Q4 2022 agilon health inc Earnings Call
Speaker 1: Thank you.
Speaker 2: Hello everybody and welcome to Agilent Health fourth quarter 2022 earnings call. My name is Sam and I'll be coordinating your call today. If you'd like to ask a question during the presentation you may do so by pressing star followed by one on your telephone keypad.
Speaker 2: I will now hand you over to your host Matthew Gilmore, Vice President of Investor Relations at the beginning. Please go ahead.
Speaker 3: Thank you, operator. Good afternoon and welcome to the call. With me is our CEO , Steve Sell, and our CFO , Tim Bensley. Following prepared remarks from Steve and Tim, we will conduct a Q&A session. Before we begin, I'd like to remind you that our remarks and responses to questions may include forward-looking statements.
Speaker 3: Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties with our business. These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward-looking statements. Additionally, certain financial measures we will discuss in this call are non-GAAP financial measures.
Speaker 3: press release and Form 8K filed with the FCC. And with that, I'll turn the call over to Steve.
Speaker 3: Thanks, Matt. Good evening and thank you for joining us.
Speaker 3: 2022 was a very strong year for Agilent and our physician partners, and we have entered 2023 with incredible momentum.
Speaker 3: We have made significant progress against our vision to transform healthcare in 100 plus communities by empowering primary care doctors to accelerate the transition to a value-based care system.
Speaker 3: The research analysis we published in mid-January highlights the success of our model, specifically in patients with diabetes.
Speaker 3: As many of you know, diabetes affects about 30% of the Medicare population, and if not properly managed, can have significant long-term health consequences for seniors.
Speaker 3: Our analysis found that diabetic patients cared for by Agilent physician partners when compared to Medicare Advantage and Medicare fee-for-service benchmarks saw a two times greater improvement in A1c control.
Speaker 3: a 19% lower total cost of care, and a meaningful improvement in health equity access and quality.
Speaker 3: Consistent results like these are simply not possible in the legacy fee-for-service model, which is prevalent in the vast majority of communities in this country.
Speaker 3: with our early success in managing diabetics.
Speaker 3: We see a multi-decade opportunity for Agilent and our partners in addressing significant variability in the way complex patients are managed, ultimately driving better outcomes at lower cost.
Speaker 3: To that end, we are making meaningful strides in addressing the access, cost, and quality variability that defines the fee-for-service system.
Speaker 3: Our distinctive platform is rapidly unlocking for more primary care doctors.
Speaker 3: a care delivery and payment model that allows them to operate an outcome versus transaction-driven business model.
Speaker 3: This new primary care model delivers consistently better outcomes across our network.
Speaker 3: and creates an infrastructure for additional doctors and communities to make the transition to a value-based model.
Speaker 3: What is good for our physician partners and their patients is ultimately good for Agilent.
Speaker 3: and you can see it in the incredible results of our business.
Speaker 3: Today we are serving 25 diverse geographies.
Speaker 4: with 2,200 primary care doctors in nearly 500,000 senior patients.
Speaker 4: These figures include the record, 130,000 new senior patients we will add in 2023.
Speaker 4: And today, we are pleased to share that in 2024, we will add at least another 130,000 new members with the opportunity for that number to grow.
Speaker 4: For context, our 2024 Total Medicare Advantage membership will be approximately double the membership in the 2022 period, which we are reporting today on this call.
Speaker 4: Our accelerating momentum in both new and current markets comes from our ability to drive meaningful reductions in wasteful health spending.
Speaker 4: Generating the surplus that we call medical margin, and we reinvest roughly half of that surplus back into local primary care.
Speaker 4: Our medical margin for 2023 is projected at nearly $550 million.
Speaker 4: making Agilent and our partners an incredible catalyst for stabilizing and growing primary care nationally.
Speaker 4: The rapid inflection in membership and maturation of earnings across a large and diverse set of markets highlights that the Agilent platform can be the standard for how primary care doctors operate in this changing healthcare landscape. We believe this latest step change in the business.
Speaker 4: is also reflective of the power of a large and growing number of physicians winning together on a common platform.
Speaker 4: Now to 2022 performance.
Speaker 4: The overall momentum in our business was evident, as our fourth quarter results closed out a very strong year.
Speaker 4: performance across Medicare Advantage and direct contracting was in line or better across all key metrics, enabling a full year adjusted EBITDA of 4.3 million dollars.
Speaker 4: even as we made substantial platform investments in technology and infrastructure to scale our organization for the future.
Speaker 4: For the full year, our core MA business performed extremely well.
Speaker 4: with membership increasing 45%, medical margin increasing 67%, and medical margin per member per month increasing 15%.
Speaker 4: on one of the most important metrics.
