Q2 2023 InnovAge Holding Corp Earnings Call
Speaker 1: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1-1.
Speaker 2: Hello, and thank you for standing by. Welcome to Innovate's second quarter 2023 earnings conference call.
Speaker 3: At this time, all participants on our list and only mode.
Speaker 4: After the speaker's presentation, there will be a question and answer session.
Speaker 5: To ask the question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker 6: To withdraw your questions, please press star 11 again.
Speaker 7: I would now like to hand the conference over to your speaker for today.
Speaker 8: Friar Kubota and Fester Relations, you may begin.
Speaker 9: Thank you, operator. Good afternoon, and thank you all for joining the N of H fiscal 2023 quarter earnings call.
Speaker 10: With me today's Patrick Blair, President and CEO , in Barb Gutierrez, CFO , Dr. Rich Fyffer, Chief Medical Officer, will also be joining the Q&A portion of the call.
Speaker 11: Today, after the market closed, we issued a press release containing detailed information on our quarterly results. You may access the release on our company website.
Speaker 12: we issued a press release containing detailed information on our quarterly results. You may access the release on our company website, Innovage.com.
Speaker 13: For those listening to the rebroadcast of this call, we remind you that the remarks made herein are as of today, Tuesday, February 7, 2023, and have not been updated subsequent to this call.
Speaker 14: 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 fiscal second quarter 2023 press release, which is posted on the Investor Relations section of our website.
Speaker 15: 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 fiscal second quarter 2023 press release, which is posted on the Investor Relations section of our website. We will also be making four looking statements.
Speaker 16: including statements related to our remediation measures, including scaling our capabilities as a provider, expanding our payer capabilities and strengthening our enterprise functions,
Speaker 17: future growth prospects
Speaker 18: The status of current and future regulatory actions.
Speaker 19: Florida de novo centers, and other expectations.
Speaker 20: Listeners are cautioned that all of our forward-looking statements involve certain assumptions that are inherently subject to risks and uncertainties that can cause our actual results to differ materially from our current expectations.
Speaker 21: We advise listeners to review the risk factors discussed in our Form 10-K Annual Report for the fiscal year 2022.
Speaker 22: and our subsequent reports filed with the SEC, including our quarterly report on Form 10Q for our fiscal second quarter 2023.
Speaker 23: After the completion of our prepared remarks,
Speaker 24: After the completion of our prepared remarks, I will open the call for questions.
Speaker 25: I will now turn the call over to our President and CEO , Patrick Blair. Patrick? Patrick Blair, CEO , educational technology and QA specialist whose my answer is,
Speaker 26: Thank you, Ryan, and good afternoon, everyone. I want to begin by expressing my gratitude to my innovative colleagues for everything they're doing to support our businesses, our communities, our participants who are a daily reminder of our higher purpose, and each other. I'd also like to share my appreciation for the investors who have stuck with us through a very challenging period.
Speaker 27: On behalf of all innovation employees, thank you.
Speaker 28: A lot has happened in the last 16 months. We have simultaneously navigated a pandemic and its associated disruptions, as well as federal and state compliance-related enrollment restrictions in Colorado and Sacramento, California.
Speaker 29: It is with great enthusiasm and responsibility we begin the next chapter at N of H.
Speaker 30: As you may have seen in our press release on January 23rd,
Speaker 31: We have been released for sanctioned the State of Colorado by both CMS and Colorado's Department of Healthcare Policy and Finance.
Speaker 32: which represented approximately 44% of our total census as of December 31st.
Although it has been an extraordinarily challenging 16 months, we've spent this time rebuilding the foundation of our business to improve standardization, quality, and compliance in each of our centers.
We have added staff and meaningfully upgraded talent across the organization and expanded our compliance capabilities, applying the audit lessons every day at every center.
We have invested in tools and technologies to help our employees function more efficiently, effectively, and compliantly.
Culturally, it has brought us together as one team, which we refer to as one N of H, and are committed to a mindset of continual improvement to which we are holding ourselves accountable.
The release of the sanction in Colorado is both the end of a difficult period and the beginning of the next chapter in this company's bright future.
Simply, we are a different company that we were 16 months ago.
And while our focus on compliance won't change, we're poised to help even more seniors live safely in an independent setting as long as possible.
And now more than ever, we believe there are meaningful tailwinds for the PACE model of care nationally. Over the last 15 years, we have seen rapid growth in managed Medicare plans and value-based primary care centers, the best of which make use of a sophisticated primary care model in care management strategies.
However, the front end of the baby boomer population is now approaching the average age of PACE participants, which is about 77.
We believe this population will require a more intensive, coordinated, community-based, geriatric model of care that combines the best of both Medicare and Medicaid services like PACE.
All that said, our focus and progress remain consistent with what we shared last quarter. And my comments today will encompass a regulatory update.
focus areas in progress, and perspectives on the quarterly financial performance.
I want to begin the regulatory update by acknowledging and thanking our government sponsors for the continued partnership and solution-oriented approach as we work through the sanctions together.
