Q3 2024 Astrana Health Inc Earnings Call

November 7, 2024

Operator: Good day, everyone, and welcome to today's Astrana Health Q3 2024 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session, and instructions will be provided at that time. Today's speakers will be Brandon Sim, President and Chief Executive Officer of Astrana Health, and Chan Basho, Chief Operating and Financial Officer. The press release announcing Astrana Health, Inc. results for the third quarter ended 30 September 2024 is available at the investors section of the company's website at www.astranahealth.com. The company will discuss certain non-GAAP measures during this call. Reconciliations to the most comparable GAAP measure are included in the press release. To provide some additional background on its results, the company has made a supplemental deck available on its website.

Okay.

Speaker Change: Good day, everyone and welcome to today's Strana health third quarter 'twenty 'twenty four earnings call. At this time all participants are in a listen only mode. Later, you will have the opportunity to ask questions. During the question and answer session and instructions will be provided at that time.

Speaker Change: The speakers will be Brandon van President and Chief Executive Officer, a stronger health and Chan Marshall Chief operating and financial Officer.

Speaker Change: The press release announcing a stronger health incorporated results for the third quarter ended September 30th 'twenty 'twenty four is available at the investors section of the company's website.

Speaker Change: Www dot are strong at health dotcom.

Speaker Change: The company will discuss certain non G. A a P measures during this call reconciliations to the most comparable G. A a P measure are included in the press release.

Speaker Change: Despite some additional background on its results. The company has made a supplemental deck available on its website.

Operator: A replay of this broadcast will also be made available at Astrana Health's website after the conclusion of this call. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terms such as anticipate, believe, expect, future, plan, outlook, and will include, among other things, statements regarding the company's guidance for the year ending December 31, 2024, continued growth, acquisition strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment, operational focus, strategic growth plans, and merger integration efforts.

Speaker Change: A replay of this broadcast will also be made available at strong. It helped website. After the conclusion of this call.

Speaker Change: Before we get started I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward looking statements within the meaning of the safe Harbor provision of the private Securities Litigation Reform Act of 1995. These forward looking statements can be identified by terms such.

Speaker Change: Interest paid believe expect future plan outlook and will include among other things statements regarding the company's guidance for the year ending December 31st 2024.

Speaker Change: Continued growth acquisition strategy, our ability to deliver sustainable long term value our ability to respond to the changing environment operational focus strategic growth plan and merger integration efforts, although the company believes that the expectations reflected in its forward looking statements are reasonable.

Operator: Although the company believes that the expectations reflected in its forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ materially from those projected. There can be no assurance that those expectations will prove to be correct. Information about the risks associated with investing in Astrana Health is included in its filings with the Securities and Exchange Commission, which we encourage you to review before making investment decisions. The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, changes in market conditions, or otherwise, except as required by law. Regarding the disclaimer language, I would also like to refer you to slide two of the conference call presentation for further information.

Speaker Change: As of today.

Speaker Change: Those statements are subject to risks and uncertainties uncertainties that could cause the actual results to differ materially from those projected there can be no assurance that those expectations will prove to be correct.

Information about the risks associated with investing in as strong a health is included in its filings with the Securities and Exchange Commission.

Speaker Change: Which we encourage you to review before making an investment decision.

Speaker Change: Company does not assume any obligation to update any forward looking statements as a result.

Speaker Change: The nation future event.

Speaker Change: Changes in market conditions, or otherwise, except as required by law.

Speaker Change: The disclaimer language I would also like to refer you to slide two of the conference call presentation for further information.

Operator: With that, I'll turn the call over to Astrana Health's President and Chief Executive Officer, Brandon Sim. Please go ahead, Brandon.

Speaker Change: With that I'll turn the call over to.

Brandon <unk>: President and Chief Executive Officer, Brandon <unk>.

Brandon <unk>: Go ahead Brandon.

Brandon Sim: Thank you, operator. Good evening, and thank you all for joining us today. Adding to a strong first half of the year, the Q3 results we reported today continued to reflect the progress we are making as we build the nation's leading patient-centered, care-agnostic healthcare platform. As we continue to drive our mission to deliver high quality, high value, and accessible care to communities across the country, I want to remind the audience of the four pillars we have executed on for years, which we believe will allow us to achieve that goal. First, we will sustainably grow our membership in order to bring better care to more Americans. Next, we will increase alignment with outcomes by responsibly taking on greater levels of total cost of care responsibility for our members through value-based and accountable care arrangements.

Brandon <unk>: Okay.

Brandon <unk>: Thank you operator.

Speaker Change: Good evening and thank you all for joining us today.

Speaker Change: Adding to our strong first half of the year. The third quarter results. We reported today continue to reflect the progress we are making as we built the base of a bleeding patient centered care agnostic health care platform.

Speaker Change: As we continue to drive our mission to deliver high quality high value and accessible care the communities across the country.

Speaker Change: I want to remind the audience of the four pillars, we have executed on for years, which we believe will allow us to achieve that goal.

First we will sustainably grow membership in order to bring better carrots more Americans.

Speaker Change: We will increase alignment with outcomes are responsibly, taking on greater levels of total cost of care responsibility for our members through borrowing base and accountable care arrangements.

Brandon Sim: Third, we will focus on achieving superior patient outcomes while managing total cost of care by empowering our providers with our technology and clinical infrastructure. Finally, we will continue to drive operating leverage across our business through our Care Enablement suite. I'll start with some key financial and operational updates for the quarter that reflect the success we are having driving each of these four operational imperatives. I'll provide an update on the close and integration of Collaborative Health Systems. Finally, Sean will discuss our financial performance and guidance outlook. Starting with financial highlights, we continued to execute at a high level as Astrana Health revenue grew to $478.7 million. Adjusted EBITDA was $45.2 million, continuing to demonstrate our differentiated ability to grow profitably even while bringing on newer cohorts of membership.

Speaker Change: Third.

Speaker Change: On achieving superior patient outcomes, while managing total cost of care.

Speaker Change: During our providers with our technology and clinical infrastructure.

Speaker Change: And finally, we will continue to drive operating leverage across our business through our care enablement suite.

I'll start with some key financial and operational updates for the quarter.

Speaker Change: The success, we're having in each of these four operational imperatives.

Speaker Change: I will provide an update on the close the integration of collaborative health systems.

And finally, <unk> will discuss our financial performance and our guidance outlook.

Speaker Change: Starting with financial highlights.

Speaker Change: To execute at a high level is this chronic health revenue grew to $478 7 million.

Speaker Change: Adjusted EBITDA was $45 2 million.

Speaker Change: Can you read that demonstrate our differentiated ability to grow profitably, even while bringing on newer cohorts of membership.

Brandon Sim: As we had previously guided, earnings cadence was different this year compared to last year due to a timing difference in when certain incentive bills were received, as well as the move to accruing ACO REACH results throughout the year. To paint a clearer picture, on a year-to-date basis, adjusted EBITDA has grown 15% from $117.6 million in the first three quarters of 2023 to $135.3 million in the first three quarters of 2024. Moving on to core business updates. We continued to execute on our first strategic pillar, sustainably growing membership, to bring better care to more Americans. Membership was at around 1 million members as of September 30.

Speaker Change: As we had previously guided earnings cadence was different this year compared to last year.

Speaker Change: Timing difference in mind certain incentive dollars received as well as the move to a recurring ACO reach results throughout the year.

Speaker Change: Paint a clearer picture on a year to date basis, adjusted EBITDA has grown 15% from $117 6 million in the first three quarters of 2023 to $135 3 million in the first three quarters of 2024.

Speaker Change: Moving onto core business updates, we continue to execute on our first strategic pillar sustainably growing membership to bring better care to more Americans.

Brandon Sim: To set the stage for future membership growth, Astrana Care Partners affiliates organically added over 200 primary care providers and over 900 specialists to our network across our core markets. We also continue to make progress on our second goal, increasing our responsibility for members' total cost of care and value-based arrangements. As of 1 October 2024, our full risk business makes up approximately 61% of total capitation revenue, compared to 46% as of 1 October 2023. We continue to be on track to meet our previously stated goal of having around two-thirds of our capitation revenue coming from a full risk ecosystem by 1 January 2025. Moving on to utilization and cost trends in Q3.

