Q4 2023 Privia Health Group Inc Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the Privia Health Group fourth quarter 2023 conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone.
Okay.
Good day, and thank you for standby.
Welcome to the Premier Health Group fourth quarter 2023 conference call at this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to.
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Operator: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again. Please be advised that today's conference is being recorded. I would now like to hand the call over to Robert Borchert, SVP, Investor in Corporate Communications. Please go ahead.
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I would now like to hand, the call over to Robert for chart.
S B piece Investor and corporate Communications. Please go ahead.
Robert P. Borchert: Thank you, Shannon. Good morning, everyone. Joining me on the call are Parth Narotra, our Chief Executive Officer, and David Mountcastle, our Chief Financial Officer. This call is being webcast and can be accessed in the Investor Relations section of PriviaHealth.com. Today's financial press release and slide presentation are posted on the Investor Relations pages of PriviaHealth.com. Following our prepared comments, we will open the line for questions. Please limit yourself to one question only and return to the queue if you have a follow-up so we can get to as many questions as possible.
Thank you Shannon and good morning, everyone. Joining me, our Parker Ultra our Chief Executive Officer, and David Mountcastle, Our Chief Financial Officer. This call is being webcast can be accessed through the Investor Relations section you are pretty health Dot com.
Today's financial press release, and slide presentation are posted on the Investor relations pages of pretty good health Dot com. Following our prepared comments, we will open the line for questions. Please limit yourself to one question only return to the queue. If you have a follow up so you can get to as many questions as possible.
Robert P. Borchert: The financial results reported today are preliminary and are not final until our Form 10-K for the year ended December 31, 2023 is filed with the Securities and Exchange Commission. Additionally, some of the statements we will make today are forward-looking in nature based on our current expectations and view of our business as of February 27, 2024. Such statements, including those related to our future financial and operating performance and future business plans and objectives, are subject to risks and uncertainties that may cause actual results to differ materially. As a result, these statements should be considered along with the cautionary statements in today's press release and the risk factors described in our company's most recent SEC filing. Finally, we may have referred to certain non-GAAP financial measures on the call. Reconciliation of these measures to comparable GAAP measures is included in our press release and the accompanying slide presentation posted on our website. Now, I'll turn the call over to Parsh. Thank you, Robert, and good morning, everyone.
The financial results reported today are preliminary and are not final until our Form 10-K for the year ended December 31, 2023 is filed with Securities and Exchange Commission. Some of the statements. We will make today are forward looking in nature based on our current expectations in view of our business as of February 27th 2024, such statements, including those related to our future.
Financial and operating performance and future business plans and objectives are subject to.
Risks and uncertainties that may cause actual results to differ materially as a result, these statements should be considered along with the cautionary statements in today's press release and the risk factors described in our company's most recent SEC filings.
Finally, we may refer to certain non-GAAP financial measures on the call reconciliation of these measures to comparable GAAP measures are included in our press release and the accompanying slide presentation posted on our website.
Now I will turn the call over to park.
Parth Narotra: Privia Health closed 2023 with another quarter of strong performance. We extended our market reach and continue to execute at a high level on multiple fronts with a focus on growth and profitability. This morning, I'll briefly highlight our 2023 performance, discuss our core focus areas for 2024, and cover some key business highlights. Then David will review our recent financial results, our balance sheet and capital position, and our business and financial outlook for 2024 before we take your questions. 2023 was another outstanding year of growth for Privia Health.
You Robert and good morning, everyone Pravia held close to 2023 with another quarter of strong performance.
We extended our market reach and continue to execute at a high level on multiple fronts with a focus on growth and profitability.
This morning I'll be.
Briefly highlight our 2023 performance disk.
Our core focus areas for 2024 and cover some key business highlights and David will review, our recent financial results, our balance sheet and capital position and our business and financial outlook for 2024 before we take your questions.
2023, it was another outstanding year of growth for Premier help I'm extremely proud of our employees and provide our partners, whose contributions drove results that met or exceeded our updated guidance across all key metrics we.
Parth Narotra: I'm extremely proud of our employees and provider partners whose contributions drove results that met or exceeded our updated guidance across all key metrics. We had a record year of new and same-store provider sales as we continue to build one of the largest ambulatory provider networks in the nation. We added 200 implemented providers in the fourth quarter and a total of 699 implemented providers in the year, meaningfully increasing density in existing states.
We had a record year of new and same store provider sales as we continue to build one of the largest ambulatory provider networks in the nation.
We added 200 implemented providers in the fourth quarter and a total of 699 implemented providers in the year meaningfully increasing density in existing states.
The ongoing success of our model is underlined by our gross provider retention of over 98% in 2023.
We were also pleased with our practice collections growth for the year. Following the restructuring of one capitation agreement announced in the first quarter of 2023 that led to an approximate $110 million headwind to our initial guidance.
Parth Narotra: The ongoing success of our model is underlined by gross provider retention of over 98% in 2023. We were also pleased with our practice collections growth for the year. Following the restructuring of one capitation agreement announced in the first quarter of 2023 that led to an approximate $110 million headwind to our initial guidance, a combination of accelerated implementations from organic sales, strong fee-for-service and value-based care performance, and new market launches contributed to actual practice collections ending the year near the high end of guidance. We entered three new states this past year with the addition of Connecticut, South Carolina, and Washington.
A combination of accelerated implementations from organic sales strong fee for service and value based care performance and.
New market launches contributor to actual practice collections ending the year near the high end of guidance.
We entered three new states in this past year with the addition of Connecticut, South Carolina and Washington.
Our business development efforts continue to expand our total addressable market and bring the <unk> model as a differentiated alternative for community providers and new states.
Growth in our more mature markets drove meaningful outperformance and platform contribution above the high end of guidance due to the operating leverage embedded in our model validating our strong unit economics.
Given our strong free cash flow conversion, we ended the year with approximately $319 million in cash and no debt.
Moving onto 2024, we are taking appropriate steps to manage our value based risk arrangements, given the regulatory and utilization headwinds faced by various players in the Medicare advantage market.
Parth Narotra: Our business development efforts continue to expand our total addressable market and bring the Privia model as a differentiated alternative for community providers in new states. Growth in our more mature markets drove meaningful outperformance in platform contribution above the high end of guidance due to the operating leverage embedded in our model validating our strong unit economics. Given a strong free cash flow conversion, we ended the year with approximately 390 million dollars in cash and no debt.
Over recent months, we've heard commentary from payers anticipating topline and margin pressure stemming from several factors, including B 28, a continuation of strong inpatient and outpatient utilization and unexpected reduction in the number of four and five star rated health plans.
As payers look to strengthen their market position. Some are adjusting planned benefit designs and setting MLR thresholds and the risk based contracts that do not sufficiently compensate provider groups taking risk downstream.
Parth Narotra: Moving on to 2024, we are taking appropriate steps to manage our value-based risk arrangements given the regulatory and utilization headwinds faced by various payers in the Medicare Advantage market. In recent months, we have heard commentary from payers anticipating top-line and margin pressure stemming from several factors, including V-28, a continuation of strong inpatient and outpatient utilization, and an expected reduction in the number of four- and five-star-rated health plans. As payers look to strengthen their market position, some are adjusting plan benefit designs and setting MLR thresholds in risk-based MA contracts that do not sufficiently compensate provider groups taking risk downstream. As we stated earlier this year, we believe that the environment today does not support overextension into downside risk or capitation arrangements.
