Great. Well, good morning, everyone. I'm Nathan Rich. I cover the managed space here at Goldman. Very happy to have Alignment Healthcare here. To my right, John Kao, CEO, and Thomas Freeman, CFO. Thank you so much for joining us.
Thanks, Nate, for having us.
Awesome. Maybe we start with what's been topical, just, you know, with the bid submitted last week. A lot of focus on what the market might do next year, just given the tougher rate environment across most of the space. You know, how are you guys kind of viewing market growth for next year? You know, when it came to putting your bids in, how did you kind of prioritize, or what did you prioritize in terms of, as you thought about your competitive positioning?
Yeah, I mean, we've always found a balance between growth and margin. I think when we look at this, the raw data market by market, I feel very, very good about where we are. What I mean by that is, if you think about some of the tailwinds that we would benefit from our respective markets on star ratings, and on a relative basis, we think V28 and the new risk model is actually gonna be a tailwind for us on a relative basis.
You kind of put those together and you, I would say, combine that with just how we're thinking about products in general this year. I would focus on kind of the way we've looked at our different cohorts.
They have the, call it, the 20% of the polychronic that need a lot of care, Care Anywhere, and the low-income duals. I think that's kind of one bucket, and we're having very specific products around that. Then the 80% of the people that are generally pretty healthy. I think we simplify the experience for those people. I think that's gonna be something that you see. I just feel very optimistic about it this year, just because of the depth of detail, market by market, that we've gone through. Thomas, anything else?
The only thing I would just add is, you know, we've mentioned some of our doubling down around our sales and distribution strategies in some of these markets, and we announced a few new hires and sales leaders last week that we're really excited about, both on kind of the West Coast, the East Coast, and then kind of over our national sales operations, which I think will be valuable as we develop and kind of execute against some of these market-by-market strategies this upcoming AEP.
As part of that, again, continuing to double down with the brokers and FMO partners that have been great, and then tactically trying to deploy, you know, more telesales, 1099, et cetera, as appropriate, where we feel like we have areas of opportunity.
I think you kind of marry that with a lot of the competitive backdrop John was describing, and that's what really informs a lot of that confidence and excitement for this AEP.
I think, you know, you guys have always been good at, you know, being very targeted. I guess, you know, how, you know, will kind of the, that new leadership team, and I think the bend is really, you know, more of a focus on growth. You know, how are they gonna go to market differently? Can you maybe talk about how you approached markets that you view as being more competitive with, you know, differently from those that are maybe a little bit less competitive for next year?
They're all competitive. I mean, in all seriousness, I don't mean to dismiss. I mean, I think they're all competitive. I just think that some of the artificial, call it, subsidies associated with stars and some of the subsidies related to V28 on risk adjustment are really gonna be normalized heading into the 2024 AEP. I think you're gonna start seeing that reflected in people's bids.
You know, there's rhetoric on just, you know, general headwinds with respect to MA, which I think of it as a speed bump. If we kind of look back, kind of 20, 30 years on MA, that train is just not gonna slow down. Just see the raw demographic increases in the number of seniors, and that train is chugging from 60 to 90 million seniors.
It's just not gonna slow. The market share penetration from MA, I think, is also going to be, you know, what is it? 51%, 52% now, market share penetration, going up to something like 60%+ percent. I don't think you can slow that train.
When you particularly look at the monthly benefit or the rebate associated with how much an individual beneficiary gets from joining MA relative to fee-for-service, you know, sometimes it's on average, $200 PMPM, and sometimes up to $300. You kind of look at the cycle of MA over the last 30 years, there's always, you know, kind of ups and downs with different kinds of regulatory changes.
BBA in the mid-nineties, MMA in the early 2000s, ACA in 2011, 2012, and then now V28. In that time window, MA just keeps going up. Right now, I think it's very opportunistic for us, just kind of where we're positioned.
You think kind of based on even with some of, like, the V28 changes, I understand the changes to stars maybe don't affect you guys directly, but you don't think the relative attractiveness of Medicare Advantage has changed just from a?
I think-
The number of benefits it can be.