Speaker Change: Membership was it around 1 million members as of September 30th.

Speaker Change: The stage for future membership growth are strong.

Speaker Change: Our care partners affiliates organically added over 200 primary care providers and over 900 specialists to our network across our core markets.

Speaker Change: We also continue to make progress in our second goal increasing our responsibility for members total cost of care and value based arrangements.

Speaker Change: As of October one 2024 are full risk business makes up approximately 61% of total revenue compared to 46%.

Speaker Change: The first of 2023.

Speaker Change: And we continue to be on track to meet our previously stated goal of having around two thirds of our capitation revenue coming from a full risk ecosystem by January one of 2025.

Brandon Sim: We continued to experience overall cost trend blended across all of our lines of business, evolving as expected in the mid-single-digit percentage range. We believe that this is an ongoing reflection of our efforts to ensure access to high-quality care for our members, as well as to the technology-enabled care management, disease management, and care coordination programs that we operate for over a million members across the country. Diving a bit deeper into our utilization trends. For our senior lines of business, Medicare Advantage and ACO REACH, we are experiencing stabilizing cost trends, which came in within our expectations. In our managed commercial book of business, we are seeing slightly lower trend than expected. For our Medicaid book of business, we are seeing higher trend slightly than expected.

Speaker Change: Moving onto utilization and concentrated in the third quarter.

Speaker Change: Can you to experience overall cost trend blended across all of our lines of business evolving as expected.

Speaker Change: Mid single digit percentage range.

Speaker Change: We believe this is an ongoing reflection of our efforts to ensure access to high quality care for our members as well as to the technology enabled care management disease management and care coordination programs that we operate well over a million members across the country.

Speaker Change: Diving a bit deeper into our utilization trends.

Speaker Change: So our senior lines of business Medicare advantage, an ACO reach we are experiencing stabilizing cost trends, which came in within our expectations.

Speaker Change: The commercial book of business, we are seeing slightly lower trend than expected before our Medicaid book of business, we are seeing higher trend slightly unexpected.

Brandon Sim: For our Medicaid business, excess cost trend relative to expectation was a few hundred basis points of increase due to an acuity rate mismatch because of Medicaid redetermination, a situation we expect to be resolved in the future as redetermination and rates renormalize. At a blended level, this was partially offset by lower than expected cost trend in our commercial book of business. We believe that our ability to manage overall cost trend within our predicted range is a feature of our payer and line of business agnostic platform, as well as a testament to the investments we have made in care delivery and care coordination. Moving on to recent activity, our acquisition of Collaborative Health Systems has closed as of 4 October 2024, with integrations well underway in terms of people, processes, and technology.

Speaker Change: Our Medicaid business excess cost trend relative to expectation was a few hundred basis points of increase due to an acuity rate mismatch because of Medicaid redetermination.

Speaker Change: Should we expect to be resolved in the future as redetermination and rates.

Speaker Change: Yes.

Speaker Change: And the blended level. This was partially offset by lower than expected cost trend in our commercial book of business.

Speaker Change: We believe that our ability to manage overall cost trend within our predicted range is a feature of our payer and line of business agnostic platform as well as a testament to the investments we have made in care delivery and care coordination.

Speaker Change: Moving onto recent activity or acquisition of collaborative health systems has closed as of October 4th.

Speaker Change: Integration is well underway in terms of people processes and technology.

Brandon Sim: As a reminder, CHS has a complementary footprint of around 2,500 primary care providers serving around 100,000 primarily senior members with a set of payer agnostic relationships across the South and the East Coast. Financially, we expect to see an approximately negative $4 million adjusted EBITDA impact in Q4, but continue to believe that we are on track for approximately $450 million of revenue contribution in full year 2025 and break-even adjusted EBITDA contribution by the end of 2025 from this business. We will continue to provide updates about the progression of this business in future quarters. With the closing of CHS after the quarter end, Astrana Health now serves over 1.1 million patients in value-based care arrangements across 12 states.

Speaker Change: As a reminder, DHS as a complimentary footprints of around 2500 primary care providers, serving around 100000, primarily senior members.

Speaker Change: With a set of payer agnostic relationships across the south and the east coast.

Speaker Change: Financially, we expect to see an approximately negative $4 million adjusted EBITDA impact in Q4 I continue to believe that we are on track for approximately $450 million of revenue contribution for the full year 2025.

Break even adjusted EBITDA contribution by the end of 2025 from this business.

Speaker Change: You will continue to provide updates about the progression of this business.

Speaker Change: Future quarters.

Speaker Change: But the closing of CHS after the quarter end, starting the house now serves over one 1 million patients in value based care arrangements across 12 states.

Brandon Sim: By deploying our technology platform and leveraging our operations to drive efficiencies and reinvesting those savings into improving access to care and enhancing local clinical capabilities for our patients, we have the unique ability to drive better patient outcomes and savings and risk-bearing arrangements. That approach is continuing to pay off, driving what we believe is sustainable profitability even as we grow rapidly in communities across the country. I look forward to continuing to accelerate our reach and our impact as we strive to provide accessible, high quality, high value care to all. To conclude, I want to thank all of our teammates, new and old, our providers, and our partners for their continued belief in our mission to transform healthcare delivery nationwide. With that, I'll turn it over to Chan Basho to discuss our financial performance and guidance outlook. Chan Basho?

Speaker Change: Deploying our technology platform and leveraging our operations to drive efficiencies and reinvesting those savings into improving access to care and enhancing our clinical capabilities for our patients.

Speaker Change: Well you have the unique ability to drive better patient outcomes and savings and risk bearing arrangements.

Speaker Change: That approach is continuing to pay off driving what we believe is sustainable profitability, even as we grow rapidly in communities across the country.

Speaker Change: I look forward to continuing to accelerate our reach and our impact as we strive to provide accessible high quality high value care tool.

Speaker Change: To conclude I want to thank all of our teammates you handle our providers and our partners for their continued belief in our mission to transform health care delivery nationwide.

Speaker Change: With that I'll turn it over to John Marshall to discuss our financial performance and guidance outlook.

Chan Basho: Thanks, Brandon. Turning to our financial performance, we reported total revenue of $478.7 million, a 37% increase from the prior year period. This growth was driven by our continued progress in the transition to full risk, as well as additional contributions from the CFC acquisition. Adjusted EBITDA for the quarter was $45.2 million, a 13% decrease from $52 million in the prior year period. As Brandon previously mentioned, our cadence in earnings was different this year compared to last year due to timing differences related to the recognition of certain incentive dollars and ACO REACH performance. As a result, reviewing financials on a year-to-date basis better reflects the growth of our business.

Speaker Change: John.

John Marshall: Thanks Brandon.

Speaker Change: Turning to our financial performance, we reported total revenue of $478 7 million up 37% increase from the prior year period.

Speaker Change: This growth was driven by our continued progress in the transition to full risk as well as the additional contributions from the CSC acquisition.

Speaker Change: Adjusted EBITDA for the quarter was $45 2 million.

Speaker Change: 13% decrease from 52 million in the prior year period.

Speaker Change: Brendon previously mentioned, our Kinston earnings was different this year compared to last year due to timing differences related to the recognition of certain incentive dollars an ACO reach performance.

Speaker Change: As a result, we viewing financials on a year to date basis better reflects the growth of our business.

Chan Basho: We reported adjusted EBITDA of $135.3 million for the nine months ending 30 September 2024, up 15% from $117.6 million in the prior year period. Similarly, while net income attributable to Astrana for the quarter was $16.1 million, down 27% from $22.1 million in the prior year quarter, on a year-to-date basis, net income attributable to Astrana was $50.1 million, up 4% from $48.4 million in the prior year period. Earnings per diluted share for the quarter stood at $0.33, down from $0.47 in the prior year period. Year-to-date earnings per diluted share were $1.04 compared to $1.03, a 1% increase from the prior year period.

Speaker Change: We reported adjusted EBITDA of $135 3 million for the nine months ending September 32024 up 15% from $117 6 million in the prior year period.