They have rightly pushed us on our thinking and on our commitment to ensure that compliance remains at the forefront as we resume growth in Colorado.
As I have shared with them, we are committed to responsible growth and we will remain vigilant to ensure that our rigorous compliance focus remains bedrock.
As discussed in our press release, we have been released from the enrollment sanctions in Colorado by CMS and the state agency, which means we are free to begin enrolling new participants.
Practically speaking, we don't expect to see our first new enrol in this market until March.
In conjunction with the sanction release, and as is typical in processes such as these, we will still have corrective actions to fulfill and post sanction monitoring requirements, including an annual audit conducted by the state for the next couple of years.
Regarding Sacramento, recall we were released from the enrollment sanction by CMS in late November 2022. We continue to await word from California's Department of Health Care Services and expect resolutions soon.
Though we expect to continue to work closely with our state and federal partners in existing markets, we also believe the conclusion of these formal audits is a meaningful catalyst for us. In addition to reopening organic growth in Colorado, it brings us an important step closer to opening our existing DeNovo sites in Florida, re-engaging with other states or DeNovo opportunities.
and becoming more intentional in the execution of our growth strategy, which we've been able to refresh during this period. Our compliance commitments to CMS and our state partners go beyond our existing centers. We are committed to bringing this dedication, recent investments and technology operations, and lessons learned to each center and state going forward.
We believe that we are the only large multi-state PACE program that has gone through such an expansive compliance audit, and we're better for it.
Frankly, we believe it should strengthen our value proposition to new states and potential partners and it is positioned us to be a more thoughtful acquirer in the future.
Consistent with my remarks last quarter, our number one near-term priority is responsible growth, and I can't express how enthusiastic we are to be at this inflection point.
The hard work continues now as we shift our focus from closing important compliance gaps to achieving operational excellence in delivering consistent, responsible, profitable growth.
Our action plan for accelerated growth, margin recapture, and sustainability is five dimensions. First, increase same center and de novo enrollment growth rate over historical levels. Two, increase revenue per participant through more effective rate setting discussions to ensure fair rates based on actuarial soundness.
and ensuring our risk scores accurately reflect the acuity of our population. Three, strengthen payer capabilities to better manage utilization and external provider costs.
4. Run center operations more efficiently and effectively and 5. Enhance discipline at the corporate level to better leverage our fixed cost base.
Starting with same center growth, I wanted to take a moment to highlight where we sit at this moment regarding center capacity.
We currently have 6,460 participants across 18 centers as of December 31st.
While the growth runway varies by center and market, in the aggregate we have embedded capacity of almost 50%.
Job one is to start filling this capacity responsibly.
We have used this time under sanctions to improve our marketing messages and educational content.
expand our go-to-market channels, train and onboard high-caliber enrollment talent, redesign our compensation plans, and add new referral channels to expand our access to eligible seniors.
Restarting growth in Colorado and accelerating growth in other markets will be a dial, not a switch. Meaning we expect it will take a few months to ramp up our enrollment teams, marketing partners, and new referral partners before hitting our stride.
Switching for a moment to De Novos. Our two Florida centers have the capacity to serve 2,600 participants combined and the capital investment is behind us.
With the sanctions lifted, we are ready to resume the application process to become operational.
Though it is still too early to comment on the exact timing of opening, we expect to begin the administrative process this quarter and aim to be operational as early as possible in fiscal year 24.
Next, we're focused on ensuring premium rate add-was see for each participant. Like Medicaid managed care plans, we are more of a price taker than we are a price setter. While rate methodologies vary by state, in general states determine how much they would have paid for our participants if they were enrolled in an alternative Medicaid program.
and then establish a pace rate that reflects a discount from what they would have otherwise paid. We need to improve at this actuarly driven process to ensure we can partner effectively with states and that we're paying a fair amount that reflects the true cost we've been experiencing carrying burden participants. We're already making great progress in plan to continue expanding our talent in preparation for the next rate cycle.
we're working hard to document all Medicare risk adjustment factors more completely and naturally.
We have already executed on process improvements which have increased our chronic condition recapture rates.
As it relates to strengthening our payer capabilities,
I continue to believe that we have a big opportunity to leverage the fundamentals used by the best managed care payers to improve quality and to lower the total cost of care.
We're coming at this from both a utilization and unit cost perspective.
On the utilization side, we're taking steps to avoid unnecessary hospital admissions and readmissions, and reducing skilled nursing facility admissions and linked to stay by delivering more care in the center or the home.
We are also refining our claims payment logic to identify overpayment opportunities that represent lost money that can be recovered and avoided going forward.
On the unit cost side, we're reviewing the size and composition of our external provider network relative to the needs of our population to ensure we balance the mutual goals of access to quality of care with network cost efficiency.
The near-term impact within our portfolio of clinical value initiatives, or CVIs as we call them, is only a few million dollars today. And while each of these initiatives will individually be additive, collectively we believe they will become much more material with time.
While we expect it will take a year more for this capability to make sure, it is critical that we develop these muscles systematically as sophisticated managed care organizations do every day.
