direct line that we can say hey that Rad view on it applies to our members that we have cap data from that payer then yeah. I mean, we're ultimately we're going to be on the hook.
For our portion of that having said that you know depending on what the actual content of the audit is and how that comes out and how we talk to her about it and we will see you on a case by case basis case by case basis, how it works out, but obviously if there is demonstrate of line of sight too yes.
They should apply to us as part of their population that would then we'd be on the hook for it.
Alright, guys. Thanks for the call appreciate it.
Sure absolutely.
Thank you next question comes from the line of <unk> of Bank of America. Your line of sight <unk>. Please go ahead.
Hey, this is added on for Kevin.
Interesting really.
Order that one of your.
Anchor partners in Ohio started doing it on site clinics J P. Morgan some sort of value based construct arrangement.
Given the interest from such a large client to evaluate care outside of Medicare curious why not just to support them yourself or.
I don't know if there is interest from such large buying if that changes your view, maybe about expanding beyond Medicare.
So thanks, Adam Yes.
Very familiar with.
Central Ohio primary care or partner in Columbus.
And J P. Morgan, who are who are doing their work on this together.
They have a another partner who works with them on that that we know very well.
And.
Are they are doing an excellent job around that I think our focus has really been focusing on that over 65 population.
Doing great work on that and really solving a major challenge for our groups.
The Optionality, obviously is there down the road for that commercial business, but today, we're feel very good about the focus on the Medicare population and there's just.
Two what we share in the call there is tremendous value and impact that we can have by focusing on that population.
Yeah, if I could just have one quick follow up the direct contracting.
The ongoing refinement that that was related to what happened last quarter calm on the retro trend and then if anything does any of your conversations root beer, that's changing how you view I guess like the sustainability of direct contract.
Yeah, well, let me let me let me answer the macro and then Tim can kind of walk through the mechanics, because we literally yet monthly updates on this.
And so you are constantly sort of refining that but.
One is I think we believe direct contracting is extremely strategic <unk>.
For our partners and for Us in that there's a single experience for their primary care physicians and there's one care model that gets applied across the entire senior population, which reduces variability and allows for much better care and less sort of.
Variation the second would be.
We're profitable year to date as Tim said, where we have $6 million of EBITDA. So that that program is still profitable even given the adjustments that Tim talked about and.
And then the third that I tried to call out in my prepared remarks, as we are beating national benchmarks in terms of utilization trend. If we continue to do that that should drive increase profitability over time and that that sort of the construct in which the program is late.
Out we're working with them on adjustments that can be made to the program to take out some of the volatility to improve the predictability and the sustainability, but that's that's sort of the macro view, Tim you wanted to talk about it yeah, and Adam not to belabor, but I think everybody understands it the way. This works is.
CMI puts out a expected trend number at the beginning of the year and after the year is over they will say hey, based on the actual observed trend for.
The full Medicare fee for service population.
Will adjust that up or down depending on what on what they see they provide interim updates during the year on how that's going they don't actually tell you what the retro trend adjustments Beaver. They do tell you how trend is looking at various points in the year and what you're referring to last quarter was the first step that came out in may and there was a pretty substantial indication that trend was way lower.
Then went ahead and put out initially like as much as eight points lower and so a lot of people in the industry at that point, you remember, saying, while we just had to take a big adjustment to revenue in our second quarter results because of that now you remember at the beginning Dear we had said hey, we anticipated there would be a pretty sizeable retro trying to judgment because our analysis said that the trend that <unk> was.
Guiding too at the beginning to you was very aggressive or high to begin with so when that second quarter update came out in may or the first quarter update that came out in the second quarter and May we had to take a small adjustment last quarter, but it wasn't anywhere near probably what a lot of other people in.
And the industry were taking if they hadn't already pre assumed a retro trend adjustment now another update came out in August .
And then a few subsequent data feeds have come to us from seeing my mind, providing and some incremental data on a monthly basis, we've reassess it and said Hey, there is another we think small movement down and what we assumed the retro trend or movement up and what we assume the retro adjustment would be or movement down and our revenue that caused us to take a smaller adjustment in Q3.
As we closed and since this retro for the full year is has an impact from adjusting the full year year to date and we ended up with a 3 million dollar negative impact to adjusted EBITDA versus are going into the quarter expectation that would be low single digit positive now as we move through the rest of the year of course, there was last year left so the the <unk>.
