Q4 2022 CareMax Inc Earnings Call
Please wait the conference.
Ladies and gentlemen, good morning, My name is Abby and I will be your conference operator today.
At this time I would like to welcome everyone to the care Macs fourth quarter 2022 financial results Conference call.
Today's conference is being recorded in all lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one once again.
Thank you and I will now turn the conference over to Samantha Swerdlin, Vice President of Investor Relations you may begin.
Thank you and good morning, everyone welcome to <unk> fourth quarter and full year 2022 earnings call.
As far as Vice President of Investor Relations and I'm joined this morning by Carlos our.
Our Chief Executive Officer, and Kevin Horgan, our Chief Financial Officer.
During the call we will be discussing certain forward looking information.
Forward looking statements are based on assumptions and assessments.
Okay.
In light of their experience and assessment.
Of historical trends current conditions expected future developments and other factors they believe to be appropriate.
These forward looking statements made during this call are made as of today and Cemex undertakes no duty to update or revise such statements whether as a result of new information future events or otherwise.
Factors that could cause actual results developments and business decisions.
Differ materially from the forward looking statements are described in the company's filings with the SEC, including the effects of <unk>.
In today's remarks by management, we will be discussing certain non-GAAP financial measures a reconciliation.
These non-GAAP financial measures the most comparable GAAP measures can be found in this morning's earnings press release.
I would now like to turn the call over to Carlos.
Thank you Samantha good morning, everyone and thank you for joining our call today.
2022 was a great year for care Max marked by significant growth in national expansion.
We exceeded our guidance on revenue and membership delivered adjusted EBITDA within our guidance range and added 17, new centers ending with 52 locations across four states.
We also took a major step forward in accelerating our national presence with the acquisition of stored value based care and expanded our MSL platform to 10 states with 245000 lives in value based care arrangements and approximately 2000 primary care providers in our network.
We have made tremendous progress integrating stored and are very excited about the opportunity. We believe our hybrid model of a capital light NSO combined with our high touch centers provides us with a strong platform for leadership in the industry as we transition to value based care across the country.
Yeah.
Now turning to some highlights from the quarter Medicare advantage membership increased to 93500, and we're pleased to report that our medical expense ratio for the quarter was 69, 5%.
Knowing that center level remained at approximately 70% for the year. These.
These metrics reflect our continued commitment to providing high quality care, while maintaining operational efficiency.
We continued to deliver strong operational performance during the quarter.
We remain focused on ensuring members across our care Max family have access to consistent high quality care, our physical rebranding efforts are well underway with 80% of our footprint already rebranded to enhance our one care Max value proposition.
We continue to benefit from investments we've made in patient experience as evidenced by our five star rating and quality across all of our Florida centers in 2022.
We believe this underscores our ability to maintain best in class tier as we grow rapidly.
Further we received a net promoter score of over 97, four member satisfaction and saw a 93% of patients during the year, a testament to our efforts to provide accessible patient centered care.
And then other initiatives, we continue to build out the specialty services offered at our centers in areas, such as cardiology diagnostic services, Pulmonology endocrinology and gastroenterology.
We believe that by offering these services in house, we can significantly reduce total cost of care and allow for better and more seamless care coordination between primary care physicians and specialists.
We understand that building strong relationships with our primary care providers is critical to delivering exceptional care to our patients.
While we are proud to report that we achieved an impressive 94% retention rate for our employed providers over 2022.
We believe that our strong success in retaining providers is directly attributable to the comprehensive range of services and support that we provide from technology to streamline administrative processes, we're committed to making it easy as possible for all providers to focus on what they do best caring for patients.
At <unk>, we're committed to delivering comprehensive care solutions that meet the unique needs of our patients.
As part of this commitment we have been expanding our in house pharmacy operations.
Recently, we launched a pharmacy for central Florida location and are currently in the process of creating extended pharmacy offering throughout the region.
Our investment in expanding our pharmacy offering goes beyond just providing medication to patients by having a larger pharmacy presence, we're able to manage a patient's total cost of care. We also provide medication adherence programs, helping to ensure that our members take their medications as prescribed and stay healthy.