Speaker 4: in our fast-growing subscription business. Our 10 Year 2 Plus partners improved their medical margin by 33%, from $93 to $124.
Speaker 4: which accounted for 90 plus percent of the full year $43 million improvement in adjusted even better.
Speaker 4: Similarly, for the quarter and the full year, our direct contracting or reach business came in ahead of expectations and contributed modestly to adjusted EBITDA.
Speaker 4: We continue to demonstrate the power of our model to deliver strong cost and quality performance as costs for our direct contracting patients were 1% better than the national trend.
Speaker 4: and we are on track to achieve a 100% quality score, reflecting excellence in areas such as post-hospital discharge and timely follow-up visits.
Speaker 4: Our performance in 2022 drove an estimated $20 million in savings back to the Medicare program, as well as positive surplus to our physician partners.
Speaker 4: the combination of two years of experience in this program, and an increased level of transparency on the revenue calculations from the Innovation Center.
Speaker 4: has increased our level of confidence in reach and the overall opportunity that we see to drive future performance.
Speaker 4: Turning to 2023, our guidance reflects the momentum in our business as membership, revenue, medical margin, and adjusted EBITDA are all projected to grow even faster than they did last year.
Speaker 4: Our adjusted EBITDA guidance of 75 to 90 million reflects a year-over-year increase of approximately $78 million at the midpoint.
Speaker 4: Well, we are sustaining 50% MA membership growth.
Speaker 4: Just like in 2022, the inflection in our 2023 adjusted EBITDA is powered by our Year 2 Plus markets, which generates substantial operating leverage at the market and corporate level.
Speaker 4: This step change in earnings is being delivered while 44% of our membership is in year one or two markets versus 37% in 2022, highlighting the long-term embedded earnings being created.
Speaker 4: but we continue to drive significant improvements in the current period. These results also highlight the operating leverage inherent in setting up the infrastructure for full risk in a local market, as the flow through of incremental medical margin dollars to adjusted EBITDA is significant.
Speaker 4: The takeaway is that the maturation of our markets and members is accelerating our adjusted EBITDA gains in 2023 and beyond.
Speaker 4: Looking to 2024, as I mentioned earlier, the success of the Agilent network is both improving our collective performance and driving our growth.
Speaker 4: The class of 2024 will reflect that momentum.
Speaker 4: as we will onboard at least six new groups.
Speaker 4: as we will onboard at least six new groups, two new states.
Speaker 4: 80,000 members and 500 primary care physicians.
Speaker 4: This class will be at least double the size that we predicted last March at our investor
Speaker 4: and reflects the accelerating demand for a new primary care model driven by the success of our partners and powerful dynamics with senior demographics, physician practice challenges, and payer demand for a move away from fee for service. The class of 2024 partners are very diverse.
Speaker 4: and include primary care, multi-specially, and both independent and employee groups affiliated with health systems.
Speaker 4: Of note, the Class of 2024 represents a meaningful step forward for the organization in tapping the unique power of the large and growing local addressable market.
Speaker 4: We have highlighted in the past the power of transforming the payment model in a local market to full risk.
Speaker 4: Once our value-based care infrastructure is established, other physician organizations, including health systems,
Speaker 4: can confidently and quickly move into full risk value-based care, leveraging the infrastructure and learnings of that local market.
Speaker 4: As we have purposely expanded to 14 states and 30 plus markets over the past six years,
Speaker 4: we have established for ourselves an in-market TAM of 33,000 primary care doctors and 10.5 million senior patients.
Speaker 4: This year's class includes particularly large new partner organizations within our existing markets and states, driving outsized in-market growth for next year.
Speaker 4: As I mentioned in our last call, our sales cycle has accelerated, and this will allow for a longer implementation period for new partner groups in 2024.
Speaker 4: This, coupled with the increasing scale of our platform, positions our new partners to generate outcomes much earlier in their life cycle, including a higher starting point for quality performance and medical margin.
Speaker 4: Performance of our new partners will be further supported by the acquisition of MPHRX, which we completed yesterday.
Speaker 4: The company's Minerva platform uses FHIR-based standards to aggregate, access, and exchange data across healthcare delivery networks.
Speaker 4: We have known their team for some time and piloted their technology during our 2022 new market implementation process.
Speaker 4: The integration of this technology into Agilent's existing technology platform will enable faster onboarding of our partners and more rapid integration with EMR systems.
Speaker 4: This improvement in speed, particularly with complex EMR integrations.
Speaker 4: will support our ability to scale and enter additional communities, especially with distributed physician networks and health systems.
Speaker 4: Every incremental week is important during our implementation process, and this technology will effectively buy us time.
Speaker 4: and accelerate our ability to drive outcomes for both patients and physician partners. Continued investment in our platform to accelerate success of current and new partners should allow us to further strengthen our leadership position.