As we stated earlier this year, we believe that the environment today does not support over extension into downside risk or capitation arrangements.
We are prudently managing our risk book for more favorable contract structures and margin contribution.
Our ability to nimbly respond to the changing reimbursement environment is essential for our provider organization and demonstrates the flexibility and diversity of the <unk> business model we.
We expect to benefit from these changes as we continue to grow our adjusted EBITDA year over year in a sustainable manner, while limiting downside risk in this environment and the near term.
To that end for 2024, we are renegotiating certain MA capitation arrangements and moving 19900 attributed lives into upside downside risk arrangements with.
This lowers our risk exposure and reduces practice collections by approximately $198 million year over year.
With improved economic terms, we expect to benefit on a care margin basis from restructuring the contracts.
Second we notified CMS that we are exiting the Delaware to ACO effective January one 2024.
Parth Narotra: We are prudently managing our risk book for more favorable contract structures and margin contributions. Our ability to nimbly respond to the changing reimbursement environment is essential for a provider organization and demonstrates the flexibility and diversity of the Privia business model. We expect to benefit from these changes as we continue to grow our Justed EBITDA year over year in a sustainable manner while limiting downside risk in this environment in the near term. To that end, for 2024, we are renegotiating certain MA capitation arrangements and moving 19,900 attributed lives into upside-downside risk arrangements. This lowers our risk exposure and reduces practice collections by approximately $198 million year over year. With improved economic terms, we expect to benefit on a care margin basis from restructuring the contract. Second, we notified CMS that we are exiting the Delaware ACO effective January 1st, 2024.
This ACO comprised approximately 12000 attributed lives in MSP and given utilization trends in that market was expected to generate a negative contribution margin for the foreseeable future.
Third we continue to be prudent with our value based care accruals. Our 2024 guidance assumes minimal increase in shared savings accrual across our value based care arrangements in the aggregate.
The goal of these actions is to actively manage our risk exposure like our capitation contract reevaluation in early 2023.
Looking back at the past couple of years, we believe our thoughtful approach to managing risk arrangements has served our providers and shareholders, well and delivering consistent predictable EBITDA growth.
As we look out into the future <unk> is exceptionally well positioned to enter new capitation arrangements when the market conditions become more favorable and present, the right opportunities for <unk> and I'll provide our partners.
Our long term goals remain unchanged to build density in existing geographies through organic provide a growth move our medical groups into value based care arrangements at scale and expand adjusted EBITDA and free cash flow in a durable manner.
As many of our newer markets enter the next stage of their lifecycle, we expect to invest $10 million to $12 million in platform costs in 2024 to continue supporting their growth.
Parth Narotra: This ACO comprised approximately 12,000 attributed lives in MSSP and, given utilization trends in that market, was expected to generate a negative contribution margin for the foreseeable future. Third, we continue to be prudent with our value-based care accruals. Our 2024 guidance assumes a minimal increase in shared savings accrual across our value-based care arrangements in the aggregate.
Despite this increased investment and minimal accretion and shared savings accruals in 2024, we expect 21% adjusted EBITDA growth at the midpoint of our guidance.
Adjusted EBITDA margin as a percentage of care margin is expected to increase 200 basis points at the midpoint.
With minimal capital expenditure in a capital light model, we expect about 80% of our adjusted EBITDA in 2024 to convert to free cash flow.
This would increase our cash position to over $450 million by year end, excluding any business development activity.
Parth Narotra: The goal of these actions is to actively manage our risk exposure, like our capitation contract reevaluation in early 2023. Looking back at the past couple of years, we believe our thoughtful approach to managing risk arrangements has served our providers and shareholders well in delivering consistent, predictable EBITDA growth. As we look out into the future, Privia is exceptionally well-positioned to enter new capitation arrangements when market conditions become more favorable and present the right opportunities for Privia and its provider partners. Our long-term goals remain unchanged to build density in existing geographies through organic provider growth, move our medical groups into value-based care arrangements at scale, and expand adjusted EBITDA and free cash flow in a durable manner. As many of our newest markets enter the next stage of their life cycle, we expect to invest 10 to 12 million dollars in platform costs in 2024 to continue supporting their growth.
Our business development and sales pipeline for both new anchor partners and existing provider groups continues to be very robust in.
In addition, we are starting to see some disruption in the provider space due to the challenging environment.
Given our thoughtful approach and very strong balance sheet, we look forward to pursuing opportunities that position <unk> as the partner of choice for physician groups.
Previous national footprint continues to expand as we build one of the largest primary care centric delivery networks in the country.
Today, we have more than 4300 implemented providers caring for over $4 8 million patients in approximately 1100, <unk> central locations across 13 states and the district of Columbia.
Expansion into a new market is picking up pace as a multi specialty provider partnership model across all patients in all reimbursements is a key differentiator for premier.
As of January one of this year, we estimate <unk> is serving 113 million attributed lives across more than 100 at risk bear contracts in commercial and government programs.
Total attributed lives increased approximately 32% from year end 2022.
This positions our business as one of the broadest and most balanced value based care platforms in the industry.
Parth Narotra: Despite this increased investment and minimal accretion and shared savings accruals in 2024, we expect 21% adjusted EBITDA growth at the midpoint of our guidance. Adjusted EBITDA margin as a percentage of care margin is expected to increase 200 basis points at the midpoint. With minimal capital expenditure in our capital light model, we expect about 80% of our adjusted EBITDA in 2024 to convert to free cash flow. This would increase our cash position to over $450 million by year-end, excluding any business development activities. Our business development and sales pipeline for both new anchor partners and existing provider groups continues to be very robust.
Our commercial attributed lives increase more than 36% from year end 2020, due to 678000 <unk>.
69% of our commercial attributed lives are an upside only arrangements and 31% are in arrangements with some downside risk.
Our ability to on care management fees and shared savings that are incremental to our highly predictable fee for service administrative fees offers a very unique value proposition to our medical groups in the commercial book of business.
Total lives in Medicare shared savings program, excluding Delaware grew 6% from 2023.
Approximately 76% of the 192000 attributed lives participating in MSP R&D enhanced track with significant upside opportunity as well as the greatest downside risks CMS offers in the program.
As of January 175% of the 172000 attributed lives in Medicare advantage or an upside only payer contracts, 16% or an upside downside arrangements. The remaining 9% or approximately 16000 lives are expected to be in capitation arrangements down from 35900 at the end of 2023.
Parth Narotra: In addition, we are starting to see some disruption in the provider space due to the challenging environment. Given our thoughtful approach and very strong balance sheet, we look forward to pursuing opportunities that position Privia as a partner of choice for physician groups. Privia's national footprint continues to expand as we build one of the largest primary care-centric delivery networks in the country. Today, we have more than 4,300 integrated providers caring for over 4.8 million patients in approximately 1,100 care center locations across 13 states and the District of Columbia.
Due to our actions to limit downside risk exposure.
But there remains a significant embedded opportunity for us to move our Medicare advantage lives into downside risk arrangements over the next few years.
As we've consistently noted core to our long term strategy is to portfolio move lives into increased risk arrangements. When we are confident it will provide significant opportunities for EBITDA and free cash flow growth.
We wanted to provide additional color on the substantial amount of medical spend that underscores our value based arrangements.
In aggregate previous Acos are risk entities are managing approximately $9 billion of medical spend in 2024.