I think from a macro level, I would say you are right. You can see benefits, because of Stars and V28, have overall benefits come down for the sector. I think that's okay. I just think on a relative basis, when you consider Stars and V28 and our markets, they pose huge opportunities for us.
Certainly other payers will be more challenged next year, and so I guess, do you see potentially a year of kind of elevated switching just based on?
Yeah
Some of the changes those plans are going to?
Yeah, plans are not going to be as aggressive overall-
Yeah
-on benefit designs, you know? You know, whether or not, you can see a slowdown of MA penetration this year on a macro level, that probably is the case. Remember, 85% of our members are switchers to begin with. It's a kind of a better mousetrap, you know, more value. I would say this year, like, more targeted, you know, more just data-driven, more analytical. It kind of just all line up to give me a lot of optimism.
I guess, you know, kind of tying it all together, you know, you have the long-term target for 20% revenue growth. Is that still the right benchmark for next year, kind of taking all these factors into it?
Yeah. I'm very comfortable with 20%, and we're getting bigger and bigger. Yeah, I think that's the right target, and we'll see what happens.
Maybe, Thomas, just any kind of broad brush strokes on how we should think about that between, you know, membership gains, geographic expansion, price growth?
Yeah, I think you'll see that, obviously, the majority of it be membership driven.
Yeah.
From a market expansion standpoint, you know, we're continuing to be really disciplined about this path to profitability. That's one of the things driving the notion that we're not going to add any new states for 2024. I think we will look to add a couple of sort of tangential or adjacent counties within our existing six-state footprint.
Generally speaking, I think we're focused on really going deep and driving share gains across our geographic footprint today, where we've planted the flags. I think, you know, even in our more quote-unquote mature markets in California, there's still a significant growth runway there. I think you'll see it both inside of California and outside of California to kind of try to hit that 20% growth target.
How's the strategy for Texas and Florida going to change? Obviously, year one, maybe a little bit more challenging than you anticipated. Can you maybe just talk through what changes you're thinking about for next year and?
Yeah, no, it's, it's, you know, four key drivers that we've said that we need to have in place to win. Not just, you know, grow, but really win and win for the long term. It's, it's Stars, it's, which we're, progress is really good in those markets, number one. Number two would be product. Product, I think, we have just greater visibility, and I was just down in Texas to just see for myself and meet all the folks. Provider partners, I think, are very good. I think the broker distribution, I think, is also very good. I think our product strategy this year is gonna be attractive, and I think our network is attractive.
I think I'm optimistic about Texas. Florida, same kind of thing. We've got very good provider partners. We're making changes on some of the distribution, which we've talked about, and Ergo, one of the new leaders that we've brought on board. I think our products are gonna be much more, I think, on the mark. Again, Stars, I think we're making good progress. I think, you know, I feel very confident with what Thomas was referring to, which is getting the kind of that long-term growth rate, from our markets that are, you know, more mature.
Yeah.
I feel very comfortable with that market share gain and hitting our numbers. I think if we can get the kind of growth we want out of these two markets in 2024, it's gonna be that much better for everybody.
Got it.
So, um, but, uh, uh, yeah-
not necessarily, like, reliant on significant-.
I don't.
-investment.
I mean, I think that would just be prudent for us.
Yeah.
You know?
Okay.
I will say, there's deeper and deeper relationships with certain providers that I think would be opportunities for us to begin doubling down in each of those markets.
Okay. Maybe taking a step back, just thinking about the utilization picture and how that's shaping up. Obviously, there's been a lot of focus on some of the, you know, more positive procedure commentary that a lot of the hospitals have made. I think a lot of managed care, including yourselves, has said that utilization overall is kind of running in line with how you price.
You know, I guess, like, sitting here in mid-June, I guess you still feel like, you know, for 2023, you've kind of priced appropriately based on what you're seeing. Anything to call out favorable or, you know, running better than trend, as we think about kind of the different buckets of utilization?