Overall, we're excited about the progress we've made in expanding our pharmacy operations and we believe that these efforts will help us deliver better outcomes for our patients and drive continued growth.
Early in 2022, we began opening up centers outside of our core Florida market we.
We have expanded our presence to Memphis, and Houston and continue to build density in New York City, where we now have seven centers, including our first center in the Bronx, which opened during Q4.
The results we've seen from the centers opened earlier in the year have been very encouraging we have exceeded our membership goals and now have 1000 patients in New York City, driven by strong organic sales from our team and hiring a PCP with deep roots in their respective communities.
We've also had success in Memphis, where we now have approximately 500 Medicare advantage patients.
Our growth in both markets has been driven by our focus on providing high quality care and building strong relationships with patients their families and the broader community.
Looking ahead, we're excited about the growth opportunities in our new markets.
Now I would like to update you on the progress of Stewart integration efforts, which have been gaining momentum since our acquisition in November the acquisition of storage value based care business provided us immediate scale to deliver value based care across the country.
Our expanded network now comprises approximately 2000 providers and over 200000 Medicare value based care patients in 10 states and 30 markets.
To support this growth we on boarded 65 full time employees to ensure a smooth transition.
We are encouraged to see that local practices in the store network are eager to adopt value based care and we have been working closely with them to provide education and resources they need to successfully transition this model of care.
On the payer side, we've made significant progress in transitioning towards Medicare advantage fee for service beneficiaries into Medicare advantage value based care arrangements. We have also moved some of the legacy Stewart value based care contracts into contracts with higher levels of risk sharing.
We are pleased to report that our payer partners are receptive to aligning with our glide path for risk strategy. We believe that our momentum in this area will continue as more payers seek to ship their business into value based arrangements and that this puts us in a strong position ultimately shipped a significant.
Portion of the Steward Medicare advantage fee for service population into risk based arrangements overtime.
Since the founding of care Max we have been committed to taking an innovative approach to health care delivery, which includes our proprietary system blending targeted technology with comprehensive high touch care.
This unique approach has been a key driver of our strong results as.
As we continue to pursue deliberate growth plans, we believe that our hybrid delivery model of a capital light and so integrated with our high performing centers sets us apart from others in the health care industry.
As we look ahead to the next several years, we couldnt be more excited about the momentum we've established and the opportunities that lie ahead for us over the past year, we've made significant strides in transforming our business expanding our operations to a national scale and establishing ourselves as one of the largest value based care.
Operators in the country.
We believe that our focus on delivering high quality value based care will continue to drive significant growth and value for our shareholders.
And that we have the opportunity to unlock $400 million to $550 million and adjusted EBITDA value over the next five to 10 years.
Now I want to take a moment to discuss our upcoming Investor day on March 13th we have a great day planned for you which will include presentations from many members of our leadership team. We hope you will come away with a deeper understanding of our business vision and strategy.
And the deep impact we have on the communities. We serve we are looking forward to seeing you in Miami next week.
Four I hand over the call to Kevin I want to thank our incredible team members for all their hard work and dedication over the past year.
We continue to exceed our expectations with their commitment to growing the business, while going above and beyond to deliver exceptional healthcare.
And always keeping the needs of our members first.
With that I'll turn it over to Kevin to provide greater detail on our fourth quarter financial performance.
Thanks, Carlos and good morning.
As those of you who have followed US know we have big ambitions to bring our differentiated care platform to seniors in new markets and we've done just that.
17 de Novo clinics opened to date across New York City, Memphis, Tennessee, Houston, Texas, and the space Coast in Florida.
We're now serving over 2000, new Medicare members and aren't didn't know those as of year end 2022, all while continuing.
Continuing to grow membership and EBITDA in our core Florida centers.
And now we are taking our next step in growth with the integration of the Nashville.
Mitchell from Stuart.
I will first recap our results in the fourth quarter and full year of 2022, and then provide financial guidance for 2023.
As a reminder, a reconciliation of GAAP to non-GAAP metrics like adjusted EBITDA can be found in our earnings release and presentation.