In most of our contracts, we only recognize care management fees and our shared savings and practice collections and GAAP revenue due to revenue recognition rules.
Parth Narotra: Expansion into our new markets is picking up pace as our multi-specialty provider partnership model across all patients and all reimbursements is a key differentiator for Privia. As of January 1st of this year, we estimate Privia is serving 1.13 million attributed lives across more than 100 at-risk payer contracts in commercial and government programs. Total attributed lives increased by approximately 32% from year-end 2022. This positions our business as one of the broadest and most balanced value-based care platforms in the industry. Our commercial attributed lives increased more than 36% from year-end 2022 to 678,000. 69% of our commercial-attributed lives are in upside-only arrangements, and 31% are in arrangements with some downside risk. Our ability to earn care management fees and shared savings that are incremental to our highly predictable fee-for-service administrative fees offers a very unique value proposition to our medical groups in the commercial book of business. Total lives in the Medicare Shared Savings Program, excluding Delaware, grew 6% from 2023.
In our capitation contracts, we recognize the medical premium associated with those lives.
Any shift of lives between different types of value based care arrangements such as into ACO reach from MSP, our capitation from upside downside MA contracts could lead to significant movement in practice collections and GAAP revenue.
The potential volatility of shared savings associated with the scale of our medical spend under management requires us to be thoughtful in our risk, taking including limiting downside risk as appropriate in the current environment.
We remain focused on growing our value based care business in a profitable manner for our provider partners and shareholders.
Now I'll ask David to review, our recent financial performance capital position, and our operating and financial outlook for 2024.
Thank you Bart.
<unk> strong operational execution and financial performance continued through the fourth quarter of 2023.
We added 200 provider since the end of September, bringing our implemented provider count to 4305 up 19, 4% year over year.
Combined with solid ambulatory utilization trends. This led to practice collections, increasing 19, 2% from Q4 a year ago.
$757 million.
<unk> costs and SG&A expenses grew slower growth grew slower than our top line and this operating leverage helped drive adjusted EBITDA up 21, 1% over Q4 last year to $17 3 million.
Parth Narotra: Approximately 76% of the 192,000 attributed lives participating in MSSP are in the enhanced track with significant upside opportunity, as well as the greatest downside risk CMS offers in the program. As of January 1st, 75% of the 172,000 attributed lives in Medicaid Advantage are in upside only payer contracts, and 16% are in upside downside arrangements. The remaining 9%, or approximately 16,000 lives, are expected to be in capitation arrangements down from $35,900 at the end of 2023 due to our actions to limit downside risk exposure. There remains a significant embedded opportunity for us to move our Medicare Advantage lives into downside risk arrangements over the next few years. As we've consistently noted, core to our long-term strategy is to thoughtfully move lives into increased risk arrangements when we are confident that they will provide significant opportunities for EBITDA and free cash flow growth. We wanted to provide additional color on the substantial amount of medical spend that underscores our value-based arrangement. In aggregate, Privia's ACOs, or risk entities, are managing approximately $9 billion of medical spend in 2024. In most of our contracts, we only recognize care management fees and or shared savings in practice collections and gap revenue due to revenue recognition rules.
As we continue to grow and more mature and newer markets.
As part noted we met or exceeded guidance for all key operating and financial metrics for full year 2023.
Practice collections increased 17, 1% from a year ago to $2 84 billion.
<unk> margin was up 17, 5% and adjusted EBITDA grew 18, 7% to reach $272 2 million, despite absorbing new market entry costs.
Our business model continues to generate very strong cash flow. We ended the year with no debt and a cash balance of approximately $390 million.
Free cash flow for the year was almost $81 million or more than 100% of adjusted EBITDA due to timing differences.
We generated net cash of 41, $41 5 million in 2023, after investing $43 million of cash for business development activities to enter new states.
We also have an undrawn and available $125 million credit facility and plan to continue maintaining a conservative balance sheet.
Previous strong 2023 performance business momentum and diversified book of business has positioned us well heading into this year.
Our focus in 2024 is threefold.
Drive organic provider growth to increase density and scale in existing geographies.
Limit downside risk arrangements for more favorable contract structures and margin contribution.
And drive operating leverage for adjusted EBITDA growth.
Using the midpoint of our 2024 guidance <unk>.
Implemented providers are expected to increase nine 2% year over year to reach 4700 by year end.
Attributed lives growth of approximately 5% at the midpoint includes our exit from the Delaware ACO in 2024.
Moving to our top line, we are proactively adjusting our risk book to focus on positive margin contribution as we foresaw a more challenging <unk> environment ahead of us.
Therefore, we expect practice collections on GAAP revenue growth to be essentially flat year over year.
Parth Narotra: In our capitation contracts, we recognize the medical premium associated with those lives. Any shift of lives between different types of value-based care arrangements, such as intuatio reach from MSSP or capitation from upside-downside MA contracts, could lead to a significant movement in practice collections and gap revenue. The potential volatility of shared savings associated with the scale of our medical spend on management requires us to be thoughtful in our risk-taking, including limiting downside risk as appropriate in the current environment.
Our practice collections guidance includes a reduction of approximately $198 million from 2023, given lower risk exposure from the MA capitation agreements we are renegotiating.
The improved economic terms are expected to benefit our caremark.
We are also assuming minimal increase in shared savings year over year as part of our prudent accruals.
This implies expected 2024 growth in fee for service practice collections of approximately 10%.
Driven by implemented provided growth in more mature markets in 2023, as well as early provider growth momentum in newer markets.
We expect care margin growth to be nine 7% at the midpoint given the minimal increase in shared savings accruals plasma.
David Mountcastle: We remain focused on growing our value-based care business in a profitable manner for our provider partners and shareholders. Now, I'll ask David to review our recent financial performance, our capital position, and our operating and financial outlook for 2024. Thank you, Barb.
Platform contribution growth of 5% to 6% at the midpoint of guidance reflects an incremental $10 million to $12 million of operational investment in the new markets. We've entered over the past 18 months.
We are guiding to adjusted EBITDA growth of approximately 21%.
Adjusted EBITDA margin as a percentage of care margin is expected to expand 200 basis points year over year at the midpoint as our operating leverage in more mature markets more than offset new market entry costs.
David Mountcastle: Privia Health's strong operational execution and financial performance continued through the fourth quarter of 2023. We added 200 providers since the end of September, bringing our implemented provider count to 4,305, up 19.4% year-over-year. Combined with solid ambulatory utilization, this led to practice collections increasing 19.2% from Q4 a year ago to $757 million.
We also anticipate our newer markets to contribute significant growth and providers attributed lives and adjusted EBITDA in the future.
In the near term given the current environment, we are targeting annual organic practice collections growth in the mid teens and adjusted EBITDA growth of 20% or greater excluding the potential positive impact of any business development activity or growth in our catheter AVMA book.
Finally, we expect capital expenditures to again be less than $1 million. This year as part of our capital light operating model and are assuming an effective tax rate of 27% to 8%.
David Mountcastle: Platform costs and SG&A expenses grew slower than our top line, and this operating leverage helped drive adjusted EBITDA up 21.1% over Q4 last year to $17.3 million. As Parth noted, we met or exceeded guidance for all key operating and financial metrics for full year 2023. Practice collections increased 17.1% from a year ago to $2.84 billion.
