Q1 2024 Alignment Healthcare Inc Earnings Call

Operator: Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements, as defined by the Private Securities Litigation Reform Act. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC, including the risk factors section of our annual report on Form 10-K for the fiscal year ended December 31, 2023. Although we believe our expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call.

Certain statements made during this call will be forward looking statements as defined by the private Securities Litigation Reform Act. These forward looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs assumptions and information currently available to us.

US descriptions of some of the factors that could cause actual results to differ materially from these forward looking statements are discussed in more detail in our filings with the S. E C, including the risk factors section of our annual report on Form 10-K for the fiscal year ended December 31 2023.

Although we believe our expectations are reasonable.

We undertake no obligation to revise any statements to reflect changes that occur. After this call. In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance.

Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and in our Form 10-Q for the fiscal quarter ended March 31st 2024 hours.

Operator: In addition, please note that the company will be discussing certain non-GAAP financial measures that it believes are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and in our Form 10-Q for the fiscal quarter ended March 31, 2024. I would now like to hand the conference over to your speaker today, John Kao, Founder and CEO. You may begin.

Now I'd like to hand, the conference over to your Speaker today, John Kao founder and CEO you may begin.

John E. Kao: Hello, and thank you for joining us on our first quarter earnings conference call. For the first quarter of 2024, our health plan membership of 165,100 members represented approximately 50% growth year over year. Total revenue of $629 million grew approximately 43% year-over-year and approximately 54% excluding ACO REIT. Adjusted gross profit was $57 million, producing a consolidated MBR of 90.9% and an MBR excluding Part D of

John E. Kao: Hello, and thank you for joining us on our first quarter earnings conference call.

John E. Kao: For the first quarter 2020 for our health plan membership of 165100 members represented approximately 50% growth year over year.

John E. Kao: Total revenue of $629 million grew approximately 43% year over year at approximately 54% excluding ACO reach.

John E. Kao: Adjusted gross profit was 57 million producing a consolidated MBR of 99% and an MBR, excluding part D of 88, 3%.

John E. Kao: Meanwhile, our adjusted EBITDA of negative 12 million exceeded the high end of our first quarter outlook range and represents solid progress toward our full year adjusted EBITDA objective. Growth in the first quarter significantly outperformed expectations. This result continued to be driven by increased member retention, improved sales operations, and competitive product offerings. Meanwhile, our ability to achieve our adjusted EBIDTA outlook while scaling to support four times the number of new members demonstrates the power of our integrated data insights, clinical model, shared risk provider partnerships, and operating platforms.

John E. Kao: Meanwhile, our adjusted EBITDA of negative $12 million exceeded the high end of our first quarter outlook range. It represents solid progress toward our full year adjusted EBITDA objective.

John E. Kao: Growth in the first quarter significantly outperformed expectations.

John E. Kao: This result continues to be driven by increased member retention improved sales operations and competitive product offerings.

Meanwhile, our ability to achieve our adjusted EBITDA outlook, while scaling to support four times the number of new members demonstrates the power of our integrated data insights clinical model shared risk provider partnerships and operating platform.

John E. Kao: Central to our results is AVA's visibility into emerging trends, which allows us to rapidly deploy our clinical teams to improve care outcomes and control our medical costs, even while achieving rapid growth. The combination of these differentiated capabilities led to a first quarter consolidated NVR of 90.9%, reflecting only a modest year-over-year increase in our MBR despite growing membership 50% relative to 17% a year ago. This strong result is underscored by an MBR excluding Part D of 88.3% and a Part D MBR of 129%, both consistent with expectations and further indication of our early success in managing our new members. Thomas will expand more on Part D's seasonality in his review.

John E. Kao: Central to our results as avis visibility into emerging trends, which allows us to rapidly deploy our clinical teams to improve care outcomes and control our medical costs, even while achieving rapid growth.

Combination of these differentiated capabilities led to our first quarter consolidated MBR of 99%, reflecting only a modest year over year increase in our MBR, despite growing membership, 50% relative to 17% a year ago.

This strong result is underscored by an MBR, excluding part D of 88, 3% in our part D. MBR, 129%, both consistent with expectations and is further indication of our early success in managing our new members Tom.

John E. Kao: Thomas will expand more on part D seasonality in his remarks.

John E. Kao: Following a strong first quarter, we're raising our full-year membership and revenue guidance, raising the low end of our adjusted gross profit guidance and narrowing our adjusted EBITDA range. Our updated guidance reflects expectations for continued membership growth momentum, a greater mix of new members, our confidence in our clinical model, and improving operating leverage on adjusted SG&A. To manage our significant membership growth, our top priorities in the first quarter were providing our new members with an exceptional onboarding experience and engaging with members who had the greatest chronic health. From a service delivery standpoint, our past investments in AVA Consumer and in-sourcing member experience delivered exceptional results. These efforts resulted in an MPS of 69 at the end of 2023.

John E. Kao: Following a strong first quarter, we're raising our full year membership and revenue guidance.

John E. Kao: Raising the low end of our adjusted gross profit guidance and narrowing our adjusted EBITDA range.

John E. Kao: Our updated guidance reflects expectations for continued membership growth momentum.

John E. Kao: Greater mix of new members, our confidence that our clinical model and improving operating leverage on adjusted SG&A.

John E. Kao: To manage a significant membership growth are top priorities in the first quarter, we are providing our new members with exceptional onboarding experience and engaging with members who had the greatest chronic health needs.

John E. Kao: From a service delivery standpoint.

John E. Kao: Past investments enabled consumer and in sourcing member experience delivered exceptional results.

John E. Kao: These efforts resulted in an NPS of 69 at the end of 2023% to 30% reduction year over year on our first quarter, New member voluntary just enrollment rate and a four nine stars Google rating across more than 4000 reviews.

John E. Kao: 30% reduction year-over-year on our first quarter new member voluntary disenrollment rate and a 4.9 star Google rating across more than 4,000 reviews. All of this was accomplished while achieving over 50% membership growth. By improving member satisfaction and reducing disenrollment rates, we lower our member acquisition costs, raise our STAAR measures, improve our net growth, and increase the lifetime value of our members. From a care management standpoint, the visibility created by our real-time utilization data allows us to quickly engage high-risk members to manage care and control costs, market-by-market.

John E. Kao: All of this was accomplished while achieving over 50% membership growth.

John E. Kao: By improving member satisfaction of reducing Disenroll win rates, we lower our member acquisition costs raise our star measures improve our net growth and increase the lifetime value of our membership.

John E. Kao: From a care management standpoint, the visibility created by our real time utilization data allows us to quickly engage high risk members to managed care and control costs market by market.

John E. Kao: We immediately began managing new members who experienced an acute episode in January and successfully engaged approximately 70% of new members post-discharge. This resulted in 141 inpatient admissions per thousand for new members and 151 admissions per thousand overall.

John E. Kao: We immediately began managing new members, who experienced an acute episode in January successfully engaged approximately 70% of new members post discharge.

John E. Kao: This resulted in a 141 inpatient admissions per thousand for new members and 151 admissions per thousand overall.

John E. Kao: We expect to build upon the strength of these results throughout the year as we ramp up our Care Anywhere engagement. AVA stratification of at-risk members sees a significant jump 30 days after enrollment as our real-time data feeds analyze pharmacy data, lab values, admission, discharge, transfer information, and other data sources. This presents us with the greatest cost-improvement opportunity in the second, third, and fourth quarters as we raise our high-risk new member engagement level.

John E. Kao: We expect to build upon the strength of these results throughout the year as we ramp up our care anywhere engagement.

John E. Kao: Eva stratification of at risk member sees a significant jumped 30 days after enrollment as a real time data feeds analyze pharmacy data lab values admission discharge transfer information and other data sources. This presents us with the greatest cost improvement opportunity in the second third and fourth.

John E. Kao: Quarters, as we raise our high risk new member engagement levels.

John E. Kao: Once engaged, high-risk members typically see a 30% net improvement in institutional claims over the following 12 months. This, combined with our focus on improving outpatient quality outcomes, which drives lower costs, gives us confidence in our continued MBR improvement throughout the year, consistent with our full year outlook. Looking ahead to 2025, we believe we are well positioned to grow health plan membership at or above 20% while expanding margins. As we plan for the current bid cycle, we believe we have distinct tailwinds that support our financial position and competitive advantage.

John E. Kao: Once engaged high risk members typically see a 30% net improvement in institutional claims over the following 12 months.

John E. Kao: This combined with our focus on improving outpatient quality outcomes, which drives lower costs gives us confidence that our continued MBR improvement throughout the year consistent with our full year outlook.

John E. Kao: Looking ahead to 2025, we believe we are well positioned to grow health plan membership at or above 20%, while expanding margins as.

John E. Kao: As we plan for the current bid cycle, we believe we have distinct tailwind that support our financial position and competitive advantages.

John E. Kao: First, there are over 1.2 million HMO members in our California markets who are in plans that will be rated below four stars in 2025, including approximately 700,000 who are in plans that are receiving four-star or above payment today but will be dropping below a four-star payment next year. Meanwhile, roughly 95% of our California members are in plans that will have a four-star payment level in 2025. The difference between a three and a half star and a four star plan is approximately 5% less per member revenue, while the difference between a three star and a four star plan is approximately 10% less member revenue.

John E. Kao: First there are over $1 2 million HMO members in our California markets, who are implants there'll be rated below four stars in 2025.

John E. Kao: Including approximately 700000, who are in plans that are receiving four star or above payment today, but will be dropping below a four star payment next year.

John E. Kao: Meanwhile, roughly 95% of our California members are in plans that will have forced our payment level in 2025.

John E. Kao: The difference between a three to five star and a four star plan is approximately 5% less per member revenue, while the difference between a three star and a four star plan is approximately 10% less member revenue.

John E. Kao: We expect this funding advantage to support our ability to offer attractive benefits while improving consolidated margins. Additionally, we believe the continued phase-in of the V28 risk model changes will further widen our relative advantage in risk adjustment. And third, following the announcement of the final Medicare Advantage rate notice, we expect a weighted average change in our effective growth rate of 5%, which is more than double the national average of 2.4%. These factors, combined with our differentiated operating platform and strong retention of new members, give us confidence in our ability to deliver both growth and margin improvement in 2025. In conclusion, I'd like to thank each of our employees for being part of a team that is raising the standard for what it means to do Medicare Advantage right.

John E. Kao: We expect this funding advantage to support our ability to offer attractive benefits, while improving consolidated margins.

John E. Kao: Second we believe the continued phase in of the day 28 risk model changes will further widened our relative advantage in risk adjustment.

John E. Kao: And third following the announcement of the final Medicare advantage rate notice, we expect a weighted average change in our effective growth rate of 5%, which is more than double the national average of two 4%.

John E. Kao: These factors combined with our differentiated operating platform and strong retention of new members.

John E. Kao: As confidence in our ability to deliver both growth and margin improvement in 2025.

John E. Kao: In conclusion I'd like to thank each of our employees for being part of a team that is raising the standard for what it means to do Medicare advantage rate are.

John E. Kao: Our unique degree of visibility, combined with our clinical and operational execution, is enabling us to navigate the dynamics facing the MA sector and gives us confidence in our 2024 outlook. Combined with tailwinds in 2025 on relative STARS advantages, positioning into the continued risk model phase-in, clarity on benchmark changes in 2025, and increased scale, I believe we will achieve both strong growth and margin improvement in 2025. Taken together, we believe our operating model will continue to prove alignment is the optimal Medicare Advantage platform for today and for the future. Now, I'll turn the call over to Thomas to further discuss our financial results and outlook. Thomas said,

John E. Kao: Our unique degree of visibility combined with our clinical and operational execution is enabling us to navigate the dynamics facing the MA sector and gives us confidence in our 2020 for outlook.

John E. Kao: Combined with <unk> in 2025 on relative stars advantages positioning into the continued risk model Faison clarity on benchmark changes in 2025 and increase scale I believe we will achieve both strong growth and margin improvement in 2025.

John E. Kao: Together, we believe our operating model will continue to prove alignment is the optimal Medicare advantage platform for today and for the future.

John E. Kao: Now I'll turn the call over to Thomas to further discuss our financial results and outlook Thomas.

Thomas: Thanks, John. For the quarter ending March 2024, our health plan membership of 165,100 increased 50% year-over-year. This exceeded our expectation of 44% membership growth at the midpoint of our first quarter guidance, as well as our year-end guidance range of 162 to 164,000 members. Our first quarter revenue of $629 million represented 43% growth year-over-year and 54% growth excluding ACO reach. The top-line outperformance was primarily a function of higher health plan membership as our superior value proposition continued to resonate. The adjusted gross profit in the quarter was $57 million, representing an NBR of 90.9%.

Thomas: Thanks, John for the quarter ending March 2020 for our health plan membership of 165100 increased 50% year over year. This exceeded our expectation of 44% membership growth at the midpoint of our first quarter guidance as well as our year end guidance range of 162 to 164000 members.

Thomas: Our first quarter revenue of $629 million and represented 43% growth year over year, and 54% growth excluding ECR reach the topline outperformance was primarily a function of higher health plan membership as our superior value proposition continued to resonate in the market.

Thomas: Adjusted gross profit in the quarter was $57 million, representing an MBR of 99% a modest increase year over year was driven by a significantly larger portion of new members, reflecting strong control over our medical costs, even as we grew membership by 50% compared to 17% a year ago.

Thomas: The modest increase year over year was driven by a significantly larger portion of new members, reflecting strong control over our medical costs, even as we grew membership by 50%, compared to 17% a year. First quarter performance was driven by favorable inpatient utilization relative to expectations, with overall inpatient admissions per 1,000 of 151 declining 8% year-over-year. Our favorable utilization performance was partially offset by higher inpatient unit costs related to CMS's increase in 2024 fee-for-service rates and greater supplemental benefit utilization.

Thomas: First quarter performance was driven by favorable inpatient utilization relative to expectations with overall inpatient admissions per thousand of 151 declining 8% year over year are favorable utilization performance was partially offset by higher inpatient unit costs related to CMS has increased in 2020 for fee for service rates.

Thomas: In greater supplemental benefit utilization.

Thomas: As John mentioned, our first quarter results reflect an MBR excluding Part D of 88.3% and a Part D MBR of 129%, both in line with expectations. As a reminder, Part D profitability improves over the course of the year as the health plan's cost share declines meaningfully after the initial coverage period. Consistent with normal seasonality, Part D increased our consolidated MBR by 260 basis points during the first quarter. Through the remaining three quarters of the year, we expect Part D to lower our consolidated MBR by 150 basis points.

Thomas: As John mentioned, our first quarter results reflect an MBR, excluding part D of 88, 3% in our part D. MBR of 129% both in line with expectations. As a reminder, part D profitability improves over the course of the year as the health plans cost share declined meaningfully after the initial coverage phase.

Thomas: Consistent with normal seasonality part D increased our consolidated MBR by 260 basis points during the first quarter.

Thomas: Through the remaining three quarters of the year, we expect part D to lower our consolidated MBR by 150 basis points. This results in a net change of roughly 400 basis points between the first quarter and the remainder of the year, we expect our part C. MBR to be only modestly higher for the rest of the year, meaning that part D will be the primary driver of <unk>.

Thomas: This results in a net change of roughly 400 basis points between the first quarter and the remainder of the year. We expect our Part C MBR to be only modestly higher for the rest of the year, meaning that Part D will be the primary driver of seasonality between the first quarter and the following three quarters. During the quarter, it's worth noting that we were not materially impacted by the cybersecurity incident that disrupted a national claims clearinghouse. Importantly, we do not use this clearinghouse for pharmacy claims, prior authorization, or provider claims payment functions.

Thomas: The analogy between the first quarter in the following three quarters.

Thomas: During the quarter, it's worth noting that we were not materially impacted by the cyber security incident that disrupted a national claims clearinghouse importantly, we do not use this clearinghouse for pharmacy claims prior authorization or provider claims payment functions, while we experienced a temporary dip in claims received in February due to the use of the impacted <unk>.

Thomas: While we experienced a temporary dip in claims receipt in February due to the use of the impacted clearinghouse by a small number of our providers, we believe we are currently at normalized claims flow levels. SG&A in the quarter was $90.5 million. Our adjusted SG&A was $69 million, an increase of 37% year-over-year. Adjusted SG&A, the percentage of revenue excluding ACO reach, decreased by approximately 140 basis points year-over-year.

Thomas: Fearing house by a small number of our providers. We believe we are currently at normalized claims flow levels.

Thomas: SG&A in the quarter was $90 5 million, our adjusted SG&A was $69 million, an increase of 37% year over year.

Thomas: Adjusted SG&A as a percentage of revenue excluding ACO reach decreased by approximately 140 basis points year over year, we continue to expect even greater SG&A ratio improvement over the next three quarters, which I will share more on shortly.

Thomas: We continue to expect even greater SG&A ratio improvement over the next three quarters, which I will share more on shortly. Lastly, our adjusted EBITDA was negative $ 12 million ahead of expectations and putting us on track to achieve our full year adjusted EBITDA guidance. Moving to the balance sheet, we remain in a strong position with $302 million in cash and investments at the end of the quarter.

Thomas: Lastly, our adjusted EBITDA was negative $12 million ahead of expectations and putting us on track to achieve our full year adjusted EBITDA guidance.

Thomas: Moving to the balance sheet, we remain in a strong position with $302 million in cash and investments at the end of the quarter.

Thomas: Turning to our guidance, for the second quarter, we expect Health Plan membership to be between 167,000 and 169,000 members, revenue to be in the range of $625,000,000 and $635,000,000, adjusted gross profit to be between $71,000,000 and $77,000,000, and adjusted EBITDA to be in the range of $0 to positive $6,000,000. For the full year 2024, we expect health plan membership to be between 170,000 and 172,000 members, and revenue to be in the range of $2.495 billion and $2.525 billion. Adjusted gross profit is expected to be between $280 million and $310 million, and adjusted EBITDA is expected to be in the range of a loss of $12 million to positive $12 million.

Thomas: Turning to our guidance for the second quarter, we expect health plan membership to be between 167000 and 169000 members.

Thomas: The increase to our full year membership and revenue outlook follows strong first quarter membership outperformance, and our expectation that our sales and member retention momentum will continue through the remainder of the year. Our revised membership guidance now reflects 43% membership growth at the midpoint for year-end 2022. Moving down to P&L, we are increasing the low end of our adjusted gross profit range and narrowing our adjusted EBITDA outlook. The following elements are captured within our updated Adjusted Gross Profit Outlook.

Thomas: First, while the increase in our year-end membership growth contributes incremental gross profit dollars, the new membership increases the MBR implied by our guidance, as new members typically begin at a higher MBR. Second, we expect a continuation of higher inpatient unit costs related to CMS's increase in 2024 fever service rates and greater supplemental benefit utilization, both offsetting the incremental gross profit from higher new member expectations. Third, we expect a moderate decline in inpatient admissions per 1,000 for the full year, partly due to the member mix.

