Q3 2024 P3 Health Partners Inc Earnings Call
i
Speaker Change: Good day and welcome to P3 Health Partners third quarter 2024 earnings call.
All participants will be in listen-only mode.
Speaker Change: Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star, then 1 on your telephone keypad.
Speaker Change: To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the comments over to Ryan Halsted. Please go ahead. Thank you, Operator, and thank you for joining us today.
Ryan Halsted: Before we proceed with the call, I would like to remind everyone that certain statements made during this call are forward-looking statements under the U.S. federal securities laws, including statements regarding our financial outlook and long-term target.
Ryan Halsted: These forward-looking statements are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations.
Ryan Halsted: These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations.
Ryan Halsted: Additional information concerning factors that could cause actual results to differ from statements made on this call is contained in our periodic reports file with the SEC.
Ryan Halsted: The forward-looking statements made during this call speak only as of the date hereof, and the company undertakes no obligation to update or revise these forward-looking statements.
Ryan Halsted: We will refer to certain non-GAAP financial measures on this call, including adjusted operating expense, adjusted EBITDA, adjusted EBITDA per member per month, medical margin, medical margin per member per month, medical margin per member per month for persistent lives and cash used.
Ryan Halsted: These non-GAAP financial measures are, in addition to, and not a substitute for or superior to the measures or financial performance prepared in accordance with GAAP.
Ryan Halsted: There are a number of limitations related to the use of these non-GAAP financial measures. For example, other companies may calculate similarly titled non-GAAP financial measures differently.
Ryan Halsted: Please refer to the appendix of our earnings release for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures.
Speaker Change: Information presented on this call is contained in the press release that we issued today and in our SEC filings, which may be accessed from the investors page of the P3 Health Partners website. I will now turn the call over to Aric Coffman, CEO of P3 Health Partners.
Thank you very much.
Thanks, Ryan. Good afternoon and thank you for joining us.
Speaker Change: Today I'll cover several key topics, the broader Medicare Advantage landscape, our third quarter 2024 results, and why I'm excited for 2025. We'll go through the tangible steps we are taking to advance the initiatives we outlined in August, and this will set up P3 for success going forward.
Speaker Change: Before addressing this quarter's results, I want to provide some perspective. As you have heard from our peers and MCOs, we are in a unique time. It won't persist forever, and it will pass.
Speaker Change: What we do now to set up P3 for success coming out of this environment is a key focus of mine and our leadership team.
Speaker Change: We have a plan in place and are executing on it now. It includes $130 million plus of initiatives that will positively impact EBITDA and cash flow.
Speaker Change: The benefits will begin to be seen in Q4 and more prominently in 2025 as it is phased in.
Speaker Change: The overall sector is facing pent-up demand post-COVID for healthcare services.
Speaker Change: It is in this type of environment that value-based care is in most need by our health plan partners.
Speaker Change: The demand for P3's value-based care platform is there, and I am a strong believer that value-based care is the answer to bending the cost curve long-term and solving our societal issues.
Speaker Change: Our Q3 report includes updated insights from our payers and a fresh perspective from our new CFO, Wade Peterson.
Speaker Change: Regarding elevated medical utilization, we haven't seen it across the board, whether at the provider or health plan level. It's isolated whether in Part B or certain health plans that experience adverse selection via benefit design.
Speaker Change: During the quarter, we actually saw improvements in Part A costs, but like our peers in the sector, we faced headwinds in Part B expenses and significant retroactive adjustments, which added to the complexity of our quarterly results.
Speaker Change: Retroactive adjustments added up to thirty five million dollars and this was the majority of the EBITDA miss.
Speaker Change: We did see elevated medical utilization of approximately 5 to 10 million versus historical trends, particularly tied to benefit design, which we expect to be mitigated in 2025 through benefit design changes indicated by our payer partners.
Speaker Change: Now is the time to maintain our competitive edge, improve performance, and move toward profitability.
Speaker Change: Over the past six months, we've had the opportunity to conduct a thorough assessment of the entire organization. We've already set several initiatives in motion, and we have concrete plans to guide our business towards sustainable growth.
Speaker Change: As we look ahead to 2025 and beyond, there are several reasons for optimism.
