Bright Health Group Inc. Q1 2023 Earnings Call
And I wanted to thank her for her commitment and service to bright health.
I would also like to formally acknowledged Jay Madhu Shack, who will be stepping into the CFO role later this week.
He brings a wealth of both financial and industry knowledge to <unk> health as we continue on our journey of transition.
I'll start this morning with some brief comments on our announcement regarding the Medicare advantage business I will then discuss the strong start to the year for our business before turning the call over to Kathy to go over our first quarter results.
As Stephen noted we announced on April 28 that we are exploring strategic alternatives for our California, Medicare advantage business with a focus on a potential sale.
Our board of directors is conducting this evaluation following inbound interests are.
Our California, Medicare advantage business, which consists of brand new date and Central Health plan is well positioned in serving easing and underserved consumers. Following a successful annual enrollment period and solid in year membership growth. The Medicare advantage business remains on track for our membership.
And revenue targets for the year, which Kathy will discuss further.
While there are no assurances at this time of the eventual outcome of the evaluation of strategic alternatives a potential sale of the business would substantially bolster the company's financial standing and position, our consumer care delivery business, well for future growth and the attractive value based care delivery market.
In our April 28th announcement, we also provided an update that in partnership with our banks, we have extended the minimum liquidity waiver for our credit facility through June 30, adding.
Adding additional flexibility as we evaluate the strategic alternatives for the Medicare advantage business and work through the timing of capital needs and statutory capital releases from the wind down of our ACA marketplace insurance business.
While our board evaluates the options for our Medicare advantage business. The bright health team remains focused on advancing our value based care model to drive our business forward.
Our value driven care delivery business. The consumer care segment continues its strong momentum in serving a growing number of consumers through value based care partnerships with payors.
Consumer care had a strong start to the year generating positive operating income in the first quarter.
We ended the quarter, serving 373000 consumers through value based contracts and have raised our forecast for end of year value based consumers, including our reach ACO to a range of 335000 to 355000 consumers up.
7500 consumers at the midpoint from our prior forecast.
We continue to see robust demand for value based care arrangements and our unique offering in the ACA marketplace segment has attracted multiple payer partners.
We've driven strong retention of former bright health care marketplace members through these relationships, resulting in solid growth in the total number of patients in our clinics from 2022 to 2023.
Our business is well diversified across payer partners and geographies.
Our rate case yogurt that started the year as planned and we continue to expect approximately 65000 consumers in this business at year end.
We have meaningfully expanded our primary care physician base and the number of federally qualified health centers, we are partnering with this year growing each by over 50%.
Profitability in the reach ACO business continues to meet our expectations.
Our consumer care segment reported positive GAAP operating income in the first quarter and we continue to expect adjusted EBITDA profitability for the segment for the full year.
We're being prudent and the level of risk, we're taking and the consumer care segment and are focused on achieving adjusted EBITDA profitability for the year, while setting ourselves up for greater risk sharing and fully <unk> model in future years.
Our consumer care business is well positioned for long term profitable growth.
I want to provide one example of the growth opportunities in our consumer care business.
As we've continued to build our value based care capabilities in the business. We have been working on ways to expand the services, we are bringing to our physician group partners on.
On January one a major independent physician Association, California joined our reach ACO.
In the first quarter, we expanded our relationship to support this IPA and partnering with a major national player to enter a value based care arrangements largely focused on the Medicaid population.
For our consumer care business, we benefit through fee based payments and some incremental upside sharing based on value creation.
We also expect to support our ICA partner as they move other payer relationships to value based care arrangements, resulting in additional lives supported through this physician enablement arrangement during the year.
We see this IPA relationship is a great example of the opportunities for growth in the consumer care segment.
We have been developing long term relationships with provider organizations through our reach ACO business and we will continue to support them as they look to expand into additional risk bearing relationships across payer and lines of business and.
In our discontinued operations, we are making meaningful progress on the wind down of our ACA marketplace insurance business quickly processing claims and reaching final settlements with providers.
We continue to get closer to a certain liability for the discontinued business and have increased our estimate by 1% to 3% compared to our year end forecast, primarily due to increased provider settlement activity.
The most recent risk adjustment report was in line with the December 2020 to report supporting the risk adjustment payable reserve, we booked to date.
We expect our clean to be 95% complete by the end of June and our ultimate liability is becoming more fixed and certain supporting our balance sheet position.
I'll now hand, it over to Kathy to provide additional detail on our first quarter performance and our updated outlook.
Thank you, Mike and good morning, everyone I'll start by briefly discussing our balance sheet. I'll, then recap of our first quarter results and provide a review of our 2023 outlook.
Starting with our balance sheet as of March 31, 2023, we had over $142 million in nonregulated liquidity, nearly all of which was in cash and cash equivalents. We had approximately $2 3 billion of additional cash and short or long term investments held by our regulated insurance subsidiaries.
And our California, Medicare advantage business is funded in excess of regulatory minimums.
Our $350 million credit facility was fully drawn as of the end of Q1, when factoring in the $46 million of letters of credit committed to support our direct contracting business.
As of the end of Q1, we had a waiver and amendment on the minimum liquidity covenant required by our credit facility.