<unk> is that that number will move a lot more or less and less because there's just less less months ahead of us that can that can drive that number up or down.
Right now.
To make sure that we're being completely cautious and how this is moving we're being pretty cautious about our full year guidance and saying you know what.
Q for we're not expecting direct contracting to really.
Be accretive to our to our fourth quarter adjusted EBITDA.
I'm, sorry, I didn't mean to belabor that but I think that's the whole story.
[laughter]. Thanks.
Thank you.
Next question comes from the line of Brian Daniels.
By your line is now <unk>. Please go ahead.
Hey, guys. Thanks for taking the question wanted to talk about the new partner pipeline with a focus on 24, great to hear you added two more.
To the class I'm curious number one if you can discuss.
What this look like a year ago for the fourth year basis.
And acceleration I think from what you've seen in the number two.
A little bit about macro trends driving this but I'm I'm curious if you think it's.
Pending recession or global recession is actually helping your partner pipeline because providers can move to more recurring revenue models and see more income upside with your model than they otherwise would so is this type of environment actually beneficial for you.
Relative to kind of a more stable market.
Yeah, well I think.
The headline is there is a tremendous inflection in demand.
We've been seeing it for awhile. It is accelerating I think it's a combination of macro.
CMS pushing more towards.
A full risk value in looking by 2030 to have all seniors in total care relationship with the PCP individual health plans pushing on that and it really significant way, but then I think the success that we're having.
For virtually every medical group in the country you can find an agile on partner they kind of looks like you is organized like you and so that reference ability.
Is just.
Huge asset for us.
<unk> I think that more and more of these groups have come to the conclusion that they really need to make this move into full risk value based care and so the combination of the success and the desire is really shortening the sales cycle and so to your question about to compared to a year ago.
We are well ahead to have four groups signed to have implementations that will be greater than 12 months.
That puts us in really great stirred for for 2024 and how these groups should start.
And so that's really encouraging to us.
Fact that you have a mix of primary care only multi specialty.
And distributed.
Networks.
Partners within that is also really encouraging to us and as I said in my prepared remarks health systems remain very actively engaged with us and talking about partnerships. So I think what we've.
Done with main health, which is going really well.
Think the ability for people to be able to pick up the phone and talk with them about that experience.
Really helps and I think a number of health systems are are feeling the need to make this move into value and get the benefits from that.
And so all of that is sort of leading to the momentum that we're seeing in sort of being ahead of where we've been in prior years in the cycle.
Okay. That's very helpful. And then Tim one for you I should probably know this nuance, but if we look back to the end of last quarter I think I have about 261000 lives a little bit above and ended this quarter at 266.6, but you reference to average being over 270000, so what's the nuance.
There that the average for the quarter, so much higher than the starting and ending period. Thanks.
Yeah anytime that you see that Ryan what's going on as we have some retro members that we've got attributed to us or we have members that have been attributed to us. It really should have been attributed with our members from the beginning of the year or near the beginning of the year and in this quarter. It was about a thousand or so members. So 3000 members kind of above the above the ending.
Time period, but really retro back over three full quarters gives you about 3000 average members higher is the way that it works out.
I mean, it's really an important part of our model.
That we are able to do that essentially if you think about this there's two different ways that we have members attributed one is through.
Remember that are in an HMO couldn't be more straightforward right they have to actually name.
<unk> name, who they're PCP is.
Officially among the <unk>, which is now more than half of our business. That's often not the case are generally is not the case and so we have to go through other attributions methods that we have worked out with the payors.
And often cases, it's related to you how many times is that patients in the <unk> in the last six months 12 months or 18 months, we often have backup plans, where we do things like recorded phone calls of the member to make sure that that therapy, UCP et cetera, but we have a really good.
Established process to do that but what happens is.
At some point, we tend to pick up members that may be should have been attributed to his early and now and now we catch later in the year, that's particularly true of new markets and in fact of the.
Let's say a thousand or so retro members that we picked up driving that difference in the quarter I think the majority of them were actually in a couple of our newer markets with newer players.
Got it. Thank you so much very helpful.
And by the way where language into the next question I just throw it is really important that we are able to do that and that half of our business being more than half of our business being in PPO membership is a big deal because it means we can essentially go into a market and bring and see if you can comment on just better than me bring full risk to a market regardless.
<unk> of whether it's heavy PPO or HMO. Unlike.
Other markets that may be very heavy HMO that are very easy to get that confusion. Our time is wide open for PPO HMO or we can go basically anywhere in Britain bring full risk across that membership.