Thomas: The 13 admissions per 1,000 year-over-year decline we experienced in the first quarter, from 164 to 151, places us well on pace to deliver on this objective. As mentioned earlier, we expect to see continued benefit from the ongoing engagement with new members and the deployment of care anywhere resources to those identified as high risk. Our differentiated engagement with both new members and providers is a core reason why Alignment has not experienced the same degree of utilization headwinds that some others in the sector have experienced. Fourth, in addition to our normal course operations, we have identified new payment integrity programs that are currently being implemented.

Thomas: We expect these solutions to provide additional upside throughout the remainder of the year, particularly in the second half. And lastly, our Part D seasonality is expected to drive roughly 400 basis points of MBR improvement between the first quarter and the remainder of the year. This is consistent with our historical experience and normal course seasonality.

Thomas: Our adjusted EBITDA guidance also highlights continued improvement in our operating leverage. We now expect our adjusted SG&A as a percentage of revenue excluding ACO to be 11.8% at the midpoint, an improvement of 260 basis points year over year. Our operating leverage gains over the next three quarters are driven by a combination of factors, including first, continued fixed cost leverage relative to greater membership growth and productivity improvement measures. Second, elimination of one-time expenses associated with the end sourcing of member experience functions in 2023, most of which were incurred in the second half of last year.

Thomas: And third, sales and marketing and year-to-year expense leverage, which is also concentrated in the second half. In conclusion, our strong growth has been well managed by our clinical and operational resources and is a testament to our differentiated Medicare Advantage platform. After our robust start to the year, we believe we are on pace to deliver against our full-year outlook and are set up for both growth and margin improvement in 2025. With that, let's open the call to questions. Operator?

Operator: 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.

Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Nathan Rich from Goldman Sachs. Hi, good afternoon, and thanks for taking the questions.

Nathan Allen Rich: I wanted to, John, follow up on your comments about 2025 and the company's positioning. I guess, can you maybe talk about how you plan to use that cost, you know, advantage or kind of revenue advantage position in your plan bids and how you kind of see that flowing through to maybe what you're planning for benefits relative to where you see the market going? And then one of the things I wanted to ask more specifically was the changes to the Part D plan design that will go into effect in 2025.

Nathan Allen Rich: And, you know, does that create any unique challenges as you think about, you know, how to price and position your plans for next year? Hey, Nate, thanks for the question. You know, we're acutely aware of our competitive position in each of our markets. We're right in the middle of bids right now.

John E. Kao: We've been studying IRRA for, you know, the last couple of years. So we know the nuances of that. And we're very comfortable with how Part D is going to be a very important part of benefit design.

John E. Kao: I'm not going to comment on bid-related questions right now, just due to the nature of the competitive dynamic. I would say, though, that, You know, we've always said 2025 is going to be a very much a breakout year for us in the context of margin, and if you kind of look at just the growth that we've had this year and the strong performance, it is in our ability to onboard the growth and then manage the growth from a medical management perspective.

John E. Kao: Just getting to very basic levels of compliant risk adjustment on this new membership, you can do the math, is very exciting for us. And then the continued improvement on margin on the vintage analysis of our existing members just doubles, kind of doubles down on that margin percentage. So I think we are very, very... encouraged by that. And for those of you that have been with us for the last couple of years, it's just very disciplined.

John E. Kao: And it's all leading to a growth year and a margin year that we expect 25 to be very good. And maybe if I could just ask a quick follow-up on that. The stronger growth this year, and you know, it seems like you expect another year of strong growth in 25. Does that change the margin trajectory at all?

John E. Kao: And I guess, you know, looking at how guidance was updated this quarter, kind of post that the strong membership gains, you know, the top line goes up about 100 million, but a relatively minimal impact on kind of gross margin and not much drop through to EBITDA. Do you feel like that dynamic will change at all, maybe as this year's membership base matures? Or, you know, do you see stronger growth kind of dampening the potential margin over the next year or two? Yeah, that's a great question. I don't, I mean, I'm not saying we're going to grow at 50% again next year or in 2020.

John E. Kao: I do think we have good tailwinds in our favor, but really, I think margin expansion is gonna be really important. And I think we can get the growth. If not 50% growth, we're going to get the growth with the focus on the margin piece of it. You know, you just look at Reed and everything that's, that's, that's publicly available.

John E. Kao: You look at the star ratings, you know, there might be one or two competitors that do irrational things. You know, they've done that in the past, but that's part of it. You know, and we'll have a very good 2025. Very, very confident. Thanks very much for the question. Thank you.

Operator: One moment for our next question. Our next question comes from Ryan Daniels from William Blair. Yeah, congratulations on the strong start to the year. Thanks for taking the question. Thomas, maybe one for you.

Ryan Scott Daniels: Interesting data on the admits per thousand related to both new patients and then the overall book of business. Can you dive into that a little bit more? Is the new patient number lower because they are coming in younger and healthier despite the fact that they haven't been in your clinical programs? Just any color there would be interesting as that's a key cost driver.

John E. Kao: Yeah, hey Ryan, it's John. I think Thomas is navigating some Wi-Fi issues right now. But the answer to the question is yes, and we're pretty happy with that and just let me comment on that you know we're not immune to certain utilization hot spots with some of the new members that we picked up we have a couple of markets not a lot of members but we still have some members that that had higher inpatient utilization actually a couple different markets and we're just all over it you know we have visibility to it we are addressing the care needs of these patients on a daily basis and so you know we're just managing it very very aggressively so, I'm really happy with the performance on the admissions per thousand.

John E. Kao: 151 for the whole book is a lot better than what we did a year ago even, and so these kind of continuous improvements that we're making to AVA and to Care Anywhere are really starting to pay off. And I actually think there's even more opportunity for us as we start maturing some other initiatives that we've got going in clinical. Thank you for that.

John E. Kao: And then maybe another bigger picture question directed to you. We've seen some data recently talking about Medicare Advantage HMOs versus PPOs and the ability for providers with HMOs to better control costs in utilization and manage the patient. I know your exposure is mostly HMO lives versus some of your peers. Do you think that also is providing you with a unique advantage as it comes to your MLR stability or MBR stability versus what a lot of the other players are seeing as we enter 2024? Thanks.

John E. Kao: Yeah, I think that's fair. I think that's a fair statement. I think the way we design our provider contracts also, I think, is part of that answer. This notion of prior authorization, though, is something that's a bit of a misnomer in that a lot of our provider partners, a lot of what we do is auto-op.

John E. Kao: I think it's making sure that we have the proper care navigation in the HMO to get people into the right providers in a kind of timely fashion for access. That's really important from a CAHPS and a STARS perspective and kind of having a preferred network, if you will, and care navigation to the right, highest quality provider. All those kind of dynamics, I think are things that you get with an HMO.

John E. Kao: I think on the PPO, Ryan, you know, the, the, the, the stratification model of identifying who the high-cost, vulnerable PPO members are and then caring for them with care, and that principle still holds as well. And I think one of the things we've done a really better job on with the PPO is engaging those PPO members without a dedicated, you know, PCP and engaging them, and you know, making sure we get proper documentation on the coding. That makes a big difference. Thank you for all that color.

Ryan Scott Daniels: Congratulations again. Thanks, Ryan. Thank you. One moment for our next question. Our next question comes from the line of John Ransom from Raymond James. Hey, good evening.

John Wilson Ransom: You know, one issue for the industry is this thing about claims lag. What do you know, when do you know, when you report a quarter, especially around outpatients, and I know you guys have your Ava technology and your Care Anywhere plan, but what. What is your ability to?

John Wilson Ransom: Accrue your costs accurately? How has that changed? And what tools do you use that maybe some of your competitors don't when you stand here and say with confidence what the kind of what the one-cue medical costs look like? Yeah, hey, John, this is Thomas.

Thomas: I appreciate the question. So I think our ability to actually have the visibility that allows us to accrue for our performance in Q1 or any other quarter accurately is very much underpinned by the visibility and control we have from a medical management standpoint. In other words, it's not that we do things from a financial standpoint to create visibility; it's that we actually run our business day to day with things like admission, discharge, and transfer data, i.e., heads and beds, every single day.

Thomas: Not that we do things from a financial standpoint to create the visibility that we actually run our business day to day with things like admission discharge transfer data I E heads in beds every single day, and then we use that information in order to actually track and accrue our financial reserves, our medical expenses and so more specifically when I think about the.

Thomas: And then we use that information in order to actually track and accrue our financial reserves or medical expenses. And so more specifically, when I think about the broader spend outside of the inpatient setting, there's a lot of correlation between the different categories of spend. And so, for instance, about 90% of our members go through the ER when they're hospitalized. And conversely, on the way out of the hospital, about two-thirds of our discharges go to a skilled nursing facility or a home health facility.

Thomas: The broader spend outside of the inpatient setting.

Thomas: There's a lot of correlation between the different categories of spend and so for instance, about 90% of our members go through the ER when they're hospitalized and Conversely on the way out of the hospital about two thirds of our discharge is go to a skilled nursing facility or a home health facility. So there's a high degree of correlation between how that inpatient kpis moves and how other.

Thomas: So there's a high degree of correlation between how that inpatient KPI moves and how other categories of SPIN claims PMPM also move. And then, beyond that, we do, of course, track data on other things like, you know, outpatient hospital surgery or ASC metrics, skilled nursing length of stay, home health per thousand, et cetera. I think our ability to have pretty good visibility into how the overall claims PMPM is running for the first quarter is quite strong, but it's underpinned by us using that information day to day as opposed to the other way around.

Thomas: Other categories of spend claims the NPM also move and then beyond that we do of course track off data on other things like the <unk>.

Thomas: Outpatient hospital surgery, or ASC metrics skilled nursing length of stay home.

Thomas: Home health per thousand et cetera, So I think our ability to have pretty good.

Thomas: Visibility to how the overall claims PMT was running for the first quarter is quite strong.

Thomas: It's underpinned by us using that information day to day as opposed to the other way around.

Thomas: And then my second question, this is my favorite, like wonky in the weeds, Medicare Advantage question, but do you have any visibility on the 2Q midyear sweep and what's embedded in your guidance as we sit today? Yeah, so there are two different sweeps we get in the second quarter.

Speaker Change: Great and then my.

Speaker Change: Second question. This is my favorite like walking in the weeds Medicare advantage question, but do you have any visibility on the <unk> midyear sweep and what's embedded in your guidance as we sit today.

Thomas: One is the final sweep from last year, which we typically receive at the end of May in our June payment file. And then we also get the mid-year sweep on the 2024 membership, which typically comes at the end of June in the July payment file. So typically speaking, both of those two sweeps would be reflected in our 2Q financial results. We typically don't accrue or expect anything on the financial sweep, the final sweep from the prior year. It depends on the year.

Speaker Change: Yes so.

Speaker Change: Two different suites, we get in the second quarter, one of the final sweep from last year, which we typically receive at the end of May and our June payment file and then we also get the midyear sweep on the 2020 for membership, which typically comes at the end of June and the July payment files. So typically speaking both of those two suites would be reflected in our <unk>.

Speaker Change: Financial results.

Speaker Change: We typically don't.

Speaker Change: Crew or expect anything on the financial suite at the final sweep from the prior year.

Speaker Change: It depends upon the year I would say in Covid years in particular, we saw outsized favorability associated with that suite, but I think if you look at our results last year, which is probably more indicative of a normal year, we didn't have near as much of a pickup last year, but.

Thomas: I would say in COVID years in particular, we saw outsized favorability associated with that sweep. But I think if you look at our results last year, which is probably more indicative of a normal year, we didn't have nearly as much of a pickup last year. But nonetheless, you know, if we do see any kind of positive favorability there, it would be, I think, in addition to what is currently guided. From a mid-year sweep standpoint, very similarly, we typically see a kind of a few basis points of pickup on the new members that allows us to actually have our full year new member wrap be consistent with what we got paid in January.

Speaker Change: Nonetheless, we do see some any kind of positive favor ability there. It would be I think in addition to what is currently guided from a midyear sweep standpoint, very similarly, we typically see.

Speaker Change: A kind of a few basis points a pick up on the new members that allows us to actually have our full year, new member RAF be consistent with what we got paid in January and Thats really how we built our guidance over the course of the year on the new members is whenever we get paid in January is whenever we expect to be paid for the full year to the extent that that comes in more.

Thomas: And that's really how we build our guidance over the course of the year on the new members; whatever we get paid in January is whatever we expect to be paid for the full year. To the extent that that comes in more favorably in the mid-year sweep, that could also be upside.

Speaker Change: Favorable and the midyear sweep that could also be upside.

Thomas: We don't like to kind of bank our guidance on that assumption because it's out of our control that the mid-year sweep comes from whatever was documented last year with the member's prior health plan. So I think it puts us in a conservative position, but also, at the same time, I think given what we saw last year after COVID, that typically is not going to be a major driver of significant outperformance. It could be some modest uptick. Okay, thanks a lot.

Speaker Change: We don't like to kind of bank our guidance on that assumption because it's out of our control that midyear sweep comes from whatever it was documented last year with the members prior health plan.

Speaker Change: So I think it puts us in a conservative position, but also at the same time.

Speaker Change: I think given what we've seen last year. After COVID-19 that typically is not going to be a major driver of significant outperformance it could be some modest upside.

Speaker Change: Okay. Thanks, a lot.

Speaker Change: Thank you.

Adam Matan Ron: Thank you. One moment for our next question. Our next question comes from the line of Adam Ron from Bank of America. Hey guys,

Speaker Change: One moment for next question.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Our next question comes from the line of Adam Ron from Bank of America.

Adam Matan Ron: Appreciate the question. Um, so you mentioned that, you know, this year was a gross year and that, potentially, margin could be more important next year. But if I look at, like, even this year, where you're saying.

Adam Matan Ron: Hey, guys I appreciate the question.

Adam Matan Ron: So you mentioned that this year with the growth here and that next year potentially margin could be more important but if I look at like even this year, where you are saying.

Thomas: New members come in, and they don't have super high margins. But you still are on track to, I think, increase EBITDA margins to 200 basis points. So if next year, margins are more important, is there a reason why we shouldn't see that kind of margin expansion again? Or are there, you know, one-time items like ACO reach kind of skewing that? Hey, Adam, Thomas here.

Adam Matan Ron: New members come in and they don't have Super high margin.

Adam Matan Ron: You still are on track to I think increase EBITDA margins 200 basis points. So if next year margins are more important is there a reason why we shouldn't see that kind of margin expansion again or are there one time items like the ACO reach kind of skewing that.

Thomas: On the last part of that question, ACO reach is not a significant driver of profitability improvement from 23 to 2024. I think we sized that in the kind of like three to maybe four or $5 million range in terms of dollars of improvement from 23 to 2024 guidance. So the vast majority of our improvement in 2024 is really coming from the Medicare Advantage business. And as we talked about, the vast majority of that is really coming from improved operating leverage through the adjusted SG&A line.

Adam Thomas: Hey, Adam Thomas here.

Adam Thomas: On the last part of that question ACO range is not a significant driver of profitability improvement from 23 to 2024, I think we sized that in the kind of like three to maybe $4 million to $5 million range in terms of dollars of improvement from 23 two.

Adam Thomas: 2020 for guidance.

Adam Thomas: So the vast majority of our improvement in 2024 is really coming from the Medicare advantage business and as we've talked about the vast majority of that is really coming from improved operating leverage through the adjusted SG&A line and so I think to your broader question on 2025, while we're not going to.

Thomas: And so I think to your broader question on 2025, while we're not going to draw a line in the sand today on our 2025 margin goals for next year, I think what we were really trying to amplify in John's remarks is that we think we have the ability to do both growth and margin improvement again next year also. And I think we're in that position because of some of the tailwinds John described where, while we're impacted by V28, I think we are less impacted relative to our local competitors.

Adam Thomas: Draw a line in the sand today on our 2025 margin goals for next year I think what we were really trying to amplify in Johns remarks is that we think we have the ability to do both growth and margin improvement again next year also and I think we're in that position because of some of the tailwind as John described where while were impacted by <unk> 28.

Thomas: And then from a star standpoint, we very much have a funding advantage over the vast majority of our competitors for 2025. So I think that gives us a little more flexibility to achieve both next year and continue on the trajectory we set forth for 2025.

Adam Thomas: We are less impacted by a relative to our local competitors and then from a store standpoint, we very much have a funding advantage over the vast majority of our competitors for 2025. So I think that gives us a little more flexibility to achieve both next year and continue on the trajectory we set forth for 2024.

Adam Matan Ron: And then in your remarks, you mentioned a couple things about, you know, widening the relative advantage in 2025 and how your competitors would see reimbursement headwinds. But one thing that was sort of pushing in the other direction is the fact that the LA where most of your members are Benchmark is expanding by 5%, which is very strong. So does that help your competitors overcome some of their reimbursement headwinds such that maybe they don't actually have to cut benefits then, and it kind of closes that relative advantage because they needed the reimbursement more? How are you, how are you thinking about that, like, or or is that a tailwind for you relative to your expectations? So I think a couple things.

Speaker Change: That makes sense.

Speaker Change: And then in your remarks, you mentioned like a couple of things about.

Speaker Change: Widening relative advantage in 2025, and how your competitors with the reimbursement headwinds.

Speaker Change: But one thing that was like sort of pushing in the other direction is the fact that the law where your most of your members are.

Speaker Change: Benchmark is expanding by 5%, which is very strong so does that.

Speaker Change: Help your competitors' overcome some of the reimbursement headwinds such that maybe they don't actually have to cut benefits Ben.

Speaker Change: Closes that relative advantage because they needed the reimbursement more like how are you how are you thinking about that.

Speaker Change: Or is that a tailwind for you relative to your expectation.

Thomas: So in terms of the benchmarks and some of the markets, particularly Southern California, to your point, I think some of those markets have also seen higher inpatient and outpatient unit costs increases. And so a little bit of that, I think, is catch up in 2025 relative to the 2024 rate updates with CMS. But I think from a competitive standpoint, we sort of look at it as one kind of pool of overall funding or reimbursement dollars for us and our competitors.

Speaker Change: I think some of those markets have also seen higher inpatient and outpatient unit cost increases and so a little bit of that I think is catch up in 2025 relative to the 2024 rate updates with CMS.

Speaker Change: But I think from a competitive standpoint, we sort of look at it as.

Speaker Change: One kind of pool of overall funding or reimbursement dollars for us and our competitors and each of us has their own pluses and minuses. So to any extent that we have 5% in a market and our competitor has 5% in a market.

Thomas: And each of us has our own pluses and minuses. So, to the extent that we have 5% in a market, and our competitor has 5% in a market, I agree that would be sort of a neutral factor. I don't think it necessarily helps us. I don't think it necessarily hurts us. But I think what creates that relative advantage are the other two factors, where on average, there's really only one of our major HMO competitive plans in our market that's going to be four stars. Everyone else is either three, three and a half, or, in some cases, two and a half.

