Good morning, everybody. Thanks for joining us. I'm Gary Taylor, cover healthcare facilities, managed care, and value-based care here at Cowen. My pleasure to have agilon with us this morning. Agilon is a physician-oriented, value-based care company providing capitated physician services to Medicare Advantage Health Plans. Through their platform and partnership model, the company has over 350,000 total Medicare membership across 25 different markets. We have Chief Financial Officer, Tim Bensley. We have Chief Medical Officer, Ben Kornitzer, and Head of Investor Relations, Matt Gillmor. Let's start with the call was last week, I think. I lose track of time. I think it was last week. Couple things I wanted to touch on.
One is, you know, 2023 is a really significant pivot towards profitability from the company from sort of mid-single digit EBITDA to sort of mid-80s millions of EBITDA, so pretty sharp pivot. Can you talk about, you know, kind of what the key drivers are there, and then where do we go beyond 2023 towards that 2026 goal that you have out there?
Yeah. No, absolutely. You called the numbers right. I mean, this is, you know, I think 2022 was an important year in terms of our EBITDA inflection because it is our first year with Adjusted EBITDA positive, of course, that we just reported. it wasn't, you know, getting to single-digit EBITDA positive is, you know, a good step forward for us. Like, it was a $43 million increase in EBITDA year-over-year. That was actually a pretty big increase as well. I think you got the numbers right. As we go into 2023, we've guided to a number that, you know, the midpoint of our guidance of $75 million-$90 million of Adjusted EBITDA is like another, you know, $80 million pickup. Yeah, we're definitely inflectional on that side.
The drivers of it are that really the things that have driven our performance over the last year continue to drive. In fact, if anything, we're driving with a little bit outsized performance versus what we expected. We continue to do tremendously well on membership. A big part of our movement year-over-year has been our ability to bring in larger and larger membership groups. We've got a very large class, of course, coming in in 2023. We just implemented new markets that are over 100,000 new members coming from the new market that we just went live with in January. At the midpoint of our guidance, we're gonna add 135,000 new members this year.
We have huge membership, obviously, increase coming along. That'll have less impact to the EBITDA flow through in 2023, but it's a big part of the second part of inflection how we're going to go forward. Hold on to that one for a second. The second thing is, I mean, we have done and continue to do a really good job of, as those markets come on and as we mature them on the platform, being able to generate, better, you know, overall quality of health care for our members, better overall health outcomes for our members, and also just eliminating a lot of waste in the system in terms of, you know, driving costs out of the system.
That has resulted in, you know, really nice maturation curves for these markets as they kind of run the platform for one year, two years, three years, four years. Now going into markets that'll be on the platform for as long as five years. Really pleased. You know, we saw in 2022, you know, we just reported that at the end of the year, those markets that were on the platform for 2 years+ , so kind of excluding the year-one markets, had like a 33% increase Medical Margin on a PMPM basis, where we're already up to like $144. Each year you can see, you know, the membership growth, you know, versus Medical Margin growth, it comes just through in the numbers.
If we had about a 45% increase in membership in 2022, you know, Medical Margin dollars were increasing like 67%. You're just seeing that member maturation flow through with, you Medical Margin continuing to grow at a faster rate than membership as those members mature on the platform. Really pleased about all the things we're doing there. One of the things we're gonna wanna do is step off for a second and let Dr. Kornitzer talk a bit about just what are those drivers that drive Medical Margin up. We've shown it in our results so really positive. And you know, as you look forward to what we've guided for 2023 to get to that $80 million, you'll see that factor again.
you know, we've guided to about a 50% increase in membership, but about an 80% increase Medical Margin dollars. that's that same phenomena of those markets maturing on the platform and getting that positive flow through Medical Margins. the next thing is we do get really good leverage of our, of our overall platform support costs. And that's flowing through each year as well. I think in the last couple of years we've seen, you know, more than a 100 basis point improvement in terms of, you know, leverage that we're driving out of it. We drove our platform support costs as a percentage of revenue all the way down to just over 5%, about 5.4% last year, which was again more than a 100 basis point.