All year over year comparisons with 2021 are pro forma for the combination of Carmax and IMC health as if they had occurred at the beginning of 2021.
Before going into the fundamentals I would like to note that we recognized a $70 million goodwill impairment charge in the fourth quarter offset by a gain of approximately equal size related to the remeasurement of earn out liabilities from the Stewart transaction.
These items may arise if it doesn't fluctuations in our stock price, but they have no impact on our cash our non-GAAP financials.
We reported fourth quarter revenue of $164 million.
Up 39% from the fourth quarter of 2021.
This puts our full year revenue at $631 million up 57% from 2021.
Come in above the high end of our latest guidance and exceeding the midpoint of our original guidance by 15%.
Medical expense ratio for the quarter was 69, 5%.
Bringing full year MBR to 72, 7%.
For clarity in your figures exclude de novo or acquired National and there's no patients that are not full risk.
Importantly, MBR in 2022 was approximately 70% for members in our centers and approximately 85% for members and our existing NSO. Both in line with historical and long term targeted performance.
Platform contribution in the fourth quarter was $25 $6 million growing approximately 60% over the fourth quarter of 2021.
Full year platform contribution was $85 1 million up approximately 71% over 2021 and rebounding as we had expected from COVID-19 related headwinds in 2021.
As a reminder platform contribution represents a blend of centers at different stages of maturity.
Some of our most established centers at over 20% platform contribution margin.
Continue to see opportunity to scale not just de novo's, but also less mature core, Florida center to a 20% platform contribution margin or better.
As for adjusted EBITDA, we've adopted a change in our reporting that no longer add back de novo pre opening cost and post opening losses in the figure.
Had we done this for 2022, our adjusted EBITDA guidance would have been $10 million to $20 million, reflecting expected to novo post opening losses of approximately $10 million and another $10 million of internally budgeted pre opening costs, which include one time expenses to enter new markets and build out.
Professional fees.
Together these novo cost and losses were approximately $13 million for 2022.
Putting our adjusted EBITDA at $22 million.
Or over 7 million favorable to the midpoint of our recast guidance.
This shows as our team has done a great job deploying capital judiciously toward de novo growth and by leveraging the national MSL. We believe there are opportunities to be even more efficient and growing membership in new markets.
Cash as of the end of December was $42 million as.
As a reminder, we pulled down $45 million from our delayed draw term loan facility in November to help fund the Stewart BBC acquisition.
This week, we entered into an amendment with our term loan lenders to add an additional delayed draw facility of $60 million.
Gather with the $65 million of remaining capacity under our current <unk> and $42 million of cash as of year end. We would have had $167 million of total liquidity to continue our de novo expansion and invest in value creation and our MSL.
On top of that we have worked with our lenders to increase our ability to raise a further $45 million revolving credit from $30 million previously.
To fund additional working capital needs.
Just the challenging macro backdrop, we are fortunate to be in partnership with long term oriented stakeholders that have high conviction in the financial viability of our business.
These sources of liquidity, we expect to be able to fund our current growth strategy for the foreseeable future.
Now, let me turn to 2023 guidance.
We plan to continue executing on Medicare advantage member growth across <unk> across both our centers and MSL, reaching 110000 to 120000 and maybe be seen members.
At the end of 2023.
Representing 23% growth at the midpoint over our year end 2022 membership. This reflects a combination of organic growth in our core and de Novo markets and collaborative efforts with payers and providers to transition Medicare fee for service beneficiaries and to value based care plans.
We expect full year revenue of $700 million to $750 million or 15% growth over 2022 at the midpoint.
As noted in previous calls 2022 revenue included favorable impacts from true ups and gap risk revenues.
Due to the retrospective recognition a full risk membership and certain health plans.
We consider 600 million as an appropriate annual run rate for the three Stuart Coeur Mexican business exiting Q4.
And to reach the midpoint of the guidance, we assume low double digit percentage growth off of this run rate and the remainder coming from the acquired National MSL revenues.
As most of our lives are not yet in full risk arrangements GAAP revenues from MSP ACO reach and Medicare advantage partial risk contracts will primarily be recognized on a net basis effectively as if external provider costs, we're already deducted from premiums.