I think to your first question, I do think everything we've seen so far year to date is kind of consistent with expectations. Maybe just on the inpatient setting first, you know, that's the area that we really just sort of attack from a clinical standpoint, ensuring that the right members get the right care at the right time. That both means if we can prevent an unnecessary hospitalization, we want to do so. It also means encouraging people to seek care in an inpatient setting if that's the right thing to do for their care plan.
We've run about 160 admissions per thousand for the last six years straight, and I think we're very much on track right now to continue to kind of run between 155 and 165, the way we have for a, you know, long period of time now. I think from a non-inpatient standpoint, some of the depressed utilization we saw during COVID in 2020 and 2021, a lot of that we really saw came back over the back half of 2022. I know there's been some commentary just in the broader marketplace about some of the outpatient trends, and we've certainly seen some of that ourselves.
I think a lot of that is essentially net positive from an overall unit cost standpoint, and that some of these things may have previously taken place in an inpatient setting, but maybe you might see that hip or that knee be done in an outpatient setting, where they can still get the same quality of care, but at a more cost-effective price for both the beneficiary and for us as the plan. I think we've seen some of that similar to others, but net-net, I think that's actually kind of a positive from an overall MLR outlook standpoint.
You know, I guess when it comes to this, you know, looking at like, elective procedures and just like the sheer volume that were likely missed, you know, during the last two years, I guess, what's your view on, you know, if and, you know, when those might come back? Do you feel like there is some level of pent-up demand that could kind of continue to come through the system over the next couple of years?
I think we saw a lot of that for us, really materialize in 2022. Even in, I'd say 2021, you know, what we often saw was there was certainly more of a, of an ebb and a flow, sort of, you know, highs and lows throughout the year or even throughout certain quarters. Over the course of a full 12-month period, a lot of that, I would say, was still similar to our pre-COVID experience.
In other words, the seasonality and the variability, month-to-month, quarter-to-quarter, was certainly a little bit different. In totality, when we reflect on the last 12-18 months, I think a lot of that quote-unquote, you know, pent-up demand has kinda come through on the elective side.
From a more of a non-elective or emergent standpoint, I mean, that's where we're really actively managing these patients ourselves, that 10%-20% who are responsible for 80% of the cost. I think that proactive engagement model throughout COVID was really important to ensuring members were getting the right care upfront, as opposed to facing barriers to care during the COVID challenging times.
Okay. You know, I guess you've kind of been, I think, very intentional about, you know, kind of working towards profitability, and that kind of, you know, maintaining, you know, kind of a laser focus towards that. I guess, when you think about kind of how we get there, you know, how important is kind of realizing top-line growth with, you know, maybe getting MLR down, you know, getting some scale and getting to profitability, and kind of do you feel like you can kind of manage to both over the next several years?
Yeah, I think we have.
Okay.
is the answer. I'm optimistic about it because, again, I'm comfortable with our bid strategies. I think operationally, there's upside for us in retention. This is really a shout-out to the team. Thank you guys for just working so hard on that, number one. Number two, I think the investments that we've made in AVA from an operational scale economy point of view, and just more efficiencies and higher degrees of productivity along our back-office operations. Shout out to the team there for all the work they're doing. I expect just more efficiencies.
Three is scale economies, getting bigger, we'll have a higher leverage effect on some of the, you know, call it the corporate services and the fixed costs. I do think there's still some upside opportunity for us, even with V28, we've kind of alluded to this in some of the offsets and the upsides. You know, we've spent so much of our time on the 20% of the polychronic that account for 80% of the spend, making sure there's care plans in place for those members.
Really, this year, we've really started looking at the 80% of the membership and operationally looking at how we can code those folks more efficiently and more reliably. Because there's gonna be.
I think the last statistics we saw, there's still 20+ % of that membership that have not hit the claim system yet, but are pre-chronic. Properly, you know, capturing those opportunities, and then, you know, affecting Care Anywhere in a preventative way, I think is an opportunity. When you add all these things up, you say, "Can you get the growth that you want and also get the path to profitability you want?" I think the answer is absolutely.
Yeah.
That's kind of what the company's been focused on.