Speaker Change: And I'm enthusiastic about our path forward. Although we are not providing a formal outlook today, LAIF and I will provide directional comments. The $130 million plus of improvement opportunities are in four key areas.
Speaker Change: Number one, contracts. We are enhancing our payer and provider networks and terms to strengthen collaboration and expand opportunities.
Speaker Change: Number three, operating efficiency. These measures will enhance service delivery while saving on operating costs. And finally, number four, data and analytics. We are advancing our capabilities to better support decision-making and outcomes through changing our structures and adding new capabilities such as Innovator.
For more information, visit www.fema.gov
Speaker Change: As we look ahead, we see several favorable dynamics. The Medicare Advantage repricing cycle and benefit design changes are expected to serve as a catalyst for P3's profitability in 2025. Medicare Advantage has a built-in mechanism for adapting to market shifts.
with a relatively short repricing cycle.
Speaker Change: We expect CMS's benchmarks will be recalibrated to reflect the ongoing elevated utilization.
Speaker Change: In addition, many of our health plan partners have taken actions during the 2025 bid process to target margin recapture.
Speaker Change: As part of this, it is expected that planned benefits will be less robust in 2025, which we anticipate will result in decreased utilization. We are working closely with our payer partners to quantify the impact of the benefit design changes for 2025.
Speaker Change: We continue to see demand for P3's capabilities, as evidenced by the recent signing of an agreement with the largest health system in Southern Nevada to create a CSOC, or a clinically integrated system of care, in Q3.
Speaker Change: Finally, our value-based care enablement platform and affiliate model remains intact.
Speaker Change: For example, a highly engaged partner in Oregon has seen a 40% improvement in coding and documentation accuracy while doubling its membership.
Speaker Change: We are confident in the underlying value that P3 provides and are focused on execution, albeit with a more measured and narrowed focus given the macro environment and its impact on our results.
Speaker Change: An analysis of our fully matured market performance shows we have half of our markets in which there are greater than 80% of membership with positive medical margin.
Speaker Change: The other half of markets had less than 50% of membership with a positive medical margin. Part of the network and payer rationalization measures we have taken are related to these differences.
Speaker Change: I will now pivot to highlight the progress on our initiatives, which will accelerate our path to profitability and cash flow generation.
Speaker Change: With a focus on sustaining long-term relationships with our value-based care network, we are in discussions with multiple regional and national payers to provide P3 and our partners with a series of adjusted favorable economic terms.
Speaker Change: In the cases where the path to sustainable profitability has become too elongated, we expect to exit those underperforming relationships.
Speaker Change: Our close collaboration with payers and physicians provides us with the flexibility to adapt in situations where both P3 and our physician partners are not achieving success.
Speaker Change: In some cases, we can mutually decide to wind down our operations. Overall, we are pleased with the progress we've made with the payers and are pursuing additional contract enhancements for 2024 and 2025 as appropriate.
Speaker Change: After careful evaluation, we've trimmed 63 of our provider tax ID numbers or TINs to help us enhance profitability and ensure sustainable margins.
Speaker Change: We have also trimmed our payer network by 20%, which will simplify our operations. For these markets where internal targets were not met, we are adjusting our strategy to focus on increased density within existing markets and existing practices.
where we have higher performing networks.
Speaker Change: Next, we are focusing on providing our physicians with adequate resources to engage our members in standardized care delivery practices through an enhanced evaluation of disease burden.
Speaker Change: We are also working to curb utilization in high-cost areas, which we believe is essential for improving outcomes and optimizing costs. In 2024, we launched a new program to enhance the awareness of palliative and hospice benefits for our patients.
Speaker Change: We moved from less than 1% enrollment in 2023 to 2.3% today, with a goal of 4% of the total population in 2025, consistent with a well-run population health approach.
Speaker Change: By expanding these care programs, we are providing comprehensive patient-centered support that addresses the needs of individuals with serious illnesses, leading to higher satisfaction and reduced hospitalizations.
Speaker Change: From a data visibility standpoint, our partnership with Innovator is on track for full implementation in 2025.
Speaker Change: We plan to lean further into these tools to better serve our payer partners.
Speaker Change: The advanced analytics and data platform enables the aggregation and unification of disparate health plan data.