This should all lead to approximately 80% of our full year adjusted EBITDA converting to free cash flow.
Premier Health continues to grow in existing and new markets and we remain focused on building one of the largest ambulatory care delivery networks in the nation.
We remain extremely well positioned to reaccelerate, our move to downside risk arrangements when the appropriate MA market conditions present themselves in future years.
And we look forward to continuing to serve our physicians providers and health system partners and their patients.
Operator, we are now ready to take your questions.
Thank you as a reminder to ask a question. Please press star one wanting your telephone and wait for your name to be announced.
David Mountcastle: Care margin was up 17.5%, and adjusted EBITDA grew 18.7% to reach $72.2 million despite absorbing new market interest. Our business model continues to generate very strong cash flow, and we ended the year with no debt and a cash balance of approximately $390 million. Pre-cash flow for the year was almost $81 million, or more than 100% of adjusted EBITDA due to timing.
Your question. Please press star one again.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Joshua Raskin with Nephron Research. Your line is now open.
Hi, Thanks I appreciate the question.
Can you talk about the negotiations with payers around taking risk I'm, specifically interested in why they're okay with you sort of tight trading risk back when you see utilization than other changes and how receptive do you think theyre going to be in the future. When you come back and say, we want to resume capitation when things sort of calmed down.
David Mountcastle: We generated net cash of $41.5 million in 2023 after investing $43 million of cash for business development activities to enter new states. We also have an undrawn and available $125 million credit facility. I plan to continue maintaining a conservative balance. Privia's Strong 2023 Performance, Business Momentum, and Diversified Book of Business have positioned us well heading into this year. Our focus in 2024 is three, drive organic provider growth to increase density and scale in existing geography, limit downside risk arrangements for more favorable contract structures and margin contracts, and Drive Operating Leverage for Adjusted Evening, using the midpoint of our 2024 guide. Implemented providers are expected to increase 9.2% year-over-year to reach 4,700 by year-end.
Yes. Thanks for the question Josh Great question. So there are a few things number one we've built a very conscious model from day one.
That can take risk and different flavors and new value based care across the spectrum. As you know so we're doing FIFA service, which helps upside only shared savings and bonus payments were doing upside downside risk arrangements. We're also doing capitation and we're doing that across commercial Ma and MSP. So that value proposition is fairly broad for <unk>.
Bear in the industry public or private.
When we discuss the capa dated book specifically to your question with bears they are seeing utilization trends that everybody is seeing its impacting their book and at the end of the day. They understand that this is a long term partnership with trivia.
David Mountcastle: Attributed lives growth of approximately 5% at the midpoint includes our exit from the Delaware ACO in 2020. Moving to our top line, we are proactively adjusting our risk book to focus on positive margin contributions, as we foresaw a more challenging M.A. environment ahead of us. Therefore, we expect practice collections and gap revenue growth to be essentially flat year-over-year.
If they have given us MLR targets that are no longer supported given recent historical trends.
We've tried to make sure that they have certain skin in the game and every payer contract and if we add that leads to adjusting those levels appropriately we can have that discussion.
To be clear, we are still taking pretty substantial risk in these contracts, 50% or higher is just that we're not we're dialing it down with a certain higher MLR thresholds and it has.
One to three year arrangement that changes over time.
David Mountcastle: Our practice collections guidance includes a reduction of approximately $198 million from 2023, given lower risk exposure from the MA Capitation Agreements we are renegotiating. The improved economic terms are expected to benefit our care market. We are also assuming a minimal increase in shared savings year-over-year as part of our... This implies expected 2024 growth in fee-for-service practice collections of approximately 10%, driven by provider growth implemented in more mature markets in 2023, as well as early provider growth momentum in newer. We expect care margin growth to be 9.7% at the midpoint, given a minimal increase in shared savings.
The ability for us to take risk changes over time, and then we've just got to deal with the realities that are that we are seeing in the marketplace. So I think it speaks to our strength of the business model and how we can work with the payers and the long term nature of the contract.
Great. Thanks.
Thank you.
Our next question comes from the line of Brian <unk> with Jefferies. Your line is now open.
Hey, good morning, it's Jack Lebanon here, Thanks for taking the question.
I guess looking at the numbers, there's a little bit of optical impact I think from the strong print on implemented providers and in Q4.
I'm shaking out at somewhere in the 14% to 15% average provider growth for 'twenty four.
Based on the guidance range I guess, one is that the right way to think about it and then two as you think about jumping up from 24, given the change in operating leverage from platform contribution to EBITDA in the guide how should we think about where provider growth in attributed <unk>.
David Mountcastle: Platform contribution growth of 5% to 6% at the midpoint of guidance reflects an incremental 10 to 12 million of operational investment in the new markets we've entered over the past 18 months. We are guiding to adjusted EBITDA growth of approximately 21%... Justly adjusted even as a percentage of care margin and is expected to expand 200 basis points year over year at the midpoint.
Growth needs to be off of 24 to sustain a growth rate in the same range that you've guided to for the year. Thanks.
Yeah. Thanks for the question Jack So I'll answer them in order. So number one look we've always said, we're going to target four to 500, new implemented providers every year as we get into new states, our Tam expands and ideally we'd like to exceed that number.
David Mountcastle: As our operating leverage and more mature markets more than offset. We also anticipate our newer markets to contribute significant growth in providers, attributed lives, and adjusted EBITDA. In the near term, given the current environment, we are targeting annual organic practice collections growth in the mid- and adjusted EBITDA growth of 20% or greater, excluding the potential positive impact of any business development activity for growth in our capitated business. Finally, we expect capital expenditures to again be less than a million this year as part of our capital light operating model, and are assuming an effective tax rate of 27 to 28 percent. This should all lead to approximately 80% of our full year adjusted EBITDA converting to free cash.
<unk> 23 was an outstanding year, we implemented close to 700 providers as we noted so there's always some timing difference all else being equal, we'll try and implement them as soon as possible. Some of the new markets also come with implemented providers day, one and Thats what happened in 'twenty three so the right way is just a normalize that over over a two or three year period of time, but given the.
Dan we have a low penetration even in the existing states.
<unk>.
We can continue to add four to 500 implemented providers and just the existing footprint without adding a single new market.
Then those providers come with attributed lives, we move them into value based arrangements.
And then that flows down the P&L and you can see 2024 is a perfect example, where we are not assuming any accretion in shared savings just given the current utilization trends across the value based book.
We're not assuming any new market entries in 2024.
Operator: Privia Health continues to grow in existing and new markets, and we remain focused on building one of the largest ambulatory care delivery networks in the nation. We remain extremely well-positioned to re-accelerate our move to downside risk arrangements when the appropriate MA market conditions present themselves in future years. And we look forward to continuing to serve our physicians, providers, and health system partners and their patients. Operator, we are now ready to take your questions. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
We still have three or four markets that are negative EBITDA that we entered recently and despite that we are able to generate operating leverage and grow EBITDA 20, plus percent at the midpoint of the guidance. So I think as we move forward into 'twenty four if we keep adding at that level of clip implemented providers and lives and those are the two units that drive the business.
<unk>, we think the inherent unit economics and operating leverage in the business.
Just magnifies and we like to keep.
Increasing the operating leverage to grow EBITDA at least 20 plus percent in the existing footprint the marginal provider that joins in the lifestyle joins as highly accretive.
And the beauty of the business as we've already proven the unit economics and operating leverage today.