You may recall that we identified 10 areas of operational excellence that were foundational to our success in resolving the audit deficiencies.
I'm pleased to report that we are near complete with these initiatives, and they have driven strong improvement in participant experience and employee productivity, but we are by no means done.
We will approach Operation Excellence with the same continuous improvement mindset that we are applying across the business.
Recall, we made a conscious decision to retain and even augment our participant-facing staff in sanctioned markets despite census in those markets declining roughly 20% relative to December of 2021. During this period, we invested in hiring additional staff at the clinical and local leadership levels to ensure that we emerge from sanctions stronger.
and retain the staffing capacity to serve more participants. We expect to grow back into this excess capacity, but it's going to take some time for us to fully understand and have confidence in a new baseline for center-level cost structure contribution margin.
As growth increases post sanctions, we plan to redouble our G&A focus and discipline going forward. In particular, expect us to be intentional about achieving leverage on our fixed costs. I anticipate our corporate headcount to look very similar for the foreseeable future as we scale the business.
Additionally, there are several tools we are leveraging to help the centers become more efficient and more productive.
The most prominent example is our recent implementation of the first ever pace-specific instance of the EPIC electronic medical record.
now live in two Virginia centers with the remaining Virginia and Pennsylvania centers expected to be live by the end of the quarter
We anticipate full implementation across all our sites in the first half of fiscal year 24.
As mentioned last quarter, this is the most important technology investment in our company's history, and we're very enthusiastic about the clinical and financial value this will unlock over time.
We believe EPIC will be a cornerstone to operating more efficiently, ensuring standardized compliant processes at the point of care, and capturing the clinical information needed to deliver more targeted interventions.
We expect these five focus areas, enrollment growth, revenue per participant, payer capabilities, contractor operations, and corporate costs, which we call our five to drive.
to be key drivers of earnings growth moving forward. Now turning to the quarter, we reported revenue of $167.5 million, a sequential decline of approximately 2.2% compared to last quarter.
driven by census accrucing in Colorado and Sacramento, which together represent approximately 45% of our total census. We ended the quarter serving approximately 6,460 participants. For the second quarter, we reported center-level contribution margin of 22.6 million.
And a corresponding center level contribution margin ratio of 13.5 percent compared to first quarter fiscal year 23 center level contribution margin of 21.4 million and increase of 1.2 million dollars.
As expected, the current quarter's financial performance is unremarkable.
The inability to enroll in almost half of our center portfolio coupled with the intentional investments we've made at the centers has pressured both our margins and growth.
However, we believe strongly this financial moment is more reflective of the conditions behind this than in front of us as we begin the exciting work of serving more seniors. It is worth emphasizing that growing participants within our existing centers from currently depressed census levels will have two primary disproportionately accretive impacts to the bottom line.
It will first employ the slack capacity. As I noted earlier, given the current census levels at approximately 50% of potential capacity
Each incremental participant will drive center-level contribution margin above our overall average. And this will be true until we reach our optimal staffing ratios, which we don't expect to reach until sometime in our next fiscal year.
Additionally, you'll recall that I've stated we want our participant risk mix to mirror the communities we serve. A second-order impact of the sanctions is that our risk pool has become frailer with time as we've been unable to balance it with newer, healthier members. We anticipate that as the participant composition naturally rebalances, we'll see our participant expense improve.
hard work ahead has just begun.
I more energized than ever to expand pace to the many deserving seniors in need who had benefit from this amazing program. No we will continue to work tirelessly to ex-human the strategy discussed and to unlock the full potential of this great organization.
Now I'm going to turn it over to Barr.
Thank you, Patrick. I will provide some highlights from our second quarter fiscal year 2023 performance and some insights into the trends we are seeing through the first half of fiscal year 2023. As with our previous earnings calls, I will refer to sequential comparisons relative to the first quarter and the previous quarter.
in order to provide a more meaningful picture of our performance. As of December 31, 2022, we served approximately 6,460 participants across 18 centers.
Compared to the prior year period, this represents an ending census decrease of 8.4%.
Compared to the first quarter of fiscal year 2023, this is a decrease of 1.2%.
We reported approximately 19,470 member months for the second quarter, an 8.1% decrease over the prior year and a decrease of 1.4% over the first quarter of fiscal 2023.
Compared to the second quarter of fiscal 2022 and sequentially, the enrollment freeze in Colorado had the greatest impact on member months and census in the second quarter.
In our non-sanctioned locations, ending Census grew 5.1% over the prior year period and 1.7% over the first quarter.
Total revenue declined by 4.5% to $167.5 million compared to the second quarter of fiscal year 2022.
The decrease is primarily due to lower member months as a result of the ongoing sanctions.
partially offset by an increase in both Medicaid and Medicare rates, net of the full reinstatement of sequestration in July 2022.
Revenue declined by 2.2% compared to the first quarter of fiscal year 2023, primarily due to a decrease in member months associated with distinctions, coupled with a decrease in Medicare Part D revenue commensurate with pharmacy rebates received during the quarter.