I guess maybe one question on the risk model changes I wanted to ask, since you mentioned it. I guess maybe the process of adjusting to kind of the new, the coding structure, like, you know, maybe walk us through what that's like, what changes that entails, and, you know, kind of, you know, how you're kind of putting the organization into place to, like, yeah, execute on that new model?
Yeah, I mean, I think, sort of the V28 conversation is entirely separate and distinct from how we approach our Care Anywhere programs. They're sort of two different things, and the Care Anywhere programs you've heard about for the last several years now, remain unchanged as a part of whether or not, you know, vascular disease or, diabetes or complications is worth more or less than it used to be. We don't change any of that. I think in terms of how we then think about V28 and what we need to do to achieve the operational targets that we've laid out, is really an emphasis on two things.
One is, as John mentioned, you know, so much of our energy and investment from a clinical standpoint has been on that 20%. I think when we look about the broader population, we see an opportunity where there are certain markets, you know, certain providers that do a good, but maybe they could do a better job on properly documenting and closing the gaps around both Stars and risk adjustment.
Essentially doing more of that work ourselves, particularly if a provider only has a couple of Alignment members, I think we can reduce some of that variability we see and ensure just more broad, kind of completion and accuracy on that population.
The second thing is we're continuing to make sure that both our network of PCPs and also our internally employed clinical resources, just understand the model changes. That entails both educational kind of rollout programs around what's happening, and then also ensuring that our systems, and making sure AVA and our, called our Patient 360, has properly been adapted to reflect the new changes coming down the pipe. That's really been our focus for the last, you know, whatever it has been, 90+ days now. I think we feel really good about the traction we're seeing.
I guess when we look at kind of the outlook for MLR more broadly, I think you have a long-term target that's in the low 80s%. You know, the business is a decent amount above that today. Thomas, can you maybe just walk us through kind of what the big buckets of opportunities are?
Yeah. Yeah. I think first, you know, I would, I would kind of separate a little bit of the MA core business from our ACO REACH business, which the ACO REACH business tends to be higher MLR, but obviously very low in terms of incremental SG&A and is net positive from a bottom line, kind of EBITDA profitability standpoint.
We think it's accretive to the story, but obviously, that's not been our kind of core focus area from a growth standpoint. It's a part of how we engage with our provider network, and it's a part of how we create better continuity of care from their across their senior panel on both MA and traditional Medicare. It's, it's a little bit different than, obviously, our core MA MBR.
On the MA side of things, I think it's a few key drivers. The first is, we need to continue to grow our at-risk book of business relative to that just global capitation book of business. We've been a little bit contrarian, to others over the past, you know, going on 10 years now since the company really began, where we really want to manage the risk ourselves. We know based on all of our performance and historical cohort data, that when we take care of that person ourselves, we ultimately do a better job on MBR than if we were to globally cap that member to a downstream provider.
I think as we continue to drive growth, not only in California, but outside of California, you'll see that shift occur where we're able to have a larger percentage of our members be, you know, quote, unquote, "at risk" versus global capitation. I think the second thing is within that at-risk bucket, obviously, we need to continue to perform and essentially mature those members along the cohort curves that we've shared in the past.
As we've been able to demonstrate and kind of shared our most recent data back at a conference earlier this year, you know, our year 6+ MBRs on that population are around in the high 70s. So there's a significant advantage if we are able to continue to mature those members and retain them over time, as opposed to, again, the global capitation model.
The last thing I would say is, we're really proud of what we've done from a, from a operational and clinical standpoint, but we also know there's still low-hanging fruit. Our Care Anywhere program today is about, you know, 60%-65% engagement. We really want to see that closer to 75%-80% engagement. I think some of our AVA tools we've rolled out over the last 12 months, including some of our new CM systems, are great, but we're just now starting to see the benefits of some of those things come into play.
There's, there's certain things that are more operational, where I think we can just continue to take our efficacy and our clinical innovation to another level in the future.
I think kind of taking those three things into account is what gives us optimism that we can get to that long-term MBR target.
Maybe just a very quick clarification. You want to grow your at-risk book. I guess, how much control do you have over that? Because usually, we think of it as like you're kind of pushing a capitated model, you know, what some of your peers are doing, it seems like it's maybe the opposite. Obviously, California is a unique market.