Think the feedback from the National payers is that we're fairly unique in our ability to take full risk on a PPO product and that's the fastest growing product, it's roughly half it'll be more here as you see further growth and so we we think we're setup well.
Our next question comes from the line of what May I have some S.
The Bay Securities Your line of sight. Please go ahead.
Okay.
Yeah.
First question just on stars.
It's been a lot of noise about certain plans going from four to three and a half maybe just frame. How you guys are thinking about it into your contracts have any contingency provisions that may protect you in the event that.
And each contract us slip to a three and a half star rating.
Yeah.
Let me start with by saying what I said in my prepared remarks, which is our own performance is extremely strong four-star is across the board and five stars in the areas that we talked about too is there's obviously been this step down across the industry has some of the Covid <unk>.
Provisions expired and the better of provision that went with that.
We're doing better than the industry average.
In terms of percent of members that are in four plus star plans and that's a result of us really.
Managing this extremely well.
We do have one payer in particular.
We have a decent chunk of membership with that has stepped down at three and a half stars for the majority of theirs.
We believe that that very manageable for us as we look at that in terms of what that what that could look like in terms of an impact from a PM PM perspective kind of low single digits in terms of for 2024.
So I think we believe it's really manageable, we're performing better than than others across the industry I think health plans would like to see more senior patients in agile on partners because of the strong quality performance, but specifically to your question I think it's a very manageable.
Packed for us.
Okay.
Stevie talked and you're prepared comments.
Maybe this is new maybe it's not but I feel like you referenced diabetes renal maybe more.
The context of perhaps a specialty programme and I think you've established a partnership with monogram not sure how how new that is but is there anything to elaborate as to how to think about this diabetes renal specialty programme.
Yeah, I mean, we have a really strong partnership.
I think we're in six or seven markets to date and I think we are expanding to two or three more by the end of the year.
I think our early results in those programs are really exceptional and in particular, the enrollment that were seen.
From patients because it is an opt in.
As in the mid eighties, I think that's a function of this tight relationship that we have between the primary care physician the patient and win the PCP makes that recommendation. The patient is very likely to agree with that that is demonstrably different than what they've seen in other markets by working with Payors.
So I think it just kind of speaks to the secret sauce that we've got on that.
And I, just think I called out sort of our strength in terms of <unk> control and the benefits that we've got around that.
Which really is extremely strong so.
That's what I call out.
Okay can I just ask one quick one for Tim These new territory cost geography calls is this all 2023 go lives or the implementations for 2024 too. Thanks.
It's almost.
Very very high 90 ish percent.
<unk> 2023 still at this point, we are now just getting into starting to implement 2024, we haven't put in place a lot of infrastructure costs for that we will have some in the fourth quarter. This orchid flowing because we are we are getting up and going with our implementation of 2024, but for right. Now. It is primarily are going to be 2023 implementation costs and remember of course very big class for 20.
23, there were very big complex class or implementing for 2023.
Thanks.
Thank you next question comes from the line of Sean thought that's B C capital market. Your line of stomach <unk>. Please go ahead.
Yeah. Thanks.
Noon.
On margins for new year, one classes, Steve you mentioned the platform is getting smarter and more efficient.
Pointing to the current year, one members trending toward the high end of your targets for medical emergency.
You also building our classes. Now then then you have historical you referenced before already for 2024, which gives you more time to prepare for their launches.
I guess, when we think about the combination of the <unk> I think you alluded to it a couple of times, but can you maybe put some book ends around how much do you think.
These can help elevate the launch trajectories from margins for future classes.
Yeah No I appreciate the question. So I think to your point we are experiencing.
The benefits of learning from our platform that is allowing our newer partners to perform.
At the high end of our range, which is really fantastic and encouraging.
And they are able to get the advantage of some of the programs like we just talked about complex kidney disease. As an example earlier in the lifecycle.
So I think that that's kind of 1.2 is every class is a little bit different in terms of where they start did they have any yo before.
And so the starting points for each one of those.
Is a little bit different and it always takes us a little while with payer contracts and others as we understand what that starting point is but I think in general we figure like we feel like we're seeing an acceleration sooner for our year one markets in terms of the benefits of the high touch model is coming through.
In terms of better satisfaction, better health outcomes, and ultimately lower costs and better better margins. Overall. So those are the things that I would really call out and one thing. So maybe I would add as we said for the last couple of years that we.