Speaker Change: I agree that would be sort of a neutral factor I don't think it necessarily helps us I don't think it necessarily hurts us, but I think what creates that relative advantage are the other two factors were on average there's really only one of our major HMO competitive plans in our markets that's going to be four stars everyone else is either three three and a half or in some cases, two and a half.

Adam Matan Ron: And so that extra 5% to 10% revenue PMP and funding advantage on stars alone is, I think, a major advantage for 2025, even if some of the benchmarks in certain counties are going up by 5%. If I could squeeze one more in, So Humana recently talked about the industry margin potentially settling out at around 3%. That's EBIT, not EBITDA. Do you have a view on that? Or has your view changed at all based on the new reimbursement environment? That would be my last question.

Speaker Change: So that extra 5% to 10% revenue PMT and funding advantage on Starz alone is I think a major advantage for 2025, even if some of the benchmarks in certain counties are going up by 5%.

Speaker Change: If I could squeeze one more in so humana recently talked about the industry margin potentially settling out at around 3% that's like EBIT not EBITDA.

Speaker Change: Do you have a view on that your view changed at all based on the new reimbursement environment.

Speaker Change: That'd be my last question. Thank you.

Thomas: Yeah, I think our view of long-term margins is fundamentally unchanged in that the overall structure of the Medicare Advantage program is unchanged. So when we went public several years ago, we talked about a six to seven percent adjusted EBITDA margin long-term, which I think is more like a four to five percent pre-tax margin. And when you think about what has changed in the more recent macro environment, you're right. I think STARS has gotten tougher with the introduction of Tukey and the removal of some of the COVID-like protection mechanisms that were put in place on STARS.

Speaker Change: I think our view of long term margins is fundamentally unchanged and that the overall structure of the Medicare advantage program is unchanged. So when we went public several years ago, we talked about a 6% to 7% adjusted EBITDA margin long term, which I think is more like a 4% to 5% pre tax margin and when you think about what has changed in the more recent macro.

Speaker Change: <unk> environment.

Speaker Change: Youre right I think starz has gotten tougher with the introduction of <unk> and the removal of some of the Covid.

Speaker Change: Kind of protect.

Speaker Change: Protection mechanisms that were put in place on Starz.

Thomas: B28 has been introduced, and then, broadly speaking, across the board, utilization pressures have been seen in a variety of different categories of spend. And so while I think that's putting pressure on the industry at large in the short term, I don't think it changes the fundamental opportunity given that, at the end of the day, a number of plans have demonstrated the ability to run efficiently with SG&A at 10 percent or below. We're starting to get pretty close to that, getting down below 12 percent in 2024.

Speaker Change: <unk> has been introduced and then broadly speaking across the board utilization pressures have been seen in a variety of different categories of spend and so I think thats put pressure on the industry at large in the short term I don't think it changes the fundamental opportunity given that at the end of the day.

Speaker Change: Our plans have demonstrated the ability to run efficiently with SG&A at 10% or below we're.

Speaker Change: We're starting to get pretty close to that getting down below 12% in 2024.

John E. Kao: And from an MLR standpoint, the 85 percent MLR rule is unchanged. So I think just structurally, the opportunity is no different today than it was a year or a couple of years ago. I think the changes in macroeconomic factors, though, have put more pressure on the requirement to be a high quality, low cost player. And if you're able to do that, I think you can still win in this current environment and, in the long term, generate the same four to five percent pre-tax margins you could have or would have expected several years ago.

Speaker Change: And from an MLR standpoint be 85% MLR rule is unchanged. So I think just structurally the opportunity is no different today than it was a year a couple of years ago.

Speaker Change: I think the changes in macroeconomic factors, though have put more pressure on the requirement to be a high quality low cost player and if youre able to do that I think you can still win in this current environment and long term generate the same 4% to 5% pre tax margins you could have.

Speaker Change: Or would have expected several years ago.

John E. Kao: Yeah, just Adam, let me echo that this is John, let me echo that it's it's it's a it's a, It's an opportunity for organizations that have the lowest cost structure or have a model to get to the lowest cost structure without compromising quality. And it gets measured by stars, because you get reimbursement that's more if you are better quality. But that's why we've spent so much time and effort making sure that the care model and the belief that if you can manage the care, you're in a position to control the cost.

Speaker Change: Yeah.

Speaker Change: Adam Let me let me Echo that this is John let me echo that.

Speaker Change: It's a it's a.

Speaker Change: It's an opportunity for organizations that have the lowest cost structure or have a model to get to a lowest cost structure.

Speaker Change: Compromising.

John E. Kao: Quality and it gets measured by stars because you get you get scale.

Speaker Change: Reimbursement, that's more better quality ore.

Speaker Change: But that's why we've spent so much time and effort, making sure that the care model.

Speaker Change: And the belief that if you can.

Speaker Change: To manage.

John E. Kao: That's been, from day one, that's been our philosophy. And I think there's somewhat of a sea change that those that have just relied on risk adjustment to be successful are the ones experiencing tough margin compression right now. So it's like a structural change intentional by CMS.

Speaker Change: From day, one and that's been our philosophy and I think there is a.

Speaker Change: Somewhat of a sea change that those that are just relied on.

Speaker Change: Risk adjustment to be successful are the ones experiencing tough margin compression right now.

Speaker Change: Like a structural change intentional by CMS.

Operator: And so those who've been in this business for 30 years or so have gone through, you know, four or five of these reimbursement blips, but the kind of the wave of aging seniors and the political kind of, kind of power of MA, we just don't see it slowing. In fact, we still see market share penetration going from 52% to 65% in the next seven years. I mean, so. You know, I think it's an opportunity, and I think it requires a structural change in terms of who will win and what will succeed going forward in MA, and I think we're really well positioned for that. I appreciate all the color.

Speaker Change: And so those have been in this business for 30 years or so have gone through.

Speaker Change: Four or five of these reimbursement blips, but the.

Speaker Change: The aging of seniors.

Speaker Change: The.

Speaker Change: Political.

Speaker Change: Kind of.

Speaker Change: Kind of power of MMA, we just don't see it slowing.

Speaker Change: In fact, we still see market share penetration going from 52% to 65% in the next seven years.

Speaker Change: I mean so.

Speaker Change: And I think it requires a structural change in terms of who will win what will succeed going forward into Ma.

Speaker Change: We are really well positioned for that.

Speaker Change: Awesome I appreciate all the color.

Speaker Change: Yes.

Speaker Change: Thank you.

Whit Mayo: Thank you. One moment for our next question. Our next question comes from Whit Mayo from Lyrinc Partners. Hey, good evening or afternoon, guys.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Whit Mayo from Leerink partners.

Thomas: The new lives that you picked up in the first quarter, can you maybe quantify how much of those are agents versus switchers? There were a lot of switchers. Any themes in the switching? If you have any market intelligence on that? Yeah, hey, Whit, this is Thomas here.

Whit Mayo: Hey, good evening or afternoon guys.

Whit Mayo: The new lives that you picked up in the first quarter can you maybe quantify the how much of those are agents versus switchers and if there were a lot of switchers any themes on the switching if you have any market intelligence on that.

Thomas: So I think our OEP experience, which lasted through the April 1st eligible beneficiaries, was very similar to our AEP experience. And so what I mean by that is, the majority of the membership or the new sales were planned switchers. But we see those planned switchers coming from a variety of our competitors across a broad swath of our markets. And so there's not really just one or two or three competitors that we're disproportionately taking share from.

Whit Mayo: Yes.

Speaker Change: Thomas here, So I think our <unk> experience, which lasted through the April 1st eligible.

Thomas: The majority of the membership of the new sales were planned switchers.

Thomas: But we see those points switches coming from a variety of our competitors across a broad swath of our markets and so.

Thomas: There is not really just kind of one or two or three competitors that were disproportionately taking share from where we're at really I think advantaged in most markets. This year. It takes share from from a variety of players both in terms of the local or regional competitors and also many of the large national competitors.

Thomas: We're really, I think, advantaged in most markets this year to take share from a variety of players, both in terms of local or regional competitors and also many of the large national competitors. And I think in terms of our product mix, it's also been pretty broadly distributed across the board, and sitting here today, we still have about 30% of our members that are enrolled in one of our special needs plans, like our C-SNP products, or are dual eligible, which is pretty consistent with where we ended at the end of last year.

Speaker Change: And then I think in terms of our product mix. It has also been pretty broadly distributed across the board and sitting here today, we still have about 30% of our members that enrolled in one of our special needs like our <unk> products or our duly eligible which is pretty consistent to where we ended at the end of last year.

Speaker Change: Okay.

Thomas: And maybe this is a dumb question, but looking at the reserve roll forward in your queue, there are 5 million favorable PYD, but there's a footnote below that references 870,000. I guess I wanted to know what the difference between the two is and what the P and L are.

Speaker Change: Maybe this is a dumb question, but looking at the reserve roll forward in your Q, there was $5 million of favorable <unk>, but there's a footnote below that references 870000, I guess I wanted to.

Speaker Change: What's the difference between the two and what the P&L impact was.

Thomas: Yeah, yeah, absolutely. So we typically, on that footnote you're referring to, we try to look at the change in prior period reserves, excluding the. We typically put a 7% kind of margin factor on top of the reserves for adverse trends. And so think about that 7% as you add it when you kind of put your best estimate together for a given month; you add 7% to it. If your estimate for that month is perfect, that 7% will just disappear in the future. But at the same time, you're always adding new months with an additional 7% pad.

Speaker Change: Yeah, Yeah, absolutely. So we typically on that footnote youre, referring to we try to look at the change in prior period reserves. Excluding the we think we've put a 7% kind of margin factor on top of the reserves for adverse trends and so think about that 7% as you added win.

Thomas: And so it kind of becomes a wash from a P&L standpoint, where you're constantly releasing it and adding it over time. So we really like to focus on what the change in IV&R is without that 7%. And that's the number that we report in our footnote. So it was right, you're correct, just a little under a million dollars for the first quarter, meaning that our year-end reserves for 2023 were, I think, very strong and intact relative to the paid claims experience at the end of the first quarter. Thanks, guys. Thank you. One moment for our next question, which comes from the line Jess Tassan from Piper Sandler.

Speaker Change: You kind of put your best estimate together for a given month you had 7% to it if your estimate on that month is perfect that 7% will just released in the future, but at the same time, you're always adding new months with an additional 7% pad and so it kind of becomes a wash from a P&L standpoint, where you're constantly.

Speaker Change: We're leasing it and adding that over time, so we really like to focus on what the change in <unk>, excluding that 7% and Thats. The number that we report in our footnotes. So it was right Youre correct, just a little under $1 million for the first quarter.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Jeff Toussaint from Piper Sandler.

Speaker Change: Yes.

Jessica Elizabeth Tassan: Hi guys, thank you for taking the question. I'm curious to know just, you know, 2025 funding looks favorable in California. You guys obviously have momentum there from a brand perspective, and a strong provider network. I'm curious about any updated thoughts around the geographies where you intend to participate in 25 and beyond, and whether, you know, new market entries remain a significant factor in your growth. Hey Jess, it's John.

Jeff Toussaint: Hi, guys. Thank you for taking my question.

Jeff Toussaint: And I would just add.

Speaker Change: Okay.

Speaker Change: And any updated thoughts around.

Speaker Change: Thank you AGA thing, where you intend to participate in.

Speaker Change: 25, and beyond that whether new market entries remains.

Speaker Change: A significant factor in and aircrafts.

John E. Kao: Now we're going to, we're not going into, dates in 2025. The focus has been on the most efficient way to grow, and we just see so much momentum in our core markets. And even in the ex-California markets that we currently have, you know, we're getting up above kind of that 5,000 member range. And what we've seen in the past is when you get to 5,000, you get from 5 to 10,000, it's just a lot faster.

Speaker Change: Dates in 2025.

Speaker Change: The focus has been on the most efficient way to grow and we just see so much momentum.

Speaker Change: We're getting up above kind of that 5000.

John E. Kao: And then, obviously, in California, we've got a lot of momentum. I would suspect that we're going to be more aggressive in 2026. You know, what I've said in the past is the goal, obviously, is to fund new market expansions from internally generated cash. And so I would expect us to be more aggressive in 2026 in terms of new states. I will say that the conversations that we've had with health systems and, I would say, large provider organizations have been very, Uh, and I think you'll see more of those kinds of arrangements come together, uh, uh, heading into 2020, which requires us to have the deals pretty much done by the end of this year so that we can file for service area expansions in February of 2021.

Speaker Change: <unk>.

Speaker Change: I would suspect that we're going to be more aggressive in.

Speaker Change: In 2026, and what I've said in the past is the goal. Obviously is to is to fund new market expansions from internally generated cash.

Speaker Change: And so I would expect us.

Speaker Change: Seem to be more aggressive in 2026 in terms of new states I will say that the conversations that we've had with <unk>.

Speaker Change: Health systems.

Speaker Change: And I would say.

Speaker Change: Large provider organizations has been very.

Speaker Change: Encouraging.

Speaker Change: And I think youll see more of those kinds of arrangements come together.

Speaker Change: Heading into 2026.

Speaker Change: Okay.

John E. Kao: And then I guess I'm curious, kind of, any thoughts on the potential for state alignment initiatives for the dual population to kind of pressure future growth in your G-SNP book, or just how are you thinking about contending with that in the future? Thanks.

Speaker Change: That's helpful. And then I guess I'm curious kind of any thoughts on the potential for states alignment initiatives for the dual population to kind of pressure future growth in your D. SNP book or just how are you thinking about contending with and with that.

Speaker Change: That in the future. Thanks.

Speaker Change: Yes.

John E. Kao: Yeah. It's something that we've had to address over the last couple of years with the alignment and the aligned programs and the CCI care coordination programs in California. The rule that just came out certainly, I think, gives some of the Medicaid folks a little bit of an advantage, but what we are advocating for is chronic special needs programs and chronic special needs lookalike programs that, in the most recent regulations, are certainly going to survive beyond kind of the 2030 timeframe and make you think about the kind of reality of care quality.

Speaker Change: It's something that we've had to address over the last couple of years with the alignment and the aligned.

Speaker Change: Our programs in the CCI care coordination programs in California.

Speaker Change: That just came out certainly I think give some of the Medicaid folks a little bit of an advantage.

Speaker Change: But what we are advocating for is chronic special needs programs.

Speaker Change: And and chronic special needs lookalike programs then in the most recent regs are certainly going to survive beyond kind of the 2030 timeframe.

Speaker Change: And and kind of if you think about the.

Speaker Change: The reality of care quality.

John E. Kao: We think the quality of the products we have and the care model that we have to serve the seniors is better than any kind of forced kind of Medicaid solution. I just think it's better quality, and I think people are actually voting with their feet with respect to some of the C-SNPs that we have. And that's been, it's been very successful for us.

Speaker Change: We think the quality of the products, we have in the care model that we have to serve the seniors is better.

Speaker Change: And then any kind of forced.

Speaker Change:

Speaker Change: Medicaid solution.

Speaker Change: I, just think it's better better quality and I think people are actually voting with their feet with respect to some of the C. Snips that we have.

Speaker Change: And that's been that's been very successful for us.

John E. Kao: Thank you. Sure. Thank you.

Speaker Change: Got it thank you.

Speaker Change: Sure. Thank you.

Speaker Change: You.

Operator: One moment for our next question. Our next question comes from the line of Andrew Mock from Barclays. Hi, this is Tiffany on behalf of Andrew.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Andrew Mok from Barclays.

Andrew Mock: You called out higher inpatient unit costs and supplemental benefit utilization that you expect to continue into the year. Could you give a little bit more color on the expected cadence of those pressure points into the back half? And separately, just anything else to call out on calendar impact to MLR seasonality? Hey Tiffany.

Speaker Change: Hi, This is Stephanie on for Andrew you called out higher inpatient unit costs and supplemental benefit utilization that you expect to continue into the year could you give a little bit more color on the expected cadence of those pressure points into the back half and separately just anything else to call out on the calendar impact to MLR seasonality.

Thomas: So I think nothing specific from a supplemental benefit or inpatient unit cost standpoint over the course of the year. But on the inpatient unit cost side, you know, that obviously will impact any months or quarters where we have higher inpatient utilization overall. So when you think about the next three quarters, we typically would expect inpatient utilization to be lower in the second and third quarters and then have a bit of an uptick in Q4, specifically in December around flu season.

Speaker Change: Hey, Stephanie.

Speaker Change: So I think nothing specific from a supplemental benefit or inpatient unit cost standpoint over the course of the year. So on the inpatient unit cost side.

Speaker Change: That obviously will impact any months or quarters, where we have.

Andrew Mok: Higher inpatient utilization overall, so when you think about the next three quarters, we typically would expect inpatient utilization to be lower in the second and third and then I have a bit of an uptick in Q4, specifically December around flu season, but generally speaking I don't think a lot of seasonality around those unit costs.

Thomas: But generally speaking, I don't think there is a lot of seasonality around those unit costs. And similarly, on the supplemental benefit utilization side, we don't anticipate much change there quarter to quarter over the next three remaining quarters of the year. I think from an overall seasonality standpoint, we would expect this year to be similar to other years where 2Q and 3Q tend to be lower on MLR, and 4Q tends to be a modest uptick higher, though Q1 tends to be our high point for the year.

Andrew Mok: Similarly on our supplemental benefit utilization side, we don't anticipate.

Andrew Mok: Paid much change there quarter to quarter over the next three.

Speaker Change: The remaining quarters of the year I think from an overall seasonality standpoint, we would expect this year to be similar to other years, where it <unk> tend to be lower on MLR in <unk> tends to be a.

Speaker Change: A modest uptick higher though Q1 tends to be our high point for the year. When you think about I think the improvement initiatives underway that we described in our prepared remarks.

Thomas: When you think about the improvement initiatives underway that we described in our prepared remarks, I think while our first quarter was very strong and I think it demonstrates our ability to manage really tremendous growth so far this year, there are some areas where we think we can do better, particularly over the back half of the year. So from a clinical standpoint, getting from, you know, well, how we say it internally is getting from good to great.

Speaker Change: While our first quarter was very strong and I think it demonstrates our ability to manage really tremendous growth. So far. This year. There are some areas, where we think we can do better particularly over the back half of the year. So from a clinical standpoint getting from.

Speaker Change: How we say it internally is getting from good to great and there are certain things that we do a very good job of today, but we think we can do an even better job on in the future such as post post discharge care navigation sniff length of stay management stiff readmission rate things that we are already pretty world class on but we still see areas of opportunity given the <unk>.

Thomas: And there are certain things that we do a very good job of today, but we think we can do an even better job on in the future, such as post-discharge care navigation, SNF length of stay management, and SNF readmission rates, things that we are already pretty world class at, but we still see areas of opportunity given the growth we've achieved where we think we can dial those levers a bit more in our favor over the back half of I think similarly on the payment integrity side, we started to see an uptick in our inpatient unit costs in the back half of last year.