Speaker Change: Similarly, while net income attributable to Australia for the quarter was $16 1 million down 27% from $22 1 million in the prior year quarter on a year to date basis net income attributable to Australia was $50 1 million up 4% from $48 4 million in the prior year period.

Speaker Change: Earnings per diluted share for the quarter stood at 33.

Speaker Change: Down from 47 cents in the prior year period.

Speaker Change: Year to date earnings per diluted share were dollar enforced times compared to $1 three sets a 1% increase from the prior year period.

Chan Basho: From a balance sheet perspective, we remain well capitalized, ending the quarter with $348 million in cash and cash equivalents, and total debt of $442 million, compared to $325 million in cash and $446 million in debt at the close of the previous quarter. As we adjust our full-year outlook to incorporate CHS's financial contribution, we're revising our guidance ranges. For revenue, we now expect between $1.95 billion and $2.03 billion, up from our prior range of $1.75 billion to $1.85 billion dollars. We anticipate adjusted EBITDA to range somewhere between $165 million to $175 million dollars compared to our previous outlook of $165 million to $185 million dollars.

Speaker Change: From a balance sheet perspective, we remain well capitalized ending the quarter with $348 million in cash and cash equivalents and total debt of $442 million compared to $325 million in cash and 446 million in debt at the close of the previous quarter.

Speaker Change: As we adjust our full year outlook to incorporate Chs's financial contribution we're revising our guidance ranges.

Speaker Change: For revenue, we now expect between $1 95 billion and 2.03 billion up from our prior range of $1 75 billion to $1.85 billion.

Speaker Change: We anticipate adjusted EBITDA to range somewhere between 165 million to $175 million.

Speaker Change: Paired to our previous outlook of 165 million to $185 million.

Chan Basho: Lastly, we now project earnings per diluted share to be between $1.06 and $1.19, compared to our pre-prior guidance range of $1.12 to $1.36. To conclude, Astrana Health has made significant progress this year through strategic growth and disciplined execution. Looking ahead, we're focused on the seamless integration of acquisitions and new provider partners, strengthening our financial position and delivering sustainable value for our members, providers, care partners, and shareholders. We appreciate your continued support and confidence in Astrana Health. With that, I'll turn it over to you, operator, for questions.

Speaker Change: Lastly, we now project earnings for diluted share to be between one dollar and six cents to a dollar and 19 cents compared to our prior guidance range of $1.12 to $1.36.

Speaker Change: To conclude our stronger health has made significant progress this year through strategic growth and disciplined execution.

Speaker Change: Looking ahead, we're focused on the seamless integration of acquisitions, and new provider partners strengthening our financial position and delivering sustainable value for our members providers payer partners and shareholders.

Speaker Change: Appreciate your continued support and confidence in <unk> health.

Speaker Change: With that I'll turn it over to you operator for questions.

Brandon Sim: All right. First up, we have Ryan Daniels of William Blair.

Operator: All right. First up, we have Ryan Daniels of William Blair.

Speaker Change: Yeah.

Speaker Change: All right.

Speaker Change: First step we have Ryan Daniels William Blair.

Jack Senft: Hi, all. Congrats on the quarter. This is Jack Senft on for Ryan. Thanks for taking the questions. I wanted to touch on the updated guidance that now incorporates CHS. Can you just remind us on the top line and bottom line impacts of adding CHS? I believe you said it was maybe a negative $4 million EBITDA hit in Q4. I'm just kinda trying to parse out the magnitude of the Q3 performance on your updated guide versus the CHS individual performance. Thanks.

Speaker Change: Hi, Congrats on the quarter. This is Jackson I'm done Brian. Thanks for taking my questions I wanted to touch on the updated guidance that now incorporate CHS can can you just remind us on the topline and bottom line impacts of adding th yet I believe you said it was maybe a negative $4 million EBITDA hit in the fourth quarter I'm, just kind of trying to.

Speaker Change: Parse out the magnitude of the third quarter performance on your updated guide burdens for versus the CHF individual performance. Thanks.

Chan Basho: Hey, how are you? In terms of top line for CHS, in Q4 we're expecting about $200 million in additional top line. In terms of adjusted EBITDA, it's gonna be about a $4-ish million dollar hit to EBITDA.

Speaker Change: Hey, how are you.

Speaker Change: Terms of topline for CHS in Q4, we're expecting about $200 million.

Speaker Change: In additional top line in terms of adjusted EBITDA.

Speaker Change: It's going to be about a four ish million dollar.

Jack Senft: Okay, perfect. Thank you. If I could just sneak in a follow-up here. We recently saw a headline regarding, I believe, it's called Proposition 35 in California. It's basically giving doctors in California a boost in pay for those that serve Medi-Cal patients. Can you guys just elaborate on what this is, and maybe just if this will impact you and if it is gonna impact you, maybe like magnitude and then kind of how this does impact each of your business lines? Thank you.

Speaker Change: [laughter] too.

Speaker Change: EBITDA.

Speaker Change: Okay perfect. Thank you.

Speaker Change: Then if I could just sneak in a follow up your we recently saw a headline regarding believes called proposition 35 in California, It's basically giving doctors in California boots and pay for those that served metical patients can you guys. Just elaborate on what this is and maybe just if this will impact you and if it is going to impact you maybe like <unk>.

Speaker Change: Magnus your it and then kind of how this does impact each of your business lines. Thank you.

Chan Basho: Sure.

Brandon Sim: Hey, Jack, this is Brandon. Thanks for the question. I'm just gonna say a few quick words and then hand it off to Chan to discuss the financial impact. We just wanted to say that we're pleased to see increased Medicaid funding in California. It's a population that we think we've spent a lot of investment and time on, and it's something that we think is gonna be great for those communities. Chan, do you wanna discuss some of our anticipated impact?

Sure Hey, Jack this is Brandon. Thanks for the question I'm, just going to say a few quick words, and then hand, it off to John to discuss the financial impact.

Speaker Change: We just wanted to say that where we're pleased to see increased Medicaid funding.

John Marshall: In California, it's a population that we think are.

John Marshall: We spend a lot of investment and time on and it's something that we think is going to be great for those communities. John do you want to discuss some of our anticipated impact.

Chan Basho: Sure. Thanks, Brandon. Jack, in terms of overall, what this means to us, we value that the voters of California believe in Medicaid, believe in the fact of continuing to make sure networks are sustainable. With this higher funding, we expect to continue to reach more Californians and continue to build high quality networks. In terms of specifics for 2026 and beyond in terms of where rates will really impact us, we're in ongoing discussions with payers, and we'll keep you apprised as those discussions continue.

Sure. Thanks.

John Marshall: Thanks Brendan.

Speaker Change: So Jack in terms of overall, what this means to us.

Speaker Change: We value that the voters of California believes in Medicaid.

Speaker Change: Believe in the fact of continuing to.

Speaker Change: Make sure networks are sustainable and with this higher funding, we expect to continue to reach more californians and continue to build high quality networks in terms of specifics for.

Speaker Change: 26, and beyond in terms of where rates will really.

Speaker Change: Impact us.

Speaker Change: We are in ongoing discussions with payers and we'll keep you apprised as those discussions continue.

Jack Senft: Awesome. That's great. Thank you. Congrats again, guys.

Chan Basho: Thanks.

Awesome, that's great. Thank you and congrats again guys.

Operator: All right. Next up, we have Brooks O'Neil of Lake Street Capital.

Speaker Change: Thanks.

Speaker Change: Alright next step we have Brooks O'neil of Lake Street capital.

Brooks O'Neil: Thank you very much. Good afternoon, everyone. I wanted to just pick your brains a little bit at a high level, recognizing you're gradually expanding from your California roots across the Southeast and up into New England. I'm hoping you could give us a sense of physicians, payers, and hospital players as it relates to, you know, capitated healthcare and the role you could play to help them be successful in what they're trying to do. I'd also love any color as it relates to major geographic variations on the themes you might discuss. Thanks a lot.

Brooks O'neil: Thank you very much good afternoon, everyone.

Speaker Change: I wanted to just.

Speaker Change: Thank you Brady is a little bit at a high level.

Speaker Change: Recognizing your gradually expanding from your California roots.