We think the best time to look at that although we can give you an indication. Obviously this is Steve yet and I did in our comments at our year one markets are actually performing better than we thought they would this year certainly at the high end of our expectation the best time for us to talk about that and talk about that trajectories. When we have a full year results. We did that at our analysts say and showed you actually saw.
Last year with some of our early markets were actually some of the best performing investors trajectory and obviously when we come back once we have a four year results. This year will show you updated cohorts and how that's working as well.
And then just one last point I would make the fact that for this class of 24 that we're talking about that where this early and we're going to have that long of an implementation period.
They should start in a very strong position as a result of that.
Okay.
[noise] helpful. Thanks, and then if you think about the runway for medical margin and some of the older cohorts.
You guys have talked before about there being a significant amount of other than packable spending that you can start to address that.
<unk> sized it at $98.
Per month.
What kind of the biggest bucket there and I guess, if you started to make some inroads in trying to tackle some of those cost opportunities.
Yeah.
It's stratifying the population in dealing with those most complex patients.
And really it's I mean, it's not.
It's not hard to understand but it's being able to maintain a multi chronic and have them spend less time crashing into the emergency room and last time in an inpatient setting it is moving to more time in the home.
And I talked about that.
The Homebase teams that we've got I think is a tremendous opportunity for us.
Covid has really shifted kind of the site of care in terms of what senior patients are are comfortable with around that you've seen it from inpatient to sniff and now much more to home and so.
I think those are the things that we can really go after and then the other would be.
Really on the drug side in terms of.
Medication adherence and just making sure that you are substituting sort of appropriate therapy. So those would be the big buckets that I think will go after.
Sean How's it going.
So you might expand on that these markets are all really early in their life cycle of moving to full risk. So if you talk to any of our partners. So I'll just say, there's a huge amount of opportunity and my market even in the most successful partners that we have but there was this akron summit.
I think it's just a great example of housing market evolve Yeah. Now Akron is one of our more mature markets and we have really exceptional two exceptional partners within that market that have a really meaningful share of the adult primary care capacity, which is one of those real keys to success.
But they were able to bring in leaders for more than 100 specialty groups on a Saturday morning, everybody showed up and really talk to them about hey, we're not making the move in the Forest Valley based care were there and we want you to come with us, but we need a few things in order for that.
To be possible.
If you want to stay in kind of preferred network tier you need to share quality and efficiency metrics, we need you to ensure access with expedited appointments.
We need to make heavy use technology to assure that patient visits are actually getting completed.
And then we need all characters decisions coming back to this primary care physician. So it's really kind of the shared partnership.
And there was.
Tremendous amount of embraced around that and excitement around that and you can just see that market really beginning to change and you talk about just scratching the surface in terms of what we could impact from a specialty in facility cost perspective. Once you get this a primary care only.
Both of them to have the specialists that engaged around that.
Is is very exciting and so I think we can see this happening and more and more markets as we build the scale. We always are building around those right partners and.
It was Ah.
Just a great sort of evidence of what we're trying to do.
Okay I appreciate it thanks.
Thank you.
Our next question comes from the line of <unk>.
<unk> tongue clearly from Jeffries. Your line is <unk>. Please go ahead.
Thank you. This is <unk> Phillips on for Brian . Thanks for taking my question today. So as it relates to your 2022 guidance just curious for Q4 I noticed in your guidance that you raise the floor for the full year, but also mentioned that you didn't account for.
Upside from direct contracting so I just want to understand what's informing I think the raised floor for your 2022 guidance and if there's anything that we're missing particularly for modeling purposes.
<unk>.
Yeah, I don't I don't think you're necessarily missing anything I mean, I think the way. This works is the.
The mid point of the range for adjusted EBITDA guidance did relatively constant rate, we're going from zero to 10, where the five mid 0.2 to seven so I guess, a four and a half million dollar positive midpoint.
The ins and outs and that are basically we are absolutely seeing better performance from.
R M a business and you see that flowing through to the medical margin numbers and we we kind of up the mid point of our medical margin and MA guidance by about $6 million or you expect that's actually probably that's helping us run a full year basis by about $3 million you can see that that flowing through from Q3, and an expectation for a decent queue for as well the flip side to that in the <unk>.
Reason, we took the top end of the range down is a little bit more caution around direct contracting also the fact that we just obviously book to $3 million loss for direct contract in the third quarter, we don't expect that to be contributing part.
