It's my pleasure to host Brandon Sim, the CEO of Astrana Health. Thanks for, thanks for coming. And yeah, I think we could jump into Q&A. So, you know, in terms of short term, kind of like you just reported Q1, and it was kind of a surprising quarter, given the context of how peers talked about MLR and utilization, because on your reported numbers, I think the comparable metric for cost as a percentage of revenue, which is not MLR, but is effectively MLR, was down 400 basis points year-over-year. And part of that was you changed your reporting on ACO REACH, and I think on my math, it was coming out to around 100 basis points.
Let's say 300 basis points of MLR reduction year-over-year, where peers like Humana are talking about 200 basis point increase in MLR.
Mm-hmm.
And so it was just very stark in terms of the difference of what you reported, and so would be curious to hear—and sorry, last point. On the call, you mentioned that utilization might be coming in as a percentage basis, 200 basis points below what you booked-
Mm-hmm.
in terms of guidance. So, yeah, in terms of like that variance versus peers and variance versus what you expected, just curious what you're seeing.
Sure. Yeah, thanks for pointing that out, and thanks for having us here. On trend, I think that's, that's obviously a question we've got a lot.
Yeah.
We're seeing around, in terms of raw PMPM dollars, probably, approximately 3% PMPM dollar trend year-over-year.
Okay.
In the first quarter, that was, as you mentioned, a couple of percentage points lower than kind of where we had booked things for-
Yeah.
-around 5-5.5%, which led to some of the outperformance relative to expectations. You know, it, it wasn't like costs necessarily going down, but in terms of MLR-
Yeah.
... given some of the movement to full risk, two months of the CFC acquisition, hitting Q1, and then some of the lower than expected trend, we came in, we saw favorable MLRs. We also didn't experience much V28, if at all, pressure.
Yeah.
Much, if at all, V28 pressure. It was probably. The Q1 numbers looked very stable relative to last year. They didn't grow, you know, by, by a lot, but they also didn't shrink, you know. So, so we're still at around just under 1 for the year, so there wasn't MLR pressure from kind of declining V28-
Yeah.
... yet, even though, you know, the first third is phased in, at least for what we're agreeing for, and we'll see what happens at Sweeps, you know, next quarter. I think the last point would be, I think we actually saw a lot of the trend get pulled forward in 2023.
Yeah.
We saw kind of a less growth in our EBITDA number last year, and we did see we were, I think, for a couple of earnings calls now, we've talked about slightly increased utilization.
Yeah.
So I think my guess is that some of the utilization for our population kind of trickled in over a longer period of time, including in 2023, but we also didn't see, you know, high single-digit % trend in Q1 of this year.
So you said 3% in Q1 is what you saw. What did you see in 2023 and I guess even 2022?
Yeah. I don't have the 2022 number off the top of my head-
Okay.
... but 2023 was, I believe it was, north of five-
Okay.
... percent. And that's also why we had booked kind of for 5.5-6%.
In the guidance?
In the guidance.
Yeah. Okay.
Right.
And we were just having a conversation with Alignment, who presented recently, and they were also pretty bullish on utilization, and they're also pretty exposed to California and L.A. So is it possible that your comments about like utilization kind of was like pulled forward? Is it California dynamic? Like what-- I guess you are in a few other markets. Are you seeing a stark difference in terms of year-over-year trend?
Yeah, that's a great question. We obviously have a lot of respect for the Alignment model. I think that could be possible. I think in the fairly delegated world of especially Southern California, where not just Alignment, but payers in general-
Yeah.
...kind of are delegating to downstream provider groups, it's possible that others are seeing the same, the same trends that we are, which would lead to kind of the payers in aggregate across their book of risk-bearing provider groups seeing those same trends. I think even in other regions, the sample size is much smaller, obviously, in Nevada and Texas, but we haven't seen trend be-
Yeah.
... double digits, you know, or high single digits. Probably higher than three, but not-
Yeah. But do you have a theory on if it is a California-specific dynamic? Like, is it related to how much capitation there is or some other factor as to why maybe there weren't as much labor problems? Like, do you have any sense of what would even drive that difference?
That's a good question. California has an interesting labor dynamic. Los Angeles, for example, has a new healthcare minimum wage law.
Okay.
It's around $25. I think it's $25, depending on the size of the entity, per hour.
So, increase labor problems.
It's an increase. Exactly.
Yes.
So I think that, that probably is not the answer.
Yeah.
But I, I do think there is a— there's something to be said about providers understanding in a value-based construct that-
Yeah.
... seeing patients is better than not seeing patients.
Right. Right.
Especially in our regions, you know, annual wellness visits are pushing 80%, call it. So I think there's really an effort and an ingrained culture to see the patients as often as possible, even if... And we kind of try to engage the patient-
Right
... to go into their practices as well.
All right, so shifting gears a little bit, off of MLR. If we look at, like, the rate notice for 2025, that was a big point of contention from Humana, at least-
Yeah.
... where it didn't meet their expectations. But in Los Angeles, specifically, where you have a lot of your members in MA, you know, the rate was +5%.
Right.
And so first, like, is there a dynamic where CMS is seeing increased costs that you're not? And then second, what does that do from like, your expectations from 2025 perspective? Like, what payers are gonna do to benefits and how that flows through to you if the benchmark rate is relatively strong, it seems?
Yeah. So the odd part is that if you take CMS's comments at face value, the reason they didn't increase, or I think the first time in many years, that the final rate notice was-
Yeah.
- actually lower than the proposed is because they weren't seeing fee-for-service
Yeah.