Speaker Change: Growth, we've achieved where we think we can dial those levers a bit more in our favor over the back half of the year I think similarly on the payment integrity side, we started to see an uptick in our inpatient unit costs in the back half of last year and I think as we've kind of looked under the hood on this we do feel like there is an opportunity to use some third parties to help.

Thomas: And I think as we've kind of looked under the hood on this, we do feel like there's an opportunity to use some third parties to help us to ensure that we have accurate claim submissions from our different provider partners over the course of the year, particularly in the second half. So I think those are some of the things that are going to be the biggest kind of drivers of that continuous improvement for us. But nonetheless, as John said earlier in his remarks, I think our first quarter really puts us in a strong position for our overall full year guidance. Yeah, Tiffany, on the acute unit cost, I mean, it's.

Speaker Change: To ensure that we are accurate claims submissions.

Speaker Change: From our different provider partners over the course of the year, particularly in the second half. So I think those are some of the things that are going to be the biggest kind of drivers of that continuous improvement for us, but nonetheless, as John said earlier in his remarks, I think our first quarter really puts us in a strong position towards our overall full year guidance range.

Speaker Change: Tiffany.

Tiffany: On the acute unit costs.

John E. Kao: It's clearly the offset to that has to be improved admission management and readmission management and all the clinical quality drivers that we've spent so much time on. And I think last year, Thomas, we were 163 in the month of ADK admissions per thousand to 0151. It's going to It's going to require that kind of continued excellent clinical performance to offset some of those unit costs. All right, perfect, thank you.

Speaker Change: It's clearly the offset to that has to be improved.

Tiffany: Kind of admission management.

Tiffany: And readmission management and all the clinical.

Tiffany: Quality drivers that we've spent so much time on.

Tiffany: And.

Tiffany: I think last year Thomas were 163 in the month of ATK missions for thousands of zero or $1 51.

Tiffany: It's going to require that kind of kind of continued excellent clinical performance to to offset some of those unit cost increases.

Speaker Change: Alright, perfect. Thank you.

Thomas: Thank you. One moment for our next question. Our next question comes from the line of John Ransom from Raymond James. I knew I had another good question, but I couldn't remember it on the fly.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of John Ransom from Raymond James.

John Wilson Ransom: I knew I had another good question and I can remember I think on the block.

John Wilson Ransom: I'm there.

John Wilson Ransom: I got you, Sam. So, there's been a lot in the press about, you know, M.A. Plans having more difficulty contracting downstream, you know, with, you know, hospitals pushing back. And then, you know, a lot of plans, you lay your risk off on some of these physician groups that are probably getting killed with B28. So, when you think about your provider contracting, how does that look now versus a year ago? And is there anything to call out there, good or bad?

Speaker Change: There's been a lot in the press about yeah M.

John Wilson Ransom: M a plans having more difficulty contracting downstream.

John Wilson Ransom: With hospitals pushing back and then you know.

John Wilson Ransom: A lot of plans.

John Wilson Ransom: The risk off on some of these physician groups that are probably getting killed with B 28. So when you think about your provider contracting how does that look now versus a year ago and is there anything to call out there or good or bad.

John E. Kao: Great, great question. We want to talk about our shared risk, contracting model. And we think it's much more durable. We think that it comes in the form of either PCP capitation or professional capitation. And then we share in the risk associated with the institutional cost. And so if we all work together, and we cut these deals, not only with the downstream providers, but also with the health system, and we have aligning principles with hospital systems and IDNs. I think that's going to be part of the future, personally, in terms of how the space industry shakes out.

Speaker Change: Great Great question.

Speaker Change: It didn't.

Speaker Change: We talk about our shared risk.

Speaker Change: Contracting model and.

Speaker Change: And we think it's much more durable we think that.

John Wilson Ransom: It comes in the form of other PCP capitation.

John Wilson Ransom: And or professional capitation, and then we share in the risks associated for the institutional costs.

John Wilson Ransom: And we have aligning principles with.

John Wilson Ransom: Hospital systems that ideas I think that's going to be part of the future.

John Wilson Ransom: Personally in terms of how the space shakes out.

John E. Kao: And so the shared risk model, using the tools, using the data that we have access to, not just limited to the EHR data that's in the providers but having a holistic view of that patient through some of the tools that we have in AVA and our patient 360 longitudinal patient record. Exposing that information to the providers is what's allowed us to take action with the providers to get the outcomes that we have. And it's in a capital efficient model. You know, at our old company, we had a lot of bricks and mortar. It's very expensive.

John Wilson Ransom: And so the shared risk model using the tools using the data that we have access to not just limited to the EHR data thats in the providers, but having a holistic view of that patient through some of the tools that we have an Eva.

John Wilson Ransom: And our patient $3 60.

John Wilson Ransom: Longitudinal patient record exposing that information to the providers.

John Wilson Ransom: Is what's allowed us to take action with the providers to get the outcomes that we have.

John Wilson Ransom: And it's in a I would call it a capital efficient model.

John Wilson Ransom: At our old company, we had a lot of bricks and mortar it's very expensive.

John E. Kao: And so the whole thesis that we have is to work with community doctors that are independent, and I don't want them consolidated per se, and or health systems that have clinically integrated networks, and give them the tools and create economics that are aligning. And the other thing I would say, John, is The health systems have approached us, and apologies for the long winded speech, but this is really important. They were approaching us saying, you know, particularly the top tier health systems, the top ones are overcapacity, meaning they're at 120 to 125 percent of what their physical capacity will allow.

John Wilson Ransom: And I don't want consolidated per se.

John Wilson Ransom: And and or health systems that have clinically integrated networks.

John Wilson Ransom: Give them the tools and create economics that are aligning.

John Wilson Ransom: And the other thing I would say John is.

John Wilson Ransom: The health systems are has approached us and apologies for the long winded, but this is really important.

John Wilson Ransom: They are approaching us going.

John Wilson Ransom: Particularly the top tier health system, the top ones are overcapacity.

John Wilson Ransom: Meaning they're at 120% to 125% of what their physical capacity will allow.

John E. Kao: And so what they're asking us is, well, if we partner together, can you help us lower the admission of seniors into our facility? And they are so confident that if they have lower senior admissions, they can backfill those senior admissions with commercial admissions, which again, they're just getting paid more. So again, 100% of Medicare, they're getting 200%.

John Wilson Ransom: The admissions.

John Wilson Ransom: Seniors into our facilities.

John E. Kao: So those kinds of macro dynamics with respect to reimbursement, not only for the plan but for the facilities and the doctors, are all kind of factored into where we see MA going forward. I think you're going to see much tighter partnerships. And a lot of these folks are not happy with some of the, I'll call it, you know, kind of claims editing protocols that certain MCOs are using with these health plans.

John Wilson Ransom: Dynamics with respect to reimbursement not only for the plan, but for the facilities and the doctors.

John Wilson Ransom: All kind of factored into where we see M&A going forward.

John Wilson Ransom: And a lot of these folks are not happy with.

John Wilson Ransom: Some of the I'll call it.

John Wilson Ransom: Kind of claims editing protocols that certain <unk> are using with these health systems and so they are kind of coming to us as an alternative.

John E. Kao: So they're kind of coming to us as an alternative. And that gets back to some of the questions that I think Jess asked with respect to how we think about growing in new markets, and it's going to be with provider partners in 2026. Do you think that's the longest answer you've ever given in your career, John? Not by a long shot.

John Wilson Ransom: And that gets back to some of the questions that I think just asked with respect to how do we think about growing.

John Wilson Ransom: In new markets, and it's going to be with provider partners in 2026 the answer.

Speaker Change: Do you think thats the longest answer you've ever given in your career, John I think it might not.

John E. Kao: Nope not by a long shot.

John Wilson Ransom: [laughter].

John E. Kao: Ha, ha. My other question, and this is kind of getting into the weeds, but, you know, five years ago, we made a lot out of these conference rooms. You know, we see the headline that Optum is laying people off at Nava Health. Have we done all we can do in terms of redirecting post-acute care? I know Thomas mentioned this, but, you know, for every 100 post-acute discharges, are we doing the best we can still in terms of redirecting them to home health versus SNF? Or is there some wood to chop there, as you guys kind of alluded to?

John Wilson Ransom: My other question on this is kind of in the weeds, but.

John Wilson Ransom: Five years ago, we made a lot of these <unk>.

John Wilson Ransom: We see the headline that optimism I think people off Nava health have.

John Wilson Ransom: For every 100 post acute discharge is are we doing the best we can still in terms of redirecting them to the home health versus snap or is there some wood to chop there as you guys kind of alluded to.

John Wilson Ransom: What are you talking about for the industry or for us? Well, for you guys, or just you, do you think you're at peak efficiency in terms of terms? I think there is a huge amount of opportunity for us to be better at, and it's very topical for us. You know, we have, and I alluded to this, so much focus on inpatient acute admissions. And I think the opportunity for us to have post-discharge care navigation, SNF rounding, just all those things that we know how to do, and we do them, and we do them well, but I think we can do them even better. Is it just hard to compete with the guys playing offense by dropping off the doughnuts and, you know, charming the discharge planters?

Speaker Change: You're talking about for the industry for us.

Speaker Change: Well for you guys or are you guys do you think you're at peak.

John Wilson Ransom: We have so much focus on inpatient acute admissions.

John Wilson Ransom: <unk>.

John Wilson Ransom: And we do it well, but I think we can do it even better.

Speaker Change: Is the short answer.

John E. Kao: What do you have to do to get on your front foot with some of these discharge planners? Because you're kind of up against an industry that is pushing in the other direction? I would say alignment with the facility. Alignment and relationships with the facility, not at the discharge planner level, but at the CEO of the health system. Those are the conversations that we're having now.

Speaker Change: On the other direction.

Speaker Change: I would say alignment with the facility.

Speaker Change: Linemen and relationships with the facility not at the discharge planner level, but at the CEO of the health system level.

John E. Kao: And what's consistent, John, is that people like the care model. You know, at the end of the day, in health services, most of the people we deal with, doctors and health systems, they actually care about optimizing care delivery and quality of care. It matters to them, and they see what we're doing, and to the extent that it is aligned with their economics, they want to work with us.

Speaker Change: And what's consistent Jon is people like the care model.

Speaker Change: We ended the day in health services most of the people, we deal with doctors and health systems, They actually care about optimizing care delivery and quality of care that matters to them.

Speaker Change: And they see what we're doing and to the extent that it is aligned with their economics.

Speaker Change: People want to work with us.

John E. Kao: And one thing I would add to that as well, John, is, you know, the bigger we get, the more it affords us the ability to have those conversations. And when you think about us today, you know, we're starting to become more significant in many of our markets. And that's, I think, just given us better opportunities to engage across different sites of care and at different levels within those different areas. Yeah, I mean, I'll shut up after this.

Speaker Change: And one thing I would add to that as well John as you know the bigger we get the more it affords us the ability to have those conversations and when you think about it today, we're starting to become more significant and many of our markets and and Thats I think just given us better opportunities to engage across different sites of care and a different levels within those different institutions.

Speaker Change: Yes.

John E. Kao: But it's just been surprising to me going back through MedPAC data, how stable and how well the SNF industry has done when you have all these forces on paper pushing, you know, discharges into, you know, literally the cost of care, that's one-fifth the cost of the SNF. And yet, those, you know, their admissions are growing. It's just been a big surprise to me that the industry is kind of still where we are in 2024. So anyway, that's my editorial comment. Thank you very much.

Operator: You got it. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: <unk> discharges and literally cost of care. This 110th the cost of it is nothing yet.

Speaker Change: Their admissions are growing that's just been a big surprise to me that the industry is kind of still where we are in 2024.

Speaker Change: You got it.

Speaker Change: Thank you.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Operator: [inaudible]. .. ?? ?? ?? Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Good afternoon, and welcome to Alignment Hlthcr. All participants will be in a listen-only mode.

Speaker Change: [music].

Speaker Change: [music].

Speaker Change: [music].

Speaker Change: Good afternoon, and welcome to alignment Healthcare's first quarter 2024 earnings conference call and webcast all participants will be in a listen only mode. After today's presentation. There will be an opportunity to ask questions to ask a question. During the session you will need to press star one one on your <unk>.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please note that this event is being recorded. Leading today's call are John Kao, founder and CEO, and Thomas Freeman, chief financial officer. Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act.

Operator: These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC, including the risk factor section of our annual report on Form 10-K for the fiscal year ended December 31st, 2023. Although we believe our expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call.

Speaker Change: Allophone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again. Please note that this event is being recorded leading today's call are John Kao, founder and CEO and Thomas Freeman Chief Financial Officer.

Operator: In addition, please note that the company will be discussing certain non-GAAP financial measures that it believes are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and in our Form 10-Q for the fiscal quarter ended March 31, 2024. I would now like to hand the conference over to your speaker today, John Kao, Founder and CEO. You may begin.

Speaker Change: Before we begin we would like to remind you that certain statements made during this call will be forward looking statements as defined by the private Securities Litigation Reform Act. These forward looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs assumptions.

Speaker Change: And information currently available to us descriptions of some of the factors that could cause actual results to differ materially from these forward looking statements are discussed in more detail in our filings with the S. E C, including the risk factors section of our annual report on Form 10-K for the fiscal year ended.

Speaker Change: December 31st 2023, although we believe our expectations are reasonable.

Speaker Change: We undertake no obligation to revise any statements to reflect changes that occur. After this call. In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance.

Speaker Change: Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and in our Form 10-Q for the fiscal quarter ended March 31st 2024 hours.

John E. Kao: Hello, and thank you for joining us on our first quarter earnings conference call. For the first quarter of 2024, our health plan membership of 165,100 members represented approximately 50% growth year over year. Total revenue of $629 million grew approximately 43% year-over-year and approximately 54% excluding ACO REIT. Adjusted gross profit was $57 million, producing a consolidated MBR of 90.9% and an MBR excluding Part D of

Speaker Change: Now I'd like to hand, the conference over to your Speaker today, John Kao founder and CEO you may begin.

John E. Kao: Meanwhile, our adjusted EBITDA of negative 12 million exceeded the high end of our first quarter outlook range and represents solid progress toward our full year adjusted EBITDA objective. Growth in the first quarter significantly outperformed expectations. This result continued to be driven by increased member retention, improved sales operations, and competitive product offerings. Meanwhile, our ability to achieve our adjusted EBIDTA outlook while scaling to support four times the number of new members demonstrates the power of our integrated data insights, clinical model, shared risk provider partnerships, and operating platforms.

John E. Kao: Hello, and thank you for joining us on our first quarter earnings conference call.

John E. Kao: For the first quarter 2020 for our health plan membership of 165100 members represented approximately 50% growth year over year.

John E. Kao: Total revenue of $629 million grew approximately 43% year over year and approximately 54% excluding ACO reach.

John E. Kao: Adjusted gross profit was 57 million producing a consolidated MBR of 99% and an MBR, excluding part D of 88, 3% mean.

John E. Kao: Meanwhile, our adjusted EBITDA of negative $12 million exceeded the high end of our first quarter outlook range. It represents solid progress toward our full year adjusted EBITDA objective.

John E. Kao: Growth in the first quarter significantly outperformed expectations.

John E. Kao: This result continued to be driven by increased member retention improved sales operations and competitive product offerings.

John E. Kao: Meanwhile, our ability to achieve our adjusted EBITDA outlook, while scaling to support four times the number of new members demonstrates the power of our integrated data insights clinical model shared risk provider partnerships and operating platform.

John E. Kao: Central to our results is AVA's visibility into emerging trends, which allows us to rapidly deploy our clinical teams to improve care outcomes and control our medical costs, even while achieving rapid growth. The combination of these differentiated capabilities led to a first quarter consolidated MBR of 90.9%, reflecting only a modest year-over-year increase in our MBR despite growing membership 50% relative to 17% a year ago. This strong result is underscored by an MBR excluding Part D of 88.3% and a Part D MBR of 129%, both consistent with expectations and further indication of our early success in managing our new members. Thomas will expand more on Part D's seasonality in his report.

John E. Kao: Central to our results as avis visibility into emerging trends, which allows us to rapidly deploy our clinical teams to improve outcomes and control our medical costs, even while achieving rapid growth.

John E. Kao: Combination of these differentiated capabilities led to a first quarter consolidated NB up 99%, reflecting only a modest year over year increase in our MBR, despite growing membership, 50% relative to 17% a year ago.

John E. Kao: This strong result is underscored by an MBR, excluding part D of 88, 3% in our part D. MBR, 129%, both consistent with expectations and a further indication of our early success in managing our new members.

John E. Kao: This will expand more on part D seasonality in his remarks.

John E. Kao: Following a strong first quarter, we're raising our full-year membership and revenue guidance, raising the low end of our adjusted gross profit guidance and narrowing our adjusted EBITDA range. Our updated guidance reflects expectations for continued membership growth momentum, a greater mix of new members, our confidence in our clinical model, and improving operating leverage on adjusted SG&A. To manage our significant membership growth, our top priorities in the first quarter were providing our new members with an exceptional onboarding experience and engaging with members who had the greatest chronic health. From a service delivery standpoint, our past investments in AVA Consumer and in-sourcing member experience delivered exceptional results. These efforts resulted in an MPS of 69 at the end of 2023.

John E. Kao: Following a strong first quarter, we're raising our full year membership and revenue guidance.

John E. Kao: Raising the low end of our adjusted gross profit guidance and narrowing our adjusted EBITDA range.

John E. Kao: Our updated guidance reflects expectations for continued membership growth momentum.

John E. Kao: Greater mix of new members, our confidence that our clinical model and improving operating leverage on adjusted SG&A.

John E. Kao: To manage a significant membership growth are top priorities in the first quarter, we are providing a new members with exceptional onboarding experience and engaging with members who had the greatest chronic health needs.

John E. Kao: From a service delivery standpoint.

John E. Kao: Past investments enabled consumer and in sourcing member experience delivered exceptional results.

John E. Kao: These efforts resulted in an NPS of 69 at the end of 2023% to 30% reduction year over year on our first quarter, New member voluntary just enrollment rate and a four nine stars Google rating across more than 4000 reviews.

John E. Kao: 30% reduction year-over-year on our first quarter new member voluntary disenrollment rate and a 4.9 star Google rating across more than 4,000 reviews. All of this was accomplished while achieving over 50% membership growth. By improving member satisfaction and reducing disenrollment rates, we lower our member acquisition costs, raise our star measures, improve our net growth, and increase the lifetime value of our members. From a care management standpoint, the visibility created by our real-time utilization data allows us to quickly engage high-risk members to manage care and control costs, market by market.

John E. Kao: All of this was accomplished while achieving over 50% membership growth.