Speaker 4: Let me close with some perspective on the macro environment.
Speaker 4: The tailwinds for the move to Agilent's new primary care model have never been stronger.
Speaker 4: And in that assessment, I would include the recent advance notice from CMS and the final RADV rule.
Speaker 4: It is increasingly clear
Speaker 4: that the challenges of the fee for service system are too great. In both health plans and CMS are looking to a healthcare system that emphasizes the relationship between a senior patient and their primary care doctor and rewards health outcomes rather than the volume of visits.
Speaker 4: Agilent has been solely built for success in that type of environment. And these developments only increase our opportunity.
Speaker 4: when I look more immediately at the levers in our business.
Speaker 4: like getting members on the platform earlier, delivering a more effective implementation period with improved starting points for new partners.
Speaker 4: an accelerating quality and medical cost performance in our more mature markets.
I am left feeling extremely bullish on 2023, 2024, and beyond. With that, let me turn things over to Tim.
Thanks, Steve, and good evening, everyone. I'll review highlights from our financial statements and provide some additional details on our guidance for 2023.
everyone. I'll review highlights from our financial statements and provide some additional details on our guidance for 2023 starting with our membership.
Medicare Advantage membership increased 45% to approximately 270,000 at the high end of our guidance range.
Direct contracting membership increased 72% to approximately 89,000.
Total members live on the Agilent platform, including both Medicare Advantage and Direct Contracting, increased to 359,000.
Our MA membership growth was driven by the six new partner geographies that went live in January 2022 and 13% growth within our existing geographies. Revenues increased 49% on a year-over-year basis to $690 million during the fourth quarter. For the full year, revenues increased 48% to $2.5 million during the fourth quarter.
benchmark updates, and market and member mix. Medical margin increased 93% year-over-year to $61 million in the fourth quarter. For the full year, medical margin increased 67% to $305 million.
Even with the dilution from our strong membership growth and a higher proportion of members in our year one markets, medical margin increased as a percentage of revenue and on a PMPM basis.
For the full year 2022, medical margins were 11.2% of revenue compared to 9.9% last year, and medical margin PMPM increased 15% to $96 versus $83 last year.
Medical margins benefited from stronger performance in our year one markets and significant gains in our year two plus partner markets. As Steve mentioned, in our 10 year two plus partner markets, medical margin PMPM increased by 33% to $124 in 2022, up from $93 in 2021.
Network contribution, which reflects Agilent's share of medical margin, increased 74% to $22 million during the fourth quarter.
For the full year, network contribution increased 56% to $132 million.
The year-over-year increase in network contribution reflects gains in medical margin as well as the relative contribution of medical margin across our markets.
Platform support costs, which include market and enterprise level G&A, increased 35% to $42 million in the fourth quarter.
For the full year, platform support costs increased 19% to $146 million.
Platform support costs were higher than our internal forecasts during Q4, largely due to investments to help scale our business in 2023 and beyond.
The growth in our platform support costs continues to trend well below our revenue growth, reflecting the efficiency of our partnership model.
For the full year, platform support costs declined to 5.4% of revenue compared to 6.7% last year.
Our adjusted EBITDA was negative $10.6 million in the quarter compared to negative $26.7 million last year. On a full year basis, adjusted EBITDA was positive $4.3 million compared to negative $38.6 million last year. The $43 million year over year gain in adjusted EBITDA for the full year.
within other income was positive $8 million in the quarter and positive $14 million for the full year.
Our underlying performance and direct contracting from a cost and quality standpoint remains strong and continues to outperform benchmarks.
During the quarter, CMS provided updated estimates for the retro trend adjustment which positively impacted our revenue benchmarks.
This road modest upside to adjust the EBITDA contribution and offset the platform support investments I mentioned previously.
Turning to our balance sheet in cash flow.
As of December 31st, we had $909 million in cash in marketable securities and $43 million in outstanding debt.
We remain extremely well capitalized and do not anticipate needing any external capital to drive our future growth. Additionally, we continue to anticipate generating positive cash flow as we move into 2024.
Our strong balance sheet position and adjusted EBITDA progression gives us significant flexibility to make targeted investments to further strengthen our scale and scale our platform including both internal and external investments.
From an external perspective, we continue to evaluate targeted capabilities that can leverage our growing membership base. To that end, we are pleased to complete the acquisition of MPHRx. As referenced in the accompanying press release we issued this afternoon,
We expect the integration of MPHRx into our existing technology platform will accelerate the onboarding and performance of our new partners through faster data integration.
While the acquisition won't contribute to our JES
From an internal perspective, we can continue to focus our investments in technology and growth. In 2022, we stepped up our geographic entry cost going from $33 million last year to $68 million in 2022. The increase in geographic entry cost relates to two factors, which we view as key positives.