We expect full year adjusted EBITDA fully burden.
Post opening losses, and pre opening costs of 25% to $35 million or 36% growth at the midpoint.
This includes approximately $25 million of de novo costs and losses.
Continue center openings and a full year of operating losses for the 2022 cohort.
We plan to take a measured an opportunistic approach toward center openings as we believe our MSL provides us a pipeline of high performing providers to seed new locations.
Finally, similar to last year, we expect revenue to be distributed relatively evenly throughout the year.
Adjusted EBITDA should also be roughly consistent between the first half in the second half as favorable seasonality an external provider cost in the second half partially offsets increased de novo losses.
Even with the greater de Novo invest in that this year, our ability to grow adjusted EBITDA reflects immediate the immediate earnings accretion from the National MSL acquisition.
As well as continued growth in our core Florida membership improvement in P. MTM economics, and operating leverage all of our corporate general and administrative expenses.
As Carlos noted integration with a national MSL is well underway.
With provider engagement and clinical teams already in close close collaboration with key MSL accounts with a goal to drive improvements in medical utilization and shared savings.
Since the 2022 and SSP receivable will go toward repayment of the Stewart our facility, we expect to reinvest most of this year's cash flows from the national MSL into human and technological capital to support taking increasing risk under our new Medicare advantage contracts.
We look forward to going into more detail on our financial drivers of the National MSL next Monday at our Investor Day.
We feel well positioned.
To execute on our multi pronged strategy.
Excited to demonstrate how our efforts have the potential to unlock significant earnings and cash flow for the coming years.
Operator, we will now open it up for questions.
Thank you <unk>.
Winder, if you would like to ask a question Press Star then the number one on your telephone keypad.
And we will pause for just a moment to compile the Q&A roster.
Yeah.
And we will take our first question from Joshua Raskin with Nephron Research. Your line is open.
Hi, Thanks, Good morning, just a quick clarification to make sure we get this all right. So if I recap the reported EBITDA for 2000 $20 million to $22 million and then from the slides I add back the $5 9 million of them de Novo Postop opening losses in the other seven one for the pre opening.
Costs.
That's the $35 million is that comparable to the old guidance is that the right way to think about it.
Hey, good morning, Josh Yeah that sounds right I mean, what we're doing now the company is no longer reporting EBITDA.
Add back of the de Novo there was some clarifying guidance from the SEC. Additionally in December we also think it makes it more clear this way so the way we're reporting moving forward is.
Is without adding back those de novo losses.
But that's okay, that's easy now.
And then the external MLR that was down 570 basis points sequentially came in below 70, and I I, just would've expected with a little bit of a flu season in December and then I don't know what you guys are booking on the on the ACO reach of the MSP lives I assume that that's higher.
You know Adam from Stewart, I would've thought maybe they would have been a little bit more pressure. So the 70 was a little bit favorable was that I guess the questions was that favorable to your expectations and if so maybe you could talk a little about the cost drivers and what youre seeing in terms of underlying medical costs.
Yeah, Hey, Josh it's Kevin Yeah, that's where I came in a little favorable to our expectations I would note that from a flow standpoint in south Florida, we typically don't fill that impact until Q1 of 'twenty three.
And so we'll see that coming in the next quarter.
You talked about the MSP and ACL ratio those as we look out on our part are deemed partial risk contracts because of the risk sharing arrangement. There so they're not actually calculated anymore in our EMEA. Our calculations were only taking full risk in there. So anything that we have substantially all risk score.
Bookings for gross revenues and medical expenses the MSP AC.
ACL reach and even the Medicare advantage partial risk contracts are all being recorded kind of net.
And so therefore, the revenue PMT among those is significantly lower so that's why when you look at the MBR standpoint. Those are included the other thing I would tell you is the reason that came in so one of the reasons. We believe it came in favorable to our expectation typically on the <unk> side, which is obviously a little bit more of our population.
No it hasn't been during 2022, it's been one of our focused growth.