Thank you.
Our next question comes from the line of Lisa Gill with Jpmorgan. Your line is now open.
Alright, thanks, very much good morning, Kurt.
Joshua Richard Raskin: Please stand by while we compile the Q&A roster. Our first question comes from the line of Joshua Raskin with Nefron Research. Your line is now open.
I wanted to go back to.
How youre seeing the market right now and you talked about minimal increases and shared savings as we think about 2024, you talked about renegotiating. Some of these risks contracts, but when I think about for example, the minimal increase in shared savings is that utilization is that the risk model changes and how do we think about.
Joshua Richard Raskin: Hi, thanks. I appreciate the question. Can you talk about the negotiations with payers around taking risk? I'm specifically interested in why they're okay with you sort of titrating risk back when you see utilization and other changes and how receptive you think they are going to be in the future when you come back and say we want to resume capitation when things, you know, sort of calm down. Yeah, thanks for the question, Josh. A great question.
The timeline of you coming back into more capital type of relationships is that several years away or do you think like we just need to get through 24 and have a better baseline just any thoughts that you have on how we should think about this.
Yes. Thanks for the question Lisa So just from a macro perspective look we've had a little bit of a contrarian viewpoint over the last two years on the MA and Capa data space.
Parth Narotra: So there are a few things. Number one, we've built a very conscious model from day one that can take risk in different flavors and do value-based care across the spectrum, as you know. So we're doing fee-for-service with upside only shared savings and bonus payments. We're doing upside-down risk arrangements. We're also doing capitation.
And we've been that.
Viewpoint has been against the grain.
Which has been hard when both public and private investors have focused on risk taking businesses without regard to any.
Our profitability or free cash flow annually.
Alright, I will say that you are right I mean, if we look back now.
Parth Narotra: And we're doing that across commercial, MA, and MSS. So that value proposition is fairly broad for any payer in the industry, public or private. You know, when we discuss the capitated book specifically as a question with payers, they are seeing utilization trends that everybody's seeing. It's impacting their books.
Got it.
It's hard to do.
Kudos to our health care economic steam and data analytics team, we have some of the best in the industry that CD strands and keep us out of trouble.
We think some of these regulatory changes would have a pretty significant impact you've heard it from all the payers.
<unk> <unk> 28 would be a pretty significant impact.
Parth Narotra: And at the end of the day, they understand that this is a long-term partnership with Privia. If they have given us MLR targets that are no longer supported, given recent historical trends, you know, we've tried to make sure that they have certain skin in the game in every payer contract. And if that leads to adjusting those levels appropriately, we can have that discussion. But to be clear, we are still taking pretty substantial risks in these contracts, 50% or higher. It's just that we're dialing it down with a certain higher MLR threshold.
I think youre seeing some of that in 2024, when payers have reset expectations. We do think 25 would be the first day or will you actually see the impact downstream in the provider groups and knowing that we've actively restructured our book and protected the downside risk for both our providers and our shareholders I think.
Look our view is we're on the right side of history, we are building multi specialty medical groups.
At scale with community doctors, which are lowest cost setting in the communities that we serve.
E Bay are wanting to do value based care at the end of the day, we would rely on such a network and we just think you are in an environment, where obviously everybody protects that dorf. The bears are going through a pretty challenging phase.
Parth Narotra: And it's a one-to-three-year arrangement that changes over time, the ability for us to take risk changes over time, and then we've just got to deal with the realities that we are seeing in the marketplace. So I think it speaks to our strength of the business model and how we can work with the payers and the long-term nature of the contract. Great, thanks.
Things do normalize.
Business goes in cycles, we've seen this over the last 20 years.
And we think once we get through 'twenty four 'twenty five things would normalize our ability to work with the bears and make sure. We do the right thing by providers that are actually undertaking total cost of care management and helping the bears lower total cost in across different books of business, including commercial is very differentiated and the payers are willing to work with.
Brian Gil Tanquilut: Thank you. Our next question comes from the line of Brian Tanquilut with Jefferies. Your line is now open. Hey, good morning. It's Jack Flevin speaking.
Brian Gil Tanquilut: Thanks for taking the question. I guess looking at the numbers, there's a little bit of an optical impact, I think, from the strong print on implemented providers in Q4, and I'm shaking out at somewhere in the 14 to 15% average provider growth for 24, based on the guidance range. I guess, one, is that the right way to think about it? And then, two, as you think about jumping off from 24, given the change in operating leverage from platform contribution to EBITDA in the guide, how should we think about where provider growth and attributed lives growth needs to be off of 24 to sustain a growth rate in the same range that you've got it? Thanks. Thanks for the question, Jack. So I'll answer them in order.
So I do think to answer your question directly once we get through 'twenty four 'twenty five we should see some normalization.
Thank you.
Thank you.
And our next question comes from the line of Ryan Daniels with William Blair. Your line is now open.
Hey, Thanks, guys. This is Jack dumped on for Ryan Daniels, Thanks for taking the question.
Just kind of off of the provider question asked earlier I guess in terms of the implemented providers.
You previously alluded to Youre looking to add about 400 providers in 2024.
And then 2023 the provider adds is a bit more back half weighted can you just discuss the cadence you expect for added providers over the year.
It would be more linear and kind of weighted equally or maybe back half weighted and similar to 2023.
Yeah, absolutely so usually this should be pretty linear with.
With the exception of new market entries. So what happened in 2003 was we entered South Carolina, We entered Washington, both of those came with some implemented providers day, one and so that led to it.
Parth Narotra: So number one, look, we've always said we're going to target four to 500 new providers every year. As we get into new states, our TAM expands, and ideally, we'd like to exceed that number. 2023 was an outstanding year.
That increase and then obviously, we blew through the numbers 699 was one of the best years, we've had that just speaks to the strength of the model and the momentum that we have but other than that.
Parth Narotra: We implemented close to 700 providers, as we noted. So there's always some timing difference. All else being equal, we'll try and implement them as soon as possible. Some of the new markets also come with established providers on day one, and that's what happened in 23. So the right way is just to normalize that over a two or three year period of time.
We should expect it to be pretty linear we are not including any new markets in our guidance as we've done previously in previous year, So as and when we enter new markets and if that comes with implemented providers that would be additive to the guidance we've given.
Thank you.
Our next question comes from the line of Elizabeth Anderson with Evercore ISI. Your line is now open.
Hi, guys. This is sameer on for Samir Patel on for Elizabeth Anderson. Thanks for the question.
Parth Narotra: But given the TAM we have, our low penetration, even in the existing states, we think we can continue to add four to 500 implemented providers in just the existing footprint without adding a single new market. And then those providers come with attributed lives. We move them into value-based arrangements, and then that flows down the P&L. And you can see 2024 is a perfect example where we are not assuming any accretion or shared savings but just given the current utilization trends across the value-based book.
Just wanted to confirm as it relates to you guys moving the <unk> contract.
Those lives over are there any like fee for service economics that youre going to be now gaining on this or is this strictly I'd shared savings.
Yes. Thanks for the question Sameer, So so theres always FIFA serve as economics, even when we move lives into capitation, because we are deeply in the workflows and processing claims. So we earn a fee for service administrative fees on any claims that go through even when the lives move into capitation, what happens is the FIFA service spend.
<unk> captured also as medical expense, if we are getting capital payments up top so.