Speaker Change: We can then identify the most complex patients and efficiently benchmark these patients relative to the clinical care guidelines and best practices.
Speaker Change: Additionally, the engagement tool is a sophisticated solution for physicians to seamlessly close care gaps and improve coding accuracy at the point of care.
Another important area of focus is enhancing operating efficiency.
Speaker Change: We've strategically adjusted our approach to geographic expansion, aligned with our emphasis on expanding density within existing markets. By concentrating our efforts in established areas, we're able to foster strong provider engagement and implement more effective utilization management.
Speaker Change: In closing, I want to highlight a few key takeaways. First, P3 is proactively navigating a transition period that is affecting the broader Medicare Advantage industry and our company.
Speaker Change: However, P3 and the industry, including CMS and our health plan partners, are actively adjusting to this new environment.
Speaker Change: Many of our health plan partners have emphasized, more than ever before, the demand for more value-based care alignment with providers in order to better control medical costs and preserve margin.
Speaker Change: Our conviction remains high that our value-based care platform is well positioned to capitalize on these opportunities, albeit with a more measured approach.
Speaker Change: Second, we're taking decisive steps to elevate our performance in this dynamic landscape.
Our strategy is two-pronged.
Speaker Change: On the financial front, we've ensured appropriate reserves as we exit 2024 and have recalibrated our step-off point to reflect the misalignment between the timing of high utilization and the benefit design changes anticipated in 2025.
Speaker Change: On the operational side, we're implementing initiatives with a focus on achieving best-in-class execution in areas directly under our control.
Speaker Change: Finally, I would like to formally introduce Leif Peterson, our CFO. We previously worked together at a value-based care predecessor company, the P3 Health.
and I look forward to the continued collaboration. Leif.
Leif Peterson: Thanks Aric. Before diving into third quarter results, a few thoughts on my transition into the organization.
Leif Peterson: First and foremost, I'm thrilled to be part of the P3 leadership team.
Leif Peterson: P3 is a great company with extraordinary people and tremendous upsides. I was drawn to P3's affiliate model because I've seen it work well. It's a proven model to bend the cost curve.
Leif Peterson: The company's smaller size and entrepreneurial culture, along with a chance to make a significant impact in transforming healthcare delivery, were extremely compelling.
Leif Peterson: Additionally, my previous experience working with Eric and Bill and knowing the deep experience of Amir and the rest of the P3 leadership team have helped to facilitate the move.
Leif Peterson: I've now been in this role for just over two months, and my focus over that time has been centered around three areas. One, gaining a comprehensive understanding of P3's financials.
Leif Peterson: 2. Ensuring continuity across operations, and 3. Identifying opportunities for efficiencies.
Moving to the financial information.
Leif Peterson: Our third quarter top-line performance was in line with our expectations, with capitated revenue of $357.7 million and total revenue of $362.1 million, representing a 26% year-over-year growth.
Leif Peterson: This growth was primarily driven by two factors. First, our member base expanded significantly, growing by 22% compared to last year, and now exceeding 128,900 members.
Leif Peterson: Second, we saw a notable increase in our funding, which rose by approximately 6% year over year.
Leif Peterson: Our medical margin was $540,000, or $1 on a PM-PM basis, while our adjusted operating expenses were flat on a year-over-year basis.
Leif Peterson: Adjusted EBITDA loss for the quarter was $71 million or $184 on a PM-PM basis.
Leif Peterson: Our third quarter medical margin adjusted EBITDA results were driven by an incremental $5-10 million in medical claims costs and approximately $35 million of retroactive adjustments.
Speaker Change: Let me take a moment and provide additional information on the retroactive adjustments.
Speaker Change: Firstly, during Q3, we had an opportunity to review year-to-date revenue expectations associated with risk adjustment accruals.
Speaker Change: Based on current risk factors and lower-than-expected performance, we felt it was appropriate to write down mid-year risk adjustment receivables, contributing $15 million of negative adjusted EBITDA.
Speaker Change: Secondly, similar to the challenges highlighted by several of our managed care and value-based care peers,
Speaker Change: Healthcare utilization was elevated in the third quarter. As a result, our medical expenses for the quarter experienced headwinds associated with negative prior period development that was not previously anticipated.
