Hello everyone, and welcome to today's agilon health. I'll now hand you over to our host, Matthew Gillmor, Vice President of Investor Relations. Matthew, please go ahead.
Thank you, operator. Good morning, and welcome to our Q3 conference call. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business. These risks and uncertainties are discussed in our SEC filings. Please note that non-GAAP measures provide a better and more complete understanding of our financial results and is consistent with how management views our financial results. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in our earnings release. Thank you for joining us. We're hosting today's call from Pittsburgh.
Before I get to the details of the quarter, I'd like to take a minute to discuss the positive results from our partnership. Actively established the Preferred Senior Care Advantage line of business and moved all of the group's Medicare Advantage patients into a total care model in which the primary care physician is responsible for. Advantage is the predominant product with a penetration north of 60%, and the majority of coverage and specialty care is delivered through two regional health plans with integrated provider capabilities. 80% of Preferred MA patients receive recommended cancer screenings, and 90% are adherent to medications for cholesterol, blood pressure, and diabetes that drives length of stay reductions and improves hospital readmission rates.
In April 2021, we further strengthened our local scale in partnership. Preferred has delivered world-class patient and physician net promoter scores of 80%+ and a medical cost structure well below the community benchmark average, as seen in prior year 2 markets. Our success in Pittsburgh reflects the power of the agilon platform and partnership model to get smarter, drive accelerated success in our new membership outlook. Third, an update on our pipeline for the class of 2023. Fourth, an update on direct contracting in the broader federal policy environment. Our results were especially encouraging given broader dynamics around medical costs and the Delta variant. Total members live on the platform increased 43%, including 15% growth within the same geographies.
Same-geography growth was again broad-based and continues to benefit from our ability to be a first. 47% year-over-year growth in total revenue. Medical margin was $43 million in the Q3 , or 9.5% of revenue, reflecting a year-to-date. We did observe an increase in COVID costs due to the Delta variant surge in numerous geographies. This was offset across the agilon network by lower non-COVID costs. Physician-centric partnership model. Our partnership model with existing physician groups creates a unique level of proximity to a primary care physician, leverages an established influence the healthcare system locally.
Through the agilon platform, we leverage algorithms to better identify specific cohorts of patients or physicians, stratify where care should optimally be delivered. Connecting data to clinical process is translating to changes in how care is delivered differently. First, in Buffalo and Columbus, we have implemented a palliative care program for health care stay in the hospital. Second, in multiple markets across multiple specialties, we have redefined the specialist network to tier providers based on quality. Including Medicare Advantage and direct contracting, will increase more than 45% in 2022. Tim will provide details in a few moments, but I did wanna call out some key drivers affecting. Additionally, we see continued strong momentum in same geography growth.
This is driven in part by a growing and powerful local network effect. Community advantage that, along with the success of our partners, is attracting more groups to the agilon network. We believe more physicians joining the platform in our same geographies will be an important. This creates a single experience for the physician and allows our partnership to maximize the scale advantage we have within a market, allowing us to proactively shape the senior patient's health. Additional markets will join the direct contracting program in 2022, bringing us to a total of 10 of 17 markets with both Medicare Advantage and direct contracting. The interest has never been stronger among providers. On the back of growing MA penetration, demographic changes that challenge physician practice economics, and the adoption of incentives for groups in new and existing states.
We have begun implementation work for several of these new partners, which will help us drive strong performance out of the gate. It took us just three years to expand from Columbus to four other cities. We think there is potential to move even faster within some of our newer states, given our successful track and growth objectives for 2023, and look forward to providing details during our next earnings call and the corresponding Analyst Day.
Let me close with an update on direct contracting. We are seeing the leverage and scale benefit from operating a single, consistent approach across all senior patients sooner than we had expected. In Q4, we will receive estimates for these elements within our Q3 results, but continue to work with the CMS Innovation Center on improving the visibility and predictability of these annual program components. But we do foresee the potential for direct contracting to be a larger contributor to our long-term financial performance. On the broader policy front, it has been a productive year and long-term commentary from key policymakers.
On October twentieth, the CMS Innovation Center released its refresh strategy for the next decade, which is a recent National Academy of Medicine report that declared high-quality primary care as the foundation of a high-functioning health system, and the key to improvement has been a centerpiece of our work as part of the Primary Care for America coalition. While the strategy itself does not speak to the future of the direct contracting model, we have been encouraged by participants. With that, I'll now turn the call over to Tim.