Parth Narotra: We're not assuming any new market entries in 2024. We still have three or four markets that are negative EBITDA that we entered recently. And despite that, we are able to generate operating leverage and grow EBITDA 20 plus percent at the midpoint of the guidance. So I think as we move forward into 24, if we keep adding at that level of CLIP implemented providers and lives, and those are the two units that drive the business, we think the inherent unit economics and operating leverage in the business just magnifies. And we would like to keep increasing the operating leverage to grow EBITDA at least 20 plus percent in the existing footprint.
That's the nature of the business, but we do earn fees on both the fee for service book and then any shared savings on the value based book.
The same patient.
I do think that differentiates ourselves and we're able to get.
Pretty good unit economics on the same life, if we can process, both FIFA service and value based care payments.
Thank you.
Our next question comes from the line of David Larsen with <unk>. Your line is now open.
Hi, Congrats on the good quarter can you talk a little bit about.
Your relationship with bass medical and I'm, assuming your retention levels with your groups are high.
Maybe talk a little bit about your <unk>.
Your choice to exit Delaware, Thanks, very much.
Okay.
Yeah. Thanks, David So on the first one we have a pretty good relationship with vast medical group long standing relationship, where we're helping the group grow and we obviously have a joint venture MSL entity, so that relationship remains pretty strong.
Lisa Christine Gill: The marginal provider that joins and the life that joins is highly accretive, and the beauty of the business is we've already proven the unit economics and operating leverage. Thank you. Our next question comes from the line of Lisa Gill with J.P. Morgan. Your line is now open. Thanks very much and good morning, Karth.
They were looking for a joint venture partner to establish a California.
Risk bearing organization that took delegated risk downstream from the bears is not a business <unk>.
We do work with other such entities that do that as an example, we work in North, Texas with well met that is owned by Optum for certain contracts. Our economics are unchanged. We continue to get 40% of shared savings on all providers participating in value based arrangements and so we've been discussing that with the vast medical group and <unk>.
Lisa Christine Gill: I want to go back to, you know, how you see the market right now. And you talked about minimal increases in shared savings as we think about 2024. You talked about renegotiating some of these risk contracts. But when I think about, for example, the minimal increase in shared savings, is that utilization? Is that the risk model changing? And how do we think about the timeline of you coming back into more capitated types of relationships? Is that several years away? Or do you think we just need to get through 24 and have a better baseline?
We respect the decision to establish such an entity and we expect to participate in some of those contracts and hopefully that helps the group to grow the <unk>.
Delaware question look it was purely an economic decision.
We underwrite some of these businesses looking at the utilization trends and if that changes as we noted in our prepared remarks.
Given what we were seeing in the marketplace, we didn't think that ACO would've.
Generated any shared savings for our provider partners or for EBITDA for previous shareholders for the foreseeable future, sometimes that happens and the flexibility in our model is that we.
Parth Narotra: Just any thoughts that you have on how we should think about this? Yeah, thanks for the question, Lisa. So just from a macro perspective, look, we've had a little bit of a contrarian viewpoint over the last two years on the MA and capitated space. And we've been, you know, that viewpoint has been against the grain, which has been hard when both public and private investors have focused on risk-taking businesses without regard to in-year profitability or free cash flow. And you were right. I will say that you were right. I mean, if we look back now, right, you were, I would be on the record saying that. It's hard to do.
We can prudently dialed back risk or exit these acos.
When we can in an appropriate manner.
We keep monitoring the situation if the opportunity arises in the future will venture backend.
Okay.
Thank you.
Our next question comes from the line of Jeff <unk> with Piper Sandler Your line is now open.
Hi, guys and thank you for taking my question and congrats on the quarter and the guide.
I just wanted to kind of clarify where are you experiencing new market entry costs in 2024, and then just maybe if you could articulate when you expect to lap those headwinds.
Now you said $10 million to $12 million, but can you can you remind us which states that those headwinds are attributable to and then is the Delaware exit effectively a tailwind.
Parth Narotra: And yeah, you know, kudos to our healthcare economics team and data analytics team. We have some of the best in the industry that see these trends and keep us out of trouble. You know, we think some of these regulatory changes would have pretty significant impacts. You've heard that from all the payers.
On the EBITDA and 24, because you won't have those new market entry costs associated assuming you wind down the ACF.
Alright. Thanks.
Thanks for the question Jeff.
On the first piece as we have said stated consistently when we enter a new state. We first start with the spend at the sales and marketing line. So a lot of the spend in 2023.
Parth Narotra: We think V28 would have a pretty significant impact. I think you're seeing some of that in 2024 when payers have reset expectations. We do think 25 would be the first year where you'll actually see the impact downstream in the provider groups. And knowing that, we've actively restructured our book and protected the downside risk for both our providers and our shareholders. Look, our view is that we're on the right side of history.
Was building out our sales team and the infrastructure to go add providers in those new states.
That continues to be there in 24, however, once we start implementing providers some of the spend also increasing increases in the cost of platform. So youre seeing a majority of the 10 to 12 million spend is now incremental in the platform cost to support implementing and working with these providers as we ramp them up.
So that shift happens.
These other recent new markets as you would expect between Connecticut, North and South Carolina as well as Ohio.
Parth Narotra: We are building multi-specialty medical groups at scale with community doctors, which are the lowest cost setting in the communities that we serve. Any payer wanting to do value-based care at the end of the day would rely on such a network. And we just think you're in an environment where, obviously, everybody protects the turf, the payers are going through a pretty challenging phase, and things will normalize. The MA business goes in cycles. We've seen this over the last 20 years.
They are some of those are still EBITDA negative and we would expect to breakeven over the next couple of years, obviously it depends on the provider growth, but thats our trajectory.
From a Delaware perspective, we did not have any implemented providers as you recall this was our care partners deal.
With a health system. So we will not those providers were not on our platform. So they were not substantial sales and marketing are implementation costs in that market. However, we've.
Exited the ACO and that prevents a negative.
Parth Narotra: And we think once we get through 24, 25, things will normalize. Our ability to work with the payers and make sure we do the right thing by providers that are actually undertaking total cost of care management and helping the payers lower total costs across different books of business, including commercial, is very differentiated. And the payers are willing to work with us. So I do think, to answer your question directly, once we get through 24, 25, we should see some normalization.
Care margin and EBITDA impact that we would've faced had been not shut down the ICL.
Got it thanks.
Thank you.
Question comes from the line of Gary Taylor with Cowen. Your line is now open.
Hey, good morning, most of my questions answered just a couple of maybe follow up just following up on Delaware.
And BV, which when you announced was a couple of hundred physicians is there still some commercial shared savings risk taking activity happening in that market or was it <unk> the only thing.
Ryan Daniels: Thank you. Our next question comes from the line of Ryan Daniels with William Blair. Your line is now open. Hey, thanks, guys. This is Jack Thompson on behalf of Ryan Daniels.
That you were doing with that group.
Yeah, Hi, Gary It was only MSP. So they were not on our platform. There was no fee for service work that we were doing and there was no other line of business only at Chesapeake.
Got it.
And my other quick one was on the capitate the book.
Ryan Daniels: Thanks for taking the question. Just kind of off of the provider question asked earlier, I guess, in terms of the implemented providers, and as you previously alluded to, you're looking to add about 400 providers in 2024. And in 2023, the provider ads were a bit more back half-weighted. Can you just discuss the cadence you expect for added providers over the year? Like, should that be more linear and kind of weighted equally, or, you know, maybe back half-weighted and similar to 2023?