And that's that's a retro adjustment obviously, we don't expect that to be positive in the fourth quarter, but we don't expect it to be dilutive either.
I think the comment and then we are probably seeing a little bit better performance, a little bit more leverage out of our platform support cause which is a huge component of our model. When you put all that together, we want to be a little.
Cautious on the retro trying to just been so we brought down the top end of the range, but certainly the really really strong performance in ohmae, it's giving us more confidence that we can tighten that up and bring up the bottom end of the range as well.
Great. Thank you.
<unk>. Our next question comes from the line of Stephen <unk>. Please go ahead.
Yeah, Hi, Thanks, I'm, just gonna ask another one about direct contracting appreciate you guys had taken a cautious approach that you forecast in a career for the business. I think you said you're engaged with CMS to try to create increased visibility and predictability in the program I guess, what exactly would you be looking to see to achieve that outcome and then what would the forum.
For any of those changes potentially to be made at some point down the road.
Sure. Thank thanks I. Appreciate the question, we have a great partnership with the innovation Center.
These are.
Pilot programs and so they typically have adjustments that are made each year.
And so we in concert with our coalition through APG.
Have been talking to them about.
Potential adjustments that could be made within it that would create more of the stability and predictability.
I mean, it's a fairly technical calculation.
But something that would smooth the revenue balance, which really is what's happening with the retro trend adjustment that Tim talked about.
There's like three or four factors that.
Fact.
What that revenue number.
Turns out to be.
And so there's a lot of modeling going on and a lot of work around that but I I mean, I guess I would leave it there, but I think they are they.
They are actively engaged I think they too are surprised by the volatility that's occurring and it's really a function of coming out of this.
Hopefully once in a generation COVID-19 type experience and so.
That really swings when you start to do year over year and baseline year comparisons you can see pretty significant adjustments around that and so that's what we're we're working with them on.
As part of a larger coalition.
Thank you.
Next question.
Comes from the line of Jane's pass at Goldman Sachs. Your line of <unk>. Please go ahead.
Hey, Good afternoon, you guys first one quick clarification, the upside on medical margin this quarter versus purse your guidance.
Can be mentioned there was a positive retro adjustment on and MA can you quantify with with the benefits they are wise or if all the upside was was underlined performance.
No. There's no there's no retro trend adjustment or anything like that that applies to the <unk> business. That's specifically just related to the direct contracting business the MA performance overall.
Is just improving in the fourth quarter based on the overall improvement in the model I mean, there are a lot of.
Adjustments that you're doing the third quarter, it's that quarter, where we have the most data flowing in the year from our payers. So we made all the adjustments that we have on the.
From the payers too.
Make sure we got the right mix of members in the right bid raised in the RAF assumptions in there and so all of that helps we actually got some help obviously in the quarter in terms of incremental medical margin dollars because of the retro members and beating the top end of our membership range as well and then on the flip side of the same thing we did all the updates that we got from the from the data.
Cause as well, but the net of that yeah, it's definitely demonstrating a stronger medical margin performance in dollars on a <unk> basis sentimental MLR based on where you want to look at it and I think that just reflects the continuing strength of the model to to drive to drive positive outcomes.
But there is no formulaic retro trying to just know anything like that on the side.
Yeah.
Yeah.
The patient attribution peace, but I think yeah limitation attributions side, we picked up about yeah, we picked up about a thousand members I think retro.
That's not really an adjustment adjust hey. These are members that are seeing our pcp's. They should be attributed to us we've identified them and worked out with the various health plans that they should be typically.
That starts to wind down as you get further through the year, but later in the year, we still have some of our new plans and our new markets that this whole attribution process is new too and so most of the 1000 members or across some of those payers in those markets, but yeah. So that was a pickup of essentially the difference between average membership in an ending member.
<unk> as those retro members.
Okay, and then just on main health How's the integration gun and do you feel like you are ready for next year.
You mentioned that the.
A complex one in different premier historical.
Partnerships, so anything to call out there just in terms of how you're going and how you're feeling in terms of.
Getting that ready for year, one in any economic considerations. So you should factor into our models.
Versus your.
Your typical year, one performance for traditional market, yeah, well first off I will tell you, it's going incredibly well the engagement from the main health Medical group, who is our partner there.
And Andy and the entire team is the CEO of the system.
Has been first rate.
I think we've been able to integrate very well with their EMR I think the payer contracting is going extremely well.
It takes a little while.
