Q1 2023 InnovAge Holding Corp Earnings Call
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Yes.
Good day, ladies and gentlemen, and thank you for standing by welcome to the innovative first quarter 2023 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.
One on your telephone keypad at this time I would like to turn the conference over to Mr. Ryan Kubota director of Investor Relations. Please begin sir.
Thank you operator, good afternoon, and thank you all for joining innovate as fiscal 2023 first quarter earnings call.
With me today is Patrick Blair, President and CEO and.
And Bart Goodyear's CFO Dr.
Dr. Rich Fifer Chief Medical Officer will also be joining in the Q&A portion of the call.
Today after the market closed we issued a press release containing detailed information on our quarterly results you.
You may access the release on our company website Innovates Dot com.
For those listening to the rebroadcast of this call. We remind you that the remarks made herein are as of today Tuesday November eight 2022.
And have not been updated subsequent to this call.
During this call we will refer to certain non-GAAP measures.
A reconciliation of these measures to the most directly comparable GAAP measures can be found in our first quarter 2023 press release, which is posted on the Investor Relations section of our web site.
We will also be making forward looking statements.
<unk> statements related to our remediation measures, including scaling our capabilities as a provider expanding our payer capabilities.
<unk> our enterprise functions.
<unk> growth prospects.
The status of current and future regulatory actions and other expectations.
Listeners are cautioned that all of our forward looking statements involve certain assumptions that are inherently subject to risks and uncertainties that could cause our actual results to differ materially from our current expectations.
We advise listeners to review the risk factors discussed in our Form 10-K annual report for fiscal year 2022.
And our subsequent reports filed with the SEC.
Including our quarterly report on Form 10-Q for our fiscal first quarter of 2023.
After the completion of our prepared remarks.
Open the call for questions.
I will now turn the call over to our President and CEO Patrick Blair.
Patrick.
Thank you, Brian and good afternoon, everyone.
Wanted to start by thanking our employees for their dedication to the care of our participants and perseverance during these challenging times.
Government partners for their ongoing collaboration and our investors for their continued support.
While it has only been two months since our last call. We've continued to make solid progress over the past 60 days on the regulatory front. We are at a critical inflection point in our states and markets and now have greater visibility into the timing of next steps with validation audits, which is the final step in the audit process before sanctions can be released by our agency partners.
At the same time, our operational excellence initiatives have also progressed well and we remain on track to have these largely quickly by the calendar here yes.
We continue to make critical senior level hires to drive these improvements, which are infused new energy and momentum.
We are also beginning to see the impact of our clinical value initiatives or Cvs or external provider costs.
As I previously discussed we've been singularly focused on strengthening our operations to earn the right to be released with sanctions and to position the company to serve a growing number of participants for years to come.
As a result of the investments in people process and technology. We believe we are consistently delivering high quality and compliance here.
As we look out over the horizon post stages building on this strengthened foundation responsible growth will become our top priorities are.
Our company's mission is to provide more nursing home eligible seniors access to independent living solutions under the pace model of care.
To deliver on this mission, we need to ensure we can expand access to care within our existing and de Novo centers.
With this in mind, we've begun to formulate plans to fuel new participant growth by rebuilding momentum in currently sanction markets to accelerate growth in others.
Data are projected opening timelines for de Novo theaters and identify new referral partners that can help increase paced awareness enrollment all while maintaining a laser focus on delivering high quality highly compliant share at every center everyday to every participant.
As has become customary over the last few quarters and my comments will encompass our latest regulatory updates recent progress in provider operational excellence and payer capability development and perspectives on the quarterly financial results I'll begin with a regulatory update.
Before jumping into the market specific updates I want to spend a moment on the overall progress we have made most notably we have invested in a permanent infrastructure to self audit every center, enabling us to regularly and proactively identify and remediate gaps and ensure all centers are held the same high standards.
This includes tracking and monitoring a host of internal compliance measures or the digital dashboard included in <unk> measures. We are tracking as part of our current corrective action plans.