Speaker Change: Bras and southeast didn't up into.

Speaker Change: The England.

Speaker Change: Hoping you could give us a sense.

Speaker Change: All right.

Transition pay.

Speaker Change: Payers and hospital players as it relates to.

Speaker Change: Caffeine in health care and the role you can play to help them be successful and what they are trying to do.

Speaker Change: And then I'd also love any color as it relates to major geographic variations.

Speaker Change: On the theme you might discuss thanks a lot.

Brandon Sim: Hey, Brooks O'Neil, this is Brandon Sim. Thanks for joining the call and for the question. It's good to hear from you. You have a great point, and as we've talked about many times, healthcare is very local. Each region is extremely different in terms of the community that we're serving, in terms of the payer mix, demographics, social determinants that may apply or may not apply, et cetera. That's something we're taking into account as we look at drastically different communities ranging from Texas to the southeast to, you know, to the northeast. I think what we're trying to focus on, which is our strategy, is to reduce the variability that can be reduced while giving tools to local providers and clinical teams to appropriately address the actual needs of the community that they are serving.

Speaker Change: Hey, Brooks this is Brandon thanks for thanks for joining the call and for the question. It's good it's good to hear from you.

Speaker Change: You have a great point and as.

Speaker Change: As we've talked about many times health care is very local.

Speaker Change: Each region is extremely different in terms of the community that we're serving in terms of the payer mix demographics, social determinants that may apply or may not apply etcetera, and so it's something we're taking into account as we look at drastically different communities ranging from Texas to the South East too.

Speaker Change: You know just to the northeast.

Speaker Change: And I think what we're trying to focus on which is our strategy is to reduce the variability that can be reduced while giving tools to local providers and clinical teams to appropriately address the actual needs of the community that they are serving and so what I mean by that for example is that.

Brandon Sim: What I mean by that, for example, is that nationwide items such as claims variation, fraud, waste, and abuse, as well as care management protocols, which we strive to be evidence-driven, are standardized by our technology platform, including our Pathways Care Management and Disease Management proprietary technology. However, at the local market level, we are working with regional leaders, regional chief medical officers to create the right network topology, whether that's primary care, specialty care, or hospitals, as well as the right relationships so that we can appropriately influence providers to succeed and help them succeed in value-based care contracts. While I won't maybe go into detail of each particular region and its systems and its players, I think it is extremely important.

Speaker Change: Nationwide items such as claim.

Speaker Change: Claims variation fraud waste fraud waste and abuse as well as care management protocols.

Speaker Change: Which we strive to be evidence gribbin, our standardized by our technology platform, including our pathways of care management disease management.

Speaker Change: Criteria technology, however, at the core at the local market level, we are working with regional leaders regional chief medical officers to create the right network topology, whether that's primary care specialty care of our hospitals as well as well.

Speaker Change: The right relationships, so that we can appropriately influence providers to succeed and help them succeed in value based care contracts. So while I won't maybe go into detail of each particular region and its systems and its players.

Brandon Sim: It's a great point that you brought up, that we're keeping in mind as we continue to grow.

Speaker Change: I think it is extremely important and its a great point that you brought up although we're keeping in mind as we continue to grow.

Brooks O'Neil: Great. That's very helpful. I really appreciate that. I wish you the best in the end of the year.

Speaker Change: Alright, that's very helpful. I really appreciate that.

Speaker Change: I wish you the best as the end.

Brandon Sim: Thank you so much.

Speaker Change: End of the year.

Operator: All right. Next up, we have Jailendra Singh of Truist Securities.

Speaker Change: Thank you so much.

Oh right mix definitely had jalan drought themed truest securities.

Jailendra Singh: All right. Thanks. Thanks for taking my question and apologies if I already covered this because I missed some of the prepared remarks. I want to ask about the medical cost trends. Did you have any update to your first half medical cost trend as more claims queued up? As a follow-up, you know, you previously discussed reinvesting from the upside you experience in medical claims back into the business to drive future growth. Just curious, what areas are you reinvesting back into?

Speaker Change: Alright, Thanks, Matt Thanks for taking my question and apologies if I you already covered this but I missed some of the prepared remarks I want to ask with the medical cost trends did you have any update to your first half medical cost trend is motor claims screw it up.

Speaker Change: Follow up.

Speaker Change: Needless to discuss reinvesting some of the upside you're experiencing medical claims back into the business drive P. J Bill.

Speaker Change: Curious what.

Speaker Change: Mr back into.

Chan Basho: Hey, Jailendra. How are you? Thanks for the question. In terms of medical cost trend, despite having concentration in regions that are expressing higher than average trends such as LA, our ACO trend continues to be relatively lower than national. In terms of MA, I'd say we're also trending lower than regional trend, kind of low to single digit numbers. Medicaid, on the flip side, has been trending higher. We think as excess redetermination kind of works through the system, that trend will start to stabilize. In terms of how we are reinvesting, we continue to reinvest in our clinical programs, our care management programs, to really continue to both provide the necessary care for our members that need it the most.

Speaker Change: Thank you Linda how are you. Thanks for the question.

Speaker Change: In terms of medical cost trend.

Speaker Change: Despite having country concentration in regions that are expressed expressing higher than average trends such as L. A R. E. T O trends continues to be relatively lower than national.

Speaker Change: In terms of M. A.

Speaker Change: Okay.

Speaker Change: I'd say, we're also trending lower than regional trend kind of.

Speaker Change: Low to single digit numbers.

Speaker Change: Medicaid on the flip side has been trending higher.

Speaker Change: And we think as.

Speaker Change: Excess reached a redetermination kind of works through the system.

Speaker Change:

Speaker Change: Matt.

Speaker Change: That that trend will start to stabilize.

Speaker Change: In terms of how we are reinvesting we continue to reinvest in our clinical programs our care management programs.

Speaker Change: But to really continue and.

Speaker Change: Post provide the necessary care for.

Jailendra Singh: Thank you. Just following on Medicaid, I mean, this is something, some of the managed care companies have talked about, the rate mismatch. Is that what you're referring to, that you're seeing some rate mismatch on your book of business? Is that something kind of a manageable range? Just, can you elaborate more on that?

Speaker Change: Our members that need it the most.

Speaker Change: Yeah.

Speaker Change: Thank you and so just following up on Medicaid.

Speaker Change: This is something that some of the managed care companies have talked about the rate mismatch is that what you're referring to that youre seeing some rate mismatch on your book of business is that something.

Speaker Change: Kind of a manageable ranges just can you elaborate more on that.

Chan Basho: I think it's partially that. I think it's partially, just as others have said, as redetermined members are moving into other lines of business, we are seeing that net impact.

Speaker Change: Alright, I think its partially that I think it's partially.

Speaker Change: Just as.

Speaker Change: As others have said as we determined members are moving into.

Speaker Change: Other.

Speaker Change: Other lines of business, we are seeing that net impact.

Jailendra Singh: Got it. Thanks a lot.

Chan Basho: Thank you.

Got it thanks a lot.

Operator: All right. Next up, we have Michael Ha of Baird.

Speaker Change: Thank you.

Speaker Change: Alright next up we have Michael Hall of Baird.

Michael Ha: Thank you. Yeah. Firstly, just wanted to confirm, is the narrowing of the full year EBITDA guide to the lower end of the range solely related to that CHS dilution in Q4? I guess my main question is also on redetermination. Is that part of the guide update as well, or are you expecting sort of that better exchange marketplace trend to continue offsetting this elevated utilization? I guess ultimately, sorry for the run-on question, just given the magnitude of impact these large Medicaid plans are seeing and the fact that they've been blindsided by it, like, what's your sense on, like magnitude of concern? Do you have any sort of, like, risk corridors in place to embed it in your contract to potentially, like, insulate or protect from any unexpected trends in Medicaid? Thank you.

Michael Hall: So firstly I just wanted to confirm the narrowing of the full year EBITDA guide to the lower end of the range totally related to that dilution fourth quarter and I guess My main question was asked on Redetermination is that part of the guide updated as well or are you expecting sort of that better exchange market.