Those tend to have those patients in that contracting tend to have a higher MLR just due to how the calculation works.
And so just the mix shift alone, we would have expected a little bit higher than <unk>, but.
But we were very pleased at where we came in at 69, 5%.
Alright perfect. Thanks.
And we will take our next question from Andrew Mok with UBS. Your line is open.
Yeah.
Hi, Good morning, the 2023 revenue guide of $700 million to $750 million I think is about $70 million to $120 million below the proxy revenue in the deal filings can you help us understand the change in that outlook in the clinic expansion built into the 2023 revenue guide versus Euro.
Previous expectations of I think 25, new clinics for 2023.
Okay.
Yes, maybe I'll take the first part I think when you think about our revenue. It's all about our glide path to risk. So we wanted to make sure that we guided conservatively as we shift our membership from partial risk to full risk. The company has taken a prudent approach, which has put us in a very very strong position.
To not have those.
That deterioration.
And earnings from assuming risk too early.
So I think what youre seeing there is that our ability to.
Our ability to increase that revenue will come if we elect to take risks sooner generally our contracts are taking risks from 18 months to a 24 month period, but we have the ability to trigger risk before that depending on if we have favorability in those specific markets. So.
There is the opportunity for favorability in that.
That guidance, but we want to make sure that we're guiding prudent because it could it could definitely carryover to the first quarter of the following year et cetera. So we just want to make sure that we're taking that same kind of prudent and conservative approach as we guide to revenue moving forward.
And do you expect to open at the same level of clinics for 2023, maybe just any color I think.
Well, we're going to be doing with their clinics and I've said. This on previous calls is we're going to be very opportunistic now on how we opened clinics.
Still in growth mode, but because of the fact that we now have this very large MSL, we're looking at areas, where we have that density.
In those specific markets and identifying those physicians that have sizable panels between 103 hundred Medicare advantage members. So that we can open what we call seeded de novo's and this is really going to allow us to open in a capital efficient way. So we don't have that cash burn on the opex that really affects that.
They know what was in those first several years and with 2000 physicians under our platform, we think theres going to be a lot of exciting opportunities this year.
Got it and then on the 2020 for MAA rate notice would love to hear your preliminary thoughts on the impact to your business and where do you think you sit in relation to the minus 3% industry risk model adjustment. Thanks.
Hey, Andrew it's Kevin Yeah, we're still in the process of evaluating and I think there is still one of the initial call later.
And how the final is going to shake out. The other piece is as you know we've had significant growth. This year, it's very important to understand exactly which htc's. These new patients have attributed and.
And so as we get those final estimate.
The actual final sweeps that come in mid year for.
For 2022 payment year.
Which will reflect specifically, which HCC as those new patients have we have a good understanding of them, but there is additional HCC as that are coming in from a specialist in hospitals as well and so from our standpoint, we want to make sure that we have all the data when we aggregate that information.
But more to come on that one.
Got it thanks for all the color.
And we will take our next question from Joe Lin dressing with Trust Securities. Your line is open.
Yes, Thank you and thanks for all the color.
Sure.
Clarification question I guess, you guys talked about.
Around the assumption that to one cutoff be around 387000 Medicare fee for service lives will convert into partial risk gap agreements with some upside for 2023 I was just curious like what portion of lives actually converted was it in line with expectation or are there any any variance is data.
Yes. So so we're still converting I mean, that's that's part of our plan for 2023.
2024, and beyond and actually I think on Monday, when we do our Investor day presentation, we're going to walk everybody in detail to to how we're going to convert this membership in kind of that glide path to moving the members into value based care.
Arrangements, so I think a lot more information.
To come there.
So far everything has been kind of in line with the expectations and we look forward to really explaining how we're going to.
Move that membership and as I mentioned, we'll also be giving 2026 guidance.
On the entire bill.
Business in the Stewart acquisition.
Okay.
A quick follow up on Andrew's question around <unk>.
As we think about the pipeline for the future that own physicians affiliated physicians under the MSR model and again, you might convert us on Monday to talk about this on Monday, but.
What is the opportunity to convert those physicians over to their own model. How are these acquisitions typically structured how do you evaluate them.