First, the class of 2023 new partners included over 100,000 members, which went live in January of this year. This is almost double the size of the class of 2022 and compared to our original estimate of 80,000.
Second, given the shorter sales cycle, our 2022 financials include some cost associated with implementing the class of 2024 new partners, which will go live in January of next year.
In total, our member acquisition costs, including both new geographies and same geography, remain in the $400 to $600 range. This is incredibly efficient and considering our high member retention and improving unit economics will generate very attractive returns.
Before turning to our guidance for 2023, I want to note that we did identify two material weaknesses in our internal controls which we have disclosed in our 10K filing. These were identified during our first Sarbanes-Oxley audit as a public company and did not impact our financial statements.
We are committed to maintaining strong internal control and are implementing procedures to remediate this as soon as possible. Turning now to our guidance. For the full year 2023, we expect we expect ending membership live on the Agilent platform will grow to a range of 485,000 to 500,000 members.
including 50% growth in MA membership to approximately 405,000 and steady ACO reach membership at approximately 88,000 at the midpoints. We expect revenue in the range of approximately 4.28 to 4.37 billion dollars or 60% growth at the midpoint.
At the same time, we anticipate our adjusted EBITDA will continue to inflect higher to a range of $75 to $90 million. This is driven by continued progression in medical margins across the maturing partner markets along with platform support cost leverage.
This more than offsets dilution from new members and markets, as we are accelerating our EBITDA growth while also accelerating our membership growth in 2023.
For the first quarter, we expect MA membership growth of $385,000 to $390,000, revenue of $1.07 to $1.09 billion and adjusted EBITDA of $32 to $37 million.
As you can see in the guidance table from our press release, we expect normal seasonality and our medical margins will drive moderating adjusted EBITDA throughout the year. This reflects the higher mix of agents in the latter part of the year. Three other items to call out as it relates to our 2023 guidance.
First, we expect direct contracting will generate modest adjusted EBITDA contribution in 2023 and arrange a $5 million to $10 million.
We also expect this will be weighted towards the back half of the year as we plan to take a prudent approach in estimating the retro trend adjustment and other factors.
Second, we expect the MPH RX acquisition will contribute approximately $6 million from revenue for 2023 with an immaterial impact on a adjusted EBITDA for the year.
Finally, I'd note that our same geography growth will likely trend in the low double-digit range during 2023 across our partner markets.
History reflects our decision to put several new partners within our existing geographies into the class of 2024 and provide for a longer implementation period. With that, we're now ready to take your questions.
Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad now. And if you change your mind, please press star followed by 2. Please also limit to one question per analyst and rejoin the queue if you would like to ask a follow up.
When preparing to ask your question please ensure your line is unmuted locally. Our first question comes from Lisa Gill or off JT Morgan. Lisa your line is now open. Please go ahead.
Thanks very much. Good afternoon. We got through a lot of detail here, but I really just wanted to hone in on the revenue number for next year. That's substantially higher. I know you gave a few of the metrics at our conference just a little over a month ago. But Steve, as I think about the revenue being higher,
Can you maybe just talk about the components to that? One, is it risk scores? Are the acuity levels higher? Two, I know that we had nice, you know, MA rates were better for 2023. How do I think about, you know, the revenue and then how that translates to medical margin?
So 23 unit revenue has a nice step up. I'll let Tim kind of dimensionize that for Lisa. Yeah, in fact, you know, of course the first big pickup of revenue is because we have this very large increase in membership coming in. Then when you look at, I think revenue leased on a PNP and basis, that's going up around.
percent, which of course is a big number, but the benchmark increase itself is you're kind of blended across our markets and members within that, you know, for the approaching 5% range to begin with. And then on top of that, I mean, we would expect, especially in our kind of year one and year two sort of younger markets that we would get, you know, some continued wrap improvement as well, and that kind of tops you off to that sort of six percent or so range on a revenue PNVM.
care spend and therefore higher starting points on rates as part of our mix.
that are really attractive for us, and we've been able to demonstrate success within them. And when you realize how large this class is,
with those year one markets that have a higher baseline, plus the factors that Tim talked about, that accounts for that higher composite revenue number to be referenced.
Okay, great. Thanks. I'll jump back into the queue. Thanks. Thanks, Lisa.
Our next question is from Justin Lake of Wolf Research. The line is now open. Please go ahead.