Given our performance pace of improvement in monthly consistency, particularly in our sanction markets it and the measures related to clinical quality and safety. We believe we are ready to be assessed readiness to be release receptions by our regulators.
Our government partners have been highly engaged and collaborative regarding next steps and tightened the validation audits.
In Sacramento, we have attested to CMS and the California Department of Health care services that we believe we are ready to begin validation audit process based on six consecutive months of achieving 95% or better on all internal compliance measures CMS <unk> HCS excepted gestation.
And the CMS validation when it began on November seven.
We are in active discussions with THC us regarding next steps and timing for the state validation audit.
Similarly in Colorado, we've experienced comparable operational momentum in our internal compliance measures as each of our six centers were at or above an average accuracy score of 95% in September as a result, we have tested the CNS and the Colorado Department of Health care policy and financing HCP F that we believe we are.
Ready to begin the validation process.
CMS accepted our anticipation and the federal validation audit is expected to begin on December five.
We are in active discussions with HCP around next steps the timing for the state validation audit.
In both instances it remains difficult to predict the precise timing of when the sanctions will be released and we will be approved to begin enrolling new participants in these markets and to be clear.
Validation timing in determinations will be made independently at the sole discretion of our federal and state regulators.
Intrados Asian markets, we received the final audit results for San Bernardino in New Mexico, and have clear line of sight into corrective actions, which are already in motion.
Pennsylvania, and Virginia markets, where we have not received a formal request for audits were self auditing. Our centers is seeing strong performance across all internal compliance measures.
As previously discussed we remain relentlessly focused on sustainably improving the way, we deliver care and doing so in a highly compliant manner.
I stated that we are tracking to our internal goals by calendar year end and I'm pleased to report that we continue to progress along that timeline.
I'm proud of our progress are excited how it positions us to resume responsible and sustainable growth post sanctions release to that end I wanted to share a few highlights of some recent investments in people process and technology.
Since January and as of September 30.
We've hired over 250 employees increased full time senior level FTE head count by approximately 11%, while reducing critical open positions by approximately 76% to help ensure we deliver effective highly compliant here.
We are very tissue without growing our head count staffing our centers for the future. Despite temporarily lower since astute decisions. We believe this investment positions us well to efficiently absorb new enrollments as we resume growth.
We have welcomed five new executive leaders, who bring not only deep subject matter expertise leadership experience in energy, but they are also further and a culture of excellence that will service well in the years ahead.
Most recently, we welcomed <unk> chico's as our new Chief Information Officer, who comes with decades of experience in health care technology focused on enhancing patient and provider experiences scaling critical technology, and making day to day work more efficient.
We launched a five pillar performance management framework, which defines operational success using key performance indicators across the pillars of people service quality growth and financials. This framework will be used to communicate what we're trying to accomplish to align our day to day work to prioritize projects and to measure and monitor.
Yes.
We have started rolling out a new triad leadership model, which is a dynamic joint leadership model between the center administrator, the Sidra medical director in the Central Nursing director designed to drive stronger accountability for performance against the five pillars.
As noted above we've invested substantially in our compliance processes, most notably the permit self audit process for all Sears These improvements give us more robust compliance surveillance and proactive risk identification capability across the company.
We overhauled our interdisciplinary care team processes, which is central to the paste care delivery model to make it simpler more impactful for participants at standardized across every center.
We are implementing a new cloud based hiring platform, which helps us to attract diverse talent engage job seekers of candidates is higher at scale with speed.
Underpinned by a great candidate hiring manager experience.
We've implemented a leading homecare EMR and care management software, which has been a powerful tool in driving better documentation streamlining operations, increasing care compliance and enhancing communication across care delivery teams and we're making the most important technology investment in our company's history epic. We have spent the last 18 months.
Developing with epic the first ever pay specific instance of its EMR platform that is purpose built to support core pace workflows as streamline care delivery, we have successfully implemented epic two Virginia centers and expect to roll it out to the remaining Virginia centers and Pennsylvania centers over the next four months with the goal of rolling it out across.