John E. Kao: By improving member satisfaction of reducing DISA Roland rates, we lower our member acquisition costs raise our star measures improve our net growth and increase the lifetime value of our membership.

John E. Kao: From a care management standpoint, the visibility created by our real time utilization data allows us to quickly engage high risk members to managed care and control costs market by market.

John E. Kao: We immediately began managing new members who experienced an acute episode in January and successfully engaged approximately 70% of new members post-discharge. This resulted in 141 inpatient admissions per thousand for new members and 151 admissions per thousand overall.

John E. Kao: We immediately began managing new members through experienced an acute episode in January successfully engaged approximately 70% of new members post discharge.

John E. Kao: This resulted in a 141 inpatient admissions per thousand for new members and 151 admissions per thousand overall.

John E. Kao: We expect to build upon the strength of these results throughout the year as we ramp up our Care Anywhere engagement. AVA stratification of at-risk members sees a significant jump 30 days after enrollment as our real-time data feeds analyze pharmacy data, lab values, admission, discharge, transfer information, and other data sources. This presents us with the greatest cost improvement opportunity in the second, third, and fourth quarters as we raise our high-risk new member engagement level.

John E. Kao: We expect to build upon the strength of these results throughout the year as we ramp up our care anywhere engagement.

John E. Kao: Eva stratification of at risk member sees a significant jumped 30 days after enrollment as a real time data feeds analyzed pharmacy data lab values admission discharge transfer information and other data sources. This presents us with the greatest cost improvement opportunity in the second third and fourth.

John E. Kao: Quarters, as we raise our high risk new member engagement levels.

John E. Kao: Once engaged, high-risk members typically see a 30% net improvement in institutional claims over the following 12 months. This, combined with our focus on improving outpatient quality outcomes, which drives lower costs, gives us confidence in our continued MBR improvement throughout the year, consistent with our full year outlook. Looking ahead to 2025, we believe we are well positioned to grow health plan membership at or above 20% while expanding margin. As we plan for the current bid cycle, we believe we have distinct tailwinds that support our financial position and competitive advantage.

John E. Kao: Once engaged high risk members typically see a 30% net improvement in institutional claims over the following 12 months.

John E. Kao: This combined with our focus on improving outpatient quality outcomes, which drives lower costs gives us confidence in our continued MBR improvement throughout the year consistent with our full year outlook.

John E. Kao: Looking ahead to 2025, we believe we are well positioned to grow health plan membership at or above 20%, while expanding margins as.

John E. Kao: As we plan for the current bid cycle, we believe we have distinct tailwind that support our financial position and competitive advantages.

John E. Kao: First, there are over 1.2 million HMO members in our California markets who are in plans that will be rated below four stars in 2025, including approximately 700,000 who are in plans that are receiving four-star or above payment today but will be dropping below a four-star payment next year. Meanwhile, roughly 95% of our California members are in plans that will have a four-star payment level in 2025. The difference between a three and a half star and a four star plan is approximately 5% less per member revenue, while the difference between a three star and a four star plan is approximately 10% less member revenue.

John E. Kao: First there are over $1 2 million HMO members in our California markets, who are implants there'll be rated below four stars in 2025.

John E. Kao: Including approximately 700000, who are in plans that are receiving four star or above payment today, but will be dropping below a four star payment next year.

John E. Kao: Meanwhile, roughly 95% of our California members are in plans that will have forced our payment level in 2025.

John E. Kao: The difference between the three and a half star at a four star plan is approximately 5% less per member revenue, while the difference between a three star at a four star plan is approximately 10% less member revenue.

John E. Kao: We expect this funding advantage to support our ability to offer attractive benefits while improving consolidated markets. Second, we believe the continued phase-in of the D28 risk model changes will further widen our relative advantage in risk adjustment. And third, following the announcement of the final Medicare Advantage rate notice, we expect a weighted average change in our effective growth rate of 5%, which is more than double the national average of 2.4%. These factors, combined with our differentiated operating platform and strong retention of new members, give us confidence in our ability to deliver both growth and margin improvement in 2025. In conclusion, I'd like to thank each of our employees for being part of a team that is raising the standard for what it means to do Medicare Advantage right.

John E. Kao: We expect this funding advantage to support our ability to offer attractive benefits, while improving consolidated margins.

John E. Kao: Second we believe the continued phase in of the <unk> 28 risk model changes will further widened our relative advantage in risk adjustment.

John E. Kao: Third following the announcement of the final Medicare advantage rate notice, we expect a weighted average change in our effective growth rate of 5%, which is more than double the national average of two 4%.

John E. Kao: These factors combined with our differentiated operating platform and strong retention of new members.

John E. Kao: As confidence in our ability to deliver both growth and margin improvement in 2025.

Speaker Change: In conclusion I'd like to thank each of our employees for being part of a team that is raising the standard for what it means to do Medicare advantage right.

John E. Kao: Our unique degree of visibility, combined with our clinical and operational execution, is enabling us to navigate the dynamics facing the MA sector and gives us confidence in our 2024 outlook. Combined with tailwinds in 2025 on relative STARS advantages, positioning into the continued risk model phase-in, clarity on benchmark changes in 2025, and increased scale, I believe we will achieve both strong growth and margin improvement in 2025. Taken together, we believe our operating model will continue to prove alignment is the optimal Medicare Advantage platform for today and for the future. Now, I'll turn the call over to Thomas to further discuss our financial results and outlook. Thomas said,

Speaker Change: Our unique degree of visibility combined with our clinical and operational execution is enabling us to navigate the dynamics facing the MMA sector and gives us confidence in our 2020 for outlook.

Speaker Change: Combined with <unk> in 2025 on relative stars advantages positioning into the continued risk model Faison clarity on benchmark changes in 2025 and increase scale I believe we will achieve both strong growth and margin improvement in 2025.

Speaker Change: Taken together, we believe our operating model will continue to prove alignment is the optimal Medicare advantage platform for today and for the future.

Speaker Change: Now I'll turn the call over to Thomas to further discuss our financial results and outlook Thomas.

Thomas: Thanks, John. For the quarter ending March 2024, our health plan membership of 165,100 increased 50% year-over-year. This exceeded our expectation of 44% membership growth at the midpoint of our first quarter guidance, as well as our year-end guidance range of 162 to 164,000 members. Our first quarter revenue of $629 million represented 43% growth year-over-year and 54% growth excluding ACO reach. The top-line outperformance was primarily a function of higher health plan membership as our superior value proposition continued to resonate. The adjusted gross profit in the quarter was $57 million, representing an NBR of 90.9%.

Robert Thomas Freeman: Thanks, John for the quarter ending March 2020 for our health plan membership of 165100 increased 50% year over year. This exceeded our expectation of 44% membership growth at the midpoint of our first quarter guidance as well as our year end guidance range of 162% to 164000 members our first.

Speaker Change: Quarter revenue of $629 million represented 43% growth year over year, and 54% growth excluding ECR reach the top line outperformance was primarily a function of higher health plan membership as our superior value proposition continued to resonate in the market.

Speaker Change: Adjusted gross profit in the quarter was $57 million, representing an MBR of 99%.

Thomas: The modest increase year over year was driven by a significantly larger portion of new members, reflecting strong control over our medical costs, even as we grew membership by 50%, compared to 17% a year. First quarter performance was driven by favorable inpatient utilization relative to expectations, with overall inpatient admissions per 1,000 of 151 declining 8% year over year. Our favorable utilization performance was partially offset by higher inpatient unit costs related to CMS's increase in 2024 fee-for-service rates and greater supplemental benefit utilization.

Speaker Change: Modest increase year over year was driven by a significantly larger portion of new members, reflecting strong control over our medical costs, even as we grew membership by 50% compared to 17% a year ago.

Speaker Change: First quarter performance was driven by favorable inpatient utilization relative to expectations with overall inpatient admissions per 1000 of 151 declining 8% year over year are favorable utilization performance was partially offset by higher inpatient unit costs related to see a massive increase in 2020 for a fee for service rates.

Speaker Change: In greater supplemental benefit utilization.

Thomas: As John mentioned, our first quarter results reflect an MBR excluding Part D of 88.3% and a Part D MBR of 129%, both in line with expectations. As a reminder, Part D profitability improves over the course of the year as the health plan's cost share declines meaningfully after the initial coverage period. Consistent with normal seasonality, Part D increased our consolidated MBR by 260 basis points during the first quarter. Through the remaining three quarters of the year, we expect Part D to lower our consolidated MBR by 150 basis points.

John E. Kao: John mentioned, our first quarter results reflect an MBR, excluding part D of 88, 3% in our part D. MBR of 129% both in line with expectations.

John E. Kao: As a reminder, part D profitability improves over the course of the year as the health plans cost share declines meaningfully after the initial coverage phase.

John E. Kao: With normal seasonality part D increased our consolidated MBR by 260 basis points during the first quarter.

John E. Kao: Through the remaining three quarters of the year, we expect part D to lower our consolidated MBR by 150 basis points. This resulted in a net change of roughly 400 basis points between the first quarter and the remainder of the year, we expect our part C. MBR to be only modestly higher for the rest of the year, meaning that part D will be the primary driver of season.

Thomas: This results in a net change of roughly 400 basis points between the first quarter and the remainder of the year. We expect our Part C MBR to be only modestly higher for the rest of the year, meaning that Part D will be the primary driver of seasonality between the first quarter and the following three quarters. During the quarter, it's worth noting that we were not materially impacted by the cybersecurity incident that disrupted a national claims clearinghouse. Importantly, we do not use this clearinghouse for pharmacy claims, prior authorization, or provider claims payment functions.

John E. Kao: Between the first quarter in the following three quarters.

John E. Kao: During the quarter, it's worth noting that we were not materially impacted by the cyber security incident that disrupted a national claims clearinghouse importantly, we do not use this clearinghouse for pharmacy claims prior authorization or provider claims payment functions, while we experienced a temporary dip in claims received in February due to the use of the impacted cleared.

Thomas: While we experienced a temporary dip in claims received in February due to the use of the impacted clearinghouse by a small number of our providers, we believe we are currently at normalized claims flow levels. SG&A in the quarter was $90.5 million. Our adjusted SG&A was $69 million, an increase of 37% year-over-year. Adjusted SG&A, the percentage of revenue excluding ACO reach, decreased by approximately 140 basis points year-over-year.

John E. Kao: House by a small number of our providers. We believe we are currently at normalized claims flow levels.

John E. Kao: SG&A in the quarter was $90 5 million, our adjusted SG&A was $69 million, an increase of 37% year over year adjusted SG&A as a percentage of revenue. Excluding ACO reached decreased by approximately 140 basis points year over year, we continue to expect even greater SG&A ratio improvement over the next three quarters, which.

Thomas: We continue to expect even greater SG&A ratio improvement over the next three quarters, which I will share more on shortly. Lastly, our adjusted EBITDA was negative $ 12 million ahead of expectations and putting us on track to achieve our full year adjusted EBITDA guidance. Moving to the balance sheet, we remain in a strong position with $302 million in cash and investments at the end of the quarter.

John E. Kao: I will share more on shortly.

John E. Kao: Lastly, our adjusted EBITDA was negative $12 million ahead of expectations and putting us on track to achieve our full year adjusted EBITDA guidance.

John E. Kao: Moving to the balance sheet, we remain in a strong position with $302 million in cash and investments at the end of the quarter.

Thomas: Turning to our guidance, for the second quarter, we expect Health Plan membership to be between 167,000 and 169,000 members, revenue to be in the range of $625,000,000 and $635,000,000, adjusted gross profit to be between $71,000,000 and $77,000,000, and adjusted EBITDA to be in the range of $0 to positive $6,000,000. For the full year 2024, we expect health plan membership to be between 170 and 172,000 members, revenue to be in the range of $2.495 billion and $2.525 billion, adjusted gross profit to be between $280 million and $310 million, and adjusted EBITDA to be in the range of a loss of $12 million to positive $12 million.

John E. Kao: Turning to our guidance for the second quarter, we expect health plan membership to be between 167000, and 169000 members revenue to be in the range of $625 million and $635 million.

John E. Kao: Adjusted gross profit to be between $71 million and $77 million and adjusted EBITDA to be in the range of zero to positive $6 million.

John E. Kao: For the full year 2024, we expect health plan membership to be between 170 and 172000 members.

John E. Kao: <unk> to be in the range of $2 $4 95 billion and two $5 to $5 billion.

John E. Kao: Adjusted gross profit to be between $280 million and $310 million and adjusted EBITDA to be in the range of a loss of $12 million to positive $12 million.

Thomas: The increase to our full year membership and revenue outlook follows strong first quarter membership outperformance and our expectation that our sales and member retention momentum will continue through the remainder of the year. Our revised membership guidance now reflects 43% membership growth at the midpoint for year-end 2022. Moving down to P&L, we are increasing the low end of our adjusted gross profit range and narrowing our adjusted EBITDA outlook. The following elements are captured within our updated Adjusted Gross Profit Outlook.

John E. Kao: The increase to our full year membership and revenue outlook, followed a strong first quarter membership outperformance and our expectation that our sales and member retention momentum will continue through the remainder of the year. Our revised membership guidance now reflects 43% membership growth at the midpoint for year end 2024.

John E. Kao: Moving down the P&L, we are increasing the low end of our adjusted gross profit range and narrowing our adjusted EBITDA outlook. The following elements are captured within our updated adjusted gross profit outlook.

Thomas: First, while the increase in our year-end membership growth contributes incremental gross profit dollars, the new membership increases the MBR implied by our guidance, as new members typically begin at a higher MBR. Second, we expect a continuation of higher inpatient unit costs related to CMS's increase in 2024 fee-for-service rates and greater supplemental benefit utilization, both offsetting the incremental gross profit from higher new member expectations. Third, we expect a moderate decline in inpatient admissions per 1,000 for the full year, partly due to the member mix.

John E. Kao: While the increase in our year end membership growth contribute to incremental gross profit dollars than new membership increases the MBR implied by our guidance as new members typically begin at a higher MBR.

John E. Kao: Second we expect a continuation of higher inpatient unit costs related to CMS has increased in 2020 for fee for service rates and greater supplemental benefit utilization, both offsetting the incremental gross profit from higher new member expectations.

John E. Kao: Third we expect a moderate decline in inpatient admissions per thousand for the full year, partly due to member mix that 13 admissions per thousand year over year decline, we experienced in the first quarter from 164 to 151 places us well on pace to deliver on this objective as mentioned earlier, we expect to see continued benefit from the.

Thomas: The 13 admissions per 1,000 year-over-year decline we experienced in the first quarter, from 164 to 151, places us well on pace to deliver on this objective. As mentioned earlier, we expect to see continued benefit from the ongoing engagement with new members and the deployment of care anywhere resources to those identified as high risk. Our differentiated engagement with both new members and providers is a core reason why Alignment has not experienced the same degree of utilization headwinds that some others in the sector have experienced. Fourth, in addition to our normal course operations, we have identified new payment integrity programs that are currently being implemented.

John E. Kao: Ongoing engagement with new members and deployment of care in any of our resources to those identified as high risk our differentiated engagement with both new members and providers is a core reason why alignment has not experienced the same degree of utilization headwinds, but some others in the sector have experienced.

Thomas: We expect these solutions to provide additional upside throughout the remainder of the year, particularly in the second half. And lastly, our Part D seasonality is expected to drive roughly 400 basis points of MBR improvement between the first quarter and the remainder of the year. This is consistent with our historical experience and normal course seasonality.

John E. Kao: Fourth in addition to our normal course operations, we have identified new payment integrity programs are currently being implemented we expect these solutions to provide additional upside throughout the remainder of the year, particularly in the second half.

John E. Kao: And lastly, our part D seasonality is expected to drive roughly 400 basis points of MBR improvement between the first quarter and the remainder of the year. This is consistent with our historical experience and normal course seasonality.

Thomas: Our adjusted EBITDA guidance also highlights continued improvement in our operating leverage. We now expect our adjusted SG&A as a percentage of revenue excluding ACO to be 11.8% at the midpoint, an improvement of 260 basis points year-over-year. Our operating leverage gains over the next three quarters are driven by a combination of factors, including first, continued fixed cost leverage relative to greater membership growth and productivity improvement measures. Second, elimination of one-time expenses associated with the end sourcing of member experience functions in 2023, most of which were incurred in the second half of last year.

John E. Kao: Our adjusted EBITDA guidance also highlights continued improvement in our operating leverage we now expect our adjusted SG&A as a percentage of revenue excluding ACO reach to be 11, 8% at the midpoint, an improvement of 260 basis points year over year, our operating leverage gains over the next three quarters are driven by a combination of factors.

John E. Kao: Including first continued fixed cost leverage relative to greater membership growth and productivity improvement measures.

John E. Kao: Elimination of one time expenses associated with the in sourcing of member experience functions in 2023, most of which were incurred in the second half of last year.

John E. Kao: And third sales and marketing and year on year expense leverage which is also concentrated in the second half.

John E. Kao: In conclusion, our strong growth has been well managed by our clinical and operational resources and is a testament to our differentiated Medicare advantage platform. After our robust start to the year. We believe we are on pace to deliver against our full year outlook and are set up for both growth and margin improvement in 2025 with that let's open the call to questions operator.

Thomas: And third, sales and marketing and year zero expense leverage, which is also concentrated in the second half. In conclusion, our strong growth has been well managed by our clinical and operational resources and is a testament to our differentiated Medicare Advantage platform. After our robust start to the year, we believe we are on pace to deliver against our full-year outlook and are set up for both growth and margin improvement in 2025. With that, let's open the call to questions. Operator?

Operator: Thank you. As a reminder to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please standby, while we compile the Q&A roster.

Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Nathan Rich from Goldman Sachs. Hi, good afternoon, and thanks for taking the questions.

Speaker Change: Our first question comes from the line of Nathan Rich from Goldman Sachs.

Nathan Allen Rich: I wanted to, John, follow up on your comments on 2025 and the company's positioning. I guess, can you maybe talk about, you know, how you plan to use that cost, you know, advantage or kind of revenue advantage position in your plan bids and how you kind of see that flowing through to maybe what you're planning for benefits relative to where you see the market going. And then one of the things I wanted to ask on more specifically was the changes to the Part D plan design that will go into effect in 2025. And, you know, does that create any unique challenges as you think about, you know, how to price and position your plans for next year? Yeah.

Nathan Allen Rich: Hi, good afternoon, and thanks for taking the questions.

Nathan Allen Rich: I wanted to.

Nathan Allen Rich: John follow up on your comments on that.

Nathan Allen Rich: On 2025, and the company is positioning I guess can.

Speaker Change: Can you maybe talk about.

Nathan Allen Rich: How you plan to use that.

Nathan Allen Rich: Cost advantage, our kind of revenue advantage.

Nathan Allen Rich: Position in your plan bids and how you kind of see that flowing through to maybe what you are planning for benefits relative to where you see the market going.

John E. Kao: And then one of the things I wanted to ask on more specifically was the changes too.