Thanks, good afternoon. So I wanted to ask two quickies. One on the ACL Reach membership not basically flat year over year. What are you seeing in terms of position groups? I know not every position group is in there. So are you seeing some enter and some exit? Yes, I'm seeing a lot of enter and notably a hotels as well, but one with technicalities maybe even vice Hello,
Are you seeing changes in the other line numbers? You're just trying to understand that. And then Steve, you gave some positive commentary on rates and probably the bigger question that I get from people is on this new risk model. Would love to hear your comments on how you lived through this back in California, the last time they put through a big change in the risk score model. So would love to.
hear your thoughts on kind of maybe how you've seen that change implemented and how you think it might affect Agilent. Thanks. Sure. Thanks, Justin. Two fulsome questions. So real quickly on ACO REACH.
Same partners in 23 that we have in 22 and that's sort of the year over year relatively flat. As we shared early in January we did have some partners that could have gone in 23. We pushed to 24 because we're very focused on having a strong implementation.
and a good starting point. And so we see opportunity in 24 and beyond for additional ACO reach membership. We continue to see it as a very strategic program. I think we're really pleased with our results from a cost and quality perspective.
the value that we get both in direct contracting and Medicare Advantage of having that concentration within the practice and with the community is really very strong. So we're bullish on direct contracting and now with two years of visibility and experience and better transparency and almost a full run out on.
You can see in our results that there was some upside within that, which is encouraging for us as we go forward, although we are being cautious. Yeah, and before we move on to the advanced rate notice question, I just say that obviously we're pretty pleased with the overall performance so far of direct contracting now transitioned to ACO reach. I mean, the name of the game is OB.
drive costs out, beat cost benchmark and have high quality. And we're basically doing both those work, continue to beat the cost benchmarks and we've got 100% quality score. And that really helped drive that a little bit higher performance than we had previously expected for DC in 2022. We did mention that for 2023…
And then Justin, on your second question about the 24 rate notice and the recalibration of the risk adjustment model within the context of that, we, like everyone, we've done our preliminary work, we've gone through this on a market by market basis, looked at the HCCs and kind of the proposed changes.
I think the headline for you is we feel like it's very manageable for us. The composite is probably in line with that 3% impact that's been called out nationally. If you think about what we do and the markets we go to and the populations we serve, that really makes sense.
but also on risk adjustment. And so when we look at some of our prevalence numbers relative to, or when we look at regional prevalence numbers relative to our capture, we can be below those. So I think there's opportunity, and therefore the impact of this is not nearly as great as you might find in a clinic model that's very concentrated.
that we're exercising today and we continue to exercise that are gonna give us a nice lift in 24. We're getting members on the platform earlier. Think about what I said. We are going to double our membership in MA from what we just reported to you today for the close of 22 and what we're seeing out in.
even.
They're certainly diluted on a med margin level. Our ability with a longer implementation cycle on this acquisition, which we're really excited about, can help that starting point. And then the third thing is really just the cohort migration across time.
And so I think we feel like we can manage it. We're obviously in the comment period. We participated with APG and BMA and the Healthcare Transformation Task Force on this. I think there are others that are much more dramatically impacted than we would be.
and we are supportive of phasing in something of this magnitude and type of change. But for us, it's manageable. And I guess the last point I'd make is what I talked about in my remarks, which is I think there's just a macro trend in terms of the push towards value from fee for service.
There's always been the factors of the challenge for physicians.
the demographic surge in terms of seniors and payers demanding looking for more to value, I think what just happened with this notice is going to accelerate that.
If you think about payers and Medicare Advantage, the vast majority nationally of their membership in MA sits on a fee-for-service chassis. They are going to want to move that because of that variability I talked about and who is the solution for that from a payer side.
I think it's Agilent. Who's the solution for that from the physician side? I think it's Agilent. And so I think from a volume perspective, we're going to win on it. We'll see where this settles out. We'll know in a month. But I think the headline is it's manageable. Thanks, Justin. And just one clarification. Steve mentioned new markets being diluted.
My question is related to what the clarification Matthew just gave. So on this clearly class of 22 performed well compared to your medical margin PMPM target of $30 to $60. How should we think about year one medical margin guidance in terms of class of 23? Does the unique nature of this year's class impact your view of how you think about year one medical margin this year?
This is some I'll take that one. I don't think so. I think we're still looking at the class of 23. We still say that that range of $30 to $60 is going to be the starting point. We've got within the class it's a very large class of 23. We've got some on both sides of that, but that range is still very appropriate for the class of 2020-23.
and see approach on how main health plays out.
Yeah, I can update you on that. I mean, I think it's a great question. As I shared in our remarks, part of the class 24 includes health systems or the physicians affiliated with them, both employed and independent physicians that are affiliated. So...
We will, we're going to expand a lot more in our investor day on our class at 24 and give you that. I think we see this as a tremendous growth area for us. I think that health systems are seeing many of the challenges from this fee for service world, reimbursement changes, labor costs.
that our physician partners are seeing, and they've got a tremendous opportunity with their primary care physicians in a senior population to move to value. So we're gonna see that again with the class of 24 and we'll be able to give you much more detail at the end of the month.