Youre development swung to a positive $3 3 million in the fourth quarter first half of the year you had some headwinds from negative.
Development and I was just trying to intuitively.
Understand that is there a click.
Explanation for that.
Yeah, Hey, Gary This is David Mountcastle, Thanks for the question yes.
The payers go back and sort of reassess the attributed lives from time to time and that was just some reassessment from.
One of our payer groups, yes. The overall impact was de Minimis. When you guys care margin is essentially took out the same amount of revenue and costs. So.
Parth Narotra: Thanks. Yeah, absolutely. Usually, this should be pretty linear, with the exception of new market entries. So what happened in 23 was we entered South Carolina, and we entered Washington, both of those came with some providers implemented day one. And so that led to that increase. And then, obviously, we blew through the numbers. You know, 699 was one of the best years we've had.
No real impact overall is just sort of an attributable I bought it from one of our payers.
Okay. Thank you.
Thank you.
Our next question comes from the line of Richard close with Canaccord Genuity. Your line is now open.
Yes, thanks for the question.
Yes.
Realize that you don't have new markets in 2020 for guidance.
You mentioned something about disruption in the provider market.
Parth Narotra: That just speaks to the strength of the model and the momentum that we have. But other than that, you know, we should expect it to be pretty linear. We are not including any new markets in our guidance, as we've done in previous years.
Just curious what specifically you're meaning by that.
What that means.
<unk> as a potential opportunity.
Yes, I appreciate the question Richard look I'll, just keep my comments generic.
Seeing some chapter 11 filings Youre seeing significant earnings revisions and business models that are single line focused facings.
Elizabeth Anderson: So as and when we enter new markets, and if that comes with implemented providers, that would be additive to the guidance we've given. Thank you. Our next question comes from the line of Elizabeth Anderson with Evercore ISI. Your line is now open. Hi, guys, this is Samir on behalf of Samir Patel on behalf of Elizabeth Anderson.
<unk> facing some headwinds in this market environment, both public companies as well as privately held companies.
We think there was a lot of capital that chase this space and in the past four or five years and as things normalize we think there'll be opportunities both organically for us where provider groups may have partnered with an entity that may not be optimal and they get out of those arrangements and enjoying the <unk> model, which is.
Elizabeth Anderson: Thanks for the question. I just wanted to confirm as it relates to you guys moving the capitated contract, those lives over. Are there any like fee-for-service economics that you're going to be now gaining on this, or is this strictly like shared savings? Thanks for the question, Tamir.
<unk> well proven and established.
And there'll be some opportunities from a business development perspective, where.
We could see entities that may be struggling where there is opportunity for us to both increase our density in existing states or enter new markets at the end of the day, we're looking to add to what two units add implemented providers AD attributed lives and so if we can go get some lives.
Parth Narotra: So there's always fee-for-service economics, even when we move lives into capitation because we are deeply involved in the workflows and processing claims. So we earn fee-for-service administrative fees on any claims that go through, even when the lives move into capitation. What happens is the fee-for-service spend is captured also as a medical expense if we are getting capitated payments up front. So that's the nature of the business. But we do earn fees on both the fee-for-service book and then any shared savings on the value-based book on the same basis. I do think that differentiates us, and we're able to get pretty good unit economics on the same life if we can process both fee-for-service and value-based care in the same way. Amen.
On an arrangement, where they may be struggling in the current structure that they might have in the current environment I think given our strong balance sheet and.
<unk> capital position will be willing to go.
At that pretty aggressively due to grow.
Okay. Thank you.
Thank you. Our next question comes from the line of Whit Mayo with Leerink Partners. Your line is now open.
Alright. Thanks. Good morning, just one quick clarification and a real question I just want to make sure I get this right the $10 million to $12 million in startup costs is that all incremental to 2023 or is that cumulative for the investments that you made last year.
Yes, I would consider those to be cumulative there are some incremental costs because we added like I said predominantly in 'twenty three it was sales and marketing related expenses towards the end of the year. We started some implementation in <unk>.
David Larson: Thank you. Our next question comes from the line of David Larson with BTIG. Your line is now open.
David Larson: Congratulations on a good quarter. Can you talk a little bit about your relationship with Bass Medical? And I'm assuming your retention levels with your groups are high. And maybe talk a little bit about your choice to leave Delaware. Thanks very much.
Performance consultants in our infrastructure in the states.
A lot of the incremental would come in on the platform cost line, but these are costs that are established they are not one time as we've said they get established in the in the market and then as we add providers the business scales pretty rapidly and it gets to breakeven.
Parth Narotra: Thanks, David. So on the first one, we have a pretty good relationship with Bass Medical Group, a longstanding relationship where we are helping the group grow. And we obviously have a joint venture MSO entity. So that relationship remains pretty strong. They were looking for a joint venture partner to establish a California risk-bearing organization that took delegated risk downstream from the bears. It's not a business Privia is in.
So the <unk> hundred $1 million I should say that if we would have not entered these states.
Simply we could take those costs out.
As a proxy for what we are adding all.
All of that is embedded in our guidance when we give that rationale given the states that we are having a meaningful level of spend that are negative EBITDA states for us today.
Parth Narotra: We do work with other such entities that do that. As an example, we work in North Texas with WellMed that is owned by Optum for certain MA contracts. However, our economics are unchanged.
That makes that makes a lot more sense okay.
Helpful.
It was a year or so ago that you guys acquired an ACO maybe in <unk>.
Parth Narotra: We continue to get 40% of shared savings on all providers participating in value-based arrangements. And so, you know, we've been discussing that with the Bass Medical Group. And we respect the decision to establish such an entity. And we expect to participate in some of those contracts. And hopefully, that helps the group to grow. The Delaware question, look, it was purely an economic decision.
Connecticut have kind of a whole value based care book to it just was kind of looking for an update around the performance of that and.
Kind of how youre thinking about other opportunities to maybe deploy capital into opportunities like that.
Yes that was a great transaction for us the Connecticut.
Community Medical group they've been great partners, we think we can build a pretty big business in Connecticut.
We're forming really well and we are seeing a lot of momentum in the state with community providers implementing a full scale model at the back of the ACO or the IP entity that we bought and.
Parth Narotra: We underwrite some of these businesses looking at the utilization trends. And if that changes, as we noted in our prepared remarks, you know, given what we were seeing in the marketplace, we didn't think that ACO would have generated any shared savings for our provider partners or for EBITDA for previous shareholders. You know, for the foreseeable future, sometimes that happens.
And I think Thats, a great playbook for us if we can find like minded partners and other such ipas.
We're going to go and acquire them given the strong balance sheet that we have so that's a big part of the playbook.
Okay. Thanks, guys.
Thank you.
Our next question comes from the line of Jeff Garro with Stephens, Inc. Your line is now open.
Yes, hi, good morning, Thanks for taking the questions I'll try to lump together a few on shared savings.
Jess Tassin: And the flexibility in our model is that we can prudently dial back risk or exit these ACOs when we can in an appropriate manner. And we keep monitoring the situation. If the opportunity arises in the future, we'll go back. Thank you. Our next question comes from the line of Jess Tassin with Piper Sandler. Your line is now open.
First for 2024, I was hoping you could add some more specifics on how many previous providers are participating in beneficiaries are expected to be attributed to previous msft Acos and <unk>.