Yeah, yeah, I can take that one. Kind of contextually, if you, if you think about kind of this trend toward vertical integration and kind of controlling your supply chain, and that's certainly what I think a lot of the larger MCOs are doing. You contrast that to, say, kind of a contracted network, certainly you see a lot of that in California with the, these, capitated IPAs. We've been working really well with these capitated IPAs over the past nine or 10 years.
Part of our model is, it's a little bit of a hybrid, meaning we think if you know who that 10% to 20% of your membership population that's contracted and has selected a PCP, for example, that is not controlled or owned, but contracted.
If you know who that 10%-20% are, that account for 80%-90% of spend, you understand the reason that the Care Anywhere team, or call it our internal clinical SWAT team, focuses on that subpopulation and takes care of people on the whole. The degree of control to ensure that the outcomes of the performance management on the population, where the money is, so to speak, and also where the biggest opportunity to take care of people and serve the people, that's the opportunity.
It's been a capital-efficient deployment model, high yield. I think our NPS score is something like 82 on the members that we actually, you know, take care of at the home. It's a high-leverage model relative to the other kind of models out there.
I do think there's opportunities for us on the 80% to, you know, improve performance on some of the star measures, for example. I think it's a very scalable model because I don't think it's realistic that you're going to be over here and, you know, have, you know, vertically integrated staff models in every single market that you're in. In some markets, I think it could make some sense, but not every single one.
I think in the past, you've maybe talked about being interested in potentially acquiring that type of business.
Yeah.
What are your latest thoughts?
Again, I think we have been selective in certain practice acquisitions in certain markets. I think those have been very successful for us. Vertically integrating kind of everywhere, I think that's gonna be really tough to do. In certain select markets, maybe, I just think that.
What would need to, like, what would be the, like, characteristics that you'd have to look for in that market?
I think, you know, kind of, you know, if you look at, you know, you can think of a handful of markets right now that are more comfortable with more staff models, more vertically integrated market models. I think those kind of dynamics are where you would, you know, where we would point to. I think focus on particular markets where there's some distinct competency. At the end of the day, I think the opportunity is taking the Care Anywhere model up and overlaying it to one of these potential opportunities you're talking about, I think is where the magic is.
I think, you know, just having, you know, call it a multi-payer, you know, global cap chassis, I'm not, well, I'm not sure how survivable that's gonna be, frankly, particularly in the light of V28.
Makes sense. Thomas, I guess, any latest thoughts on just, like, the timeline to profitability and sort of how investors should think about that?
I think based on how the bids have come together over the last couple of months, we remain disciplined and focused on that 24 breakeven target, 2024 breakeven target.
Okay, that's still the right way to think about it?
Yeah, that's still what we're shooting for.
Okay.
I think, based on a lot of, again, the work over the last 45 days, I think we're incrementally sort of positive on how achievable that is.
Okay, great. I guess maybe wanted to ask on stars, just kind of the strategy, you know, to get to five stars, kind of the relative importance of getting to that threshold in your mind and what the company is doing to try to achieve that.
I think you have to. you know, whether we achieve it or not is another issue, but I think the cut points are just increased across the board for the sector. I think the relativity of how the different plans stack up against each other is something that is important. I don't think you have the luxury of, you know, shooting for four stars or shooting for 4.5 stars anymore. I mean, you have to shoot for five stars. Now, if you miss on five stars, that's okay. You can get, you know, 4.5. I think you can still be competitive, but if you don't shoot for the five stars, I just think it's getting tighter.
You have to understand what those cuts points are and put your operations in place. Every week, you know, we're looking at numerators and denominators on every single measure, and closing those gaps, and the goal is to get to five stars. Again, it depends on where everyone else kind of lands, I think we've proven in the past, we've held our own on stars.
From a distribution strategy for next year, it sounds like it may be a more balanced approach than what has been in the past?
I think it's gonna be more.