Thanks, too, Linda. I wonder if we could just keep it to one question so we can get through the full queue. And our next question comes from Kevin Fishbeck from Bank of America. Heal on his mail. Open, please proceed. Great, thanks. I just wanted to get a little more color.
I've had to wait 12 months to do it with only 10 months advance warning. Thanks. Well, I think we're going to continue to take as many months as we can on the implementation period. The example I'll give you, Kevin, is in our 2022 pilot, we utilize this in a market that took us four months.
doing it the old way. And using the technology of the Merva technology, we were able to do it in four weeks.
It's 75% faster in that example. Each month is worth a lot in terms of our ability to get patients scheduled, get them in for visits, get clinical programs set up earlier, the ability to stratify that population. And so what I would say when I said it buys us time is it gives us more time.
to get into the really the heart of that implementation, which is getting that patient in, getting that assessment and getting them the resources that they need around that. And so that is the most immediate and powerful impact.
This will improve our clinical quality over time, should help us on the medical expense because we're getting there. The quality of our data through this was improved to versus the way we were doing it. Some of that variability came out. So I think it's a combination of those things, Kevin, that leave us pretty excited about the...
about the acquisition. I think it's really important strategically as we have continued to diversify the kind of partners that we go out now and partner with including some of these very large kind of PEO type organizations that have multiple EMRs within their system. This really just gives us more capability to be able to serve a larger number of types
Thanks, I get it. The class of 2024, 130,000 members, Steve, you made the point as much larger than you had initially contemplated. Should we think about 2024 being fully based now? Are you expect there'll be more to be added there? I guess it would point to you start to kind of shift over to building out 2025.
soan'll give you a lot more context at our Investor Day at the end of the month I think I said it's going to be at least that right the class of new partners' new markets is eight thousand it's coming on the composite when you think about what we're doing in same geography could get you to that one So.
go out to the class 25. There also is, that's an estimate on those six partners I talked about, but there is some additional membership potentially within that. We try to be really kind of smart about the way we do this, but with some of the technologies, some of the faster implementation period, maybe some of that gets into...
So we'll update you at the end of the month that our investor day on it. But I think we're pretty positive on the class and what the opportunity could be for it.
Thanks, Sean. On that's a question from George Hill. From Deutsche Bank. George Hill, do a lot of now open. Please go ahead.
Yeah, Steven, I think you probably just answered this question because it had a little bit of a long preamble. But if I look at what you guys have signed already for the class of 24, it looks like FCP in Pennsylvania. If the national average is a pile of contribute 30 to 35 K. And again, with flexing and clinic, that looks like it could get these many 60,000 MA lives. You said in Market Glick, it could probably be over 30. I guess my question is.
A follow-up on terms, when do you cut the class of 24 off and kind of what size is too big that for you to wrap 24 and then kind of push people in 25? Well, so George, thanks for the question. Well, first let me say...
FPC and the Lexington are the two partners out of the class of 24. They put releases out. We'll do those on the others and we'll talk to you full-simly at our investor day at the end of the month. They both are great partners and they're emblematic of how strong this class is. You know, FPC.
is the largest independent primary care group in central Pennsylvania. We've talked about this phenomenon of groups in an existing state or region in which we talked to them previously and for whatever reason it wasn't right. And we came back in a few years later and when they wanted to make the move to value.
Agilon was the partner for them. That's the case of FBC. They're an outstanding group. We're really excited to have them. And then Lexington Clinic is really a phenomenal, largest multi-specialty oldest multi-specialty group in Central Kentucky. And so we're excited to bring them on as well. And they were a group.
that we've got a longer implementation period as we talked about and we push them from the mutually we agreed to have them go into the class of 24 instead of the class of 23. So we'll talk about it at the end of the month. We are approaching the period in which at another month or so it's probably going to push two years later. People have had more questions. Sentiment Motor pftdnvdn,
and is now open, please go ahead. Yeah, guys, thanks for taking the question. Congrats on the announcement. Tim, a lot of data, but I wanted to hone in, again, on your comments on medical margins. They were interesting looking at the year two cohort. So I'm curious if you could give us any color on how that contrasts to what that year two cohort may have looked like a year or two ago. And then second, I'm curious if you could give us any color on how that contrasts to what that year two cohort may have looked like a year ago. So I'm curious if you could give us any color on how that contrasts to what that year two cohort may have looked like a year ago.
Do you think that's due to more rapid and better implementation, so starting at a higher point or is it more to do with kind of the operational speed to value as you move into the second year of those performance metrics?