I was hoping you could also dig into visibility into 2023, MSP performance versus expectations for 2024.
Jess Tassin: Hi guys, and thank you for taking the question and congrats on the quarter and the guide. So I just wanted to kind of clarify where you are experiencing new market entry costs in 2024 and then maybe if you could articulate when you expect to pass those headwinds. I know you said 10 to 12 million, but can you please remind us which states those headwinds are attributable to and then is the Delaware exit effectively a tailwind to EBITDA in 2024 because you won't have those new market entry costs associated with assuming you wind down the business? Thanks, bye, or thanks. Thanks for the question, Jess.
2020 for shared savings expectation and the guidance includes some cushion for final 2023 results. Thanks.
Thanks, Jeff I May ask you to repeat the question.
Given there were a handful so we don't disclose the number of providers typically.
60% of all providers are gatekeepers, including Pcbs in family Medicine, a large part of those get the App.
We didn't detect any input. Please try again, we'll wait to be reconnected to the conference.
Parth Narotra: So on the first piece, you know, as we've stated consistently, when we enter a new state, we first start with the spend on the sales and marketing line. So a lot of the spend in 2023 was building out our sales team and the infrastructure to go add providers in those new states. That continues to be there in 24.
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Parth Narotra: However, once we start implementing providers, some of the spend also increases in the cost of the platform. So you're seeing a majority of the 10 to 12 million spend is now in the sales and marketing line. The 12 million spend is now incremental in the platform costs to support implementing and working with these providers as we ramp them up. So that shift happens.
Okay.
Yes.
Yes.
Parth Narotra: And, you know, these are recent new markets, as you would expect, between Connecticut, North and South Carolina, as well as Ohio. Some of those are still EBITDA negative, and we would expect to break even over the next couple of years. Obviously, it depends on provider growth, but that's our trajectory. From a Delaware perspective, we did not have any implemented providers.
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Parth Narotra: As you recall, this was a care partners deal with the health system, so we were not, those providers were not on our platform. So they did not incur substantial sales and marketing or implementation costs in that market.
Yes.
Okay.
Okay.
Gary Paul Taylor: However, we've exited the ACO, and that prevents a negative care margin and EBITDA impact that we would have faced had we not shut down the ACO. Got it. Thank you. Our next question comes from the line of Gary Taylor with Cowen. Your line is now open.
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Gary Paul Taylor: Most of my questions answered, just a couple, maybe follow up, just following up on Delaware and BB, which when you announced with a couple hundred physicians, is there still some commercial shared savings risk taking activity happening in that market, or was MSSP the only thing that you were doing with that group? Hi Gary, it was only MSSB, so they were not on our platform, there was no FIFA service work that we were doing, and there was no other line of business. And my other quick one was on the capitated book prior development swung to a positive 3.3 million in the fourth quarter. First half year, you had some headwinds from negative development. And I'm just trying to intuitively understand that. Is there a quick..., explanation for that? Yeah, hey, Gary, this is David Malkessel.
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David Mountcastle: Thanks for the question. Yeah, it's, um, you know, the payers go back and sort of reassess the attributive lives from time to time. And that was just some reassessment from, you know, one of our payer groups. You know, the overall impact was de minimis when you got the care margin; it essentially took out the same amount of revenue and costs. So, You know, no real impact overall; it's just a, you know, sort of an attributed life audit from one of our patients.
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David Mountcastle: Okay, thank you. Thank you. Our next question comes from the line of Richard Close with Canaccord Genuity, Ulysses Elk. Yeah, thanks for the question. You realize that you don't have new markets in the 2024 guidance. But Parth, you mentioned something about disruption in the provider market. I'd be curious what specifically you meant by that, and you know what that means for Privia as a potential opportunity. I appreciate the question, Richard. Look, I'll just keep my comments generic.
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Richard Collamer Close: You're obviously seeing some Chapter 11 filings. You're seeing significant earnings revisions and business models that are single-line focused, facing some headwinds in this market environment, both public companies as well as privately held companies. We think there was a lot of capital that chased this space in the past four or five years, and as things normalize, we think there'll be opportunities for us both organically and through acquisitions where provider groups may have partnered with an entity that may not be optimal, and they get out of those arrangements and can join the Privia model, which is well proven and established. And there will be some opportunities from a business development perspective where we could see entities that may be struggling, where there's an opportunity for us to both increase our density in existing states or enter new markets.
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Richard Collamer Close: At the end of the day, we're looking to add to our two units, add implemented providers, and add attributed lives. And so if we can go get some lives in an arrangement where they may be struggling in the current structure that they might have in the current environment, I think given our strong balance sheet and capital position, we'll be willing to go at that pretty aggressively to grow. Thank you. Our next question comes from the line of Whit Mayo with Lerig Partners. Your line is now open. Thanks, good morning. Just one quick clarification and a real question. I just want to make sure I understand this right.
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Richard Collamer Close: The $10 to $12 million in startup costs, is that all incremental to 2023, or is that cumulative for the investments that you made? Yeah, I would consider those to be cumulative. There are some incremental costs because we added, like I said, predominantly in 2023, it was sales and marketing related expenses. Towards the end of the year, we started some implementation and performance consultants and our infrastructure in the States. A lot of the incremental cost would come in on the platform cost line, but these are costs that are already established. They're not just one time, as we've said.
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Parth Narotra: They get established in the market, and then as we add providers, the business scales pretty rapidly and gets to break even. So, you know, the 10 to 20 million; you should say that if we would not have entered these states, you could simply take those costs out as a proxy for what we are adding. Now, all of that is embedded in our guidance. But we give that rationale, given the states that we are having a meaningful level of spend that are negative EBITDA states for us. That makes a lot more sense.
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Parth Narotra: And I think it was, you know, a year or so ago that you guys acquired an ACO. Connecticut had kind of a whole value-based care book, and I was just kind of looking for an update around the performance of that and how you're thinking about other opportunities. Capital and Opportunity. That was a great transaction for us. The Connecticut Community Medical Group has been a great partner. We think we can build a pretty big business in Connecticut. It's performing really well, and we are seeing a lot of momentum in the state with community providers implementing our full-scale model at the back of the ACO or the IP entity that we bought. And I think that's a great playbook for us. If we can find like-minded partners and other such IPAs, we're going to go and acquire them given the strong balance sheet that we have. So that's a big part of the playbook.
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Whit Mayo: Thank you. Our next question comes from the line of Jeff Garrow with Stevens Inc. Your line is now open. Yeah, good morning.
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Whit Mayo: Thanks for taking the questions. I'll try to lump together a few on shared safety. The first for 2024, I was hoping you could add some more specifics on how many Privia providers are participating and beneficiaries are expected to be attributed to Privia MSSP ACOs. And then I was hoping you could also dig into visibility into 2023 MSSP performance versus expectations for 2024. But definitely do meet 2024 shared savings expectations, and the guidance includes some cushion for final 2023 results. Thanks. Thanks, Jeff.
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Jeff Garrow: I may ask you to repeat a question, given there were a handful. So, we don't disclose the number of providers. Typically, 60% of our providers are gatekeepers, including PCPs and family medicine. A large part of those get the at-risk patients.
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Operator: We didn't detect any input. Please try again or wait to be reconnected to the conference. We didn't detect any input. Reconnecting you to the conference.
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