Our full portfolio in the coming 12 months plus.
We believe that that gives us the tools, we need to operate more efficiently to assure standardized compliant processes and to capture the clinical information needed to deliver more targeted carrier ventures.
To wrap up the provider operations section I'm proud of the team and what they've accomplished their work will enhance our care and service to participants better support our people and drive improved quality performance taken together. This transformational work is also jumpstarted, the flywheel that will position us to drive future growth and margins.
Last quarter, we discussed the conclusion of an external assessment on a risk bearing payer capabilities.
These primarily encompass provider network management, evidenced based side of care management resource management of third party care delivery claims payment and risk payment accuracy.
At this stage, we've identified quick wins taken actions. They are beginning to see the fruits of our labor as a leading indicator and our external medical cost Pnp and trends.
Precise attribution of cost reductions to specific initiatives is complex and we're mindful of seasonality considerations, but we're pleased to see ERP NPM participant expense decreased from approximately 3850 on average in the fourth quarter to approximately 3700 in the month of September and believe these in tissue.
Initiatives are a meaningful contributor.
A few quick examples we have driven short stay skilled nursing utilization lower by making improvements to our monitoring process. This has resulted in a decrease of approximately 120 basis points to two 1% in September when compared to the fourth quarter average of three 3% given the frailty of art participants. These movements can have a material.
Impact on Pnp and expense.
Our inpatient admits have also declined by approximately 70 basis points to four 9% in September relative to a fourth quarter average of five 6%.
We believe we have made this impact by adding several clinically appropriate triaging interventions to unnecessary emergent initiatives.
Regarding average daily sooner attendance I referenced a 50% improvement last quarter in the three months since we made it an explicit of initiatives.
We continue to make progress has improved by an estimated 10% through September .
Additionally, you'll recall last quarter, we discussed the importance of enrolling new participants who are in earlier stages of frailty to maintain a balanced risk pool.
Because we've been unable to enroll new participants irritation markets, we have not been able to offset the higher average cost of longer tenure higher frailty participants. When we are approved to resume enrollment post station in Sacramento with Colorado, We believe new participants will help to rebalance our call participants, which we expect to result in a lower average.
<unk> <unk> expense that we experienced in the last three quarters.
Over time, we will continue building out an enterprise framework and programmatic approach to managing the portfolio of clinical value initiatives to maximize impact while we have leaders dedicated to making the CVI process successful. It involves building new organizational muscle that will take time for instance, in developing and evaluating new initiative business case.
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We'll be launching assessing a rebalancing initiatives.
You can trust, we intend to pursue the same discipline and attention to detail that we're approaching every other mission critical initiatives.
What's more we believe that recurring incremental external medical cost savings it will create over time will be material.
Now turning to the quarter.
We reported revenue of $171 2 million a.
The sequential decline of approximately 1% compared to last quarter, driven by census, attrition in Colorado with Sacramento, which as a reminder represents approximately half of our total census.
We ended the quarter, serving approximately 6540 participants.
For the first quarter, we reported central level contribution margin of $21 4 million and a corresponding central level contribution margin ratio of 12, 5%.
Appeared to fourth quarter fiscal year 'twenty, two city level contribution margin of $23 6 million a decrease of $2 2 million.
The financial performance. This quarter is reflective of this moment in time and the impact of the sanctions as we continue to work with earning back the trust of our government partners and demonstrating a high quality highly compliant delivery model.
Certainly also focusing on growing back into our cost structure and accelerating the levers of margin recapture.
I'd like to spend a few minutes when we expected path for financial progress and growth.
Last quarter I explained that additional investment in key operational areas as well as a deliberate decision to increase staffing levels. Despite declining census sensation markets has created center level contribution margin compression during the same period.
Some of these costs will be permanent and others' temporary to accelerate audit remediation and to compensate for loss center level employee productivity. During the audits. We have brought in temporary labor at a premium cost and have been running above average over time at the senior level.