John E. Kao: The part D plan design that will go into effect in 2025 and does that create any unique challenges as you think about how to price and position your plans for next year.

John E. Kao: Hey Nate, thanks for the question. You know, we're acutely aware of our competitive position in each of our markets. We're right in the middle of bids right now.

Speaker Change: Thanks for the question.

Speaker Change: Question.

Speaker Change: We are acutely aware of our competitors.

Speaker Change: Position in each of our markets.

Speaker Change: We're right in the middle of bids right now we've been studying IRR a for the last couple of years. So we know the nuances of that we're very comfortable with how part D is going to be very important part of benefit design.

John E. Kao: We've been studying IRRA for the last couple of years, so we know the nuances of that. We're very comfortable with how Part D is gonna be a very important part of benefit design.

John E. Kao: I'm not going to comment on bid related questions right now just due to the nature of the competitive dynamic. I would say, though, that... You know, we've always said 2025 is going to be very much a breakout year for us in the context of margin, and if you kind of look at just the growth that we've had this year and the strong performance or in our ability to onboard the growth and then manage the the growth from a medical management perspective, Just just getting to very basic levels of compliant risk adjustment on this new membership, you can do that math, is very exciting for us, you know, and then the continued improvement on margin on the vintage analysis of our existing members just doubles, you know, kind of double down on that, on that margin percentage.

Speaker Change: I'm not going to comment on.

John E. Kao: Bid related questions right now just due to the nature of the competitive dynamic.

John E. Kao: I would say, though that.

John E. Kao: We've always said 2025 is going to be very much a breakout year for us in the context of margin.

John E. Kao: And if you kind of look at just the growth that we've had this year and the strong performance and our ability to onboard the growth and then manage the growth from our medical management perspective.

John E. Kao: Just getting to very basic levels of compliant risk adjustment on this new membership you can do that math.

John E. Kao: Is very exciting for us.

John E. Kao: The continued improvement on margin on the vintage analysis of our existing members.

John E. Kao: Just doubles.

John E. Kao: Double down on that on that margin perspective.

John E. Kao: So I think we are very, very... encouraged by that. And for those of you that have been with us for the last couple of years, it's just very disciplined. And it's all leading to a growth year and a margin year that we expect to be very good in 25. And maybe if I could just ask a quick follow-up on that.

John E. Kao: So.

John E. Kao: I think I think we are very very.

John E. Kao: Encouraged by that.

John E. Kao: And for those of you that have been with US for the last couple of years is just very disciplined.

John E. Kao: It's all leading to.

John E. Kao: Our growth here in the margin year that we expect 25 to be very good.

Speaker Change: And maybe if I could just ask a quick follow up on that.

John E. Kao: Yes.

John E. Kao: The stronger growth this year, and you know, it seems like you expect another year of strong growth in 25, does that change the margin trajectory at all? And I guess, you know, looking at how guidance was updated this quarter, kind of post that the strong membership gains, you know, the top line goes up about 100 million, but a relatively minimal impact on kind of gross margin and not much of a drop through to EBITDA.

Speaker Change: The stronger growth this year and it seems like you expect another year of strong growth in 25 does that change the margin trajectory at all and I guess looking at how guidance was updated this quarter kind of post the strong membership gains.

Speaker Change: Topline goes up about $100 million, but relatively minimal.

John E. Kao: Do you feel like that dynamic changes at all? Maybe as this year's membership base matures? Or, you know, do you see the stronger growth kind of dampening the potential margin over the next year or two? Yeah, that's a great question. I don't, I mean, I'm not saying we're going to grow at 50% again next year. 2020.

Speaker Change: Packed to kind of gross margin and not much drop through to EBITDA.

Speaker Change: Do you feel like that dynamic changes at all maybe as this year the membership base matures.

Speaker Change: Or do you see the stronger growth kind of dampening the.

Speaker Change: Actually the margin over the next year or two yes. That's a great question I don't I mean I'm not.

John E. Kao: I'm not saying, we're going to grow at 50% again next year for 2025.

John E. Kao: I do think we have good tailwinds in our favor, but really, I think margin expansion is going to be really important, and I think we can get the growth. If not 50% growth, we're going to get the growth with the focus on the margin piece of it. You know, you just look at Reed and everything that's, that's, that's publicly available.

John E. Kao: Do think we have good tailwind in our favor.

John E. Kao: But really I think margin.

John E. Kao: Expansion is going to be really important and I think we can get the growth.

John E. Kao: It's about 50% growth, we're going to get the growth with the focus on the margin piece of it.

John E. Kao: Yeah.

John E. Kao: Just look at read and everything.

John E. Kao: Thats publicly available you look at the stars ratings.

John E. Kao: You look at the STARS ratings, you know, there might be one or two competitors that do irrational things. You know, they've done that in the past, but that's part of it, that's okay. And we'll have a very good 2025. Very, very confident. Thanks very much for the questions.

John E. Kao: There might be one or two competitors that do irrational things they've done that in the past before but.

John E. Kao: Part of it.

Speaker Change: That's okay.

John E. Kao: And we'll have a very good 2025.

Speaker Change: I'm very very confident of that.

Speaker Change: Thanks, very much for the questions.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Operator: Thank you. One moment for our next question. Our next question comes from Ryan Daniels from William Blair. Yeah, congratulations on the strong start to the year. Thanks for taking the question. Thomas, maybe one for you.

Speaker Change: Our next question comes from the line of Ryan Daniels from William Blair.

Ryan Scott Daniels: Yes, congrats on the strong start to the year and thanks for taking the question Thomas maybe one for you interesting data on the Avnet per thousand.

Ryan Scott Daniels: Interesting data on the admits per thousand related to both new patients and then the overall book of business. Can you dive into that a little bit more? Is the new patient number lower because they are coming in younger and healthier despite the fact that they haven't been in your clinical programs? Just any color there would be interesting as that's a key cost driver.

Ryan Scott Daniels: <unk> to both new patients and then the overall book of business can you dive into that a little bit more.

Ryan Scott Daniels: New patient number lower because they are coming in younger and healthier. Despite the fact that they haven't been in your clinical programs or just any color there would be interesting as it's a key cost driver.

John E. Kao: Yeah, hey Ryan, it's John. I think Thomas is having some Wi-Fi issues right now. But the answer to the question is yes. We're pretty happy with that, and just let me comment on that, you know, we're not immune to certain utilization hotspots with some of the new members that we picked up. We have a couple of markets, not a lot of members, but we still have some members that had higher inpatient utilization in actually a couple different markets, and we're just all over it. We have visibility into it.

Ryan Scott Daniels: Yeah, Hey, Rob It's John I think Thomas is.

John: Navigating some Wi Fi issues right now.

John: But yesterday the question is yes.

John: Sure.

John: We're pretty happy with that.

Speaker Change: Let me comment on that.

John: We're not immune to certain utilization.

John: Hotspots with some of the new members that we picked up.

John: Couple of markets.

John: A lot of members, but we still have some members that had.

John: Higher inpatient utilization.

John: Actually a couple of different markets.

John: And we're just all over it we have visibility to it we are.

John E. Kao: We are addressing the care needs of these patients on a daily basis, and so, you know, we're just managing it very, very aggressively. So, you know. It's, it's, I'm really happy with the performance on the admissions per thousand. 151 for the whole book is a lot better than what we did a year ago, even.

John: Dressing the care needs of these patients on a daily basis.

John: And so.

John: We're just managing it very well.

John: Aggressively.

John: So.

John: Okay.

John: Yes.

John: It's a global happy with the performance.

John: Admissions per thousand.

John: 151 for the whole book.

John: Is a lot better than what we did a year ago, even in these kind of continuous improvements that we're making to Eva and to care and we're really starting to pay off.

John E. Kao: And so these kind of continuous improvements that we're making to AVA and to CARE-Annual are really starting to pay off. And I actually think there's even more opportunity for us as we start doing some other initiatives that we've got going on in clinical. Thank you for that.

John: And.

John: I actually think there's even more opportunity for us.

John: As we as we start maturing some other initiatives that we've talked about political.

John E. Kao: And then maybe another bigger picture question directed to you. We've seen some data recently talking about Medicare Advantage HMOs versus PPOs and the ability for providers with HMOs to better control costs in utilization and manage the patient. I know your exposure is mostly HMO lives versus some of your peers. Do you think that also is providing you with a unique advantage as it comes to your MLR stability or MBR stability versus what a lot of the other players are seeing as we enter 2024? Thanks.

Speaker Change: Okay perfect. Thank you for that and then maybe another bigger picture question directed to you.

John: We've seen some data recently talking about Medicare advantage hmos versus PPO and the ability for providers with hmos to better control costs and utilization to manage the patients I know your exposure is mostly HMO lives versus some of your peers do.

John: You think that also is providing you with a unique advantage as it comes to your MLR stability or MBR stability versus what a lot of the other players are seeing as we enter 2024.

John E. Kao: Yeah, I think that's fair. I think that's a fair statement. I think the way we design our provider contracts also is part of that answer. Kind of this notion of prior authorization, though, is something that's a bit of a misnomer in that a lot of our provider partners, a lot of what we do is auto-op.

Speaker Change: I think Thats fair.

Speaker Change: I think Thats, a fair statement I think.

Speaker Change: The way we design our provider contracts also I think.

John: As part of that answer.

John: Kind of this notion of prior off though is.

John: Is something thats a bit of a misnomer.

John: And that a lot of a lot of our provider.

John: Partners are a lot of what we do is autograft.

John E. Kao: I think it's making sure that we have the proper care navigation in the HMO to get people into the right providers in a kind of timely fashion for access. That's really important from a CAHPS and a STARS perspective and kind of having a preferred network, if you will, and care navigation to the right, highest quality provider. All those kind of dynamics, I think are things that you get with an HMO.

John: I think it's making sure that we have the proper care navigation.

John: And the HMO to get people into the right providers.

John: Kind of a timely fashion for access.

John: That's really important from a cap some of stars perspective.

John: And.

John: And kind of having.

John: Kind of a preferred network, if you will incur navigating to the right the highest quality provider all those kind of dynamics I think are things that you get with the HMO.

John E. Kao: I think on the PPO, Ryan, you know, the the the, The stratification model of identifying who the high-cost, vulnerable PPO members are and then caring for them with care, that principle still holds as well. And I think one of the things we've done a really better job on with the PPO is engaging those PPO members with it without it, you know, a dedicated, you know, PCP, and engaging them and, you know, making sure we get proper documentation on the coding. That makes a big difference. Thank you for all that color.

John: I think on the PPO Ryan.

John: <unk>.

Speaker Change: <unk>.

Speaker Change: <unk>.

Speaker Change: The stratification model of identifying who the high cost.

Speaker Change: Vulnerable PPO members and then carrying for them with carrier that principle still holds as well.

Speaker Change: And I think one of the things we've done a really better job on with the PPO is engaging those PPO members.

Speaker Change: Without a dedicated.

Speaker Change: PCP.

Speaker Change: And engaging them and making sure we get proper documentation on the coding side that makes a big difference.

Speaker Change: Okay. Thank you for all the color and congrats again.

Speaker Change: Thanks Ray.

Speaker Change: Thank you.

Speaker Change: One moment for next question.

Ryan Scott Daniels: Congratulations again. Thanks, Ryan. Thank you. One moment for our next question. Our next question comes from the line of John Ransom from Raymond James. Hey, good evening.

Speaker Change: Our next question comes from the line of John Ransom from Raymond James.

John Wilson Ransom: Hey, good evening.

John Wilson Ransom: One issue for the industry as this thing about claims lag and what do you know when do you know when you report a quarter, especially around outpatient and I know you guys heavier Ava technology and your care anywhere plan, but what.

John Wilson Ransom: You know, one issue for the industry is this thing about claims lag. What do you know, when do you know, when you report a quarter, especially around outpatients, and I know you guys have your Ava technology and your Care Anywhere plan, but what? Your ability to accrue your costs accurately, how has that changed, and what tools do you use that maybe some of your competitors don't when you stand here and say with confidence what the kind of 1Q medical costs look like? Yeah, hey, John, this is Thomas.

John Wilson Ransom: What is your ability to accrue.

John Wilson Ransom: Accrue your cost accurately how has that changed and what tools do you use that maybe some of your competitors out when you stand here.

John Wilson Ransom: Staying with confidence what the kind of what the <unk> medical costs look like.

Thomas: I appreciate the question. So I think our ability to actually have the visibility that allows us to accrue for our performance in Q1 or any other quarter accurately is very much underpinned by the visibility and control we have from a medical management standpoint. In other words, it's not that we do things from a financial standpoint to create visibility; it's that we actually run our business day to day with things like admission, discharge, and transfer data, i.e., heads and beds, every single day.

John Wilson Ransom: Yeah, Hey, John This is Thomas I appreciate the question so.

Thomas: I think our ability to actually have the visibility that allows us to accrue for our performance in Q1 or any other quarter accurately.

Thomas: Very much underpinned by the visibility and control we have from a medical management standpoint in other words.

Thomas: Not that we do things from a financial standpoint to create the visibility that we actually run our business day to day with things like admission discharge transfer data I E heads in beds every single day, and then we use that information in order to actually track and accrue our financial reserves, our medical expenses and so more specifically when I think about.

Thomas: And then we use that information in order to actually track and accrue our financial reserves or medical expenses. And so more specifically, when I think about the broader spend outside of the inpatient setting, there's a lot of correlation between the different categories of spend. And so, for instance, about 90% of our members go through the ER when they're hospitalized. And conversely, on the way out of the hospital, about two-thirds of our discharges go to a skilled nursing facility or a home health facility.

Thomas: The broader spend outside of the inpatient setting.

Thomas: There's a lot of correlation between the different categories of spend and so for instance, about 90% of our members go through the ER when they're hospitalized and Conversely on the way out of the hospital about two thirds of our discharge is go to a skilled nursing facility or a home health facility. So there's a high degree of correlation between how that inpatient API moves and how other.

Thomas: So there's a high degree of correlation between how that inpatient KPI moves and how other categories of SPIN claims PMPM also move. And then, beyond that, we do, of course, track data on other things like outpatient hospital surgery or ASC metrics, skilled nursing, length of stay, home health per thousand, et cetera. So I think our ability to have pretty good visibility into how the overall claims PMPM is running for the first quarter is quite strong, but it's underpinned by us using that information day-to-day as opposed to the other way around.

Speaker Change: Other categories of spend claims the MTM also move and then beyond that we do of course track off data on other things like the <unk>.

Speaker Change: Outpatient hospital surgery, or ASC metrics skilled nursing length of stay home.

Speaker Change: Home health per thousand et cetera, So I think our ability to have pretty good.

Speaker Change: Visibility to how the overall claims PMT was running for the first quarter is quite strong.

Speaker Change: But it's underpinned by us using that information day to day as opposed to the other way around.

Thomas: And then my second question, this is my favorite, like wonky in the weeds, Medicare Advantage question, but do you have any visibility on the 2Q midyear sweep and what's embedded in your guidance as we sit today? Yeah, so there are two different sweeps we get in the second quarter.

Speaker Change: Great and then my.

Speaker Change: Second question. This is my favorite like walking in the weeds Medicare advantage question, but do you have any visibility on the <unk> midyear sweep and what's embedded in your guidance as we sit today.

Thomas: One is the final sweep from last year, which we typically receive at the end of May in our June payment file. And then we also get the mid-year sweep on the 2024 membership, which typically comes at the end of June in the July payment file. So typically speaking, both of those two sweeps would be reflected in our 2Q financial results. We typically don't accrue or expect anything on the financial sweep, the final sweep from the prior year. It depends on the year.

Speaker Change: Yes so.

Speaker Change: Two different suites, we get in the second quarter, one of the final sweep from last year, which we typically receive at the end of May and our June payment file and then we also get the midyear sweep on the 2020 for membership, which typically comes at the end of June and the July payment files. So typically speaking both of those two suites would be reflected in our <unk>.

Speaker Change: <unk> financial results.

Speaker Change: We typically don't.

Speaker Change: Crew or expect anything on the financial suite at the final <unk> from the prior year.

Speaker Change: It depends upon the year I would say in Covid years in particular, we saw outsized favorability associated with that suite, but I think if you look at our results last year, which is probably more indicative of a normal year, we didn't have near as much of a pickup last year, but nonetheless.

Thomas: I would say in COVID years in particular, we saw outsized favorability associated with that sweep. But I think if you look at our results last year, which is probably more indicative of a normal year, we didn't have nearly as much of a pickup last year. But nonetheless, you know, if we do see any kind of positive favorability there, it would be, I think, in addition to what is currently guided. From a mid-year sweep standpoint, very similarly, we typically see a kind of a few basis points of pickup on the new members that allows us to actually have our full year new member wrap be consistent with what we got paid in January.

Speaker Change: Nonetheless, we do see some.

Speaker Change: Kind of positive favorability there it would be I think in addition to what is currently guided from a midyear sweep standpoint, very similarly, we typically see.

Speaker Change: Kind of a few basis points of pick up on the new members that allows us to actually have our full year, new member RAF be consistent with what we got paid in January and Thats really how we built our guidance over the course of the year on the new members is whenever we get paid in January is whatever we expect to be paid for the full year to the extent that that comes in more.

Thomas: And that's really how we build our guidance over the course of the year on the new members; whatever we get paid in January is whatever we expect to be paid for the full year. To the extent that that comes in more favorably in the mid-year sweep, that could also be upside. We don't like to kind of bank our guidance on that assumption because it's out of our control.

Speaker Change: Favorable and the midyear sweep that could also be upside.

Speaker Change: We don't like to kind of bank our guidance on that assumption because it's out of our control that midyear sweep comes from whatever it was documented last year with the members prior health plan.

Thomas: That mid-year sweep comes from whatever was documented last year with the member's prior health plan. So I think it puts us in a conservative position, but also, at the same time, I think given what we saw last year after COVID, that typically is not going to be a major driver of significant outperformance. It could be some modest ups. Okay, thanks a lot.

Speaker Change: So I think it puts us in a conservative position, but also at the same time.

Speaker Change: I think given what we've seen last year. After COVID-19 that typically is not going to be a major driver of significant outperformance it could be some modest upside.

Speaker Change: Okay. Thanks, a lot.

Speaker Change: Thank you.

John Wilson Ransom: Thank you. One moment for our next question. Our next question comes from the line of Adam Ron from Bank of America. Hey guys, I appreciate the question.

Speaker Change: One moment for next question.

Speaker Change: Okay.

Speaker Change: Our next question comes from the line of Adam Ron from Bank of America.

Adam Matan Ron: Um, you mentioned that, you know, this year was a gross year and that, potentially, margin could be more important next year. But if I look at, like, even this year, where you're saying new members come in and they don't have super high margins, you still are on track to, I think, increase EBITDA margins to 200 basis points. So if next year, you know, margins are more important, is there a reason why we shouldn't see that kind of margin expansion again? Or are there, you know, one-time items like ACO reach kind of skewing that? Hey Adam, Thomas here.