Speaker Change: The uptick in utilization we experienced was primarily within our Part B medical claims, whereas Part A utilization trends have been stable.
Speaker Change: Negative medical claims development contributed about $10 million additional expense during the quarter.
Speaker Change: We expect this elevated utilization environment to be mitigated in 2025 through favorable benefit design changes and other factors.
Speaker Change: Lastly, third quarter 2024 results experienced approximately $10 million of negative impact within our network and operating expenses.
Speaker Change: The increase in cost was related to, A, unexpected prior year and in-year retroactive adjustments.
Speaker Change: B, revision of current year run rates, and C, increased operating expenses associated with higher professional fees supporting our operations as a public company, and a non-income based tax adjustment.
Speaker Change: Turning to the balance sheet, P3 ended Q3 with approximately $63 million of cash.
Speaker Change: Cash flow from operations for the quarter was approximately negative $20 million.
Speaker Change: As we think about the remainder of 2024, we expect the increased medical cost drivers to continue through the end of the year.
Directionally, when adjusting for any prior year impacts.
Speaker Change: We believe the adjusted EBITDA step-off point for the business is closer to an annualized quarterly $30 million loss run rate versus the $70 million that was reported in Q3 before the impact of our strategic initiatives flow through.
Speaker Change: We are currently building our detailed 2025 financial operating plan and we'll share that in early 2025. Establishing credibility and earning your trust is one of my top priorities as the new CFO of P3.
Speaker Change: The leadership team and I are focused on setting reliable targets that reflect the current market landscape and are predictable and achievable.
while also providing opportunities for outperformance.
Speaker Change: We are highly focused on executing in key areas that we reviewed to capture in excess of a hundred and thirty million of incremental opportunity.
Speaker Change: Approximately 60% of the total identified opportunities are related to enhanced evaluation of chronic disease burden.
Speaker Change: Another 25% of the total opportunity is identified through payer and provider network rationalization.
Speaker Change: And the remaining 15% of opportunity lies in operating efficiencies, which are currently underway.
Speaker Change: As we execute on our value opportunity roadmap, we want to underscore that 2025 is poised to be a transformative year for the company. With that, I'll turn it over to Amir.
Amir: As Aric alluded to, in many ways we have been seeing a perfect storm of overall medical costs and utilization increases.
Amir: Whether due to increased demand of clinical services post COVID, plan benefit changes leading to higher costs, significant increased usage of Part B medications, and CMS rule changes making it harder to manage costs.
Amir: With this as a backdrop, let me spend a little more time discussing some of the main cost drivers and corresponding metrics.
Amir: Over this last quarter, we have indeed seen an increase in medical expenses, especially around Part D utilization.
Amir: This was driven by many factors, increased Part B drug utilization,
Amir: increased outpatient specialty costs, oncology and ophthalmology to name just two.
Amir: Pockets of increased emergency room use and observation utilization, especially in rural Arizona. And higher unit costs for observation status seen in all markets due to the reimbursement changes related to overnight stays, commonly referred to as the two midnight rule.
Amir: In fact, we've seen a 40% increase in emergency department costs related to the Two Midnight Rule, while also seeing higher pass-through costs from our health plan partners for supplemental benefits like dental.
Amir: Despite the pockets of increased utilization, both Emergency Department admits-per-thousand numbers and observation-per-thousand numbers have remained relatively flat through the first half of 2024 at approximately 380-per-thousand and 44-per-thousand respectively.
Amir: Part A utilization has also been flat with an emit per thousand rate of 153 for the first half of 2024 versus 159 for 2023.
Amir: High-cost claims greater than $50,000 rose 23% year-over-year with Part B oncological medications and treatments leading the way.
Amir: Part D expenses have increased 13% during the first half of 2024, but this is in part is due to the delay in receiving Part D rebates from our plan partners.
Amir: In regards to quality, our health plan partners have suffered from the new CMS star rating changes, with many of them being vocal about the impact.
Amir: This has led to significant increases in CMS quality thresholds, but despite these changes, P3 has mitigated the impact through increased month-over-month gap closures from 2023 to 2024.
Amir: Because of these performance issues on cost increases and headwinds for quality coding documentation.