In 2023, you know, the guidance that we put out there, we get to that, you know, $80 million increase in Adjusted EBITDA will be another 100 basis point or more improvement. You know, that's just the way our model works, that we don't have to add, especially in each market or at the corporate level. We don't have to add as much resources every year as we're adding membership, obviously. We get great flow through there as well. The key to that thing is really in the middle of P&L and just the really positive progress that we've seen on those markets we're seeing on Medical Margin.
It might not be on, sir. Is it on, do you know? I don't think that.
No, how's that? The fact that I have a little bit of a cold and little hoarse, froggy probably isn't helping with that.
Okay. I'll just talk loud for the time being. How about that?
We can hear you.
Oh, you can? Great. Does that sound good?
Yep.
It's a little loud, I think so. Did you wanna jump in just a little bit? 'Cause I think I don't wanna pre-empt other questions, but that the middle of the P&L is so important and the basis of our model of how we develop markets over time and how Medical Margin improves over time is so important. I don't know if you wanna talk a little bit about the programs and how we do that, but.
Yeah, no.
I'm asking the questions.
Right. I mean, if you think about it, our entire model is based on having a specific profile on our patients. You really have to be able to characterize what their existing diagnoses are, so you can really understand where to intervene. Understanding, you know, if patients have heart failure, if they have renal disease, if they have COPD. Being able to put all of those conditions together, then you can understand what are the different programs that you need. For example, one of the programs that we've been spending a lot of time recently thinking about is renal . You know, we know that about 40% of patients with advanced renal disease who go on dialysis crash into dialysis.
That means that rather than having a thoughtful approach for how you're gonna manage their kidney disease, they wind up in an emergency room, eventually in a hospital and getting emergency dialysis. The costs are dramatically higher, sometimes 2x it would be if this were a managed start. Maybe the patient's not even appropriate for dialysis in the first place. We took a look at our data, potentially as much as 1/3 of patients who are on or starting dialysis could be managed medically without even dialysis in the first place.
Our ability to identify patients who have a declining renal function over time, but that ties back to that very early process where we get all the data from our patients, whether it's claims data, we can pull that in with physician reviewers, whether we can pull that data in using the new technology acquisition that we recently acquired in the past week or so. All of that allows us to intervene, and you see that cost curve turn over time. We're seeing dramatic improvements across, you know, virtually all of our markets. You know, the other thing which, you know, we have a primary care-led model, so it's all about PCPs seeing their patients and seeing them very frequently.
We had a retreat this past weekend, and I was talking to one of our physicians, and he was telling the story that he had a patient who was, you know, going to the emergency room every six to eight weeks like clockwork. He had heart failure that really started as a result of being a lifelong smoker. He had restrictive cardiac disease. He had COPD. Every six to eight weeks, his legs would swell up with fluid, his lungs would swell up with fluid. They would admit him to the hospital. They would give him IV diuretics, take a couple of days to get all that extra fluid off, and then they would send him home. The intervention was, "Come to see me every single month.
We're gonna write a date every single month on the calendar, and you're gonna see me, and we're gonna check your daily weight. We're gonna check your blood pressure every single day. We're gonna check your symptoms every single day." As soon as they did this intervention, zero hospitalizations. It's not rocket science, but it's changing the paradigm so that PCP has the resource, has the time, has the economic incentive to actually be able to do the right thing for their patient.
Do you have any markets or medical groups yet where Medical Margin has peaked or, you know, gotten stuck for a couple of years? Are you generally still, even in your oldest groups, still seeing improvement?
Yeah, Okay, that's really loud. We are still seeing improvement in every market, even our most mature markets at this point. Obviously we see that, maybe obviously we see the biggest improvement from year one to year two, year two to year three. And we showed some of those curves. It's almost a year ago now, exactly, when we did the last time we shared those cohort curves. We'll come back here in a couple of weeks, you know, March 30th and actually do our next Investor Day. It's coming up pretty soon, and we'll show a complete view again of kind of what that looks like. We are still seeing, you know, each market is still young enough that each market is still improving.