Due to the nature of the Part D program, this decrease has a negligible impact on pharmacy margins and center-level contribution margins.
External provider costs were $93.5 million, a 2.7% increase compared to the second quarter of fiscal year 2022.
Similar to last quarter, the primary driver was increased cost per participant due to increased assisted living and skilled nursing facility unit cost and utilization.
As discussed in the past, deconditioning of our participants has led to higher rates of long-term placement, coupled with increased unit costs as mandated by certain states.
Sequentially, external provider costs decrease by 2.8% as a result of lower census due to the ongoing sanctions and lower per-member per month pharmacy expenses due to rebates as referenced earlier regarding part D revenue. Our cost of care.
excluding depreciation and amortization of $51.4 million with 19.7% higher than the second quarter by fiscal year 2022.
The primary cost drivers include the following three items.
drivers include the following three items.
salaries, wages, and benefits, which accounts for over 60% of the total variance, increase to higher headcount as a result of filling key vacancies, higher wage rates, and increased labor costs associated with ongoing audit remediation and compliance efforts. 2. graffiti designThere are three different types of scandals in the same way they could in the local media, and that is one type of video product. becomes to another, the mobile e-commerce is a FINALLY
third-party audit and compliance support as we work through the audits in our sanctioned markets and proactively continue to perform self audits in our non-sanctioned markets.
And 3. Fleet and contract transportation, driven by higher average daily attendance in our centers, an increase in external appointments and higher fuel costs.
Cost of care decreased by 4.1% over the first quarter of fiscal 2023, primarily due to the higher-up and expected use of PTO during the holidays and lower building-repairing
Additionally, from an overall staffing perspective, we have seen modest improvement with net new hiring declining quarter over quarter, and we believe incremental staffing costs for our existing centers have largely plateaued.
Center-level contribution margin, which we define as total revenue less external provider costs and cost of care, excluding depreciation and amortization, was $22.6 million for the second quarter compared to $41.4 million in the second quarter of fiscal 2022.
and $21.4 million in the first quarter of fiscal 2023. As a percentage of revenue, center-level contribution margin for the first quarter was 13.5 percent compared to 23.6 percent in the second quarter of fiscal 2022 and increased
from 12.5% in the first quarter of fiscal 2023. Our second quarter margin performance continues to reflect the transitory state of the business under sanctions.
With the sanctions in Colorado now lifted, we expect to see margins begin to normalize over time as we resume participant enrollments in Colorado and grow into the center-level staffing capacity that we have invested in through the audit.
The Census growth will also improve participant mix and rebalance the risk pool, which will offset the higher average cost of longer tenure higher frail fee participants.
Additionally, as our clinical value initiatives or CVIs develop over the coming quarters, we anticipate a reduction in external provider costs as these initiatives mature. Fails and marketing expense with $3.8 million, a $2.9 million decrease compared to the second quarter of fiscal 2020.
quarter of fiscal year 2023, sales and marketing expense decreased by approximately $600,000, primarily due to the deferral of commission expense mentioned previously.
Corporate General and Administrative Expense was $28.8 million and increased of $300,000 compared to the second quarter of fiscal 2022.
The increase was primarily due to 1. An increase in headcount to support compliance and bolster organizational capabilities.
2. Third-party costs associated with implementing core provider initiatives, expanding risk-bearing payer capabilities, and strengthening organizational depth, including the transition to EPIC, which was successfully deployed in two of our Virginia centers during the quarter.
and 3. An increase in software license and maintenance fees.
These increases in costs are partially offset by a reduction in bad debt in the second quarter of fiscal 2023.
and executive severance and recruiting costs that we incurred during the second quarter of fiscal year 2022.
Sequentially, corporate general and administrative expense decreased $1.4 million primarily due to the tapering of certain third-party consultant expenses associated with laying the groundwork for strengthening organizational capabilities and a reduction in bad debt expense. These decreases were partially offset by an increase in cost.
associated with the EPIC implementation and legal fees. Net loss was $10.5 million compared to net income of $1.1 million in the second quarter of fiscal 2022.
We reported a net loss per share for the fiscal second quarter of 7 cents on both a basic and diluted basis.
Our weighted average share count was 135,578,888 shares for the second 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 non-recurring or exceptional costs to negative $2 million compared to $14.8 million in the second quarter of fiscal year.
year 2022 and negative 2.2% for the first quarter of fiscal year 2023.
The sequential quarter over quarter improvement in adjusted EBITDA and adjusted EBITDA margin is primarily a function of reduced cost of care, the deferral of commission expense, and a net reduction in corporate DNA. We do not add back any losses incurred in connection with our denobo centers in the calculation of adjusted EBITDA.
De Novo Center losses, which we define as net losses related to pre-opening and start-up ramp through the first 24 months of De Novo operations, were $845,000 for the second quarter, primarily related to centers in Florida.
Turning to our balance sheet, we ended the quarter with $99.5 million in cash and cash equivalents after deploying $45 million in short-term investments.