As Mike noted in our press release on April 28.
We announced that we received an extension of the minimum liquidity covenant labor through June 32023.
As Mike also noted our board of directors is exploring strategic alternatives for our California, Medicare advantage business with a focus on a potential sale of the business.
While we cannot make any assurances around the potential outcome of the board review.
<unk> of the business would allow us to meaningfully strengthen our balance sheet.
<unk> will provide a solid capital base.
But the long term growth of our value driven consumer care delivery business.
And the first quarter Brighthouse group revenue from continuing operations was $756 million. The consumer care segment contributed $303 million enterprise healthcare segment contributed $453 million.
And the consumer care segment, we had a very strong start to the year in terms of revenue growth and profitability.
The segment ended the quarter with 373000 value based care consumers. This includes over 68000 consumers and our reach ACI and more than 300000 consumers in our clinics through our relationships with commercial payers.
As Mike mentioned this reflects strong performance by the team in recapturing former bright health care insurance consumers through value based external payer relationships, demonstrating the strength of our value driven care delivery offerings.
It also reflects strong year over year growth and our reach ACO.
Consumer care revenue was modestly ahead of our expectations with the upside in value based consumers driving the outperformance. The revenue strength was partially offset by higher medical expenses, including modest unfavorable prior year D C expenses.
Overall consumer carrier generated positive operating income in Q1 slightly ahead of our forecast for the quarter.
And our reach Acoa favorable preliminary benchmark level more than offset unfavorable prior period medical costs.
<unk> and modest gross margin profitability and approximately breakeven adjusted EBITDA performance.
This is in line with our expectations for their reach ACO business for the first quarter.
The consumer care segment is off to a strong start for the year with the additional value based care consumers demonstrating the strength of our value driven care model.
Turning to the breast health care segment Medicare advantage member months, we're ahead of our forecast driving some revenue upside in the quarter bright healthcare's medical cost ratio in the quarter was 95%, including legacy MAA market.
170 basis points versus Q1 2022.
MCR performance for California was 94, 6%. However, this included $25 million in prior periods medical expenses, and the California MTR, excluding prior period medical expenses would have been 89%.
Adjustments for prior period medical expenses resulted in a 2022 full year medical trend at two 5% utilization was stable during 2022 and flat to 2021, including a similar impact from Covid in each year.
Within the quarter, California in MA utilization and costs were in line with our expectations, excluding prior period medical expenses.
We also expect normal seasonality to support our projection for the full year MCR to be below the Q1 MCR.
While we continue to forecast adjusted EBITDA profitability for the MA business for the year, we now expect a smaller contribution from the segment due to the impact of prior period development. Additionally, as a result of the announced reveal of strategic alternatives for the Medicare advantage business, we will be reporting the business has an app.
Assets held for sale in our second quarter financials.
Our consolidated adjusted EBITDA for the quarter was a loss of $35 million.
<unk> largely reflects the pressure on the Medicare advantage business from the prior period medical expenses that I noted earlier.
We have updated our full year 2023 outlook this morning, making modest adjustments.
Our consolidated and segment revenue expectations are unchanged, where we continue to expect 2023% enterprise revenue between two nine and $3 1 billion.
And bright healthcare segment revenue of at least $1 8 billion, our consumer care segment revenue forecast is unchanged at $1, one to $1 3 billion.
With the upside from the higher value based care consumers offset by a more conservative full year reach ACO benchmark forecast.
And Brian Healthcare, we expect end of your Medicare advantage consumers served to be greater than 125000.
Due to the prior period development in the first quarter and MAA, we have raised our medical cost ratio forecast by 100 basis points to a range of 87% to 89%.
And as I noted earlier, we expect a smaller adjusted EBITDA contributions from the bright health care segment.
In consumer care, we now expect a total of 335000 to 375000 total value based consumers at year end, including an unchanged forecast of 65000 from our reach ACO.
And an increased forecast of 270000 to 290000 from our value based relationships with other payers across marketplace Medicare advantage and Medicaid.
We expect both operating segments of our continuing business can be profitable on an adjusted EBITDA basis, which excludes noncash charges and we expect the segment contribution combined with a total company adjusted operating cost ratio of approximately 14% to result, and enterprise adjusted EBITDA profitability for the year.
Our business overall is performing within our range of expectations for the year and the strength in our consumer care business positions us well for long term growth with opportunities across our clinic, our reach ACO and our position enablement capabilities.
Before I go I want to thank the <unk> team I have worked closely with Jay over the last several years and knows that I am leaving bright health in great hands I am proud of all we accomplished together during my time at bright house.
And I look forward to continuing to share from the sidelines now.
Now here's Mike for some final comments.
Thank you Kathy.
I want to conclude by thanking the bright health team for their unwavering dedication to our mission.
We are pleased with the start to the year in our business with strong results from our consumer care segment positioning the business well for long term profitable growth.
Stephen noted given the board is evaluating strategic alternatives for the Medicare advantage business, we won't be conducting a Q&A session. We.
We will look to update you as soon as possible once the board approved the transaction or otherwise concludes the review of strategic alternatives.
You for joining the call and for your interest in Brighthouse.
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