Currently this cost driver represents a mid single digit percentage of our overall full time equivalent labor, resulting in a temporary sub optimal mix of W. Two employees temporary labor and overtime.
As we look ahead, we have an opportunity to reduce cost by replacing higher cost temporary labor where possible with full time W. Two employees and reducing overtime relative to current levels.
Of which will help to optimize our operating cost structure.
We've been intentional about our staffing decisions to ensure we can simultaneously deliver high quality participant care, while managing the burden of the audits and absorb new since as quickly pulsations. This has resulted in higher staffing ratios relative to our long term targets, which was a drag in the quarters results. However, it also means we have embedded capacity.
<unk> to serve more participants and some of our existing centers without having to increase staff as such we expect post sanction since its growth to have a higher module contribution until we have reached optimal staff to citizens targets to.
To summarize so it will take multiple quarters to get back to a healthy margin, we have clarity and internal focus on the drivers primarily will move temporary premium cost labor as soon as feasible.
To accelerate census growth to improve participant mix into optimized staffing ratios at the central level. So we can benefit from operating leverage.
Increased average daily center attendance to proactively support participant healthcare needs as efficiently and cost effectively as possible.
Executing continuously identify clinical initiatives to improve participant care and reduce unnecessary costs.
Grow organically and inorganically to better utilize the corporate fixed cost base.
And enhanced center productivity using advanced technology, like epic and optimize the care delivery model to ensure clinicians practicing at the top of their license.
Turning to growth our investments in people process and technology have created a stronger foundation for our business going forward, while the exact timing of sanction lease can't be known precisely we have begun preparations to resume growth.
As a core part of our company's mission is to provide more nursing home eligible seniors across the country access to independent living solutions were compelled by a higher purpose to create that capacity both within our existing centers and our de Novo efforts we've.
We've invested almost $30 million in the build out of two new centers in Tampa, and Orlando, which would have the capacity to serve approximately 2000, new participants at maturity and more than 30% increase relative to our existing sensors.
While we have committed to the regulatory agencies in the state of Florida to pause the remaining applications steps for these two de Novo centers.
With the future support of CMS of our state partners, we hope to restart our efforts to open both centers as soon as possible.
What's more we're also beginning to evaluate rfps in new states, either adopting or expanding pace.
As mentioned earlier, we made the decision to grow staff in Colorado and sacramental, despite declining census, resulting in low capacity utilization.
Within these markets low we estimate that there is capacity to add 3000 in additional services. As a result, we have in place capacity to expand access to care for our participants and grow our same store census would sanctions are lifted.
On that note. It's worth mentioning we have also made significant efforts to reengineer, our enrollment processes to reduce friction for our participants and their families and improve efficiency of enrollment specifically.
Specifically, we have decreased the time from inquiry to enrollment by approximately 36% year over year for new participants and expect our growth will reflect this improvement overtime.
Finally on the topic of growth given the many positives to share about the transformation and innovation, we intend to engage in a carefully planned and executed post sanction effort to strengthen our brand with key stakeholders. We're simply not the same company. We were before the audits began and we want to tell the story.
In closing we continue to work relentlessly to finish strong on the compliance front and the transformational initiatives. We embarked on in January not to mention simply challenging ourselves to be better every day.
While I'm pleased and proud of our progress and we're getting closer to the other side of sanctions. We also clearly have more to do over the next several quarters to ensure innovate just operating at full potential.
Continue to be enthusiastic and optimistic about the company's next chapter, but will remain vigilant in our efforts until we have demonstrated to our key stakeholders that we are delivering on our commitments and our game ready to expand access toward a certain pace eligible participants nationwide with that I'll turn it over to Bart to review the financial performance in detail.
Thank you Patrick I will provide some highlights from our first quarter fiscal year 2023 performance and some insights into the trends we are seeing through the first quarter of fiscal year 2023.
As with our previous earnings call I will refer to sequential comparisons relative to the fourth quarter in order to provide a more meaningful picture of our performance.
As of September 32022, we served approximately 6540 participants across 18 centers comps.