Turning to our balance sheet, we ended the quarter with $99.5 million in cash and cash equivalent after deploying $45 million in short-term investments to take advantage of rising interest rates.
We had $84.6 million in total debt on the balance sheet, representing debt under our Senior Secured Term Loan, plus finance lease obligations and other commitments.
For the second quarter into December 31, 2022, we recorded cash flow from operations of negative $35.1 million and we had $7 million of capital expenditures.
Finally, with the enrollment sanctions in Colorado lifted and we begin to focus on responsible growth and margin expansion, I will provide some additional visibility around the following trends we are seeing as we head into the second half of fiscal year 2023.
Regarding revenue, effective January 1st, we experienced a low double-digit Medicare rate increase associated with an annual increase in county rates, coupled with an increase in risk scores. This positive outcome is tempered by notification from the state of California.
that calendar 2023 rates will experience a low single-digit decrease. We believe these rates do not consider post-pandemic cost trends and we have requested the state revisit their rate setting methodology.
Regarding census, we are pleased that the Colorado sanctions have been lifted and have immediately restarted our enrollment efforts for new participants. As a reminder, we suspended all marketing activity in Colorado and Sacramento as a condition of the sanctions.
and participants can only enroll in PACE at the beginning of each month.
As a result, we anticipate it will take a few months to fully ramp up our enrollment levels as we responsibly restart the enrollment process.
As Patrick indicated, we have additional physical capacity in each state for new participants.
With existing sensors along, excluding our two Florida denobos, we have physical capacity to more than double our current sensors.
For example, in Colorado we have the capacity to add approximately 1,900 new participants over time, or a 40% increase from our current census.
Additionally, we are also excited to re-engage with regulators and resume the application process in Florida, where our two new de novo centers in Tampa and Orlando have the combined capacity to serve 2,600 participants. Similarly, as we start to ramp up enrollment, we expect that margins will begin to expand following the last several quarters of contraction.
We believe that staffing, operational, and technology investments we have made across the organization in the last 12 plus months will allow us to grow into our operating structure without adding a significant number of new FTEs.
Additionally, we continue to believe that there is room to reduce some of the temporary costs associated with the audits in the future. Finally, some thoughts on cost of care, external provider costs, and overall center-level margins. As we move forward, we continue to believe that we can obtain margins similar to the
but we are driving value through other focus areas, such as our payer initiatives and CVIs, to bend the cost curve and deliver margin over time. Though it will take multiple quarters to return to expanded margins, our focus will be on the margin drivers.
through other focus areas, such as our payer initiatives and CVIs, to bend the cost curve and deliver margin over time. Though it will take multiple quarters to return to expanded margins, our focus will be on the margin drivers. Specifically,
Accelerating census growth which serves to rebalance the participant risk pool as well as to optimize staffing ratios.
reducing temporary costs associated with the audits, and executing on clinical value initiatives to improve participant care and reduce unnecessary costs.
In closing, we are excited to be entering a new chapter and extremely proud of the hard work and accomplishments of our team over the last year. We believe InnovAGE is now stronger and more competitive as a result of the commitments we have made, and we look forward to expanding access to PACE to the many seniors who could benefit from the program in the future.
Operator, that concludes our prepared remarks. Please open the call for questions.
Operators that concludes our prepared remarks, please open the call for questions.
Ladies and gentlemen, as a reminder to ask a question, please press star 1 1 on your telephone and wait for your name to be announced.
To withdraw your questions, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jason Casorio with Citi. Your line is open.
Great, thanks. Good evening. Just with the Colorado Sanction Lift, I was hoping you could delve a bit deeper on your expectations for the LAMP and Census in those centers after March and perhaps just in context of your commentary around responsible growth. If there are any barriers or nuances that could impact the ability of the RAMP Census growth.
And then just in context of the entire entity, it sounds like census might not sequentially grow until closer towards the end of this fiscal year, but any incremental commentary on census growth expectations and timing would be helpful. Thanks. You know, I'll start and then have Barb follow up, but thanks for your question, Jason. You know, in terms of growth, responsible growth in Colorado,
You know, what I would say is, you know, we're well positioned to begin growing our senses there. We've got our enrollment team is in place and we are starting to engage our referral channels as well as our local marketing activities around, you know, referral channel, optimization referral channel management.
And so we continue to feel good that we've built awareness for the program. And we've got our team in place and we're ready to start enrolling. It's a little bit too early to say whether we have significant pent-up demand in the market. We've enjoyed strong relationships in Colorado for years.
As you'd expect, we've got a lot of organizations that have viewed us as a resource, and they're now excited for us to open our doors again. I'm hearing from the team that we're starting to see interest start to melt in the market, but it's still a little too early, I think. How is this going to be different than what we've seen in the past, and if you look at it,
to have confidence that's better or worse than expected. When we think about the growth going forward, I just think overall the company was doing a little north of 10% annual revenue growth. I think as we look over the rise and we think that's a fair
target for us to shoot for. I'll let Barb comment further. Yes. Not a lot to add. Hi, Jason. I think while we're not giving guidance, but I think it's fair to say that with this ramp of 90 days, once we kind of get through that ramp in our largest market, which is about half of our business.
that'll be the point at which we start growing again. So we think it'll happen at the end of that 90 days.