I think we'll show you some pretty good stuff on that. That actually, I don't, you know, you probably want to move on to something else, but, you know, a quick answer to the second part of your question about which that kind of dovetails into about longer term. You know, it was a year ago that we put out our last kind of longer term guidance and, you know, pretty robust numbers, obviously. I mean, we're talking about getting to, you know, at the middle of the numbers, we talked about somewhere around 800,000 members in 2026 and, you Medical Margin numbers on a PMPM basis in the mid $160s. Platform support costs, you know, at or below 3% and EBITDA dollars up around that $600 million range.
We'll come back in, you know, a couple of weeks here and update those numbers. You know, I think all the things that we've seen over the last year would tell us that we have, you know, really, really high confidence in our trajectory, you know, against our long-term objectives. The only reason I bring it up is I just want to mention one thing. Probably the biggest thing that is different from what we said last time is we are just getting more members on the platform earlier than we thought even a year ago. The class of 2023 ended up being bigger than what we had talked about a year ago. Like I said, we're gonna add when you include in same geography growth or at the midpoint of our guidance, like 135,000 new members.
That's a huge class for us. In 2024, we've already said that, you know, that class will be at least 80,000 members from new markets and 130,000 members in total. Again, I mean, it's kind of an interesting number that our projection for MA members in 2024 is almost exactly twice as big again as it was that we just reported in 2022. Every two years, we're still doubling up the size of our membership. Getting those new members on the platform early means that we have more membership sitting there now that tow, three years from now is gonna be in that more developed state Medical Margin, you know, like we just talked about in the other markets that are maturing. It's a really important part of our confidence in our future, in our future projections.
Got it. Just getting there, to that point, our model was 90,000 patient growth at 2024, and you're saying, you know, at least 130,000 now. Maybe Ben can chime in on this too. What is, I think the street looks at it and says there's so many companies trying to do value-based care. Some of them are, you know, part of big integrated payers, some of those are independent, some of those are clinic models, some of those are, you know, affiliate models. Something about your, you know, joint venture model is clearly resonating with these physician groups that are, you know, joining in these types of numbers, driving that type of enrollment growth. Tell us what you think the most important part of the, you know, attraction is?
You want me to start? You can jump in from a more like. You probably can jump in more from a close, like having been a doctor, how the doctors are thinking about it. I think generally speaking, if we're looking at. By the way, it's worth saying now that our model, and our partner mix has changed tremendously over the last few years. If you talked to us two years ago, we would say, "Hey, we are, you know, 100%, you know, independent, primary care physician groups." We now, of course, just brought on our first large, regional health system, so that's no longer the case. We think that the way our model applies to somebody like MaineHealth and a regional health system works just the same way or as well as it will with an independent.
I think the overall driver has been this idea of, you know, if you're in a situation where, you know, that the way that the economics work for a physician or a physician group for Medicare is just literally upside down, we're able to come in and say, you know, taking full risk and doing the things that we can help them do around, you know, everything from how they're identifying burden of illness to how they're managing the course of care to drive the improved quality and outcome for those patients, we can actually return those economics to that physician group and allow them to stay independent and to have, you know, to have actually a meaningful right side up economics.
I think at the end of the day, just that model is what continues to, b y the way, the success that we've shown in our existing groups, you know, the fact that we're not just saying it, but we're actually delivering it, now we can have groups that we're looking at to come onto our model and say, "Hey, you know, if you wanna come onto our model, you don't have to believe us. Go talk to these other three partners we have that are already doing this and being successful." You know, that network effect, along with just, you know, our continued success and just the design of the model has just, you know, really made it very attractive, I think, for groups to come on.
The interesting thing to us is it applies now to not just a singleton, independent PCP partnership, but it works very well now across these, you know, large kind of distributed networks or kind of PO organizations. A great example is the United Physicians in Detroit that's coming on is a very large group of, you know, set up in that kind of PO structure. Now obviously we're starting to make it work with the health system. You know, I think from a macro standpoint, our model works for what is needed today, and it works very well for the physicians and physician groups. I don't know if you wanna talk a little bit about from more physician perspective why it makes sense or.
Yeah. I think the partnership model is very unique. I think physicians, whether you're part of an independent practice or you're part of a larger integrated health system, people go into medicine because they wanna sort of have their hands on the driving wheel. This whole notion of interdependence, right? You know, the amount of sort of complexity and resource to transform to value-based care, no one can do that on their own. At the same time, they don't wanna be employees. They wanna feel like they are having skin in the game and helping to define sort of the future of where their care model is going. Anyone that runs a business knows you're gonna get better outcomes if people have skin in the game.