Compared to the prior year period. This represents an ending census decrease of six 4%.
Compared to the fourth quarter of fiscal year 2022. This is a decrease of one 8%.
We reported approximately 19740 member months or the first quarter, a five 6% decrease over the prior year.
Kris a one 8% over the fourth quarter of fiscal 2022.
Compared to the first quarter of fiscal 2022 and sequentially the enrollment freeze in Colorado had the greatest impact on member months and Joseph in the first quarter.
Revenue declined by one 1% to $171 $2 million compared to the first quarter of fiscal year, 2020, and declined by 1% compared to the fourth quarter of fiscal year 2022.
A decrease in both periods is due to lower member months because of the ongoing sanctions.
The impact of reinstating sequestration at 2%.
And when compared sequentially to the fourth quarter the impact of the fiscal year, ending Medicare risk score true up.
Medicaid rate increases effective July one partially offset the decrease in revenue in the first quarter of 2023 compared to the fourth quarter and when compared to the first quarter of 2022.
Additionally, when compared to the first quarter of fiscal year 2022. The revenue decrease was further offset by increased Medicare capitation rates as a result of increased risk score and county rates.
The combined capitation rate increase for Medicare and Medicaid in the first quarter compared to the prior year with four 9%.
External provider costs were $96 2 million, a six 9% increase compared to the first quarter of fiscal year 2022.
The primary driver of the increase with increased cost per participant due to increased housing utilization as the conditioning of our participants has led to higher rates of long term placement and increased housing rates as mandated by certain states.
Sequentially external provider cost decreased by two 5% as a result of lower inpatient unit cost or cost per avnet.
Which reflects some degree of seasonality coupled with our focus on our newly developed clinical value initiatives that we are implementing.
External provider cost per member per month, excluding pharmacy has declined 6% since the third quarter of fiscal 2022, which was the height of the recent omicron search.
However, we expect costs to remain elevated compared to historical levels.
In part due to the post Covid acuity effect on our participants, which as mentioned last quarter analysis indicates that participant expense was approximately 88% higher on average in the year post COVID-19 diagnosis.
Our cost of care, excluding depreciation and amortization of $53 $6 million with 31, 5% higher than the first quarter of fiscal year 2022.
The primary cost drivers include the following four items.
One salaries wages and benefits, which accounts for 60% of the total variance are increased due to higher head count and temporary labor as a result of filling key vacancies as.
As well as increased labor costs associated with ongoing audit remediation and compliance efforts some of which will be temporary in nature.
This is coupled with higher wage rates to ensure we remain competitive in the current labor market.
Two third party audit support as we work through the existing audits in our sanctioned and under audit markets and proactively self audits in our non sanctioned markets.
Three fleet and contract transportation as a result of higher average daily attendance increase in external appointments and higher fuel costs.
And for Preopening losses associated with de Novo locations, primarily in Florida.
Cost of care increased by six 1% over the fourth quarter of fiscal 2022, primarily due to increased head count and wage rates associated with the ongoing competitive labor market.
Is showing signs of moderation during the quarter.
Center level contribution margin, which we define as total revenue less external provider costs and cost of care, excluding depreciation and amortization was $21 4 million for the first quarter.
Third to $42 3 million in the first quarter of fiscal 2022, and $23 $6 million in the fourth quarter of fiscal 2022.
As a percentage of revenue center level contribution margin for the quarter was 12, 5% compared to 24, 5% in the first quarter of fiscal 2022.
13, 7% in the fourth quarter of fiscal 2022.
Our current margin reflects the transitory state of the business under sanctions.
As Patrick mentioned, we expect to see margins normalize over time once we can resume enrollments in our sanction markets.
ROE into our center level staff to capacity and we realize the value of our clinical value initiatives on participant expense.
Sales and marketing expense was $4 4 million, a $1 $9 million decrease compared to the first quarter of fiscal 2022, primarily due to lower marketing spend as a result of the sanctions.
With the decline of our sales and marketing expense over the last several quarters. It is important to remember that we expect these costs to return to more historic levels. Once sanctions have been fully lifted.