Michael Hall: This trend to continue offsetting this elevated utilization and I guess ultimately sorry from the Bryan a question just given the magnitude of impact. These large Medicaid plans are seeing the fact that they've been blindsided by it like what's your sense on like magnitude of concern and do you have any sort of like risk corridor is in place.

Michael Hall: Embedded in your contracts potentially insulate our protect from any unexpected trends in Medicaid. Thank you.

Chan Basho: Hi, thanks for the question. Kind of just breaking apart question number one in terms of how we're doing in or what we said in terms of guidance. As we said before, $4 million of that guidance is really associated with CHS. That one, it's a variety of other items. Topic number two, in terms of Medicaid trend, we're seeing it more in terms of the change in the overall mix of Medicaid members, and we do expect that to normalize into next year. We see margins starting to stabilize in mid to late 2025, going into 2026.

Hi.

Speaker Change: Thanks for the question, so kind of just breaking apart.

Speaker Change: Number one in terms of how we're doing in <unk>.

Speaker Change: In our what we said in terms of guidance as we said before.

Speaker Change: $4 million of that guidance is really associated.

Speaker Change: With CHS.

Speaker Change: But that one it's it's a variety of other items.

Speaker Change: Topic number two in terms of Medicaid trend.

Speaker Change: We're seeing it more in terms of.

Speaker Change: The the change in the overall mix of Medicaid members and we do expect that to normalize into next year.

Speaker Change: And we we see margins.

Speaker Change: Turning to stabilize and.

Speaker Change: Mid to late 'twenty fives going into 'twenty six.

Michael Ha: Okay. Thank you. I guess my second question, just in terms of, I guess, Medicare Advantage, all the volatility, the headwind payers are facing, not just this year, but next year in 2026. I've spoken to a lot of the large MA plans, and they've expressly told me their appetite, their desire to increase global cap has gone up significantly. Really, that one hurdle, and it's really a common thread amongst all of them, is there's a lack of quality value-based care providers, and that's what's preventing them from increasing global cap. I was wondering, are you seeing a notable increase in that appetite, that desire from your payer partners?

Speaker Change: Okay. Thank you and I guess my.

Speaker Change: Second question just in terms of I.

Speaker Change: I guess Medicare advantage, all the volatility headwind pears I would stay tuned.

Speaker Change: Not just this year, but next year in 'twenty Chick I've spoken to a lot of the large M&A plans.

Speaker Change: <unk> expressly told me their appetite or desire to increase global cap has gone up significantly, but really that one hurdle and its really a common thread amongst all of them.

Speaker Change: A lack of quality value based care providers, and that's what's preventing them from increasing global cat.

Speaker Change: I was wondering are you seeing a notable increase in that appetite that the dire from your payer partners and just wrapping it all together I guess in addition to your full risk conversion with tidal wave growth. My question is are you also on the organic growth Bryan King this.

Michael Ha: You know, just wrapping it all together, I guess in addition to your full risk conversion, the tidal wave of growth, my question is, are you also on the organic growth front seeing this, stronger tailwind from MA into 25 and potentially into 26?

Speaker Change: Stronger tailwind from <unk> into 'twenty, five and potentially into 'twenty.

Chan Basho: We have seen payer partners being open to us moving towards full risk. We continue to operate in that ecosystem, and we have been doing it a large way. For us it's not really as much something new. For us, though, it's very much thinking thoughtfully in terms of do we have the appropriate, you know, I wouldn't necessarily call it guardrails, but our ecosystem in place to make sure we can best take care of members in that specific geography with that payer partner. Once we have that in place, we definitely are seeing the inbound focus by plans, and we're very much open to moving in that direction. Again, we're very cautious as we go down that path.

Speaker Change: We have seen payer partners being open to us moving towards.

Speaker Change: All risk.

Speaker Change: We continue to.

Speaker Change: Operator.

Speaker Change: And in that ecosystem, and we have been doing it one large way so for us it's not really as much something new.

Speaker Change: For us, though it's very much thinking thoughtfully in terms of do we have the appropriate.

Right.

Speaker Change: You know I.

Speaker Change: I wouldn't necessarily call it.

Speaker Change: Guardrails, but our ecosystem in place to make sure. We can best take care of members in that in that specific geography with that per partner.

Speaker Change: And once we have that in place we definitely are.

Speaker Change: Seeing the inbound.

Speaker Change: Focus by plans and and we're very much open to moving in that direction, but again were very cautious as we go down that path.

Michael Ha: Okay. Thank you.

Operator: All right. Next up, we have Jack Slevin of Jefferies.

Speaker Change: Okay. Thank you.

Speaker Change: Alright next step we have Jack wasn't of Jefferies.

Jack Slevin: Hey, congrats on the quarter. Really nice work. Just a couple quick ones. A peer of yours called out some significant challenges around Part D. This maybe goes in line with the last question, but can you just speak to how you treat Part D risk in your contracts, or can you remind me if you carve that out or sort of what the approach is on Part D overall in for the rest deals? Thanks.

Speaker Change: Hey, congrats on the quarter.

Speaker Change: Really nice work.

Speaker Change: A couple of quick ones.

Speaker Change: A peer of yours called out some some significant challenges around part D and this maybe goes in line with the last question, but.

Speaker Change: Can you just speak to how you treat part de risking your time tragic neuron knees, if you carve that out or or sort of whats your approaches on part D. Overall in in force deals. Thanks.

Brandon Sim: Hey, Jack. Thanks for the question. We've heard some of the similar comments around risk-bearing provider groups in general and Part D as well as supplemental benefits. This is something that we, you know, for many years, have been prudent around, we believe, because we have tried to minimize our exposure to Part D and supplemental benefits. I'll just lump those together, because we believe certain things are out of our control, and we would rather take risk on items that we have more visibility and more ability to coordinate the provision of.

Speaker Change: Hey, Jack Thanks for the question.

Speaker Change: Yes.

Speaker Change: We have heard some of the similar comments around risk bearing provider groups in general and part D as well as supplemental benefits.

Speaker Change: Something that we you know for many years have been prudent to round. We believe because we have tried to minimize our exposure to part D and took a little bit of it. So I'll just lump those together.

Speaker Change: Because we believe certain things are out of our control and we would rather take risk on items that we have more visibility and more ability to coordinate the provision of.

Brandon Sim: To answer your question, in our contracts, we typically have either a corridor, you know, or a minimal level of risk related to Part D, which is again, something we've negotiated from the start, even if that is at the expense of taking a lower percentage of premium dollar, from a PMPM perspective. Something we believe strongly in that when we take risk, we want it to be something we can actually improve for the patient. We're gonna continue doing that as we expand across the country.

Speaker Change: So to answer your question in our contracts, we typically have either a corridor, you know or a minimal level of risks related to our D.

Speaker Change: Which is again something we've negotiated from the start even if that is at the expense of taking a lower percentage of premium dollar.

Speaker Change: From an actuarial perspective, something we believe strongly in that when we take risk we wanted to be something we can actually.

Speaker Change: Oh for the patient and we're going to continue doing that as we can.

Jack Slevin: Okay. Got it. That's really helpful. Thanks, Brandon. Just my follow-up, a quick one. You know, I wouldn't expect a change here, but just given all the moving pieces that we're seeing around the space, as you look at CHS coming in, is the outlook still that you think that will track to breakeven in 2025? Thanks.

Speaker Change: And across the country.

Speaker Change: Okay got it that's really helpful. Thanks, Brandon and then just my follow up a quick one.

Speaker Change: I wouldn't expect to change here, but but just.

Speaker Change: Given all the moving pieces that we're seeing around the space as you look at C. H S. Coming in is the outlook still that you think that that that will track to breakeven in 2025.

Brandon Sim: Yep. Hey, Jack. Yep. I think I mentioned it, but I just to reiterate, we are expecting it to be breakeven adjusted EBITDA for the CHS business by the end of 2025.

Speaker Change: Hey, Jack Yep.

Speaker Change: I think I mentioned, it but just maybe just to reiterate we are expecting it to be.

Speaker Change: Breakeven.

Jack Slevin: Okay. Awesome. Thanks, guys.

Speaker Change: EBITA for the CHS business by the end of 2025.

Brandon Sim: Thank you.