Yeah, no, that's a great question. I think our, and you can, we'll update you again, Steve, we were just talking about it in about a month on the cohort data, you'll get even a better look at this. But even if you refer back to a year ago, I think you can, you know, the information we put out on cohort data last year's investor day, you can see that, yeah, I mean, our year two plus market performance has been consistent across cohorts as we move through.
when we start somebody in the $30, $60 range, the more important thing is that we're quickly moving those folks up on that maturation curve in medical margin, kind of as we walked you through in the cohort analysis last year, as they move into year, from year one to year two into year three, and they're quickly getting to numbers up into the mid-100s, and we even showed you markets that by year three are getting up and already pushing.
system we're getting tremendous compliance with our and execution of our clinical programs that are driving quality you know quality up and cost out.
Our next question comes from Brian Tranquillip from Jeffree, so your line is now open, please go ahead.
Hey, good afternoon. Tim, just a quick question on the EBITDA to cash flow conversion. So obviously, it's a strong outlook on EBITDA growth, but how should you be thinking about cash flows this year and into next year as well? Thank you, Patrick.
Yeah, so one of the things that happens is our cash flow typically is going to lag our EBITDA and the reason for that is a couple of things. One is just the timing of how we settle up our risk pools with the payers means that we're getting the cash for our EBITDA performance kind of well behind the times here that we're reporting the EBITDA.
And the second thing is, you know, we are actually investing in these larger and larger markets. And so that year one or that I'm sorry, that year zero implementing market expenses is actually going up as well. And obviously we don't get any revenue or any cash for that until the following year. So typically we're seeing cash flow kind of laggy. But so for instance in 20.
23, you know, a significant portion of our cash flow improvement year over year. We would expect to see a significant pick up and cash year over year. We'll come from 2022 and certainly in 2022, you know, the fact that we had, you know, significantly more EBITDA gain than we did, then we did cash flow as a driven by those same factors. Got it. Thank you.
Our next question comes from David Lassner of BTRG. David, your line is now open. Please go ahead. Hi. Can you talk about any conversations you might be having with your base around the RADV rule or the final rate notice? It seems to me like physician practices will need basically all of the assistance they can get in terms of coding.
an implementing restricted and effective network is that driving up to man for your platform or not? Just any thoughts there will be helpful. Thank you.
Yeah, they really appreciate the conversation and I'll just say this weekend we're going to be with 200 physicians in Florida and the regulatory environment and how it is increasing the acceleration of value and how together.
we can take advantage of that and even perform better is really kind of at the heart of that discussion. So I think from a,
Opportunity for us, we're saying that we can just perform better on value. We will work with them very closely to make sure that we have high accuracy from a coding perspective. We've done a very good job to date. We'll continue to do that. We're constantly looking at how we can make improvements. We'll walk them through that this weekend.
them, tremendous catalyst for their communities, but we just want to make sure that we're doing things in a really smart way. So it's a key part of that and then obviously what that impact is from that advanced notice. We're talking to them because it's different by market, but it's not the final notice and you know we'll find out in a month what that looks like so we'll make preliminary plans around that and then
are just as we see what that final looks like. Thank you so much. On the next question comes from Jamie Pers from Goldman Sachs. Jamie, your line is now open. Please go ahead.
Hey, thanks. Good afternoon. Just wanted to follow up on the platform support cross. I think he said those were higher than expected due to infrastructure to scale over 2023 and beyond. Can you elaborate on what these investments are a little bit more? Should we think about them as accelerating growth, accelerating profitability or just necessary investments to support?
to see that improvement year over year as we move forward. I mean, I think getting that leverage against platform support crisis is obviously a big part of how our model works. Specifically in Q4, we did have the opportunity to step up platform support crisis. You kind of see it when you look across the quarters and the higher absolute level of spending Q4 versus the first three quarters.
And that was really to support this very large class of 2023 coming in. So we were able to do things like kind of proactively increase our technology infrastructure and data storage for instance. So we were able to do these kinds of things that essentially put us in a position to get that huge class of 2023 on board and really put us in a position to scale our business over time.
I don't think it's indicative of anything going forward other than we'll continue to get great leverage out of platform support costs, but I think we're in a good position to do that. Now of course, in Q4, one of the reasons we're able to do that is we did have a little bit higher direct contracting, keep it off low, do that offset that increase.