Adam Matan Ron: Hey, guys I appreciate the question.

Adam Matan Ron: So you mentioned that this year was the growth year next year potentially margin could be more important but if I look at like even this year, where you are saying.

Adam Matan Ron: New members come in and they don't have Super high margin.

Adam Matan Ron: You still are on track to I think increase EBITDA margins 200 basis points.

Adam Matan Ron: Next year margins are more important is there a reason why we shouldnt see that kind of margin expansion again are there one time items like the ACO reach kind of skewing that.

Thomas: On the last part of that question, ACO reach is not a significant driver of profitability improvement from 23 to 2024. I think we sized that in the kind of like three to maybe four or $5 million range in terms of dollars of improvement from 23 to 2024 guidance. So the vast majority of our improvement in 2024 is really coming from the Medicare Advantage business. And as we talked about, the vast majority of that is really coming from improved operating leverage through the adjusted SG&A line.

Adam Thomas: Hey, Adam Thomas here.

Adam Thomas: On the last part of that question ACO range is not a significant driver of profitability improvement from 23 to 2024, I think we sized that in the kind of like three to maybe $4 million to $5 million range in terms of dollars of improvement from 23%.

Adam Thomas: 2020 for guidance.

Speaker Change: So the vast majority of our improvement in 2024 is really coming from the Medicare advantage business as we've talked about the vast majority of that is really coming from improved operating leverage through the adjusted SG&A line and so I think to your broader question on 2025, while we're not going to.

Thomas: And so I think to your broader question on 2025, while we're not going to draw a line in the sand today on our 2025 margin goals for next year, I think what we were really trying to amplify in John's remarks is that we think we have the ability to do both growth and margin improvement again next year also. And I think we're in that position because of some of the tailwinds John described where, while we're impacted by V28, I think we are less impacted relative to our local competitors.

Speaker Change: Draw a line in the sand today on our 2025 margin goals for next year I think what we were really trying to amplify in Johns remarks is that we think we have the ability to do both growth and margin improvement again next year also and I think we're in that position because of some of the tailwind as John described where while were impacted by <unk> 28.

Thomas: And then from a star standpoint, we very much have a funding advantage over the vast majority of our competitors for 2025. So I think that gives us a little more flexibility to achieve both next year and continue on the trajectory we've set forth for 2025.

Speaker Change: We are less impacted by a relative to our local competitors and then from a star standpoint, we very much have a funding advantage over the vast majority of our competitors for 2025. So I think that gives us a little more flexibility to achieve both next year and continue on the trajectory we set forth for 2024.

Thomas: And then in your remarks, you mentioned a couple of things about, you know, a widening relative advantage in 2025 and how your competitors would see reimbursement headwinds. But one thing that was, like, sort of pushing in the other direction is the fact that the LA, where most of your members are, benchmark is expanding by 5%, which is very strong. So does that help your competitors overcome some of their reimbursement headwinds such that maybe they don't actually have to cut benefits then, and it kind of closes that relative advantage because they needed the reimbursement more? How are you, how are you thinking about that? Or is that a tailwind for you relative to your expectations? So I think a couple things.

Speaker Change: Makes sense.

Speaker Change: And then in your remarks, you mentioned like a couple of things about.

Speaker Change: Widening relative advantage in 2025, and how your competitors with the reimbursement headwinds.

Speaker Change: But one thing that was like sort of pushing in the other direction is the fact that the law where your most of your members are.

Speaker Change: Benchmark is expanding by 5%, which is very strong so does that.

Speaker Change: Help your competitors' overcome some of the reimbursement headwinds such that maybe they don't actually have to cut benefits Ben.

Speaker Change: Kind of closes that relative advantage because they needed the reimbursement more like how are you how are you thinking about that.

Speaker Change: Or is that a tailwind for you relative to your expectation.

Thomas: So in terms of the benchmarks and some of the markets, particularly Southern California, to your point, I think some of those markets have also seen higher inpatient and outpatient unit costs increases. And so a little bit of that, I think, is catch up in 2025 relative to the 2024 rate updates with CMS. But I think from a competitive standpoint, we sort of look at it as one kind of pool of overall funding or reimbursement dollars for us and our competitors.

Speaker Change: So I think a couple of things so in terms of the benchmarks in some of the markets, particularly southern California to your point.

Speaker Change: I think some of those markets have also seen higher inpatient and outpatient unit cost increases and so a little bit of that I think is catch up in 2025 relative to the 2024 rate updates with CMS.

Speaker Change: But I think from a competitive standpoint, we sort of look at it as.

Speaker Change: One kind of pool of overall funding or reimbursement dollars for us and our competitors and each of us has their own pluses and minuses. So to the extent that we have 5% in a market and our competitor has 5% in a market.

Thomas: And each of us has our own pluses and minuses. So, to the extent that we have 5% in a market, and our competitor has 5% in a market, I agree that would be sort of a neutral factor. I don't think it necessarily helps us. I don't think it necessarily hurts us. But I think what creates that relative advantage are the other two factors, where on average, there's really only one of our major HMO competitive plans in our market that's going to be four stars. Everyone else is either three, three and a half, or, in some cases, two and a half.

Speaker Change: I agree that would be sort of a.

Speaker Change: Neutral factor I don't think it necessarily helps us I don't think it necessarily hurts us, but I think what creates that relative advantage are the other two factors were on average there's really only one of our major HMO competitive plans in our markets that's going to be four stars everyone else is either three three and a half or in some cases, two and a half and so that extra 5% to 10%.

Thomas: And so that extra 5% to 10% revenue PMP and funding advantage on stars alone is, I think, a major advantage for 2025, even if some of the benchmarks in certain counties are going up by 5%. If I could squeeze one more in, So Humana recently talked about the industry margin potentially settling out at around 3%. That's EBIT, not EBITDA. Do you have a view on that? Or has your view changed at all based on the new reimbursement environment? That'd be my last question.

Speaker Change: <unk> funding advantage on Starz alone is I think a major advantage for 2025, even if some of the benchmarks in certain counties are going up by 5%.

Speaker Change: If I could squeeze one more in so humana recently talked about the industry margin potentially settling out at around 3% that's like EBIT not EBITDA.

Speaker Change: Do you have a view on that your view changed at all based on the new reimbursement environment.

Speaker Change: That'd be my last question. Thank you yes.

Adam Matan Ron: Yeah, I think our view of long-term margins is fundamentally unchanged in that the overall structure of the Medicare Advantage program is unchanged. So when we went public several years ago, we talked about a six to seven percent adjusted EBITDA margin long-term, which I think is more like a four to five percent pre-tax margin. And when you think about what has changed in the more recent macro environment, you're right. I think STARS has gotten tougher with the introduction of Tukey and the removal of some of the COVID-like protection mechanisms that were put in place on STARS.

Speaker Change: Yeah, I think our view of long term margins is fundamentally unchanged and that the overall structure of the Medicare advantage program is unchanged. So when we went public several years ago, we talked about a 6% to 7% adjusted EBITDA margin long term, which I think is more like a 4% to 5% pre tax margin and when you think about what has changed in the more recent macro.

Speaker Change: <unk> environment.

Speaker Change: Youre right I think starz has gotten tougher with the introduction of <unk> and the removal of some of the Covid.

Speaker Change: Kind of protection.

Thomas: B28 has been introduced, and then, broadly speaking, across the board, utilization pressures have been seen in a variety of different categories of spend. And so while I think that's putting pressure on the industry at large in the short term, I don't think it changes the fundamental opportunity given that, at the end of the day, a number of plans have demonstrated the ability to run efficiently with SG&A at 10 percent or below. We're starting to get pretty close to that, getting down below 12 percent in 2024.

Speaker Change: Mechanisms that were put in place on Starz.

Speaker Change: 28 has been introduced and then broadly speaking across the board utilization pressures have been seen in a variety of different categories of spend and so while I think that has put pressure on the industry at large in the short term I don't think it changes the fundamental opportunity given that at the end of the day.

Speaker Change: Number of plans have demonstrated the ability to run efficiently with SG&A at 10% or below.

Speaker Change: We're starting to get pretty close to that getting down below 12% in 2024.

John E. Kao: And from an MLR standpoint, the 85 percent MLR rule is unchanged. So I think just structurally, the opportunity is no different today than it was a year or a couple of years ago. I think the changes in macroeconomic factors, though, have put more pressure on the requirement to be a high quality, low cost player. And if you're able to do that, I think you can still win in this current environment and, in the long term, generate the same four to five percent pre-tax margins you could have or would have expected several years ago. Yeah, just Adam, let me echo that. This is John. Let me echo that.

Speaker Change: And from an MLR standpoint, the 85% MLR rule is unchanged. So I think just structurally the opportunity is no different today than it was a year a couple of years ago.

Speaker Change: I think the changes in macroeconomic factors, though have put more pressure on the requirement to be a high quality low cost player and if youre able to do that I think you can still win in this current environment and long term generate the same 4% to 5% pre tax margins you could have.

Speaker Change: Or would have expected several years ago.

Speaker Change: Adam Let me, let me Echo that as John Let me Echo that.

John E. Kao: It's an opportunity for organizations that have the lowest cost structure or have a model to get to a lowest cost structure without compromising quality. And it gets measured by stars because you get reimbursement that's more the better the quality you are. But that's why we've spent so much time and effort making sure that the care model and the belief that if you can manage the care, you're in a position to control the cost.

Adam: So it's a.

Adam: It's an opportunity for organizations that.

Adam: The lowest cost structure or have a model to get to a lowest cost structure without compromising.

Adam: Quality and it gets measured by stars because you get you get.

Adam: The reimbursement that's more better quality ore.

Adam: But that's why we've spent so much time and effort, making sure that the care model.

Speaker Change: And the belief that if you.

Speaker Change: To manage.

Speaker Change: The care you are in a position to control the costs.

John E. Kao: That's been our philosophy from day one, and I think there's somewhat of a sea change that those that have just relied on risk adjustment to be successful are the ones experiencing tough margin compression right now. So it's like a structural change intentional by CMS.

Speaker Change: That's the from day, one that fit our philosophy and I think there is a.

Speaker Change: Somewhat of a sea change that those that are just relied on.

Speaker Change: Risk adjustment to be successful are the ones experiencing tough margin compression right now.

Speaker Change: Like a structural change intentional by CMS.

John E. Kao: And so those who've been in this business for 30 years or so have gone through four or five of these reimbursement blips. But the wave of aging seniors and the political kind of, kind of power of MA, we just don't see it slowing. You know, in fact, we still see market share penetration going from 52% to 65% in the next seven years.

Speaker Change: And so those have been in this business for 30 years or so has gone through.

Speaker Change: Four or five of these reimbursement blips, but.

Speaker Change: The wave of.

Speaker Change: The aging of seniors.

Speaker Change: The.

Speaker Change: Political.

Speaker Change: Kind of.

Speaker Change: Power of MMA, we just don't see it slowly.

Speaker Change: In fact, we still see market share penetration going from 52% to 65% in the next seven years.

Speaker Change: So.

John E. Kao: You know, I think it's an opportunity, and I think it requires a structural change in terms of who will win and what will succeed going forward in MA, and I think we're really well positioned for that.

Speaker Change: I think it's an opportunity.

Speaker Change: Sure.

Speaker Change: And I think it requires a structural change in terms of who will win and what will succeed going forward into Ma.

Speaker Change: I think we're really well positioned for that.

Speaker Change: Also we.

Speaker Change: Great all the color.

Speaker Change: Yes.

Speaker Change: Thank you.

Operator: Thank you. One moment for our next question. Our next question comes from Whit Mayo from Lyrinc Partners. Hey, good evening or afternoon, guys.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Whit Mayo from Leerink partners.

Whit Mayo: The new lives that you picked up in the first quarter, can you maybe quantify how much of those are, you know, agents versus switchers? There were a lot of switchers. Any themes in the switching? If you have any market intelligence on that? Yeah, hey, Whit, this is Thomas here.

Whit Mayo: Hey, good evening or afternoon guys.

Whit Mayo: The new lives that you picked up in the first quarter can you maybe quantify the how much of those are agents versus switchers and if there were a lot of switchers any themes on the switching if you have any market intelligence on that.

Thomas: So I think our OEP experience, which lasted through April 1st's eligible beneficiaries, was very similar to our AEP experience. And so what I mean by that is, the majority of the membership or the new sales were plan switchers. But we see those plan switchers coming from a variety of our competitors across a broad swath of our markets. And so there's not really just one or two or three competitors that we're disproportionately taking share from.

Speaker Change: Yeah, Hey, this is Thomas here so.

Robert Thomas Freeman: Our ODP experience, which lasted through the April 1st eligible.

Robert Thomas Freeman: Fisher's was very similar to our AEP experience and so what I mean by that is the.

Thomas: The majority of the membership or the new sales were planned switchers.

Robert Thomas Freeman: But we see those plants, which are coming from a variety of our competitors across a broad swath of our markets and so.

Robert Thomas Freeman: There is not really just kind of one or two or three competitors that were disproportionately taking share from.

Thomas: We're really, I think, advantaged in most markets this year to take share from a variety of players, both in terms of local or regional competitors and also many of the large national competitors. And I think in terms of our product mix, it's also been pretty broadly distributed across the board, and sitting here today, we still have about 30% of our members that are enrolled in one of our special needs plans, like our C-SNP products, or are dual eligible, which is pretty consistent with where we ended at the end of last year.

Thomas: <unk> really I think advantaged in most markets this year to take share from from a variety of players both in terms of the local or regional competitors and also many of the large national competitors.

Thomas: And then I think in terms of our product mix. It has also been pretty broadly distributed across the board and sitting here today, we still have about 30% of our members that are enrolled in one of our special needs like our C. SNP products or are duly eligible which is pretty consistent to where we ended at the end of last year.

Speaker Change: Okay.

Thomas: And maybe this is a dumb question, but looking at the reserve roll forward in your queue. 5 million of favorable PYD, but there's a footnote below that references 870,000. I guess I wanted to get the... What's the difference between the two and what are the P and L?

Speaker Change: Maybe this is a dumb question, but looking at the reserve roll forward in your Q, there was $5 million of favorable <unk>, but there's a footnote below that references 870000, I guess I wanted to.

Speaker Change: What's the difference between the two and what the P&L impact was.

Thomas: Yeah, yeah, absolutely. So we typically, with that footnote you're referring to, we try to look at the change in prior period reserves, excluding the. We typically put a 7% kind of margin factor on top of the reserves for adverse trends. And so think about that 7% as you add it; when you kind of put your best estimate together for a given month, you add 7% to it. If your estimate on that month is perfect, that 7% will just disappear in the future. But at the same time, you're always adding new months with an additional 7% pad.

Speaker Change: Yeah, absolutely. So we typically on that footnote youre, referring to we try to look at the change in prior period reserves excluding the.

Speaker Change: We put a 7% kind of margin factor on top of the reserves for adverse trends and so think about that 7% as you add it when.

Speaker Change: You kind of put your best estimate together for a given month you had 7% to it if your estimate on that month is perfect that 7% will just released in the future, but at the same time, you're always adding new months with an additional 7% pad and so it kind of becomes a wash from a P&L standpoint, where you're constantly releasing it in adding that over time.

Thomas: And so it kind of becomes a wash from a P&L standpoint where you're constantly releasing it and adding it over time. So we really like to focus on what the change in IV&R is without that 7%. And that's the number that we report in our footnote. So it was right, you're correct, just a little under a million dollars for the first quarter, meaning that our year-end reserves for 2023 were, I think, very strong and intact relative to the paid claims experience through the end of the first quarter. Thanks guys.

Speaker Change: So we really like to focus on what the change in <unk>, excluding that 7% and Thats. The number that we report in our footnotes. So it was right Youre correct, just a little under $1 million for the first quarter.

Speaker Change: Meaning that our year end reserves for 2023, I think were very strong and intact relative to the paid claims experience to the end of the first quarter.

Speaker Change: Okay makes sense thanks, guys.

Speaker Change: Thank you.

Jessica Elizabeth Tassan: Thank you. One moment for our next question. Our next question comes from the line Jess Tassan from Piper Sandler. Hi guys.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Jeff <unk> from Piper Sandler.

Speaker Change: Yes.

John E. Kao: Thank you for taking the question. I'm curious to know just, you know, 2025 funding looks favorable in California. You guys obviously have momentum there from a brand perspective, and a strong provider network. I'm curious about any updated thoughts around the geographies where you intend to participate in 25 and beyond, and whether, you know, new market entries remain a significant factor in your growth. Hey, Jess, it's John.

Jeff Toussaint: Hi, guys. Thank you for taking my question.

Jeff Toussaint: And I would just add too.

Jeff Toussaint: 2025 funding with favorable in California, you guys, obviously have momentum there from a brand perspective strong provider network.

Jeff Toussaint: Okay.

Speaker Change: And any updated thoughts around.

Speaker Change: Thank you Yakov and where you intend to participate in.

Speaker Change: 25, and beyond that whether new market entries remains on it.

Speaker Change: A significant factor.

Speaker Change: Brad.

John E. Kao: Now, we're going to, we're not going into, dates in 2025. The focus has been on the most efficient way to grow, and we just see so much momentum in our core markets. And even in the ex-California markets that we currently have, you know, we're getting up above kind of that 5,000 member range. And what we've seen in the past is when you get to 5,000, it gets from 5 to 10,000, it's just a lot faster.

Speaker Change: Hey, Jess it's John no.

John: We're going to we're not going into it.

Speaker Change: Dates in 2025.

Speaker Change: The focus has been on the most efficient way to grow and we just see so much momentum in our core markets and even in the ex California markets that we currently have.

Speaker Change: We are getting up above kind of that 5000.

Speaker Change: Remember range than what we've seen in the past as you get to 5000.

Speaker Change: To get from five to 10.

Speaker Change: It is just a lot faster and then obviously in California, we've got a lot of momentum.

John E. Kao: And then, obviously, in California, we've got a lot of momentum. I would suspect that we're going to be more aggressive in 2026. What I've said in the past is the goal, obviously, is to fund new market expansions from internally generated cash. And so I would expect us to be more aggressive in 2026 in terms of new states. I will say that the conversations that we've had with health systems and, I would say, large provider organizations have been very, um, and I think you'll see more of those kinds of arrangements come together, uh, uh, heading into 2020, which requires us to have the deals pretty much done by the end of this year so that we can file for service area expansions in February. That's, um, that's helpful.

Speaker Change: I would suspect that we're going to be more aggressive.

Speaker Change: In 2026.

Speaker Change: <unk> said in the past is the goal obviously is to is to fund new market expansions from internally generated cash.

Speaker Change: And so I would expect us.

Speaker Change: Seem to be more aggressive in 2026 in terms of new states I will say that the conversations that we've had with.

Speaker Change: Health systems.