Some time you wait for that I'm, just curious like if you can spend.
Spent some time on the strategy there.
Yeah. So all of that happens boots on the ground and what I can tell you is that we're very encouraged by what we're hearing from a lot of those physicians on the ground in all of the various different markets in Florida, and Massachusetts, Texas.
Texas really embracing value based care.
So the initial reception has been very positive and our team and our business development team works on the ground specifically identifying all of those independent practices that we are working with and identify the right positions the right fit and the right panel size. So.
So we expect there to be a lot of interest in being able to tuck in or Aqua hire.
Opportunities into our future de novo clinics or new de Novo clinics.
Kind of a last quick one.
Going back to the goodwill impairment of $70 million and can you provide a little bit more color like what what what exactly it relates to.
Yes, it's a lender it's Kevin yeah.
So as I'm sure you've heard from a lot of folks over the last few weeks the biggest component when you estimate that goodwill impairment really as the stock price and so as the stock price fluctuates and especially how it ended.
At December 31.
As a major impact on that calculation.
So that's probably the number one driver of that goodwill impairment.
Yes.
Alright, thanks, guys.
Okay.
As a reminder, it is star one if you would like to ask a question and we will take our next question from Jessica <unk> with Piper Sandler Your line is open.
Hi, Thank you guys for taking the questions.
So.
Roughly $19 5000 full risk and they add over the course of the year.
Can you just help us understand the cadence of those ads and then how many of those are coming from.
Recruitment at at Carmax de Novo centers versus conversion of some of the steward.
Caroline.
Hey, Jessica it's Kevin Yeah. So the cadence on those we will have a little bit of a tranche come January as you know we've been working.
With all of our payer partners, specifically on the National Msos side.
From a contract conversion flipping those Medicare advantage fee for service contracts and Medicare advantage value based care contracts.
So once that conversion happens those patients we begin to attribute them to us and we add them to our Medicare advantage line item.
What I would tell you is that we have big ambitions on the on the in the <unk>.
So.
I would say, it's consistent growth within our legacy core business. So the core of <unk> 45 in South Florida.
Okay.
A few thousand for our de Novo clinics center opened in 'twenty, two and opening in 2003.
But the bulk.
A significant amount of that membership growth is going to be coming from those contract conversions and also working with our payer partners and providers and converting those panels will take or service.
Got it and then just kind of given the different platform contribution of the center based versus NSO.
Patients are you going to clarify going forward, what that mix looks like.
Yes, it's a great question.
I'm not sure if we have an answer for that just yet let me say something that we're looking into from a platform contribution standpoint, the way we've looked at it historically specifically.
So it's typically around the 15%.
And the centers are typically around the 20% obviously, we have some high performing the legacy centers are high performing getting closer to 25% from our platform contribution standpoint.
I think is where there's a big variation.
<unk> 85 to 70.
But I think from a platform contribution standpoint there.
Similar.
But it's something that we're definitely evaluating.
And we'll let you know.
Yes, that's a good.
How much away, but youll see some of that at the Investor day presentation, as you'd think about mature medical margins on the different lines of business and as we think about guidance for 'twenty three in 2006.
So you have some information can kind of back into that as well.
Got it and my last one is just can you kind of explain how you went about identifying or deciding which is the fee for service patients from Stewart will be moved into full risk.
And just like whether these decisions are being made.
On a provider by provider basis, or just how we should think about that and then of the 17 centers.
Or opened year to date, how many of those are kind of built in collaboration with steward and how many are standalone camera. Thank you guys.
I'm sorry can you can you repeat that last the beginning of the question Jessica.
Yeah, how many have both been year to date and then maybe for the full year are going to be standalone kind of caremark vendors and how many will be built in newer geographies and in collaboration with Dr. <unk>.
Yep.
Yes, I think when we think about as I answered the question before I think because we're gonna be opportunistic on the center on the new centers.
Not going to guide to a specific number so be it.
Intent is really to identify opportunity by opportunity as we think about which clinics to open and they're all you know what I can tell you is the majority of our de Novo clinics that we open will be seeded de novo's with membership either from our existing NSO in the you know in.