I'd probably add, Jason, just if you think about what has to happen now that we're ready to begin enrolling again, we've got to ramp our staff up. We've got to get our referral partners back into the swing of providing us with leads of individuals that could be great fits for the program. And then,
It just takes time for sort of our marketing to make its way out through the market, that we are resuming growth and that we are interested in taking on more participants. So I think it's going to take a little time. And I think by the next time that we talk, we'll have a better idea of just how quickly things going to ramp up for us.
Okay, got it. Thanks. Maybe just switching gears for a second here. I wanted to ask about rates. Maybe just a quick clarification. Barbara, did you say that a low double digit Medicare Advantage rate? More so on the 2024 proposed MA rates. Those have come in a bit lower than expected.
versus the past couple of years. I guess can you just help give a barometer on what you would expect? You know, a realized rate would look like if the proposed rate comes in as finalized, just any color around 2024, I may rate at this point. And then just sorry, quickly another one here, just on the state side. Patrick, give in your comments, your pair of remarks on Medicaid rates. You just give us an idea what the differential is between...
where your Medicaid rates are coming in right now versus where you believe it could go on a more appropriate basis. Thanks. Yes, so I'll get started. Jason, so yes, just to clarify, so for calendar year 23, so Medicare is on a calendar year, we did say low double digit increase. So we have for calendar year 23, we have a nice Medicare increase. So that's the clarification there. And-
For calendar year 24, you're right. The preliminary rates for MA were pretty low and pretty disappointing. I think it was net of just over 1%. You know, net of risk score and star ratings. You know, our first read on that is our rates are in the same zip code. So, disappointing for us as well.
But that's the first read on it. It's very similar to the MA reads. Related to the state reads, I'll start and then Patrick can weigh in. So one of the things that we're trying to emphasize, for example, is our cost. There's a delay in our state Medicaid read setting.
in terms of the data that's used to set the rates. And so one of the things we're trying to really work on and work with the states on is to really identify our current cost trends relative to historical data that they're using to set rates. So I referenced California for calendar year 23. They're using...
Data from 19 and 21 to set the 23 rates And so one of the things we're going to work on try to work on with them is to really demonstrate the current cost trends Which were not reflective in 19 and 21. So that's an example of things we're trying to work on. Yeah, I'll just reinforce It's probably a little too early because we're studying our own data right now, but just to reinforce a couple of things that were
we're going to be looking for in this next round of rate discussions. First, it's really important that our distribution of our participants between those that are living in their own home versus those that are in some form of supportive housing, we want to make sure that that mix is taken into account as we work on our rates together with our state. So if we see more people
on the population, you see a much accelerated acuity of these individuals. And so we want to make sure that recent experience is really captured in the rate setting process. And then lastly, I would say we want to make sure that we're really caring for the inflationary factors that we in all pace programs are dealing with.
whether it's supply, salaries, wages and benefits, gas costs and transportation. I mean, you know this well, there's a lot of inflationary factors that we need to have the dialogue about how those factors are reds. And based on some conversations I've had with some state officials, they're very interested in understanding what those inflationary factors are. So I think all in, we got to get a lot better.
Our next question comes from the line of Lisa Gill with J.P. Morgan. Your line is open. Thanks very much. Good afternoon and thanks for the commentary. Barb, I understand you're not prepared at this time to give guidance, but as I think about the EBITDA loss in this quarter and then I think about the next several quarters, can we maybe just maybe understand maybe some of the puts and takes? I mean, Madam Patrick just talked about
sales back out there in the Colorado market and hopefully in Sacramento as well. And then lastly you know you talked about de novo being $845,000 loss. So just when I think about those kind of puts and takes this quarter is that something similar to what we should see in the next several quarters? Is there something you would call out that would be higher or lower? Just any direction you can help us to think about.
balancing our risk pool. So then that has an effect on those external provider costs, which have been running higher than historically for a couple reasons. One, the long-term impact of the pandemic, the imbalance, risk pool, etc. So it will have an impact on that as well. As well as our clinical value initiatives are also targeted at those issues.
despite losing in Colorado, you know, on average 2% of the census a month. So it'll have a disproportionate impact to the center-level contribution margin and EBITDA once we can start adding some census there because we won't have to add staff at that same rate. So those would be some of the puts and takes.
Yes, we'll have more sales and marketing but you know, there's a good correlation there to the revenue. And as Patrick said, you know, we don't anticipate having to ramp up G&A. We really just want to leverage the G&A structure. So I would say those are the several puts and takes. Hopefully that's helpful.
So if I think about the roughly 2 million adjusted EBITDA loss in this quarter was materially better than what I think we in the street were looking for, is that kind of a good baseline to use over the next several quarters?