Okay
-is the way I would say it. Each market and submarket is different. We've got leaders in place that are building tactical plans now as we speak. Again, we hired the head of West Coast sales for United, sales leader for Bright, sales leader for Florida Blue. I mean, these are senior executives that we're just very fortunate to have joined the team.
So they're building out the tactics with the relationships that they have. Some markets may be, you know, more 1099, some may be more FMO, some may be more captive. I do think we're gonna be investing in more telesales across the board. I think we're gonna be investing in broker management, kind of broker payment solutions.
They're gonna be easier to work with us. all that, I think, is gonna be market to market and very tactical, and team met this past week, and just very encouraged by what happened there.
I guess, more aggressive with the spend this year than maybe the past, or just more reallocation of what you typically spend?
Uh-
I would say it's more the latter. Yeah.
More the latter.
I think, in part, again, as I think about just sort of overall profitability this year, kind of outlook for 2024, I think, we have to be just, you know, really, I think, disciplined about how we think about it.
Okay
P rudent how we think about it. No, I don't think we're having any type of deviation from expectations to start the year.
Right
It's getting more precise in many respects.
Right. Got it. Okay. moving on, ACO REACH, I guess. I think you're kind of, I think, guided to, like, 100% MLR for the business this year. You know, how does that change, you know, over the next couple of years? I guess, what does it take to kind of, you know, see that, it's gonna be a small improvement, but improvement, to maybe get to, you know, a little bit of profitability in that business?
I think our comments on the kind of guidance outlook or what was implied in our guidance outlook for 2023 was in part just based on the fact that we had a pretty significantly new population this year. I think that was just a reflection of that kind of unknown. Based on what we have actually achieved, you know, you go back to 2021, we had one of the top quartile savings rates in the country for the DCE program, in spite of the fact that we had the second lowest benchmark PMPM in the country.
While we have not seen the kind of official and final CMS data for 2022 days of service, I think ultimately, when it's all said and done, we'll have achieved, you know, really well, for 2022 days of service as well. I think just big picture. As I mentioned earlier, it's additive, both from a financial kind of contribution margin standpoint, but then also just strategically.
Again, because we're working with providers in our existing MA networks, I don't think you'd likely see us go pursue a brand new ACO REACH deal in a state that we're not already, or even a county that we're not already operationally in today. I think from a long-term margin standpoint, it'll probably never have the MLR that you would see in the MA book of business.
I think that's pretty fair to say, particularly when you take into account some of the upside kind of profit share arrangements that we would anticipate for those arrangements with the providers. As I mentioned earlier, the SG&A incrementally required in order to support any growth of that business is really quite minimal because we're not, you know, doing marketing, there's no commissions, we're not paying claims. It's just a very different operational implication as compared to growing your MA book of business.
Even if the MLR is, you know, in the 90s long-term in that book of business, it could still be a nice margin from an overall EBITDA standpoint, given the insignificant SG&A associated.
Got it. Okay, maybe just, lastly, to wrap up. Obviously, heading into a presidential election cycle, any policy that's in focus from an Alignment standpoint in your mind?
No, I mean, it's the beauty of MA. It's so bipartisan, I don't think there's been any change to that. I think the value to, you know, 60 million voters is so compelling, I don't see a change to it. I think V28 was actually designed, and the starter model for that matter, was designed to get the MA program kind of back to what its original CMS intent was, which is higher value, lower cost, higher quality, lower cost.
I think it kind of took out any of the, you know, kind of technical, you know, kind of nuances on the fringes, and is really intended to kind of refocus everybody on that. Just serving that beneficiary, giving that beneficiary more value and more affordability.
I think it's just the right thing to do for seniors, and I don't see it slowing. If you look historically, this goes back to the trends, you know, even if the kind of the Republican administration gets in, typically, it's always been a uptick. I think there's upside. If the Democratic, you know, administration stays intact, it's still advantageous to us. That's when the business was built. Irrespective of reimbursement, up or down, we stand positioned to excel.
Yeah. Great. Well, let's wrap it up there. Yeah, John and Thomas, thanks very much for your time.
Thanks, Nate.
We appreciate it.
Always. Thank you very much.
Thank you.