Amir: P3 will narrow and rationalize our PCP networks to focus on those that are more engaged to perform in value-based care.
Amir: For our providers, they will see more boots on the ground to improve visit access, aid in comprehensive evaluations and education, on appropriate documentation of disease and quality gap closures, while also having the data necessary to know their high-risk patients, preferred specialists, and overall performance.
Amir: From a technology standpoint, we now have the ability to directly work within our PCP electronic health records to help guide them for more comprehensive care, making their work easier and more expeditious.
Amir: Lastly, we have new focused programs to help our providers with palliative and hospice care for our most sickly patients and new pharmacy interventions for our high-risk and polypharmacy patients.
Amir: Clinically, we continue to see significant upsides with our engaged providers and we look forward to an improved fourth quarter and a strong start to 25.
Speaker Change: With that, I'll pass it back to you, Aric, for closing remarks.
Aric Coffman: Thanks, Amir. We acknowledge that 2024 has presented significant challenges across our sector, including P3. Many of our health plan partners have emphasized, more than ever before, the demand for value-based care alignment with providers in order to better control medical costs and preserve margin.
Aric Coffman: I am a strong believer that value-based care is the answer to bending the cost curve long-term in solving our societal issues.
Aric Coffman: Underpinning our near and long-term success will rest in our ability to seamlessly serve our physician partners and their patients.
by focusing our investments through stratification of the opportunities.
Aric Coffman: Our partners will experience a refreshed approach to executing on the model across people, process, and technology.
Aric Coffman: As we cover today, we are making the tough decisions and taking the necessary steps to address these issues.
Aric Coffman: Our team has implemented decisive measures this quarter, and we are continuing to execute in our key areas of focus.
Aric Coffman: We are confident that these efforts will lead to improved performance versus our 2024 Jumping Off Point, and we look forward to sharing updates on our progress as we finalize and implement these actions over the coming quarters.
With that, let's turn to Q&A.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Thank you. Thank you.
Thank you. Thank you.
Speaker Change: And our first question comes from Brooks O'Neill with Lake Street Capital Markets. Please go ahead.
Speaker Change: Good afternoon everybody. I guess I just have one basic question which is I heard Leith
Speaker Change: described 63 million of cash at the end of the quarter and about a 20 million cash flow deficit from operations. Can you just...
Speaker Change: Talk to us about how you see your capital availability to execute some of the things you talked about doing on this call.
For more information, visit www.fema.gov
Speaker Change: Yeah, Brooks, thanks for the question. And just to reiterate, we did end the quarter with $63 million of cash.
Speaker Change: which supports our core operations and our strategic growth initiatives. And as you mentioned, we did experience negative operating cashflow for the quarter of about $20 million, which is consistent with kind of our 2024 run rate.
Speaker Change: We're continuing to actively monitor our cash burn rate and really focusing on optimizing working capital and driving towards that cash flow positivity.
Speaker Change: As we think about the initiatives we laid out, that will play an impact into how we look at cash moving forward and when the realization of some of those initiatives actually turn to cash.
Speaker Change: We're confident in our ability to maintain liquidity and with access to potential credit facilities and or strategic financing options if required.
Thank you very much.
Okay, thank you very much.
Thanks, Brooks.
Speaker Change: Next question comes from Josh Raskin with Neffron Research. Please go ahead.
Josh Raskin: Hi, thanks a couple. I'm going to ask a similar question to Brooks there. I heard at the end, you're confident in your ability to maintain liquidity, including strategic financing options. Are you pursuing additional capital raised in the fourth quarter? Is this an immediate need?
Speaker Change: Now, right now we are not pursuing that immediately, and we are in the process of just evaluating our overall cash position in light of some of the initiatives that I just spoke about earlier.
Speaker Change: Okay, and then second question, I heard an improvement in EBITDA off of the
Speaker Change: The 2024 stepping off point, which I believe you defined is.
Speaker Change: $30 million a quarter. So something better than a loss of $120 million next year. Could you just tell a little bit more about the top line? I heard a lot of conversation around reducing risk exposure, maybe even revenues. Do you think 2025 revenues are down next year? Is that the direction that we should be thinking about?