Corporate general and administrative expense was $32 million, an increase of $9 1 million compared.
Compared to the first quarter of fiscal 2022, and an increase of $2 8 million compared to the fourth quarter of fiscal year 2022.
The increase over both periods was primarily due to an.
An increase in compensation and benefits as a result of increased headcount to support compliance.
<unk> infrastructure and the development of critical organizational competencies.
And an increase in costs associated with third party consultants as we implement our eight core provider initiatives.
Hans or risk bearing payer capabilities and strengthen our enterprise expertise.
Net loss was $13 7 million compared to net income of $7 $6 million in the first quarter of fiscal 2022.
We reported a net loss per share for the fiscal first quarter of Tim Tim on both a basic and diluted basis.
Our weighted average share count was $135 million 566117 shares for the first quarter on both a basic and fully diluted basis.
Adjusted EBITDA, which we calculate by adding interest taxes, depreciation and amortization, one time adjustments for transaction and offering related costs and other nonrecurring or exceptional cost to net income.
Was a negative $3 8 million <unk>.
Compared to $18 $2 million in the first quarter of fiscal year, 2022, and negative $600000 in the fourth quarter of fiscal year 2022.
Our adjusted EBITDA margin was negative two 2% for the first quarter compared to 10, 5% for the first quarter of fiscal year, 2022, and effectively zero for the fourth quarter of fiscal year 2022.
The sequential quarter over quarter change in adjusted EBITDA and adjusted EBITDA margin is primarily a function of increased cost of care related to increased head count and wages.
And increased G&A expense, partially offset by lower external provider costs and reduced marketing spend.
We do not add back any losses incurred in connection with our de Novo centers and the calculation of adjusted EBITDA.
De Novo center losses, which we define as net losses related to Preopening and startup ramp through the first 24 months of de Novo operations.
We're $800000 for the first quarter, primarily related to centers in Florida.
Turning to our balance sheet, we ended the quarter with $188 $2 million in cash and cash equivalents and had $84 8 million and total debt on the balance sheet representing debt under our senior secured term loan plus finance lease obligations and other commitments.
For the first quarter ended September 32022, we recorded cash flow from operations of $13 1 million and we had $7 7 million of capital expenditures.
Finally in keeping with my comments from previous quarters, I will provide some additional visibility around the following trends we are seeing in fiscal year 2023.
First regarding center.
As we mentioned last quarter, we are continuing to enroll new participants in our non sanction centers.
<unk> and net sales growth in the mid single digits and the non thanks and centers and expect those trends to continue into fiscal year 2023.
As a reminder, we lose approximately 2% of our centers sensors on a monthly basis, primarily driven by involuntary dis enrollment.
Based on these dynamics, we expect net census to decline until sanctions are lifted and we can begin to offset that monthly decline with new participants.
Also regarding enrollment seasonality.
We do not typically experienced significant enrollment seasonality in our business. However, there are a few periods that create variability from time to time.
Historically towards the end of the calendar year, we have seen some enrolment and voluntary disenroll volatility as a result of the Medicare marketing cycle as well as the holiday months.
Additionally, we may see increased involuntary dis enrollment during the winter and into the spring due to the inherent frailty of our participants.
As Patrick highlighted in his remarks, we believe we are making measurable progress in our audit remediation effort and we are pleased to be entering into the validation phase of the process.
While we continue to focus our efforts on compliance.
We're now starting to plan for a post sanction environment and we look forward to sharing more as our plans develop.
Operator that concludes our prepared remarks, please open the call for questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad.
If you have a question or comment at this time. Please press star one one on your telephone keypad.
Please standby, while we compile the Q&A roster.
Our first question or comment comes from the line of Calvin Stern. It from Jpmorgan. Mr. <unk>. Your line is open.
Yeah, Hi, good evening.
Just a quick question about some of the additional investments you've made center level and you also talked about some efficiencies going forward, how should we think about the <unk>.