Thanks, Steve, and good morning, everyone. I'll review some highlights from our financial statements and provide some additional details on our updated guidance for 2023, 137,000, including both Medicare Advantage and direct contracting. Our consolidated Medicare Advantage membership increased 43% to 184,000, and direct contracting our growth and scale. For our Medicare Advantage membership, our growth rate was driven by two factors. First, the impact of three new geographies that went live in January, Hartford, Buffalo. 10% for the quarter. Revenues increased 47% on a year-over-year basis to $459 million. Year to date, revenues increased 53% to 1 per member per month basis, or PMPM. Revenues increased 2% during the Q3. Medical margin was $43 million during the Q3 , compared to $51 million in the prior year.
Primarily reflects the lower utilization experienced in 2020 due to the COVID pandemic. On a PMPM basis, medical margin was $79 or 9.5% of revenue from inpatient and skilled nursing services. Our COVID costs peaked in August and early September, but remained below levels from early 2021. On a year to date basis, network contribution was $72 million, compared to $90 million last year. The year-over-year decline in network contribution reflects the impact. Platform support costs, which includes market and enterprise-level G&A, increased 32% to $34 million. On a year to date basis, platform support costs increased 25% in the prior year. Adjusted EBITDA for the quarter was -$14 million versus $2 million in the prior year.
On a year to date basis, adjusted EBITDA was negative. Direct contracting continues to run ahead of our expectations, reflecting modest favorability in revenue and better visibility into costs. While we continue to expect margins for direct contracting will be below MA, which is essentially unchanged from the Q2. Cash flow from operations was negative $19 million for the quarter, which was in line with our expectations. Turning now to our guidance for 2022 to a range of 185,000-186,000, and our revenue outlook to a range of $1.82 billion-$1.825 billion. We project total members live on the platform, including Medicare Advantage and direct contracting, will increase over 45% by year-end 2022.
We expect our consolidated 2021 membership outlook. We expect total members live on the platform will increase to over 340,000 in 2022. For Medicare Advantage, our 40% growth was in the Q1 , and this should build to over 50,000 as the year progresses due to attribution work in commercial agents. For same geographies, we expect to benefit as more physician groups join the agilon. Now able to share that approximately 30,000-35,000 attributed beneficiaries from seven partners will join the program in January. This will bring our total direct contracting members to 80,000 here. With that, we're now ready for your questions. Operator?
Thank you very much. If you would like to ask a question, please do so now by pressing star followed by one. Our first question comes from Lisa Gill from J.P. Morgan. Lisa, your line is open.
Thanks very much, and good morning. Tim, I heard you talk about the fact that, you know, you expect to go back to pre-COVID as we close out the year. Can you just remind us, you know, during the quarter, do you see any pent-up demand that will flow through to 2022?
Yeah. Thanks, Lisa. You know, composite, and we saw that across the majority of our geographies, there was this non-COVID offset, most significantly in terms of inpatient and SNF reductions. As we look towards Q4, we expect that baseline is going to return in that composite utilization towards the 2019 trend overall and will continue.
No, I think that's right, Steve. I mean, and good morning, Lisa. I think if you know, if you think about exactly what Steve said, we did see COVID utilization jump up. Although that, as I said in my prepared remarks, that's really moderate utilization. You know, in terms of how much pent-up demand, I mean, perhaps the increase that we're seeing in elective outpatient procedures might be an indication of some of that catching up now. Although, again, we are expecting the composite utilization to continue to approach and move back to 2019 baseline, and that's reflected in our Q4 guidance.
Okay, great. If I can just sneak one more in, regions that you have, physician membership
Well, Lisa, we certainly see the benefit and our partners are seeing the benefit of operating a single line origin scale benefit when we're able to do that both within the primary care practice and then in terms of downstream costs, in terms of specialty care, in terms of palliative what we talked about in terms of the class of 2022, in that some of our existing geographies that are in MA, but don't currently have direct contracting will add that. Then some of the day 1 and year 1. Our goal is to get more geographies to have MA and direct contracting side by side. I think it just gives us those.
Gentlemen. Congratulations on a great quarter.