Speaker Change: There's going to be a few puts and takes next year as we think about revenue. As you think about kind of how we laid out our opportunities for 2025 across
Speaker Change: Our payer and provider rationalization. So there will be as we rationalize that a slight reduction of membership
Speaker Change: that will come associated with a reduction of revenue. But to correspond and to offset that will be increases from an operating perspective on our ability to execute on our chronic condition coding and documentation.
Okay, so I'm not an ad funder.
Speaker Change: Okay, yeah, I would just say I would expect there to be some
Speaker Change: revenue Decrement from where we are today in aggregate because of the network and pair changes that we've made We will further quantify that and we won't have full numbers obviously until we get through open enrollment to see what growth we had in the in the practices that were and the pairs that we're continuing with
Speaker Change: But ballpark, you know, ballpark, we're looking at, you know, probably 20,000 members have been impacted by network rationalization, some of the changes we made with payers, if that helps.
Speaker Change: Yeah, no, that's super helpful. I just that that makes more sense that you've got a hundred and thirty ish thousand Maybe twenty you're gonna go away. It seemed sort of impossible to make that up in terms of
Speaker Change: Care Management coding and things like that. And then just lastly, I heard the 130 million of these potential improvement opportunities, and maybe 60% enhanced chronic disease and then
Speaker Change: Unknown Speaker 25% is just kind of getting rid of bad provider rationalization and the operating vision. But can we just get some more specifics, maybe even on that 60% that relates to the chronic disease? Can you give us some examples of how you feel like you're bending the cost curve? What immediate improvements how much that gets?
Speaker Change: you know, realized in 2025, just on the chronic disease, the big chunk of it.
Speaker Change: Yeah, Josh Hayes, this is Amir. So a number of things that we're looking to do and implement as we move forward, and a lot of it is when we're talking about operational efficiency, is to put more boots
Speaker Change: on the ground to directly work with those providers that are driving value.
Speaker Change: So, when we look at the majority of our providers that are driving value, we know they need some more tools and or information, whether it's from a care management standpoint, education from documentation and coding, since you already know, our coding, as we've seen it in P3 today, is decent, but has a lot of opportunity to continue to grow.
Speaker Change: As you knew from the beginning of last year, we ran overall numbers of just slightly over 1.0, 1.02, things like that, that we had significant upside on that number.
Speaker Change: And that will happen in about 15% of our population with the scaling we're looking to do. So all those things should bring that value in that 60%.
For more information, visit www.fema.gov
Okay, thank you.
Speaker Change: and Joshua Cesare. Just to add to that, you know, some of these things are already in motion.
Speaker Change: And so, you know, the 15% of the population that Amir was referring to there.
Speaker Change: Those are patients that we've actually gotten through with a new tool.
with a point-of-care solution.
Speaker Change: That's actually integrated into the EMR and taking data from claims as well as through an algorithm.
Speaker Change: to help those clinicians not only on chronic conditions, but also closing additional gaps in care and quality measures.
Speaker Change: So that's live, and that launched a couple of months ago. We're now up to, you know, 13 clinics that we've launched that through, and we have a scaling plan with a partner that's helping us with that work.
Speaker Change: to get out into the broader marketplace. And that's ongoing. That'll be through 2025. But we feel confident with their support and what we're doing here that will hit a substantial proportion of the patients.
Understood, understood. That's awesome. Thanks again, Eric.
You're welcome.
For more information, visit www.fema.gov
Speaker Change: And the next question comes from David Larson with BTIG. Please go ahead.
Speaker Change: Hi, this is Jenny Shen on for day. Thanks for taking my question. First, just looking at the MCR, we have seen it start to come down sequentially since 4Q of last year.
Speaker Change: Some of the higher costs that you mentioned for Part B make sense to us, but why was there such a huge spike in the quarter? Why wasn't it more gradual? Just what you're seeing out there would be helpful. Thanks.
And the delay came from getting information from our plans.
Speaker Change: So when we did not have the information necessary for our plans, we were a little bit blind in seeing how some of those costs were actually escalating. So some of it is being caught a little bit behind in not knowing some of those numbers, and primarily them speaking of our non-delegated plans.