Operator: All right. Next up, we have Ryan Langston of TD Cowen.

Speaker Change: Okay awesome. Thanks, guys.

Speaker Change: Thank you.

Speaker Change: All right next up we have Ryan Langston TD coulon.

Ryan Langston: Hey, guys. Thanks for the time. Good evening. I guess just first, any high-level puts and takes on 2025 other than the CHS acquisition that just closed, that you would broadly point us to, we should be thinking about for modeling purposes?

Speaker Change: Hey, guys. Thanks for the time good evening I.

Speaker Change: I guess, just first any high level puts and takes on 2025 other than the CHS acquisition that just closed that you would broadly point is two we should be thinking about for modeling purposes.

Brandon Sim: I think, Ryan, the items would be our continued conversion to full risk as well as the growth of CHS. Those would be the two main items.

Ryan: I think Ryan.

Speaker Change: The items would be a continued conversion to full risk as well as the growth of <unk>.

Ryan Langston: Okay. Just real quick on the follow-up. Are you booking any economics in MSSP in Q3 or do we have any economics anticipated in the guidance for Q4? Thanks.

Speaker Change: CHS, but those would be the two main items.

Speaker Change: Okay, and then just real quick on the follow up are you booking any economics and M. S. S. P. In <unk> or do we have any economics anticipated in the guidance for <unk>. Thanks.

Brandon Sim: We don't have any economics in Q3 or associated with MSSP. As we said before, as we get more comfortable with the program, we'll get to a point where we can start accruing for it. But at this time, we are booking things on a cash basis. We would be booking our shared savings from the program in Q3 of next year.

Speaker Change: Okay.

Speaker Change: We don't have any economics, and three Q were associated with M. S. S. P.

Speaker Change: As as we've said before as as we get more comfortable with the program will get to a point, where we can start accruing for it but at this time, where we're booking things on a cash basis. So.

Speaker Change: We would be booking.

Speaker Change: Our.

Speaker Change: Our shared savings from the program in Q3 of next year.

Ryan Langston: All right. Helpful. Thank you.

Brandon Sim: Thanks so much.

Speaker Change: Alright helpful. Thank you.

Operator: All right. Next up, we have Adam Ron of Bank of America.

Speaker Change: Thanks, so much.

Speaker Change: All right next up we have Adam Ron of Bank of America.

Adam Ron: Hey, thanks for the question. I was gonna ask about 2025 as well. One thing you didn't mention or a couple things you didn't mention on the puts and takes for next year is, one, around Medicare. I know you've been doing a lot of work on risk adjustment, so curious if you think that is a material tailwind next year. Then also, Alignment's been calling out that this year there was unit cost pressure in Medicare Advantage that the government is fixing for next year through higher rates in the LA County. The 5% benchmark increase in Medicare Advantage, wondering if you think that's a significant tailwind. Then lastly on Medicare, are payers in your markets cutting benefits significantly?

Adam Ron: Hey, Thanks for the question I was going to ask about 2025 as well, but one thing you didn't mention a couple of things you had mentioned on the puts.

Adam Ron: Thanks for next year, it's one around Medicare.

Adam Ron: So I know you've been doing a lot of work on risk adjustment. So curious do you think that that is a material tailwind next year and then also alignment has been calling out that this year. There was a unit cost pressure in Medicare advantage.

Speaker Change: The government is fixing for next year through higher rates in the la counting sort of 5%.

Speaker Change: Benchmark increase in Medicare advantage wondering if you think that's a significant tailwind and then lastly on Medicare.

Adam Ron: All in on risk adjustment rates, benefit cuts, like, do you see significant MA margin expansion next year? On the headwind side, you kinda mentioned Medicaid redeterminations. We don't think it's gonna get fixed until 2025 and 2026, but I guess is it still a year-over-year tailwind? Thanks.

Speaker Change: Our payers in your market cutting benefits in these plays so all in on the risk adjustment rate benefit cuts like do you see significant.

Speaker Change: Margin expansion next year.

Speaker Change: And then on the headwind side, you kind of mentioned Medicaid Redetermination, we don't think it would be a fixed until 'twenty five 'twenty six, but that's still a year over year tailwind.

Brandon Sim: Hey, Adam, it's Brandon. Thanks for the question. Yeah, I apologize. That was not a completely fulsome list of puts and takes. You know, I think that's something we typically would guide towards later in the year. To answer your questions, I would agree with you that Medicare MOR has tailwinds associated with it, especially given, I think we alluded to it in the prepared remarks as well, or Chan Basho, when he answered the question, especially considering the concentration of members we have in certain counties such as Los Angeles, which have a larger benchmark adjustment. That adjustment not only impacts Medicare Advantage, but also the ACO REACH, as well. It's something that we expect to be a tailwind in Medicare Advantage. We continue to move members into full risk arrangements in Medicare Advantage.

Speaker Change: Hey, Brandon Thanks for the question, Yeah I apologize.

Completely fulsome list of puts and takes.

Speaker Change: No I think that's something we typically would guide towards later in the year, but to answer your questions.

I I would agree with you that.

Speaker Change: Medicare.

Speaker Change: MLR.

Speaker Change: Has tailwind associated with it, especially given I think we alluded to it in the prepared remarks as well.

Speaker Change: Or a time when he answered the question, especially considering the concentration of members we have in certain counties, such as Los Angeles, which have a large a larger benchmark adjustment and that adjustment not only impacts Medicare advantage, but also the EZ reach.

Speaker Change: As well so it's something that we expect to be a tailwind in Medicare advantage. We continue to move members into forest arrangements in Medicare advantage, that's part of the bridge towards getting us to that two thirds rates by January 1st 125, So there's going to be tier ones there as well.

Brandon Sim: That's part of the bridge towards getting us to that two-thirds rate by 1 January 2025. There's gonna be tailwinds there as well. Organic growth based on the new book of business in terms of CHS as well as our existing markets will continue to fuel growth. On the flip side, you know, those newer cohorts of members are gonna be probably a gross margin drag, you know, for some period of time. We've typically guided to around 2 years. New members can take, you know, can eat into profitability, relatively speaking. We also, as Chan mentioned, anticipate further Medicaid redetermination trends. Again, we're talking about a few hundred bps, you know, not, you know, 5, 10% necessarily, but still an impact and a headwind that we're looking at.

Speaker Change: And organic growth based on the new.

Speaker Change: Book of business in terms of senior trust as well as our existing markets will continue to feel growth on the tapes. Those newer cohorts of members are going to be probably a gross margin drag.

For some period of time, we've typically guided around two years. So you're members can take.

Speaker Change: Can eat into profitability.

Speaker Change: Relatively speaking we also as John mentioned and anticipate further Medicaid Redetermination trends again, we're talking about a few hundred bps.

Brandon Sim: you know, there are gonna be continued new market development costs going into next year, as well.

Speaker Change: You know not 5%, 10% necessarily but still an impact in that and the headwind that we're looking at them and you know theyre going to be continued new market development costs going into next year.

Brandon Sim: you know, there are gonna be continued new market development costs going into next year, as well.

Adam Ron: Okay. Kind of another cleanup question on ACO REACH. Is there any way you could update what's happened to your versus expectation? Thanks.

Speaker Change: As well.

Speaker Change: Okay.

Speaker Change: Okay, and then kind of a another.

Speaker Change: Cleanup question on pace. Your reach is there any way you could update what's happened this year versus expectation.

Brandon Sim: Hey, Adam. I'm gonna let Chan Basho, our CFO, answer this question. Thanks.

Speaker Change: Hey, Adam I'm going to let John <unk>, our CFO to answer this question. Thanks.

Chan Basho: Hey, Brandon. Hey, Adam. Great to hear from you. I think on the ACO REACH, we're in line with expectations and where we budgeted the program for the year.

Speaker Change: Hey, Brandon.

Speaker Change: Hey, Adam.

Speaker Change: Great to hear from you.

Speaker Change: I think on the ACO reach where were in line with expectations, and where where we budgeted.

Adam Ron: Awesome. Appreciate the question.

Chan Basho: Awesome. Appreciate the question.

Speaker Change: Sure.