The Florida business, where the additional membership that we added on the <unk>.
All the various different all the various different markets.
Thank you.
And we will take our next question from Gary Taylor with Cowen Your line is open.
Hi, Good morning, I was wondering if you could give us some color on.
The cash from ops.
The <unk>, which.
The law seemed to be larger there and just kind of what youre thinking about too.
2023 cash from ops and free cash flow.
Hey, Gary it's Kevin Yeah. So.
As you think about our cash flow.
Okay, what are the leading components that we always look at obviously is.
From an MSP standpoint there.
There is a delay in receiving that payment. So we talked about this on the call a little bit but.
Essentially the what we earn on the MSP side for 2023, obviously will be accruing those.
Those will be hitting accounts receivable, but the government doesn't pay that until really Q4 of 2004.
And so that receivable is going to continue to get larger and larger as you think about cash flow and cash flow projections.
Our core business continues to perform we do have those those de novo centers that are open kind of late this year or.
This year, but most of them late this year.
Those operating losses are going to continue if you remember that J curve that we've always talked about those operating losses will continue into 2023, and so there's going to be a drag on cash, which we anticipated.
And so I think as we think about the cash flow component to this it's really when that MSP payment comes in kind of Q4 of 2024 is really what we think is kind of like a breakeven point at that point.
We will be in a position, where we're cash flow positive.
Going forward the other way to think about it is if you.
And Thats LP page similar to how Medicare advantage pays meaning theres only a three or four month lag from our Medicare advantage plans.
Then that payment will be pushed forward, meaning we would probably breakeven a little sooner.
There's just a little bit of a delay and it's such a material amount.
Our business now.
A little bit of a cash a cash drag.
Really why we need to be very prudent in how we deploy capital this year, specifically and that's why we're reinvesting really all those fees that we're gaining on the Ma side.
The MSL really just reinvesting those in making sure that we're prepared to take risks next year, but we also didn't want to over invest because we know that that cash flow is going to be a little bit of a burn.
Yeah.
So the ADR growth in the <unk> I think a lot of that maybe most of that attributed to Stuart is that all is that receivable largely.
Would be collected in <unk> of 23, then.
Yes, so the bulk of that.
Probably close to $50 million or so that specifically around Stuart receivables not all of that is a necessity.
But yes that would be collectible and collected in Q4 up 23, but remember there is a in a facility that we entered into where we.
Those funds are technically owed to Stuart, but we also have an AR facility, where we prepaid those and so essentially those funds are going to go to pay back that facility that we took out.
That makes sense, yes, the best way to think about it Gary is in 2023 in the last two months of 2022. The dates of service that we actually owned the MSP platform will actually received the payment in Q4 of 2024, so you're really looking at almost two years.
Under two years of a lag in payments in that and that's really just the cash flow and why Kevin went into the kind of cash flow positive Q4 of 2024, rather than potentially even a year sooner.
Okay and I just wanted to go back to the risk or model change for <unk>.
For a minute because I think it could be really important for <unk>.
24, particularly how it seems to maybe impact some of the.
Florida.
Fission groups, maybe not yours, but some but I mean I understand that you don't have full.
Risk score settlement on.
Patients that you have that you've gained this year, but certainly you've been able to take your population you can run it through the new risk or model and sort of see what the.
The impact is so even before that final those final sweeps and settlements is there.
Any indication that you look better worse than sort of the national average negative 3% that CMS has promulgated.
Yes.
Okay go ahead go ahead.
I was going to add something but all of that yeah.
I was going to say, yes, we're still in the process of evaluating that I think the other important Carlos is probably where you're going I think the other important piece of this is there is going to be there's going to be some impact of risk right. We got to understand what that is at 3% also includes the CNS normalization. So we need to understand when we segment those two things out what's really that fee for service into Australia.
But ultimately that's the national average, we need to understand exactly what that means for our patients. So that's kind of the first step I think the other step is as you think about health plans and how they bid build their bids right. Those bids have to be normalized to a 1.0 using the acuity of the population which has to be recast under this new methodology right and so theres going to.