I mean, I came from a health system where we knew when we employed a physician, their productivity automatically, once they got a salary, went down 50%. So we just had an agilon physician leadership retreat, it ended Sunday. When I joined, I went to our first physician meeting. I think we had about 15 people. That was just over three years ago. The next one we had was in 2021. I think we had 65 attendees, but we had 200 participants this past weekend over three days. Just a couple of takeaways I think are very relevant to your question. One is, you know, we've brought in all of our new markets, so that huge new class that Tim had spoken about. Already it's the beginning of March, and you have markets that are basically understanding the levers. Just put it up.
Is it turned on? Sorry. I guess we're having trouble.
Can you guys hear me?
Yeah. It's on. Yeah.
Okay. Great.
Thank you.
Yeah. I was gonna say that, you know, we've broadened all of our new markets early. You now have this very large class of 2024 basically benefiting dramatically earlier in the life cycle from the learnings of markets that are three, four, five years within the life cycle. We've never seen that before. You know, the other thing that was very interesting is, you know, we share sort of comparative data across our markets. Now, we blind that data. Each market can see how they're performing. We always have some markets that are higher performing and lower performing. When we take a look at our key clinical initiatives, there is no market that is performing best in class across every initiative.
My interpretation is every single market has significant opportunity, whether it's to better identify patients with diabetes, with COPD, with CHF, enroll people in renal programs, palliative care programs. Like, every single market left there saying, like, "There's two or three things, even if I'm doing really well overall, that I could really move the needle in." The other thing that happened is we brought in potential markets. There was one group that we brought in that said, "Listen, we will only join if every single one of our shareholders unanimously votes, and anyone that's been part of a large group, maybe you can get 70% or 80% or 90%, but they said, "We want every single shareholder." They weren't sure they were gonna get over that threshold. They left that meeting being really optimistic.
There was just a sense of energy in the room. I think the last conversation, sort of as people were at the end of the conference and all the suitcases were in the side of the room, two of the doctors, you know, were both physician executives from different practices, were catching up and had a cup of coffee, and I happened to be within earshot. One of them said to the other, "Hey, have you taken a look at your economics recently? You know, I took a look at our physicians and their take-home salary. I couldn't believe it. 60% of my primary care doctors' take-home salary is all coming now from the full risk senior line of business.
Yeah.
The other one said, "You know, it's interesting you say that. I was just looking at that, but it's 50% too." It kind of had crept up on them over the past couple of years, where the idea of value-based care and senior care had begun as kind of a hobby. Let's see if we can do this. Now, essentially, this is their core business. They wake up in the morning as a physician, if you wanna succeed. That's a huge change in the mindset. I think the physicians that were coming together in this retreat, either they were experienced the same thing or they were hearing from their colleagues, this is sort of the path that they're on, and I think that has been sort of very transformative.
I mean, it's if you kinda summarize that back to the comments that I made, it's like so you know, just to kind of really quickly couple of things, that idea that one of the drivers of the model is we have great physician alignment because of the things that Ben was talking about. A 20-year partnership where we are sharing the positive outcome, economic outcome, you know, with the physician group or with the physicians just keeps them aligned, and it turns into the. By the way, we know also that they're well aligned cause we have, like, great physician retention. I mean, I think our physician retention is at, like, 90% or something, which is very high compared to other models out there. To Ben's point, we're bringing the resources to help them do those things.
We have the economic or we have the financial, you know, strength to be able to come in and do that. Be it, you know, overall processes and systems and information that we're bringing them or to help them do that or actually bringing the incremental operational or care management resources to the market. All of that for us can be done in a market, you know, when we enter the market at scale. Because we know we don't have to go in and build a clinic and hire doctors and market for and bring in new members. We're going into a market and doing that and transforming the group and the market kind of at scale with the existing members that are in that PCPs panel. Those three, you know, kind of components of great alignment, we bring the resources, and we have the scalability, are just three incredible components that I think are pretty unique for our model.
I think, I mean, in my mind, just looking at the model, I mean, the validation of physicians willing to join the platform.