Speaker Change: The program for the year.

Awesome I appreciate the question.

Adam Ron: Thank you.

Operator: All right. Next up, we have Zach Haggerty of KeyBanc. Your line is now open.

Speaker Change: Thank you.

Speaker Change: All right next up we have Zach Haggerty of Keybanc. Your line is now open.

Zachary Haggerty: Hey, good evening, guys. This is Zachary Haggerty. I'm for Matthew Gillmor. Just on the full risk, I think it was 61% for the quarter, where did you guys exit the quarter?

Zach Haggerty: Hey, Good evening guys. This is zach on for Omar.

Zach Haggerty: Just on the full risk I think it was 61% for the quarter, where did you guys exit of the quarter.

Brandon Sim: Oops, sorry. I was on mute. Hey, thanks for the question. I believe it was actually not far off from the 61%, but I will let Chan Basho confirm that number.

Speaker Change: Oh, sorry, I was on mute hey, thanks for the question.

Speaker Change: I I believe it was actually not far off from the 61%.

Speaker Change: But I will let John confirm that number.

Chan Basho: Hi. We have CHS coming on probably, I think, seven days into Q4. With CHS, we'll be exceeding that benchmark that we've set for us this year.

Speaker Change: Okay.

Speaker Change: Hi.

Speaker Change: So.

Speaker Change: We have CHS coming on probably I think seven days into this.

Speaker Change: Into Q4.

Speaker Change: So with with CHS will be exceeding that.

Brandon Sim: Just to be clear, the 61 did not include the CHS impact. The 61 was kind of the standalone number.

Speaker Change: That benchmark that we set for us this year.

Speaker Change: Just to be clear. The 61 did not include did not include the CHS impact.

Zachary Haggerty: Got it. Okay. Helpful. Just as my follow-up, I guess any update on the Anthem partnership for primary care clinics? I think you guys said last quarter that you were expecting to add a couple of clinics this year, you know, those on track, and I guess any early takeaways from the partnership so far.

Speaker Change: So the 61 was kind of a standalone number.

Speaker Change: Got it Okay helpful. And then just as my follow up I guess any update on the anthem partnership for primary care clinics I think you guys said.

Speaker Change: Last quarter that you were expecting to add a couple of clinics. This year are those on track and I guess any early takeaways from the partnership so far.

Brandon Sim: Yeah. We are continuing to evaluate new sites for a clinic. We have identified a site, and that's in progress as we speak. We also have now attributed a few thousand members to our first clinic, and so things seem to be going well. I think it still doesn't rise necessarily to the level of, you know, materiality, so to speak. I think as we continue to prove out the model, especially during this AEP period, we look forward to further expansion with our value partner.

Speaker Change: Yeah.

Speaker Change: Yeah, we are continuing to evaluate new sites for a clinic, we have identified a site.

Speaker Change: And that's in progress as we speak.

Speaker Change: We also have now accumulated a few thousand members to our first clinic.

Speaker Change: And so things seem to be done quite well.

Speaker Change: I think it still doesn't rise necessarily to the level of materiality.

Speaker Change: Reality, so to speak but I think as we continue to prove out the model, especially during this AEP period, we look forward to further expansion with our valued partner.

Zachary Haggerty: Appreciate the time, guys.

Chan Basho: Thanks.

Operator: All right. It looks like our final question in queue comes from David Larsen of BTIG.

Speaker Change: I appreciate the time, yes.

Speaker Change: Thanks.

Speaker Change: Oh, right and it looks like on the final question in queue comes from David Larsen of D. T I G.

David Larsen: Hi. I think you had about 30% of members in full risk. What could you get that up to over, say, 2.5 or 5 years? Could that get up to 60%? What kind of revenue impact would that have on your overall book of business? Thank you.

Speaker Change: Hi, I think you.

Speaker Change: You have about 30% of members in full risk what could you get that up to over say, two and a half or five years could that get up to 60%.

Speaker Change: What kind of revenue impact would that have on your overall book of business. Thank you.

Chan Basho: Hey, David. Great to hear from you. In terms of our book of business and where we think we can go long term, I think we're always gonna have a portion of our business not in full risk, as we continue to grow, as we continue to evolve, it takes time for ecosystems to get to a point where we feel comfortable. There's also certain lines of business where it may not make sense. I'd probably go to maybe 50% long term, to kind of go to your question relative to the 30% that you laid out.

Speaker Change: Hey, Dave good to hear from you.

Speaker Change: In terms of our book of business and where we think we can go long term.

Speaker Change: I think we're always going to have.

Speaker Change: A portion of our business not in full risk.

Speaker Change: Because.

Uh huh.

Speaker Change: As we continue to grow as we continue to evolve.

Speaker Change: It takes time for ecosystems to get to a point, where we feel comfortable and and there is also certain lines of business, where it may not make sense.

Speaker Change: I I'd probably go to maybe.

<unk>, 50% long term.

Speaker Change: But to kind of go to your question relative to the 30% that you laid out.

David Larsen: Okay. Just any sense for what kind of revenue lift that could imply?

Speaker Change: Okay, and then just any sense for what kind of revenue lift that could imply.

Chan Basho: I think it's gonna be pretty significant. I don't wanna kinda box myself in a number here.

Speaker Change:

Speaker Change: I think it's going to be pretty significant.

David Larsen: Okay.

Chan Basho: I'd probably leave it at that.

Speaker Change: I don't want to kind of box myself and a number here so.

David Larsen: Sure. Sure.

Chan Basho: Because, you know, it depends on line of business. It depends on geography. There's just so many factors. I wouldn't be doing the question justice if I just took a swing at it. It's a great question.

Probably leave it at that sure.

Speaker Change: Sure sure no it depends on line of business it depends on.

Speaker Change: Geography that there's there's just so many factors I wouldn't be doing my question Justice. If I just took a swing at it it was a great question.

David Larsen: Yep. Can you just provide some color around, like, 2025, I guess, premium increases by your health plan partners? They're usually like in, let's call it, the mid to high single digit range. Will Astrana benefit from that? Will you capture a portion of that? Just any thoughts there would be helpful. Thank you.

Speaker Change: Yes, and then and then can you just provide some color around like 2025.

Speaker Change: Premium increases by your Health plan partners do you usually like in let's call. It a mid to high single digit range, well, Australia benefit from that.

Brandon Sim: Are you speaking specifically about MA?

Chan Basho: Are you speaking specifically about MA?

Speaker Change: We can capture a portion of that just any thoughts there would be helpful. Thank you.

David Larsen: Yes.

Brandon Sim: Puts and takes there as we one of our counties with a large majority of our members, LA County, has fee-for-service benchmarking increases, as Brandon was mentioning before, that will help in terms of overall rates. We have certain plan partners where star ratings are going up in terms of paid star ratings, and we also do have some other plans that are going down, so it's a bit of a wash. We've seen slightly improved benefits year-over-year, and we have the full V28 kind of flowing in to the models.

Speaker Change: Are you speaking specifically about MMA.

Chan Basho: Puts and takes there as we one of our counties with a large majority of our members, LA County, has fee-for-service benchmarking increases, as Brandon was mentioning before, that will help in terms of overall rates. We have certain plan partners where star ratings are going up in terms of paid star ratings, and we also do have some other plans that are going down, so it's a bit of a wash. We've seen slightly improved benefits year-over-year, and we have the full V28 kind of flowing in to the models.

Speaker Change: Yes.

Speaker Change:

Speaker Change: So puts and takes there as we one of our counties with a large majority of our members L. A county has FIFA.

Speaker Change: Fee for service benchmarking creases as Brendan was mentioning before that will help in terms of overall rates. We have certain plan partners, where star ratings are going up in terms of.

Speaker Change: Paid.

Speaker Change: Our star ratings.

Speaker Change: And.

Speaker Change: We also do have some other plants that are going down so it's a bit of a wash.

Speaker Change: We've seen.

Speaker Change: Slightly.

Speaker Change: <unk> benefits.

Speaker Change: Year over year.

Speaker Change: And and we have the full kind of.

Speaker Change: The full.

David Larsen: Okay. It's very helpful. Then, Brandon, just one last quick one.