As you go through these to sort of finalized exactly where you are going to start and they are a extremely large.
They are very large group.
Across the entire state and so I think I would say, it's going very well the engagement from them is quite strong I think the integration with their electronic medical record is going to help quite a bit they have extensive care team resources.
That are available that can really sort of help to drive.
Performance over time so.
I think we feel very good about that and.
And will.
We'll update on kind of the class of 2003, and what that looks like in terms of a starting point as we get a little further on our progression, but right now I think we believe it will be within our historical ranges and should be good.
Thank you.
Our last question comes from Gary Taylor of calling your line of sight. Please go ahead.
Hey, just coming in at the finish here a couple of questions for one.
You beat your revenue guidance by 45 to 50 million and I just wanted to understand the components that I think enrollment was at the high end, but not materially above I think the retro retribution was maybe.
$890 million. So I guess most of it was per member per month, and just wanted to understand it seems like a really significant magnitude revenue versus your guidance and.
In one to understand that.
Yes, yes.
Yeah, absolutely Gary I think the components or how you are calling it out probably.
Probably the biggest not the biggest but the first thing is the retro membership that we're showing up that thousand members, but over the.
Over the first.
Four three quarters of a year plus I think we'd be.
Hi, under the guidance by not quite a thousand other members within the quarter. So both of those are contributing to definitely a double digit millions of dollars of incremental revenue and then the rest of it is really just thinking up.
Our member level of data with the health plans, which we get the most up to date information on in the third quarter and it's a combination of factors, including just getting the appropriate final files on things like do we have the right did rates in for the plans that are members are in and updating all of that as well as any.
Interim.
Miss your updates through are expected risk adjustment scores and that made up that made up the rest of it.
And then.
Medical margin guide by $6 million to $11 million it sounds like DCE was.
Negative $3 million you thought it might be low single digit so maybe that was five or 6 million dollar <unk>.
Swing.
And EBITDA came in at the low end, so anything on G&A or how should we think about that I guess, given the 11 million medical margin be even with DCE coming in below.
Thought maybe a touch higher on EBITDA.
Yes, I think platform support cost continues to be in the range that we expect you can see it running at about 5% of revenue kind a quarter and a quarter out right. Now I think that will continue to be the case for the full year I mean, it's a big improvement over a year ago, but it's not it's not a quarter to quarter huge driver a variance to our to our EBITDA guidance.
There you go into the full year, there's probably a million dollars to upsize versus what was in our original expectations, but it but it's not a big driver I mean within the quarter itself. The medical margin be flowing through to network contribution was obviously I'm positive and we ended up.
Kind of in the in the low end, but within our guidance range, then rather than at the top end of the range or above the range because of the as you said $5 million or so different than our expectation on on direct contracting adjusted EBITDA.
And just the last one on D. C E. I kinda been following this so nearly 8% retro adjustment April you guys were or Italy conservatively accrued for that it looked like another two per cent retro in August . She said there was a little bit of a hit there, but my understanding was in September there was another interim update that swung.
Hung three or four full year, three or four points to the positive may be full year, only trending down six or seven.
Percent so.
Is that just incorrect or is there some nuance and your regional bench.
Benchmarks wood versus what we might be seeing nationally.
Yeah.
First of all the retro trend adjustment as national So the same retro trend will apply to all players and if there is no. There is no regional retro trend adjustment. It is the full $30 million plus Medicare fee for service members benchmark that that applies to everybody.
I think you're right. The original May adjustment was down about 8%.
Definitely came down further in August .
They're giving us interim data updates, which we have seen another two of since that August update.
Indicating that it may be kind of training back in the same direction, we're not seeing anything that would say it would be another whenever you said three or four points back. The other thing is when when the numbers come out they're basically just giving us raw data that says hey, here's what the experience is year to date and right now we have a through September I think for the <unk>.
Population, but we still have to go through and do our own analysis of what does that mean in terms of seasonality in the fourth quarter and so what might that really mean for the full year, but.
Right now are and so obviously when we came down a little bit further in the third quarter, we wouldn't expect that the full year would be rebound from what we saw that by by two or three points by any stretch.
Mmm.
Okay. Thank you.
That's all the questions we have time for it and I'd like to have the confidence Buckeye if it to the management team for closing remarks.
Great. Thanks, everyone. We really appreciate it I hope everyone has a good evening.
Nathan Gentleman. This concludes today's conference call. Thank you for joining you may not disconnect your lines.