Yeah.
Is probably more powerful than any other part of the story or how you could explain it or, you know, pitch it or anything else.
Yeah, you kinda have it on both sides, the number that are willing to join and the fact that they're staying.
Yeah.
I mean, that's physicians kind of voting with their feet, I guess.
Yeah. That's a quick context too, right, in healthcare. We've had a year-over-year, almost 15%, not on agilon, but healthcare in general, 15% increase in PCP burnout. That's never happened before. Last recorded year, 30,000 adult primary care physicians left the field of medicine completely. That's never happened before. There is no pipeline of residency training programs that can fill that gap. We also know that we have a dramatically increase in the number of patients over 65, so complexity of disease is gonna go up. If I were to step back and look at some of these macro factors, there are major workforce issues right now with primary care. I think one of the things that's differentiated about our partners is they're getting off that hamster wheel. They're able to spend more time with their patients. Their economics are more aligned. They're much happier. Our retention rate's actually 95%.
Okay.
The macro environment where, like, people are heading for the exits, our physicians are staying, and they're growing their practice. We actually had a session on increasing your workforce, and that was a standing room only session because there were so many groups actually interested in growing their actual practices. I do think that there is a change in that dynamic that's very much in contrast to what we're seeing in terms of the macro healthcare environment.
Wanna talk about a couple regulatory things. Just the first, the 2024 MA Advance Notice, the reduction in the total benchmark. Most of that's driven by the new risk score model.
Yeah.
That CMS has proposed. We talked about this a little bit last week, but maybe just for the audience, how do you see that risk score model impacting agilon in aggregate? How do you think about it impacting, you know, 2024? Haven't given any, you know, 2024 guides e xcept for enrollment.
Yeah.
You know, we're hearing, we're hearing from actuaries, we're hearing in some of the lobbying that it's a - 3.1% industry average, but certain physician groups with certain types of patients could see double-digit increases or decreases in their average risk score. What's your perspective on that risk score model?
No, no, absolutely. The, you know, I think a couple of, you know, starting comments are, one, obviously it is an Advance Notice, so we'll see what the final is. But all the comments that I'll make are assuming that it is the final, like, this is the impact of what they've actually put out there as if it went in place fully in 2024. You know, notwithstanding the fact that, you know, there's usually a little bit of an uptick in maybe the benchmark part of that, between advance and final notice. You know, there's still, obviously, all the comments now have come in, CMS will look at that. You know, there's a lot of talk out there. We'll see what happens in terms of whether it's phased in over time or whether there's any other changes.
Assuming that we don't know what those are gonna be, we don't have a crystal ball. Let's just assume that the Advance Notice is what it is. And CMS, of course, have said, "Hey, you know, on average, across, you know, across the entire system, we would expect that there'll be just the impact of the structural changes to risk adjustment will be like a 3.1% impact." We've gone in and done the analysis on, hey, let's roll through all of the changes to our existing member base and, you know, obviously see what it is for us. At the detailed code level, you know, which codes have been eliminated, which codes have changed weighting factor, and also put the changes in the demographic weighting factors in.
Maybe this is not surprising, I don't think it's coincidental, you know, we're rolling up a number that says, "Hey, you know, we think the impact to us kind of pre any mitigation or any levers that we have to pull is also in that 3% range." Maybe that's because, you know, our overall average risk score is not that different from the national average. I mean, our overall, you know, average risk score is, you know, something not hugely over a one. You know, even our most mature markets, we don't have markets that are up there with a, you know, 1.5, 1.6, 1.7, 1.8 . We have more of a, you know, bell curve kind of population of members. It's coming out for us to be in about that same range.
But that's pre-mitigation. Some of the other factors that can help us, one of the reasons that we've said even with that, you know, we believe that the rate, the Advance Notice is very manageable for us in 2024 and keeping us on track for our medium-term projections, which we will talk more about come March 30th, is we have a couple of things going in our favor. One is we're just gonna get the benefit of having a lot more members on our platform than we thought we were gonna have one year or two years ago.