Speaker Change: and others. Obviously where we are delegated we have some of that information, but we did not see in our delegated lives nearly the increase that we saw in the non-delegated. So that's what kind of explains.
Speaker Change: Why that MCR rapidly got worse over that period of time versus what we were expecting as we were moving through from the end of first quarter.
Speaker Change: Okay, got it. And then just on 4Qs, so we're about a month and a half into it, and I think you also mentioned your expectation that plan benefits will be less extensive in 25, which will lead to less utilization. Just on the MCR,
Speaker Change: I'm assuming that you'll expect it to remain elevated in 4Q, but in 1Q of 25, will there be a sudden step down that we should expect?
and Amir Bacchus. Thank you. Thank you.
Thanks, this is Eric. Thanks, Jenny.
Speaker Change: So, the way we look at this, we have information from the plans on how they bid and what the impacts are on a PM-PM basis.
Speaker Change: And that's complete for nearly every plan that we work with.
Speaker Change: Now what we don't know yet, to be able to give you specificity as to exactly what we see in terms of the numbers is where those patients ultimately end up after open enrollment when they have a chance to make the choice every year about what plan to join.
Speaker Change: So we'll have a lot more clarity about exactly where and to the magnitude that we expect that to have an impact. However, we do expect those benefit design changes to have immediate effect writ large across the industry from the benefit design changes that would begin in January.
Okay, great. Thank you.
You're welcome.
Speaker Change: Again, if you have a question, please press star then 1. Our next question comes from Ryan Daniels with William Blair. Please go ahead.
Speaker Change: Yeah, yeah. Hey guys, this is Jack Sempton for Ryan Daniels. Thanks for taking the questions.
Speaker Change: You mentioned that you plan to enhance payer contracts and provider contracts. I'm just wondering, can you talk about this a bit more? I'm curious if this is a large percentage of your book that you plan to negotiate with, or is it kind of a select few that, you know, make up 80% of the book? Just kind of curious if you can talk about the portion there that will kind of go through the repricing here. And then just as a quick second part, would you look to exit relationships with payers that really weren't working with you during negotiations? Or is your mind basically made up already when you kind of enter into some of those negotiations? Thanks.
Thank you.
Speaker Change: Hey, thanks so much for the question. This is Eric. And so a couple things that I would address here. One is that in terms of
Speaker Change: The Pairs themselves, there's a lot of movement around Part D.
Speaker Change: And so we are looking to change our position in Part D across the majority of our contracts and have good traction to do so. So that's number one.
Speaker Change: Secondly, you know, we've had good responses from the plans on some of the changes that we want to make and it's a combination of things.
Speaker Change: We reduced the overall number of contracts that we have on the payer side. We had some subscale contracts that we had with some payers, and so those have already been exited. And then we had some planned partners that were exiting particular markets. Again, these were small plans overall, but they weren't necessarily strong performers.
and those plans exited as well.
Speaker Change: Okay, perfect. Understood. Thanks. And then just to follow up here, just given the shortfall this quarter and higher utilization trends, I think you maybe just noted it in the previous answer here, but are you looking to exit certain markets? I know you said that you were looking to exit certain relationships, you know, with providers and payers, but would you look to exit a market, you know, in its entirety? Or is it kind of like a one-off basis? I'm just kind of kind of curious on your on your approach there. Thanks.
Speaker Change: Yeah, thanks so much. I think the example I'd bring up here is, you know, Florida.
Speaker Change: And Florida for us was a very small, our smallest market by far.
Speaker Change: And it wasn't a place where, you know, everything else is on the west part of the United States and it wasn't a place, based on the scale there, that we felt it was a good place to invest for our business today. And so that's an example of one where we do plan to back out of the Florida market.
Okay, perfect. Thank you again.
You're welcome.
Speaker Change: No further questions, this concludes our question and answer session. I would like to turn the conference back over to Aric Coffman for any closing remarks.
For more information, visit www.fema.gov
Aric Coffman: Yeah, I just want to thank everyone for their participation today. We certainly look forward to follow-up calls and getting together with you again sometime soon. Thank you very much.
Speaker Change: The conference has now been concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: Director of Photography, Amir Bacchus Production Manager, Amir Bacchus Production Manager, Amir Bacchus