Um, you know, not commenting on the specific numbers, I think a couple of things, you know, it's an improvement over Q1 and, you know, so we're, we're positive about the trajectory that we're on Q2 over Q1. And, you know, as we continue to grow again, we think that it'll be marginally, you know,
drop disproportionately to the CLCM and the EBITDA margin. So I guess I would say, you know, the future quarters should drop disproportionately. Yeah, I would just summarize it. The growth is sort of everything right now. Growth is really going to help bring a lot of our ratios sort of into balance. And we do expect a positive trend from this past quarter going forward. I think the exact
rate and slope is going to depend on a number of things. It's going to depend on how many new participants we enroll. It's going to depend on the speed at which we can grow into that capacity. That's dependent on, it's called the post-audit baseline sort of baseline that we have to find.
As we add new participants, we think that the overall frailty of the population should come down on balance, and that helps with our leverage. We need to drive center attendance up. As we drive center attendance up, we can get more eyes on the patients and hopefully have an impact to the cost.
Overall, if we can grow the business as we anticipate, we should see a positive trend in earnings moving forward.
Okay, great. Patrick, I appreciate like that you're not prepared to give guidance. How should I think about this though? Will it be that once all the sanctions are gone, maybe next quarter, we'll think about guidance or is this something that we should think you'll give us guidance for 2024? I'm just curious how you're thinking about it internally. Well, we're still having that discussion internally and as we said, we really want to have a bit more time to see the baseline.
I feel like we're going to get more confidence on revenue probably sooner than maybe some of the EBITDA side. So we'll look at this in pieces. Great. Thanks for the comment.
more confidence on revenue probably sooner than maybe some of the EBITDA side. And so we'll look at this in pieces. Great. Thanks for the comment. Thank you. So I'll hold on.
As I remind you ladies and gentlemen, please press star 11 to ask the questions. Please stand by for our next question. Our next question comes from the line of Jamie Pierce with Goldman Sachs. Your line is open. Hey, good afternoon. Congrats on getting through a lot of these audits. I know that was a.
the risk pool but moving down impact on financials.
Yep, hey, Jamie, it's Mark. Yeah. So, you know, we do know through, you know, through the course of history and through our analysis that, you know, as participants progress. In their tenure with us, the cost is higher because they typically end up in higher cost settings and they're more frail. So as they progress over time.
The cost per participant in that longer tenure those longer tenure cohorts is higher So that's what we mean by bringing in you know the New a new level of to the risk pool because the cost on the front end of the cohorts Typically is lower and so that's what we mean by that You know, let me just add, you know, one of the key factors in understanding
how new membership is going to impact the overall cost is the setting that they're living in. So obviously, we want a balance of participants that mirror what we find in the community as it relates to the percentage that are in their home versus the percentage that are in the assisted living facility versus the percentage that are in a permanent SNF. So that plays a factor as well in understanding our cost and how they're going to behave. So.
a few quarters and you spoke about the political value initiatives this quarter. I'm just curious, you know, now a few quarters in, where are you, you know, more incrementally confident in your ability to drive long-term external provider cost savings? What are some of the big buckets that come to mind where you...
where you think you can move it in needle that. I'll start in a moment that rich way in a few things. You're right. The real thing is that I think in full of areas of buckets we're focused on. The first is around utilization and resource utilization of the population.
And we've taken a lot of steps there to review everything from our payment policies that articulate what we pay and how we pay and when we pay for services. We've also spent time focused on hospital admissions and readmissions and SNF length of stay.
So a lot of work there and I know Rich will punctuate that. We've also done a lot of work around our claims payment logic, really just ensuring that our claims and our payment systems are utilizing the most up-to-date clinical coding edits and this ensures we're paying for services that are consistent with the latest coding guidelines.
And this is one where I think we're already starting to see some opportunity that we're capturing. An example of that could be under what circumstances would we pay for a readmission that is soon after a discharge. So this sort of claim logic and claim edits is an area that the company is looking at.
really hasn't focused as much on in the past, but sort of a common practice that ensures we're only paying for the services that were appropriately rendered. Risk adjustment is an area that we've made a lot of progress on since we first started talking about the payer capabilities. We're really pleased with the work that she's done.
for us to capture chronic condition diagnoses as disease progression changed. And so we've had a concerted effort around that and, you know, are really pleased with the progress that we're making. And then finally, I think, you know, as just relates to, you know, our unit cost, our costs we paid external provider.
networks and we're seeing some opportunity there as well. That's a little longer term in nature to capture the opportunity because it involves oftentimes re-negotiations or rationalization parts of your network that may exceed the needs of your population. So we have a lot going on there and I think we're starting to move forward with a...