Speaker Change: And I would say.

Speaker Change: A large provider organizations has been very.

Speaker Change: Encouraging.

Speaker Change: And I think youll see more of those kinds of arrangements come together.

Speaker Change: Heading into 2026.

Speaker Change: Each require us to have the deal is pretty much done by the end of this year. So that we can file for service or expansions in February of 25.

John E. Kao: And then I guess I'm curious, kind of, any thoughts on the potential for state alignment initiatives for the dual population to kind of pressure future growth in your G-SNP book? Or just how are you thinking about contending with, um, that in the future? Thanks.

Speaker Change: That's helpful. And then I guess I'm curious kind of any thoughts on the potential for states alignment initiatives for the dual population to kind of pressure future growth in your D. SNP bulk or just how are you thinking about contending with.

Speaker Change: With that.

Speaker Change: With that in the future. Thanks.

John E. Kao: Yeah. It's something that we've had to address over the last couple of years with the alignment and the aligned programs and the CCI care coordination programs in California. The rule that just came out certainly, I think, gives some of the Medicaid folks a little bit of an advantage, but what we are advocating for is chronic special needs programs and chronic special needs look-alike programs that, in the most recent regulations, are certainly going to survive beyond kind of the 2030 timeframe.

Speaker Change: Yes.

Speaker Change: It's something that we've had to address over the last couple of years with the alignment and the aligned.

Speaker Change: Programs in the CCI care coordination programs in California.

Speaker Change: That just came out certainly I think give some of the Medicaid folks a little bit of an advantage.

Speaker Change: But what we are advocating for is chronic special needs programs.

Speaker Change: And chronic special needs lookalike programs that in the <unk>.

Speaker Change: Most recent rigs are certainly going to survive beyond kind of the 2030 timeframe.

John E. Kao: And kind of if you think about the kind of reality of care quality, we think the quality of the products we have and the care model that we have to serve the seniors is better than any kind of forced kind of Medicaid solution. I just think it's better quality, and I think people are actually voting with their feet with respect to some of the C-SNPs that we have. And that's been, it's been very successful for us. Got it.

Speaker Change: And kind of if you think about the.

Speaker Change: The reality of care quality.

Speaker Change: We think the quality of the products we have in the care model that we have to serve the seniors is better than any kind of forced.

Speaker Change:

Speaker Change: Medicaid solution.

Speaker Change: I, just think it's better better quality and I think people are actually voting with their feet with respect to some of the C. Snips that we have.

Speaker Change: And that's been that's been very successful for us.

John E. Kao: Thank you. Sure. Thank you.

Speaker Change: Got it thank you.

Speaker Change: Sure. Thank.

Speaker Change: Thank you.

Operator: One moment for our next question. Our next question comes from the line of Andrew Mock from Barclays. Hi, this is Tiffany on behalf of Andrew. You called out higher inpatient unit costs and supplemental benefit utilization that you expect to continue into the year. Could you give a little bit more color on the expected cadence of those pressure points into the back half? And separately, just anything else to call out on calendar impact on MLR seasonality? Hey Tiffany,

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Andrew Mok from Barclays.

Speaker Change: Hi, This is Stephanie on for Andrew you called out higher inpatient unit costs and supplemental benefit utilization that you expect to continue into the year.

Stephanie: You give a little bit more color on the expected cadence of those pressure points into the back half and separately just anything else to call out on the calendar impact to MLR seasonality.

Thomas: So I think nothing specific from a supplemental benefit or inpatient unit cost standpoint over the course of the year. But on the inpatient unit cost side, you know, that obviously will impact any months or quarters where we have higher inpatient utilization overall. So when you think about the next three quarters, we typically would expect inpatient utilization to be lower in the second and third quarters and then have a bit of an uptick in Q4, specifically in December around flu season.

Speaker Change: Hey, Stephanie.

Speaker Change: So I think nothing specific from a supplemental benefit or inpatient unit cost standpoint over the course of the year. So on the inpatient unit cost side.

Stephanie: Obviously will impact any months or quarters, where we have.

Stephanie: Higher inpatient utilization overall, so when you think about the next three quarters, we typically would expect inpatient utilization to be lower in the second and third and then have a bit of an uptick in Q4, specifically December around flu season, but generally speaking I don't think a lot of seasonality around those unit costs.

Thomas: But generally speaking, I don't think there is a lot of seasonality around those unit costs. And similarly, on the supplemental benefit utilization side, we don't anticipate much change there quarter to quarter over the next three remaining quarters of the year. I think from an overall seasonality standpoint, we would expect this year to be similar to other years where 2Q and 3Q tend to be lower on MLR, and 4Q tends to be a modest uptick higher, though Q1 tends to be our high point for the year.

Stephanie: Similarly on the supplemental benefit utilization side, we don't anticipate much change there quarter to quarter over the next three.

Stephanie: The remaining quarters of the year I think from an overall seasonality standpoint, we would expect this year to be similar to other years, where <unk> and <unk> tend to be lower on MLR in <unk> tends to be.

Stephanie: A modest uptick higher though Q1 tends to be our high point for the year. When you think about I think the improvement initiatives underway that we described in our prepared remarks.

Thomas: When you think about the improvement initiatives underway that we described in our prepared remarks, I think while our first quarter was very strong and I think it demonstrates our ability to manage really tremendous growth so far this year, there are some areas where we think we can do better, particularly over the back half of the year. So from a clinical standpoint, getting from, you know, well, how we say it internally is getting from good to great.

Speaker Change: While our first quarter was very strong and demonstrates our ability to manage really tremendous growth. So far. This year. There are some areas, where we think we can do better particularly over the back half of the year. So from a clinical standpoint getting from.

Speaker Change: We say it internally is getting from good to great and there are certain things that we do a very good job of today, but we think we can do an even better job on in the future such as post post discharge care navigation sniff length of stay management ship readmission rate things that we are already pretty world class on but we still see areas of opportunity given the <unk>.

Thomas: And there are certain things that we do a very good job of today, but we think we can do an even better job on in the future, such as post-discharge care navigation, SNF length of stay management, and SNF readmission rates, things that we are already pretty world class at, but we still see areas of opportunity given the growth we've achieved where we think we can dial those levers a bit more in our favor over the back half of I think similarly on the payment integrity side, we started to see an uptick in our inpatient unit costs in the back half of last year.

Speaker Change: Growth, we've achieved where we think we can dial those levers a bit more in our favor over the back half of the year I think similarly on the payment integrity side, we started to see an uptick in our inpatient unit costs in the back half of last year and I think as we've kind of looked under the hood on this we do feel like there's an opportunity to use some third parties to help.

Thomas: And I think as we've kind of looked under the hood on this, we do feel like there's an opportunity to use some third parties to help us to ensure that we have accurate claim submissions from our different provider partners over the course of the year, particularly in the second half. So I think those are some of the things that are going to be the biggest kind of drivers of that continuous improvement for us.

Speaker Change: To ensure that we are accurate claim submissions from.

Speaker Change: From our different provider partners over the course of the year, particularly in the second half. So I think those are some of the things that are going to be the biggest kind of drivers of that continuous improvement for us, but nonetheless, as John said earlier in his remarks, I think our first quarter really puts us in a strong position towards our overall full year guidance range.

Thomas: But nonetheless, as John said earlier in his remarks, I think our first quarter really puts us in a strong position for our overall full-year guidance. Yeah, and Tiffany, on the acute unit cost, I mean, it's... It's clearly the offset to that has to be improved admission management and readmission management and all the clinical quality drivers that we've spent so much time on. And I think last year, Thomas, we were 163 in the month of ADK admissions per 1000 compared to 0151. It's going to It's going to require that kind of continued excellent clinical performance to offset some of those unit costs. All right, perfect, thank you.

Speaker Change: Tiffany.

Speaker Change: The acute unit costs.

Speaker Change: It's clearly the offset to that has to be improved.

Speaker Change: Kind of admission management.

Speaker Change: And readmission management and all the clinical quality drivers that we've spent so much time on.

Speaker Change: And I think last year Thomas were 163 in the month.

Speaker Change: K missions for thousands of SER 151.

Speaker Change: It's going to require that kind of kind of continued excellent clinical performance to to offset some of those unit cost increases.

Speaker Change: Alright, perfect. Thank you.

Thomas: Thank you. One moment for our next question. Our next question comes from the line of John Ransom from Raymond James. I knew I had another good question, but I couldn't remember it on the fly.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of John Ransom from Raymond James.

John Wilson Ransom: I knew I had another good question and I can remember I think on the block.

John Wilson Ransom: I'm there.

John Wilson Ransom: I got you, Sam. So, there's been a lot in the press about, you know, M.A. Plans having more difficulty contracting downstream, you know, with, you know, hospitals pushing back. And then, you know, a lot of plans, you lay your risk off on some of these physician groups that are probably getting killed with B28. So, when you think about your provider contracting, how does that look now versus a year ago? And is there anything to call out there, good or bad?

John Wilson Ransom: So there's been a lot in the press about MAA.

John Wilson Ransom: MA plans, having more difficulty contracting downstream.

John Wilson Ransom: With hospitals pushing back and then a.

John Wilson Ransom: A lot of plans.

John Wilson Ransom: Our risk off on some of these physician groups that are probably getting killed with B 28. So when you think about your provider contracting how does that look now versus a year ago and is there anything to call out there or good or bad.

John E. Kao: Great, great question. About our shared risk, contracting model. And we think it's much more durable. We think that it comes in the form of either PCP capitation or professional capitation. And then we share in the risk associated with the institutional cost. And so if we all work together, and we cut these deals, not only with the downstream providers, but also with the health system, and we have aligning principles with hospital systems and IDNs.

Speaker Change: Great Great question Jamie.

Speaker Change: So when we.

Speaker Change: I'll talk about our shared risk.

Speaker Change: Contracting model.

Speaker Change: And we think it's much more durable we think that.

Speaker Change: <unk>.

Speaker Change: It comes in the form of other PCP capitation.

Speaker Change: <unk> or professional capitation, and then we share in the risks associated for the institutional costs.

Speaker Change: And so if we all work together and we cut these deals not only with the downstream providers, but also with the health systems.

Speaker Change: And we have aligning principles with.

Speaker Change: Hospital systems ideas, I think that's going to be part of the future.

John E. Kao: I think that's going to be part of the future, personally, in terms of how the space shakes out. And so this shared risk model using the tools, using the data that we have access to, not just limited to the EHR data that's in the providers but having a holistic view of that patient through some of the tools that we have in AVA and our patient 360 longitudinal patient record. Exposing that information to the providers is what's allowed us to take action with the providers to get the outcomes that we have. And it's in a, I would call it, a capital efficient model. You know, at our old company, we had a lot of bricks and mortar. It's very expensive.

Speaker Change: Personally in terms of how the space shakes out.

Speaker Change: So the shared risk model using the tools using the data that we have access to not just limited to the EHR data thats in the providers, but having a holistic view of that patient through some of the tools that we have an Eva.

Speaker Change: And our patient 360.

Speaker Change: Longitudinal patient record exposing that information to the providers.

Speaker Change: Is what's allowed us to take action with the providers to get the outcomes that we have.

Speaker Change: And it's in a I would call it a capital efficient model.

Speaker Change: At our own company, we had a lot of bricks and mortar it's very expensive.

John E. Kao: And so the whole thesis that we have is to work with community doctors that are independent, and I don't want them consolidated per se, and or health systems that have clinically integrated networks, and give them the tools and create economics that are aligning. And the other thing I would say, John, is... The health systems have approached us, and apologies for the long winded speech, but this is really important. They were approaching us saying, you know, particularly the top tier health systems, the top ones, are overcapacitated, meaning they're at 120 to 125 percent of what their physical capacity will allow.

Speaker Change: And so the whole thesis that we have is work with the community doctors that are independent.

Speaker Change: And while consolidated per se.

Speaker Change: And Ed or health systems that have clinically integrated networks.

Speaker Change: And give them the tools and create economics that are aligning.

Speaker Change: And the other thing I would say John is.

Speaker Change: The health systems has approached us and apologies for the long winded, but this is really important.

Speaker Change: They are approaching us going.

Speaker Change: Particularly the top tier health systems, the top ones are overcapacity.

Speaker Change: Meaning they're at 120% to 125% of what their physical capacity will allow.

John E. Kao: And so what they're asking us is, well, if we partner together, can you help us lower the admission of seniors into our facility? And they are so confident that if they have lower senior admissions, they can backfill those senior admissions with commercial admissions, which again, they're just getting paid more. So they're getting 100% of Medicare, they're getting 200%.

Speaker Change: Asking to us as well if we partnered can you help us lower the.

Speaker Change: Admissions.

Speaker Change: Seniors.

Speaker Change: Into our facilities.

Speaker Change: They are so confident that they are lower senior emissions. They can backfill those senior missions with commercial admissions, which again if they are just getting paid more so again, 100% of Medicare or again, 200% Medicare.

John E. Kao: So those kinds of macro dynamics with respect to reimbursement, not only for the plan but for the facilities and the doctors, are all kind of factored into where we see MA going forward. I think you're going to see a much tighter partnership. And a lot of these folks are not happy with some of the, I'll call it, you know, kind of claims editing protocols that certain MCOs are using with these health plans.

Speaker Change: So those kinds of I think.

Speaker Change: Macro.

Speaker Change: Dynamics with respect to reimbursement not only for the plan, but for the facilities and the doctors all kind of factored into where we see M&A going forward.

Speaker Change: I think you're going to see much tighter partnerships.

Speaker Change: And a lot of these folks are not happy with some of the I'll call. It.

Speaker Change: Kind of claims editing protocols that certain <unk> are using with these health systems, and so they're kind of coming to us as an alternative.

John E. Kao: So they're kind of coming to us as an alternative. And that gets back to some of the questions that I think Jess asked with respect to how we think about growing in new markets, and it's going to be with provider partners in 2026. Do you think that's the longest answer you've ever given in your career, John? Not by a long shot.

Speaker Change: And that gets back to some of the questions that I think just asked with respect to how do we think about growing.

Speaker Change: New markets and it's going to be with provider partners in 2026 the answer.

Speaker Change: Do you think thats the longest answer you've ever given in your career, John I think it might not.

John: Nope not by a long shot.

Speaker Change: [laughter].

John E. Kao: My other question, and this is kind of getting into the weeds, but, you know, five years ago, we made a lot out of these conveners. You know, we see the headline that Optum is laying people off at Nava Health. Have we done all we can do in terms of redirecting post-acute? I know Thomas mentioned this, but, you know, for every 100 post-acute discharges, are we doing the best we can still in terms of redirecting them to home health versus SNF? Or is there some wood to chop there, as you guys kind of alluded to?

Speaker Change: My other question on this is kind of in the weeds, but.

Speaker Change: Five years ago, we made a lot of these <unk>.

Speaker Change: We see the headline that optimism I think people off Nava health have.

Speaker Change: Have we done all we can do in terms of redirecting post acute I know Thomas mentioned this but.

Speaker Change: For every 100 post acute discharge is are we doing the best we can still in terms of redirecting them to the home health versus NAV or is there some wood to chop there as you guys kind of alluded to.

John E. Kao: What are you talking about for the industry or for us? Well, for you guys, or for you, you think you're at peak efficiency in terms of... I think there is a huge amount of opportunity for us to be better at, and it's very topical for us. You know, we have, and I alluded to this, so much focus on inpatient acute admissions. And I think the opportunity for us to have post-discharge care navigation, SNF rounding, just all those things that we know how to do, and we do them.

Speaker Change: You're talking about for the industry for us.

Speaker Change: Great for you guys or are you guys do you think you're at peak.

Speaker Change: I think there is a huge amount of opportunity for us to be better at that.

Speaker Change: And it's it's very topical for us.

Speaker Change: We have and I alluded to this we.

Speaker Change: We have so much focus on inpatient acute admissions.

Speaker Change: And I think the opportunity for us to have post discharge care navigation.

Speaker Change: <unk>.

Speaker Change: Rounding just all of those things that we know how to do I think and we do it.

Speaker Change: And we do it well, but I think we can do it even better.

Speaker Change: The short answer.

John E. Kao: And we do it well, but I think we can do it even better, is the short answer. Is it just hard to compete with the guys playing offense by dropping off the doughnuts and, you know, charming the discharge planters? What do you have to do to get on your front foot with some of these discharge planters?

Speaker Change: Is it just hard to compete with the <unk>.

Speaker Change: Playing offense with dropping off the donuts.

Speaker Change: Charming the discharge planners.

Speaker Change: What do you have to do to get on your front foot with some of these discharge planners, because youre kind of up against an industry that is pushing in the other direction.

John E. Kao: Because you're kind of up against an industry that is pushing in the other direction. I would say alignment with the facility. Alignment and relationships with the facility, not at the discharge planner level but at the CEO of the health system. Those are the conversations that we're having now. And what's consistent, John, is that people like the care model. You know, at the end of the day, in health services, most of the people we deal with doctors and health systems actually care about optimizing care delivery and the quality of care that matters to them, and they see what we're doing, and to the extent that it is aligned with their economics, they want to work with us.

Speaker Change: I would say alignment with the facility.

Speaker Change: <unk> and relationships with the facility not at the discharge planner level, but at the CEO of the health system level.

Speaker Change: Those are the conversations that we're having now.

Speaker Change: And what's consistent Jon is people like the care model.

Speaker Change: The end of the day and health services most of the people, we deal with doctors and health systems.

Speaker Change: Actually care about optimizing care delivery and quality of care that matters to them.

Speaker Change: And they see what we're doing and to the extent that it is aligned with their economics.

Speaker Change: People want to work with us.

John E. Kao: And one thing I would add to that as well, John, is, you know, the bigger we get, the more it affords us the ability to have those conversations. And when you think about us today, you know, we're starting to become more significant in many of our markets. And, and that's, I think, just given us better opportunities to engage across different sites of care and at different levels within those different. Yeah, I mean, I'll shut up after this, but it's just been surprising to me going back through MedTech data, how stable and well the SNP industry has done when you have all these forces on paper pushing, you know, discharges into, you know, literally the cost of care, that's one- That's just been a big surprise to me that the industry is kind of still where we are in 2024.

Speaker Change: One thing I would add to that as well John is the bigger we get the more it affords us the ability to have those conversations and when you think about US today, we're starting to become more significant and many of our markets and and Thats I think just given us better opportunities to engage across different sites of care and at different levels within those different institutions.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Shut up after this but assistant surprising to me going back through Medpac data health stable, so well the snip industry has done when you have all these forces on paper pushing discharges and literally cost of care. This 110th the cost of it is nothing yet.

Speaker Change: Their admissions are growing thats, just been a big surprise to me that the industry is kind of still where we are in 2024.

John Wilson Ransom: So anyway, that's my editorial comment. Thank you very much. You got it. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: So anyway, that's my editorial comment thank you very much.

Speaker Change: You got it.

Speaker Change: Thank you.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.