That doesn't change anything from a rate basis, but it does mean that as we move forward, having those members on the platform, more members on the platform earlier, you know, de-risks our ability to deliver those longer-term numbers. The second thing is, so I wanna say this the right way, we're really good at risk adjustment, and what that means is we don't get out over our skis. You know, we don't do risky risk adjustment, I guess, is the way to put it. We have a very good well-defined process. The information we put in front of PCPs for them to consider in the risk adjustment process is all peer-reviewed.
All of our risk adjustment process, all the codes themselves, the conditions themselves have to be, you know, certified and accepted by the actual PCP, which means they do a great job of also doing things like making sure they're deleting codes where conditions have resolved. We have a really good process and one of the things CMS has said is, "Hey, we would expect that although the unmitigated impact is 3%, that people will still make progress on risk adjustment." Since we do it so well, we would expect that, hey, we are gonna continue to make progress maybe better than some other folks would do.
What actually even makes that probably a little bit better for us is the bigger mix of members you have that are early in the risk adjustment process, meaning they're, you know, really have been relatively unmanaged or are still in kind of our multi-year process of getting to more mature risk adjustment, meaning, you know, we don't get to perfection and risk adjustment in one year. You know, it takes us our implementation year zero, maybe year one, maybe year two, you know, through those years before we're getting closer to that. We just have a higher mix of our members that are those, you know, less mature from a risk adjustment standpoint.
We've got a very, very big class of 2024 coming in that we just talked about being at least 80,000 members from new markets and 130,000 members overall. Those will obviously get the benefit of the risk adjustment process that we put on them 'cause they're, you know, they're relatively unmanaged today. All of those factors will, I think, help us get to the next level and offset some of just the rate impact of it. The second thing is, though, I think there's some offsets that'll happen on the cost side as well. You know, some of the stuff that Ben was talking about is we're actually seeing better performance on the cost side than probably we would have expected a year ago as well.
Our ability to continue to drive those clinical programs and practices that will continue to improve the quality of care and the health outcomes for our patients, we expect that will be better than we expected a year or two years ago, certainly as well. We'll get that benefit, and we'll continue to drive that. You know, probably the last thing is, I wouldn't say that we are like, we haven't counted on this, or we're not like saying, "If we don't get this, we're in trouble." I would think that there's gonna be, you know, some amount of benefits compression that the payers themselves are gonna be looking at to help offset this.
You know, obviously there's been, you know, hundreds of dollars of increase in supplemental benefits over the last few years as the rates have gone up, and that's been reinvested. Even a small change in benefits, you know, a $10 PMPM, $20 PMPM change will go a long ways to offsetting the impact of it. I think when you look across all of those factors, you know, we're still analyzing and trying to figure out how much we get out of one versus the other. When you look across all of those, there's more than enough levers that we have to really manage the notice through 2024 and then stay on track for the longer term.
I have a little clinical observation.
Yeah, please.
If you take a look at the Advance Notice and, you know, the diagnoses that they're, you know, removing or modifying, they were really directed at a lot of sort of activity that, you know, would be more consistent with practices that are specific, you know, risk adjustment shops where they're doing aggressive screening. Like, you know, every single patient with cardiac disease is getting, you know, imaging, getting other advanced testing across a broad population. Our model is all done through PCPs, sort of follows the way that a PCP would practice medicine. It's integrated. As a result, you know, those specific codes are much less likely to be seen in very high numbers among our PCPs because the things that we're picking up are things that are sort of part of how they would regularly get care.
For example, you know, patients with renal disease who are being entered into specific care management programs for renal disease, that's standard of care with how a primary care doctor would, you know, practice medicine versus every single patient over the age of 65 getting a cardiac echo. Like, we're just not an engine in the way that some purpose-built clinics might be, where that is part and parcel of what they do. We're not sending, you know, external parties into patients' home. Again, everything's through the lens of that PCP. When CMS, I think, made those adjustments, they were really directed at some of those more aggressive intervention, you know, broadly screening practices, not what you would see in the way that a normal PCP as part of a regular practice would be conducting, you know, medicine.
Mm-hmm.
Yeah. Are we out of time? We started at 9:10. Is that right? Okay. Shot clock doesn't work.
I'm glad you had that last question in, so.
Okay. I guess abruptly, thank you very much for your time. Thank you.
Absolutely. Gary, thanks a lot. Appreciate it.