Level of both investments and offsets are potential offsets going forward from the first quarter.
We will have Barbara Smith, Hi, Kelvin, it's barb thanks for the question.
So the nature of those investments are.
A couple of areas, primarily as it relates to staffing at the center level as we've made great progress.
Great progress has been successful in reducing our vacancy rates over the past several months. So that's one of our very big investments.
Another would be as it relates to compliance resources audit remediation and compliance resources.
Both internally and from a third party perspective.
And then additionally.
As we mentioned in the prepared remarks, we're investing in epic, which is a very big investment for us which will help us.
In a lot of ways from a lot of respects from an efficiency standpoint, as well as from us from a lot of other providers standpoint.
Those would be the main investment.
Got it and I know you talked about some of those labor costs being temporary.
At this point.
Going into something like the readiness discussions with CMS and the states do you have visibility on.
How much of a labor costs, you've incurred so far could be temporary versus how much could be permanent.
Too early to tell.
Yes.
I would just say Kevin this is Patrick I would just add that some of Thats labor market dependent.
Certainly moving as quickly as possible to convert some of the higher cost temp labor to permanent labor and we're making great progress on that in a number of areas, but I think the timing for how quickly we can convert that labor to lower cost is a little bit dependent on the market itself.
We're doing everything in our power and making great progress Barbie Doodads, yeah. The only thing I would add to that is as I mentioned, we've made great progress in closing those vacancies and at the same time and our sanction market.
There's been a natural census decline. So this is where we were speaking about the fact that we've got capacity in those centers.
In order to resume growth when the time comes.
Okay, great. Thank you.
Thank you our next question or comment comes from the line of.
Matt Larew from William Blair Mr. <unk>. Your line is now open.
Hi, This is actually model in women on for Matt Larew.
Just thinking about your patient mix and I know this is something you mentioned last quarter is there any way you can quantify or give us just sort of.
My sense is relatively how much more expensive or how much higher the costs are for the kind of legacy patients versus the cost would be for like.
Newer less frail patients.
Yes, Hi, Hi, Marilyn it's barb.
Hi, Bob.
Hi, yes.
Yes, just in terms of just in terms of magnitude.
I'm not.
I tried to give a good estimate in terms of magnitude.
But definitely the lower the newer participants however have a lower cost and depending on the tenure of their cohort.
Over time the costs are much higher so I think in terms of magnitude.
I would say.
<unk> roughly.
Roughly 20% or less.
Somewhere in that neighborhood in terms of.
The cost differential on average with the newer participants.
Great. Thank you that's super helpful.
And then just one follow up.
Sorry, sorry, one other thing I forgot, we do mentioned that because of Covid.
And the prolonged effect on our participants.
The analysis that we performed some time ago would indicate that the costs are quite high for the participants who have COVID-19 and the analysis actually indicated in the year post COVID-19.
There is still about 88% higher than average.
Yes, one last thought I might make Madeline has also we'd like to look at the risk scores of people who've termed longer tenure patients against overall risk score.
And we see about a $2 eight two on risk scores of our team members and then a risk score overall is about $2 three or so so it gives you a sense of just risk or differential between the two as well.
Oh, Yeah, that's super helpful. Thank you.
Very interesting.
One other question just regarding the Florida de Novo's I know you mentioned that you'd spent $30 million building them out can you give sort of an update on what the status of those would be is it theyre fully bill and you're just waiting for CMS or.
Is there going to be like more investment required just curious what those how those are looking right now.
I would characterize the two.
<unk> is nearly complete, especially our Tampa facility.
And in terms of how to think about the process from here going forward.
We really do believe our progress on the sanctions becomes the catalyst to restart the application process and.
If you think about some of the the major steps in the process that we will have remaining.
We will have a state readiness review.
There is an application for an adult daycare license, we need to get both CMS and state approvals and then sorry, a three way agreement. So there are still steps in the process. We have lot of experience with the process and we've got great relationships.
Our considered view with the with the state. So I think we're all very eager to have the opportunity to proceed.