Thank you.
Thanks, Lisa.
Our next question comes from Justin Lake from Wolfe Research. Justin, please go ahead.
You know, return there or positive result in the Q2 , in the Q3 , what is kind of in your guidance in terms of an assumption for the fourth? Is it especially, I'm curious, you know, with those true-ups, how close is the risk scoring of a, you know, in the revenue of an effective to kind of that, with that maximum revenue that you're able to get out of a Medicare Advantage patient, because I know that was a big question as we went through DCE.
Yeah. I mean, there's a lot in that question, Justin, right? We are seeing results in the first two quarters with the program that went live in April that are ahead of our expectations. You know, at the back half of your question, there is based on lower medical costs. There's two factors that we are awaiting updates on. One is the retro trend factor, which is a relation of six markets that we're in right now versus a national trend. If your local trend is lower than the national trend when coding intensity or RAF factor that you talked about. Both of those will get resolved in the middle of next year. We will get interim updates on it. I
Yeah. Good morning, Justin. Yeah. I think that's all right, Steve. Kind of just to follow up on the end of that, and then I'll talk about the first half of your question. I mean, we have baked that into our results. But as Steve said, we won't really know the final numbers until sometime into mid-next year. In terms of performance, yeah, exactly right. I mean, we booked our visibility to claims. We're seeing better overall cost performance in direct contracting. With that, rather than kind of an overall impression of direct contracting being, you know, in the break-even area for the full year, we would expect-
If I could squeeze in one more. You know, I know you've talked about, I believe, giving us an update on kind of the maturity curve. Curious, just, you know, what should we expect there? Is there, you know, has there been variability, or do you feel like there's been a pretty consistent curve so that when we see that, it's following that architecture.
Yeah. No. Justin, thanks for the question. I mean, I think we're seeing a cohort maturation and improvement in our class of 2021, the class of 2020, class of 2019 are all accelerating at rates faster than what we had sort of initially projected as we look at that. I think that on the Analyst Day that will immediately follow our Q4 call and kinda walk through that. You know, we're looking at making investments in current markets. That's sort of the way that mix is kind of coming together.
I think the power in this partnership model and then the scale benefit that we're getting with adding just in the over sixty-five Medicare population like end of life and the examples that we gave, like the skilled nursing facility program we've got here in Pittsburgh can-
Our next question is from Ryan Daniels from William Blair. Ryan, please go ahead.
Yeah. I wanted to ask a bit of a follow-up question to Gary's. Looking at the additional value with direct contracting, I'm curious philosophically how that changes your intermediate or longer-term thoughts on new market ramp, meaning that, you know, markets are probably more valuable in doing better.
First mover, Ryan. Thanks for the question, and good morning. I think as we, you know, with the class of 2022 and as we look at the class of 2023, we're seeing more interest about it. I do think that part of our, you know, update to you on 2022 membership really reinforces the power of the same geography growth. This 15, 20, 25 percent of the adult primary care capacity in these markets, the ability to leverage across a practice's commercial business. That is what we believe is driving some of the acceleration. Our platform is getting smarter. The Pittsburgh team in year two, the Pinehurst team, are benefiting from the learnings that have gone along the way. It's a balance, but we're pushing hard on both fronts.
This local network effect to drive our growth for a long time, in addition to landing in new geographies as a first mover.
Okay. That's very helpful. As a follow-up, a little bit different question, thinking the inability to advance internal technologies and infrastructure. I'm curious if you could just speak a little bit to k ind of capital use both internally and maybe through non-organic, investments.
Our partners sit in these geographies and they have the ability to add additional physicians and improve access within those communities, and that's part of what's fueling that growth for us, going forward. The investments in the platform will be another critical area for us, both from a technology perspective. You know, once you've got this partnership, like Preferred, who understands the market, the ability to provide them with actionable information around patient data, physician data, where care should be delivered. You know, what are the clinical investments we want to be making around palliative, around skilled nursing facility partnerships, et cetera, that can really drive that. Those are all the areas that-
Our next question comes from Kevin Fischbeck from Bank of America. Kevin, your line is open.
Great. Thanks. I was wondering if you could talk about how companies have gone public this year, raised a lot of cash. Obviously, the managed care companies are rolling this out. It sounds like you're having a lot of success in hiring new doctor groups, but can you just talk a little bit about the kind of groups on board, the competition for these local physician groups adding in, any color there? Thanks.