Speaker Change: The 28 kind of flowing in to the model.

Brandon Sim: Sorry, two-thirds of V28 flowing in. In terms of a net basis, I'd say we're looking at revenue being maybe flat to maybe a couple basis points below, but I don't see any material changes.

Speaker Change: Oh, Okay. That's very helpful. And then Brandon I'm, sorry quick one sorry to two thirds would be 28 floating and so on in.

Speaker Change: In terms of a net basis.

Speaker Change: I'd say.

We were looking at revenue being maybe.

Speaker Change: Flat to maybe a couple basis points below but I don't see any material changes.

David Larsen: Okay. Brandon, one of the questions I'm asked all the time is, you know, your technology infrastructure, how are you able to drive good margins when a lot of your peers are very challenged in the space, especially in the MA space? Can you maybe just highlight the tech infrastructure, just any color or thoughts or updates there on your ability to sort of, in a very timely way, identify what your cost trend is, how that's different from some of your peers? Just, yeah, any more color there would be great. Thank you.

Speaker Change: Okay and then.

Speaker Change: Brian one of the questions I'm asked all the time as you know your technology infrastructure. How are you able to drive good margins when a lot of your peers are very challenged in the space, especially in the MA space can you maybe just highlight the tech infrastructure, just any color or thoughts or updates there on your ability to.

Speaker Change: Sort of in a very timely way identify what your cost trend is how that's different from some of your peers.

Brandon Sim: Hey, Dave. Thanks for the question. You know, we've always been fairly adamant about building out some purpose-built tools internally in order to ensure that we can operate our value-based care platform appropriately in terms of cost and managing that cost. For example, I think one of the biggest items we've spoken about on these calls is the fact that we operate primarily in a delegated environment, not only in terms of delegated financial risk, but also in terms of delegated services that we provide, which are payer-like in nature. Our ability to process, approve, and deny prior authorization requests in a real-time fashion, our ability to process claims and build our own networks and ensure that we're able to manage those networks appropriately, is part of the model.

Speaker Change: And just any more color there would be great. Thank you.

Speaker Change: Hey, Dave Thanks for the question.

Speaker Change: We've always been fairly adamant about building out some purpose built tools internally in order to ensure that we can operate our value based care platform appropriately in terms of cost and managing that cost. So for example, I think one of the biggest items. We've spoken about on these calls is the fact that we operate primarily in the delegated environment.

Speaker Change: Not only in terms of delegated financial risk, but also in terms of delegated services that we provide which are payer like in nature and so our ability to process a proven deny prior authorization requests on a real time in a real time fashion our ability to.

Speaker Change: Process claims and build their own networks and ensure that we're able to manage those networks appropriately is.

Brandon Sim: I think the other part I talked about in an earlier response to a question, I believe, in terms of minimizing variance when appropriate, in terms of clinical protocol and clinical care management, while still allowing the flexibility for local care teams to express that view, so to speak, into their local communities as appropriate for those communities. I think it's a combination of those two as the core kind of pillars. I always hesitate, you know, to bring this up, but, and I think in a future quarter we'll discuss this a little more. We are also finding some pretty interesting uses for AI in our technology stack, ranging from patient summaries to prior auth automations to even claims automation. That's something we think is more of a 25 factor.

Speaker Change: As part of the model and then I think the other part I talked about it in your earlier response to a question I believe in terms of minimizing variance when appropriate in terms of clinical protocol clinical care management.

Speaker Change: While still allowing the flexibility for local care teams to express that view so to speak into their local communities as appropriate for those communities. So I think that's.

Speaker Change: It's a combination of those two is a core kind of pill.

Speaker Change: I always hesitate to bring this up but.

Speaker Change: And I think in a future quarter will discuss this a little more but we are also finding some pretty interesting uses for for AI in our technology stack ranging from.

Speaker Change: In summary, two prior Roth automation to even claims automation.

David Larsen: That's very helpful. Just one more quick one. Some of the plans have talked about higher inpatient acuity, is the way that they described it. In my mind, what that means is because of the Two-Midnight Rule, there are fewer observation cases, and those cases are counted as inpatient cases, which result obviously in a higher cost. Some have also talked about higher specialty trend, possibly because of the Inflation Reduction Act and the coinsurance and catastrophic coverage plan design. There's basically less out-of-pocket costs for the members, which is increasing specialty spend. Are you seeing any of this in your book? Is this weighing on your margins at all or not really?

Speaker Change: It's something we think is more of a 'twenty five factor.

Speaker Change: That's very helpful. And then just one more quick one some of the plans have talked about.

Speaker Change: Higher inpatient acuity is the way to describe it.

Speaker Change: My mind, what that means is because of the two midnight rule. There are fewer observation cases in those cases are counted as inpatient cases, which result, obviously in a higher cost and then some have also talked about higher specialty trend, possibly because of the inflation reduction act and the coinsurance and catastrophic coverage plan design. These basically less out of pocket.

Speaker Change: For the members, which is increasing specialty spend.

Speaker Change: Are you seeing any of this in your in your book is this weighing on your margins at all or not really.

Brandon Sim: That's a great question. We have never really taken advantage of some of the maybe margin prior to the Two-Midnight Rule. I think others have spoken about this as well, but given the contracting landscape and the healthcare ecosystem in California, that's not really as much of a factor, frankly. When that happened, it also was not much of a factor for us. It has not really been a drag on margin really at all, in our experience. On some of the other items, that's something that's kind of a constant balance that we work with the plans in order to figure out how we design a benefit package, how we design a formulary and then copay and otherwise.

Speaker Change: That's a great question.

Speaker Change: We have never.

Speaker Change: Really taken advantage of some of the.

Speaker Change: Maybe margin.

Speaker Change: Prior to the two midnight rule.

I think others have spoken about this as well, but given the contracting landscape.

Speaker Change: The health care ecosystem in California that is not really as much of a factor.

Speaker Change: Factor are frankly, and so when that happened. It also was not much of a factor for us and it has not really been a drag on margin really at all in our experience.

Speaker Change: Other items, that's something that's kind of a constant balance that we work with with the plans in order to figure out how we design the benefit package, how we design our formulary and then Okay. Then otherwise kind of all have to go together to ensure that costs are not spiraling out of control for one reason or another I also did mention earlier.

Brandon Sim: Kind of all has to go together to ensure that costs are not spiraling out of control for, you know, one reason or another. I also did mention earlier partially the limitations of risk on things that we can and cannot control. We are, at the end of the day, not a plan despite partnering with some plans to create some provider specific plans or offerings. I would say overall for the items that you mentioned, we don't view those as large risks to the business and we haven't experienced them as a large headwind so far this year.

Speaker Change: Lady.

Limitations of risk on things that we can and cannot control. We are at the end of the day not a plan despite partnering with some plans to create some provider specific.

Speaker Change: Uh huh claims or offerings.

Speaker Change: But.

Speaker Change: I would say overall for the items that you mentioned.

Speaker Change: We don't see those as large risks to the business and we have an experienced them as a large headwind so far this year.

David Larsen: Okay. Thanks, Rush. Appreciate it.

Brandon Sim: Thank you.

Speaker Change: Okay. Thanks, very much I appreciate it.

Operator: All right. At this time, there are no further questions in queue.

Speaker Change #100: Thank you.

Brandon Sim: All right. Thank you everyone for joining our Q3 2024 earnings call. We look forward to seeing you again next quarter. If you are ever in Los Angeles or Las Vegas, we remain open to meet with you, in person. Thank you again, and have a good evening.

Speaker Change #101: Alright, and at this time there are no further questions in queue.

Speaker Change #101: Alright. Thank you everyone for joining our third quarter 2024 earnings call. We look forward to hearing seeing you again next quarter and if you are ever in Los Angeles or Las Vegas.

Speaker Change #101: We remain open to meet with you in person. Thank you again and have a good evening.

Operator: With that, ladies and gentlemen, this does conclude your call. You may now disconnect your lines. Thank you again for joining us today.

Speaker Change #102: And with that ladies and gentlemen that does conclude your call. You may now disconnect your lines and thank you again for joining us today.

Q3 2024 Astrana Health Inc Earnings Call

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