And Jamie, if I can just add to that, I think just the macro is we are investing heavily in our business in a variety of ways. I think we are the solution out there. I think we have a lead. We are trying to invest in a period of dislocation and frankly advance that lead. So meaningful step up in terms of the platform support costs a lot around technology, the amount of data. We are going.
that we are taking in and providing to our partners on a daily basis to help do the things that we talked about for better cost and quality has escalated dramatically when you have a much larger class. Getting in front of that is a key part of it. The geo entry cost, the Tim talked about. Now that's just a function of the double the class size, but that's a substantial investment and then.
this acquisition that we talked about. So in a variety of ways, we are trying to do things that are going to put our partners in a position to really extend their lead in their communities and attract other doctors and other patients. Oh nearly.
to ensure that you're matching with the plans given the materiality of the membership growth in front of you. And maybe do you find that the plans are getting better with this as well? They obviously have some huge incentives to match alongside you. So, with Steve, I can chime in on this one. You know, we're...
spending a lot of time with our plans right now. We're on the phone with the Humana National team on Monday. We collectively have a goal to really accelerate that period, so there's not as much retroactivity. And so both of us are saying, what do we need to do earlier? When you have a mixed shift like you talked about between plans, obviously there's more work around that.
And so it's what I would say, it's a lot of logic, it's a lot of process, it's a lot of data that's going on to make that work happen. There's still going to be some retroactivity through this first quarter, given the magnitude of some of those shifts. But it's just kind of table stakes in this business, and we've got a great relationship with the plans and we're working on it. Yeah, I think that's great. I don't think we're doing anything new, but I would say that that continues to be...
but our ability to sort of leverage that core expertise that we have really makes it a lot easier for us to expand, both with the national payers and with all these new regional payers that we're bringing on.
Good sour. Next question comes from Sandy Draper from guovenheim. Sand you along in our away.
Thanks very much. A lot of questions have been asked and answered, but maybe just a follow up on the comments about the platform support costs and same geography. Given the strength of the pipeline, the outlook for 24 and beyond, is it fair to assume that we're not going to necessarily see those, this wasn't sort of one time, one quarter.
and we're going to fall off. It seems like we're sort of stepping up to a new level just because the visibility for long-term growth is there. Just want to make sure I'm thinking about that right. I answered a couple of ways on platforms to forecast specifically. We had the opportunity, particularly after on top of the strong performance we had on both the MA side and the direct contracting side, to sort of ramp up platform support costs.
So that makes sense. But still getting a significant reduction in platform support costs as a percentage of revenues is still getting leverage out of it.
On the implementation cost, that continues on a per member basis to say in a very good range and say that $400 to $600 range. And when we spend $400 to $600 to bring a new member on, we're getting phenomenally quick pay back on that and getting it like.
You know, we consider the lifetime value of the medical margin and network contribution that we're going to be generating off of that membership and considering the really good retention that we have with membership. We're going to get a lifetime value to customer acquisition costs.
you know, ratio of something like 10, 12 to 1, so really, really positive. The fact that we had a big pickup and implementation cost this year is really primarily a factor of having twice as many members that we were implementing. I mean, we implemented over 100,000 new members in 2022 that when you know, live now at the beginning of 2023, you know, the year before class is like 57,000. So, you know, that increase in membership.
Obviously, at a still really good cost for members, just generating a bigger number, we will make that investment all day long, right? Getting those members on the platform early today as many as we can, with all that embedded margin, just puts us in better shape to be able to hit both our membership and our medical margin and EBITDA projections for the future.
Our final question comes from Stephen Baxter of Wells Fargo. Stephen, your line is now open. Please go ahead. Yeah, hi. Thanks. I was hoping you could talk in a little greater detail about your ability to manage margins and margin progression in a more challenging rate environment inclusive of that.
Rift model head limb, not the harp on it too much, but the Rift model change alone that you size is larger than the average annual EBITDA margin expansion. That's implied to reach your long-term guidance targets. I'm just trying to understand why this would be a bigger step back for you in 2024. Absolutely. Absolutely. Thanks.
So, Stephen, I think my headline to you was, it's manageable. It's in that 3% range. And the reason is those levers I talked about. So, getting more members on the platform earlier.
The fact that we are doubling our MA membership from 22 to 24, that's far greater than we would have told you years ago. And then the year over year maturation that's driven by earlier rollout of clinical programs, better quality, the diabetes.
Research that I cited at the beginning where we're 20% better than Medicare Advantage on a national basis, terms of total cost to care, go down the list of sort of complex patients and we're getting much better on that.
And so, and I'm not even counting anything that might happen on the benefits side. There's a lot of dialogue that we have going with plans on that that could be, there could be adjustments on benefits. And we have that discussion every year. Last couple of years it's been about increasing benefits this year. It's depending upon the market. It could be about, hey, are there places where we tune?
having a better implementation period really helps a lot.
And there are no further questions, I would like to hand the call back to the management team for any closing remarks.
We're obviously excited about our performance in 22 and what's ahead in 23 and 24 and we look forward to seeing all of you at the end of the month that our investor day here in I think it's going to be a great discussion. So see you then.
This concludes today's school. Thank you everyone for joining. You may now disconnect.