Our risk adjustment, payment integrity, resource management, and then network and unit cost. And so to the question where we see the earlier wins, real traction, we're seeing them in risk adjustment and in payment integrity. We're already seeing some improvements, payment integrity as Patrick mentioned, things like claim bought it, and claim policies and rules.
addressing modifier 25, which is something really common in the industry. So those are already in motion. Some things that are going to take more time because they require building up more capabilities and more relationships with other providers are in the areas of resource management, for example, and in networking unit costs with contracting. In resource management, we're talking about things like reducing...
hospital stays, reducing emergency visits, revisions and the like, that's requiring building out capabilities for nurses to do coordination of care and having a tighter control on skill nursing facility emissions and skill length of stay and all those things. It's all in motion, but I think Patrick, you described it exactly as I would have. Thank you.
stays, reducing emergency visits, readmissions and the like. That's requiring building out capabilities for nurses to do coordination of care and having a tighter control on skilled nursing facility admissions, skilled length of stay and all those things. It's all in motion, but I think Patrick, you described it exactly as I would have.
Okay, great. Appreciate the color. Thank you. Please stand by for our next question. Our last question comes from the line of Natalie and Momen with Wim Blair, Yelena Open.
Hi, this is Madeline Mollman on Format LaRue. I was just wondering on in Florida, on New Orlando and Tampa Center, can you talk a little bit about what is remaining in the process for you to get to the proof and how much that's going to Well, thank you for the question, Madeline. In terms of the cost, much of the cost is...
license to operate there so we've got to still have some work to do on that application and then ultimately we get approvals from both CMS and the state and then a three-way agreement is signed by all parties and so it's our intent to move quickly the centers there are virtually ready to go and we're going to be approaching the state as soon as is prudent to discuss the timing around resuming
the process and you know we'll tackle these administering elements in due course and you know we're targeting opening of the centers as early as feasible in fiscal year 24. We have a lot of experience with this and we think now's the time to reengage and we'll be moving on that very quickly.
Great, thank you. And then in terms of the capacity expansion, I know you've talked a lot about the resuming enrollment in Colorado, but you also have significant capacity incentives that were not under-sinction. And I was just wondering, was that an intentional choice to focus on your regulatory resolution?
as opposed to enrollment in those centers, just wondering about the sort of underutilized capacity there and how you expect to grow that and how that will impact margins as well. Yeah, and hey, Madeline, it's Fireball. I'll take a crack at that. So our capacity is not just in the Colorado market. We have capacity in many of our centers, most of our centers. And this is very similar to what we said when we initially went public. We build our centers.
to really to be able to serve a large number of pay sellables in that market. So for example, in San Bernardino, a center not under sanction, it's a very large center that we grow, we're growing very nicely there, but we still have a lot of capacity. So it's not just in the sanctioned markets in Colorado, however, because we have lost about 20% of our census over the time.
review in California that's different than Colorado's or just wondering about the timeline there and if they've given you any updates on the process or anything like that.
The first thing I would say is CMS and the State of California in Sacramento have worked very closely together throughout the audit period. And as you know, we were lifted from sanctions by CMS. We haven't received any incremental requests or clarifying questions from the state, which —
leads us to believe that we should be hearing any day now. They've been super constructive partners and we're being as patient as possible. It's our understanding that they have seen some significant demands across the agency that could be contributing to the timing on this. But recall we had very good audit results with CMS and we feel strongly that we've made all the systematic improvements in Sacramento and should be released. But we do need to hear from the state.
Great, thanks so much. Thank you. Ladies and gentlemen, that concludes the Q&A session. I would now like to turn the call back to Patrick for closing remarks. Well, I'll just say thank you again for everyone who's taken the time to listen in to the call and look forward to spending time with you in another quarter. Thank you so much.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1-1.
similar to what we said when we initially went public. We build our centers to really, to be able to serve a large number of PACE eligible in that market. So for example, in San Bernardino, a center not under sanction, it's a very large center that we grow, we're growing very nicely there, but we still have a lot of capacity. So it's not just in the sanctioned markets. In Colorado, however, because we have lost about 20% of our census over the time we've been under sanction, we have a little bit more capacity than we did before sanction. But we have a lot of, most of our centers have some capacity, and that's intentional. Got it, thank you. And then one more question on Sacramento. Is there anything about the state review in California that's different than Colorado's, or just wondering about the timeline there and if they've given you any updates on the process or anything like that? Well, the first thing I would say is, you know, CMS and the state of California in Sacramento have worked very closely together throughout the audit period. And as you know, we were lifted from sanctions by CMS. We haven't received any incremental requests or clarifying questions from the state, you know, which leads us to believe that we should be hearing, you know, any day now. They've been super constructive partners, and, you know, we're being as patient as possible. You know, it's our understanding that they have seen some significant demands, you know, across the agency that could be contributing to the timing on this. But, you know, recall, we had very good audit results with CMS, and we feel strongly that we've made all the systematic improvements.
in Sacramento and should be released, but we do need to hear from the state. Great. Thanks so much. Thank you. Ladies and gentlemen, that concludes the Q&A session. I would now like to turn the call back to Patrick for closing remarks. Well, I'll just say thank you again for everyone that's taking the time to listen in to the call and look forward to spending time with you in another quarter. Thank you so much. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1-1. Remember you get the QR code under the Create teams section. You can call the number at a time to become a sponsor for this meeting. How you with? You know your '' '' ''