Some flexibility in.
In the health plans on how they build their bids.
And how theyre going to attribute what gets into into rebates what goes to the a b at a 1.0 and ultimately from there. There is some wiggle room that the health plans are going to have so whatever the impact again, we're still evaluating whatever that impact us from a top line standpoint, we think there is some impact also offsetting <unk>.
On the medical expense side.
Well, we're still evaluating.
Yes, that's right, yes, I just wanted to make that point clear that Rav scoring is also part of the calculation when setting the bids. So I think there is going to be some potential relief to you know to the extent of what that is we don't we don't know yet.
Yeah.
Okay.
Okay. Thank you.
As a reminder, press star one if you would like to ask a question and.
And we will take our next question from Brian <unk>.
Cohen with Jefferies. Your line is open.
Hey, good morning, guys.
Carlos I know youre going to lay out a lot of things on the Investor day on Monday, but as we think about just the word and the integration and the strategizing around that just maybe if you can share with us kind of like the milestone for success.
At least for the next 12 to 24 months that Youre thinking about to say, okay. We are in the right path and we're hitting the right we're hitting our stride.
Yes, I think when we think about that it's all going to boil down to boots on the ground the integration and I am going to I'm going to talk specifically on some of the things that we've already done and we're going to talk about the membership on Monday, So a lot a lot more detail to come there, but it's really going to be integrating our technology our workflows.
All of that process has already begun.
Negotiating the value based care agreements and making sure that we took advantage of potential arbitrage most of those have actually already been done as well. So we're really tracking very very positively and probably ahead of schedule in some of these areas and then additionally, it's going to be how quickly we're able to transition the members.
Ship from the Medicare advantage fee for service to Medicare advantage value based care and then finally, how quickly we can make an impact.
Into moving memberships from partial risk to full risk arrangements and as I mentioned earlier the majority of our contracts are negotiated with an 18% to 24 months glide path to risk, meaning we have that time.
But we can also elect to go into risk at our discretion earlier. So there is some wiggle room for favor ability both on the earnings and the revenue if we're able to if we're able to execute sooner than what's expected. So those are really the the metrics that we're looking at and we've deployed it.
Lot of folks we've brought in 67, new full time employees just to focus that are dedicated on the Stewart integration, so making sure that we have the right amount of folks on the ground working with provider to provider physician to physician identifying those physician leaders. So a lot of work has been done and a lot more work to be done, but we're really excited.
Everything seems to be ahead of schedule right now.
I appreciate that and then.
In your prepared remarks, you guys talked about expansion into new markets.
New York, obviously in Memphis, among others, maybe if we can if you can share with us what you the learning and the affordability of the model into markets outside of Florida, just anything you can share with us.
What those clinic look like today and how they are performing.
Yes, again, there were exceeding expectations as well New York, we're already over 1000 patients we have seven medical centers and we're really excited I mean, it's.
There's just such a huge opportunity.
There really isn't any density with true value based care delivery systems like ours. So I think the opportunity. There is huge and you don't have to deal with the same competition that you have in Florida, So arguably a lot easier and a lot of ways and the ability then to impact.
Patient behavior, which were which we're doing successfully as well is really where we where we're putting most of our attention and focus and really educating the communities.
And in the <unk>.
Physicians on how to practice in a value based care environment to really.
Creators better outcomes that we've been so successful here in Florida, but but we're really encouraged by what we've seen in New York and in Memphis, as well and we think that in many ways.
Portability of it is actually going to be easier.
Outside of Florida.
Awesome. Thank you guys.
And there are no further questions at this time, so I will now turn the call back to Carlos Castello for closing remarks.
So I'd like to thank you all for joining the call today and for your continued support.
Excited for the year ahead, as we execute on our strategy and work to realize the significant benefits of the Stewart acquisition.
We believe we will drive sustainable long term growth and increased value for our shareholders and stakeholders and we look forward to seeing you all on Monday at our Investor day in Miami, Thanks, and have a great day.
And ladies and gentlemen, this concludes today's conference call and we thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
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