Yeah, no. Thanks for the question, Kevin. I mean, in fact, with the success of our partners locally and nationally is fueling the acceleration, the same geography growth that we talked about and the interest in the new geographic competitive situations. We do have the top of the funnel with more and more groups talking to us about an interest in making this move because of the macro factors that I talked about. Even that is shortening, Kevin, based on those macro factors I talked about and the power of what we've been able to demonstrate with our network and that sort of reference capability.
bullish are you on these new additions to be really the next kinda three to five years? 'Cause it seems like there's a lot of momentum behind moving to these types of payment models, and I wonder, you know, what would cause a physician group to make that decision in ten years?
A year, right? We do this on an annual cycle, right? You would join on 1 January . It's a year, maybe two years. I would agree with your thesis that I think you're gonna see a tremendous.
All right. Great. Thanks.
Our next question comes from.
Yeah. Hi. Thanks. I was hoping you could talk a little bit more about the same geography outlook you provided for 2022. It feels like it should look more like this year than sort of the overall MA growth rate of 10%. Help me understand that a little bit better.
Yeah. I mean, 15% same geography growth year to date in 2021. Super pleased with that. Components, this is that are turning age 65, choose Medicare Advantage or fee-for-service folks that move over. That's kind of the bread and butter. We tend to do a little bit better than rates that we're able to get the multi-payer experience. What's becoming a growing piece of this is this improvement in access and other physicians joining in MA and 45% growth overall in terms of membership is really the visibility. We know who those groups are that are joining in January. Those groups are effectively in an implementation period of their own right now.
That visibility forward to 2022 and even think about low- to mid-teens% same geographic growth on a kinda sustainable basis.
Got it. Thanks. Just a question on DCEs. Like what's giving them hold up, and then just, you know, can you confirm again, like if it's not a downside protection question, it sounds like that's still provided. I guess, what would keep them from wanting to take risks on our population as well?
We had two groups that did not go live in April, existing MA groups that went live in January. In one case, they were below January. They were up above that. That's just kind of a technical thing that affects that. In other situations, we've had people sitting with an ACO with local systems and others. All of our partners have had their patients in an ACO, and they're making the move into direct contracting. By definition, you're making that move over and some of those, more of the seven current markets that are in MA, but not in DCE, make that move into direct contracting. Then I think we'll have new geographies that'll come on with both.
Just could you remind us, you know, why it is that you can't consolidate those results today, but you obviously can consolidate the Medicare Advantage results? Do you think this is something that could change at some point down the road? Thank you.
I mean, consolidation part of it, as we talked about earlier in the year, was just around an abundance of caution. Hey, this is a new program. We're not sure exactly where it's going, and we thought it made more sense to do it in an unconsolidated governance. You know, once, if the program stabilizes and in future years, we could certainly revisit that decision.
Yeah. I think getting through a full turn in the annual program is gonna give-
Our next question comes from Gary Taylor from Cowen. Gary, please go ahead.
Hi. Good morning. Great. I wanna make sure I just understand the implications of that. When we think about the modeling and newer cohorts coming in at higher medical service expense, to the extent you're guiding dollars of medical margin in a vacuum higher, am I thinking about that correctly?
I think that's correct, right? They come on at a lower medical margin. They, you know, historically have come on at a loss to break even from an EBITDA perspective. You are right that medical margin dollars would be higher as a result of that.
Got it. Then my other question was, I think Tim understands that versus the 10-Q disclosure that shows, you know, it's a touch worse than break-even. Is the difference just new-
has a slight loss on a net income basis, and then you just refer back to the back of the deck where it shows the net income to adjusted EBITDA walk. You'll see a line on there for those,
Over what trailing period is a surplus to a physician group calculated? Obviously, you know, this week-
We have a pretty
Is it just quarterly?
Yeah, no, we have a very structured quarterly payment to make it predictable. There is an annual true-up that's done, you know, significant retroactivity that is ultimately, you know, flowed through in terms of those payments. A big part of our partnership is in, you know, sort of calculate out final results.
Is that a Q4 annual true-up across the platform, or is that practice-specific in terms of timing?
No, I mean, I don't think there would be a material move in Q4 with that.