Yeah.
Great. Thank you that's all for me.
Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone keypad. Our next question or comment comes from the line of Jason <unk> from Citi. Mr. Cola Cazorla. Your line is open.
Alright, great. Thanks, Good evening guys.
Just considering the significant investments we've made to remediate audits across the organization, maybe Patrick I'd be interested in your thoughts around that these investments better position the company from a competitive perspective, and then perhaps if you think these investments could help accelerate the penetration of this pace outright across your current state.
How would you frame that that cost structure.
Well thanks for the question.
In terms of our competitive positioning following.
The work we've done on the audits.
I think that it is contributing a great deal to our ability not only to.
Manage.
The quality and the cost of care.
As we know patients are very complex model.
It requires us to be able to manage a lot of different.
Services for the participants and.
The orders themselves and the deficiencies that were identified.
Really got to the heart of how to operate our pes business effectively and we've just improved month over month in all areas of operations.
Build us to bring.
New technology and new automation.
Into our normal operating rhythms.
We've gotten much better at.
Driving accountability for.
More work that's happening in the sooner level, we mentioned the triad.
Operating model, which ensures we are operating as one.
One cohesive team and the local basis and I think all of those things are going to allow us to scale more quickly.
If we pursue.
Inorganic acquisitive efforts I think it's going to create an opportunity for us to get to profitability quicker. When the company may have in the past. So I think theres been a lot of advantages in some ways from.
What we've been through and I think.
Going forward there is still a lot that were.
We would implement and a lot that we're going to continue to make progress on.
Got it great. Thanks.
And then I wanted to go back to your commentary Patrick around the risk bearing pair capabilities it sounds like.
The benefits at the early stages are helping a bit on the margin side. So.
So far and you've noted its a complex runway to determine the total run rate benefit, but maybe can you help frame. How you think these capabilities and the offsets there against a perhaps a higher cost structure, just a myth audit remediation.
<unk> investments just that'd be helpful.
Well I think overall liking risk bearing entity. We believe there is always opportunity to improve access and enhance the care and the appropriate utilization of care.
And to address inefficiencies in the system I think we really do believe there is a material opportunity. If you look at those external provider costs.
Awfully, 50% of our of our local cost relative to see our salaries wages and benefits and the cost of care, which is say roughly 30% of our cost. So it's a very powerful level lever to our to our business.
And we're making progress every day getting better and better at.
Managing all the dimensions of being a great payer. So I have a lot of confidence that it's going to be a really important part to our future and aspects of our future and I see it.
<unk> is definitely going to contribute to offsetting some of the costs that we've incurred and.
To our sort of cost structure as a result of the audits.
I think theres, a real opportunity here and we're going to pursue it hard.
Okay got it thanks, and then just my last question.
I just wanted to ask about managing costs I guess, what the elevated level of flu nationwide. I guess first are you seeing an uptick in productivity within your patient and employee population currently and then just thinking about the upcoming winter months at our ways, you'll be able to help mitigate pressures.
Perhaps a difficult flu season cut encouraged any color around how you see flu impacting.
<unk> quarter and thoughts.
Sure I'm going to pass that off to Dr. Rich Pfeiffer.
Sure Jason that's a great question and of course, we are seeing the emergence of fluid our population just like society a thing in general but at this point, we're always seeing sporadic cases, we have not seen a surge among our population at this point, but the season is early and what we need to do right now is to prepare and protect our population through maximizing vaccination.
And actually we're doing a really good job at that this point in the season, we already have a vaccination rate of about 60% for our participants that's going up week by week as we continue to really push and promote vaccination and likewise for for our staff as it's required and we have very high vaccination rates. So protecting our population right out of the area of focus.
It might be a tough flu season, just as we've heard about from the southern Hemisphere, we're doing everything we can to prepare.
Awesome great. Thanks.
Thank you.
Showing no additional questions in the comments at this queue, ladies and gentlemen, thank you for participating in today's program. This concludes the conference you may now disconnect everyone have a wonderful day.
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