Yeah.
The true up that occurs to the extent that there was some wild deviation as we flowed into next year with run out, it could drive something. But I mean, generally speaking, we're pretty close on it, so, you know, we're keeping that, you know. I wouldn't expect that at, you know, in the true up for the fourth quarter year end would be, you know, would be any large number versus what it is every other quarter.
Okay. Thank you.
Brian, please go ahead.
Hey, good morning. This is Jack Slevin on for Brian. Thanks for all the color thus far, and wanted to continue on with that Pittsburgh case study a little bit, are coming from UPMC or Highmark plans. And then two, as we think about portability of the model and sort of the maturation curve on medical margin, when we're maturation towards sorta like the mature medical margin you've talked about or should we think about a lag there, right? I guess trying to work through whether or not having that health system is in inpatient spend. Thanks.
That is a lot in that question. You know, first part of it, roughly two-thirds of the membership that you talked about, as we highlighted, Pittsburgh is accelerating faster than we've seen in other markets. This skilled nursing primary care physician, and given the data and insights from our technology, we've been able to really work with a local partner here that's trusted, preferred skilled nursing facilities. What we see is when the primary care partners here in Pittsburgh see patients in those preferred skilled nursing facilities, there's that's the power of this partnership and platform coming together. I can't imagine operating in a market like Pittsburgh without the strength of a partner like Preferred. Allows us to drive those sorts of success.
I don't know that a multi-health system market says we're gonna fit through a partnership model and with our platform is the key to that. We can go to a lot of places, build around that right partner, and have success.
The next question comes from Whit Mayo from SVB Leerink. Whit, please go ahead.
Thanks. Just a couple ones here. Maybe you answered this, but it wasn't clear to me to legacy partners. I don't know, inpatient days per 1,000, MA versus fee for service. Just anything when you sort of lay them side by side versus your legacy groups, you would say, this is different, which in 2022.
The implementations have been going really quite well. When we look at the things like, you know, structured annual wellness visits that are going, we've got primary care only groups. We've got multi-specialty groups. We've got single TIN groups. We do have one multi-TIN group with kind of an origin. Those differences don't lead us to different expectations in terms of maturation around medical margins. Now they started different, great credibility, good alignment with us, and with our platform and the partnership, we're gonna be able to drive that. PPO versus faster than HMO, my guess is that will skew towards a more significant majority over time. We feel really comfortable about our ability, those value areas within Medicare Advantage.
Okay. When you sort of average everything together, they look reasonably in line with the groups that you've onboarded in prior years.
Lives and VAs for 2023. The enrollment growth in these markets is a touch higher, and that'll bring our overall average up.
Yeah, as a composite, they are in lower.
On top of that, will drive strong same-geography growth.
Okay. One quick last one. I just wanna make sure I get this. I wanna unpack this just for a second 'cause you've referenced palliative care and giving your physicians more tools and resources to manage this downstream risk. I thought I heard something around maybe a narrowed or tiered network. I'm just trying to understand specialist side what your medical cost spend is.
I mean, two areas, right? Palliative and specialty. What we're doing is we're leveraging the funnel in palliative. As an example, patients who are most likely to pass away in the next 12 months. You know, enabling that primary care physician to have to do over this next year and what the options are available to them. You know, historically, that's a difficult conversation for primary care physicians to have. You know, in our markets, 25. The ability to have a better identification of those most likely to pass away, the ability to have a better conversation means you get a higher enrollment rate. The ability to have a partner.
You know, in Buffalo, we've seen almost a 90% reduction in terms of hospital deaths based on the pre and post in terms of rolling out that palliative care program with this. This is an area of healthcare that's really sort of underserved and difficult to deal with. That's where this partnership and platform together, our referrals go through a centralized referral MC, which means you end up with a higher pull-through of people getting to that top-tier specialist. The specialist doesn't have to do that. You know, the cardiology example that we've given on a previous call, it's like $100 PMPM better for people being referred to top-tier specialists. Hopefully that.
Questions today. I will now hand back to the management team for any closing comments.
Thank you, everybody, for being on our call. I mean, I think we're just really encouraged about our ability to drive. I think we're excited about the scale that we're building locally in our communities and nationally, and we're really bullish on our future. Talk to everyone soon. Take care.