Medicare trends, cost trends, actually go up across the country. And that's interesting to me because that obviously also flies in stark contrast with the rest of the commentary, but actually is very similar to what we're saying.
Yeah.
Right? And so, I think the 5% L.A. increase should be, we believe, you know, we haven't booked into any of our projections-
Yeah
But we believe it should be a tailwind. We'll see if the trend that we're seeing today, which is around 3%, holds up into the rest of the year or into next year. But if it does, obviously, that'd be a big tailwind. I don't think it's gonna impact—I mean, obviously, bids are not due yet, but I'm not sure that it will impact supplemental benefits too much. I think people will—the industry is pricing down, regardless of whether L.A. is 5% or not.
Yeah.
is my guess, but it's obviously a game- theoretic problem in terms of if someone really wants to win L.A., I suppose they could have room to increase benefits. As a point of, for the audience, we try not to take risk on supplemental benefits, so that's been another difference in terms of kind of our risk-bearing model and others.
Yeah.
As many of you know, we are contracted with most, if not all, payers across all lines of business and taking risk. So a member moving from payer A to payer B doesn't actually help us because it's not a net new member for the Astrana risk ecosystem. And so, philosophically, we try not to pay or take risk on something that is not, one, that we don't decide and we have no impact over.
Yeah.
And two, doesn't actually even help our growth. So when we can, we try to share or take as little as possible of the supplemental benefit risk.
To your point about, like, members switching, you talked about that you are less exposed to the risk model revision changes than average because you guys haven't been, you know, coding as aggressively as your peers.
Yeah.
But if you're growing membership this year-
Mm-hmm
and you're getting members from potentially other payers and other doctor groups.
Yep.
... is there a risk that, like, the way you accrued risk adjustment on those new members that you weren't seeing was potentially off, and that the impact of the risk model revision to those new members-
Mm-hmm.
Could potentially be more extreme than you modeled?
Yeah, that's possible. It depends on kind of where the source of the new member.
Yeah.
So if it comes from a very highly coded group and comes into our ecosystem and they're at a 1.7, and they shouldn't be, then probably, yeah, there would be some impact downstream, or as the V28 model phases in. If it's a new member, we accrue for them at the, you know, demographic score and until, you know, the next year. So we're not accruing for any expected-
Yeah.
RAF increase in the membership.
I guess, what, how much of your membership was new to you within MA, I guess, specifically, but just broadly?
This year in California, it's probably around a third is new-
Okay.
versus other groups.
But that includes CFC, which you already worked with, or?
That does not, no. No, excluding... Oh, CFC is mostly Medicaid anyway.
Okay. Okay.
That didn't really impact things.
Yeah.
Outside of California, it's mostly new members.
Okay, so a third of your MA patients that you're taking risk on are new to you.
Right.
So, like, did you book, I guess, to that point before, like, did you look at it and say: "Oh, they're coming from Optum, and so we have to assume, you know, 1.7?
I actually didn't really see.
Okay.
I don't have the exact number of-
Yeah, yeah.
What is the RAF score of the new MA members off the top of my head, but I don't think it was like all the new members were coming in at 1.4 or something very high.
Yeah.
It didn't really impact the overall RAF too much.
Okay. But is there any difference in trend that you're seeing on them versus-
The new members?
the existing member? Yeah.
That's a constant thing that we're always monitoring, even before-
Yeah.
kind of all the commentary on utilization. For the last couple of years, we've monitored the trend in new patients is higher.
Yeah.
Because we don't want to be the victims of, you know, patient dumping. You know, oh, terminate this or move this patient into a different risk-bearing entity because we know they have some high, high-cost condition. Unfortunately, that does, that does happen. And so we monitor that pretty carefully, and that, that hasn't necessarily been the case this year.
Is one-third like a unique number for you, or is that like a normal churn number where like, roughly, you know, some percentage are leaving and some percentage are joining, or is one-third like an unusual year?
I think it's pretty normal.
Okay.
Yeah, it just... When I say one-third, I mean age-ins to Medicare-
Okay
... or people who move in.
Right. Okay.
Or somehow we're in a fee-for-service arrangement, like from an ACO, for example, versus having been in a competitor's MA program.
Okay, gotcha. And following up on one of your earlier comments about, you know, trend came in better versus your expectations, the 5%, the 3% versus the 5%. Like, on the call, you kind of mentioned that if things do come in better, you would reinvest the upside. So if you could kind of give more comments about that, like, let's say, you know, it is 3 and not 5.
Right.
So that 2% of revenue, I guess, delta, like, that would all get reinvested, or would there be a portion that you would flow to the bottom line? And then I guess, if you are reinvesting, where is that money going?
Yeah. I think we would certainly let some of it flow through to the bottom line. We were conservatively not raising guidance this quarter, although by Q2, I think we would have enough information to-
Yeah
To do that if we were gonna do that. So in August, we'll have that information. When I, my comments around reinvestment were mostly around accelerating growth at a time when peers are shying away from risk.
Yeah.
You know, we had guided to 1 or 2 new markets. If we come in 2% higher on, you know, a billion, you know, $1.5 billion, $1.6 billion of $7 billion of revenue, could we enter 3 or 4 new markets?
Yeah.
and still come out at expectation or even ahead of midpoint, for the year and set ourselves up for a stronger 25? So those are the questions we're thinking through. There are a lot of opportunities in the pipeline at the moment, and I think we're trying to differentiate ourselves by being a partner for the payers that... frankly, you know, for them, they want to offload risk. They don't want to do it with a partner that is going to exit contracts when things are hard, and then come back when things are easy.
Yeah.
That's not really the point of offloading risk. We are trying to grow more aggressively with payers where we think we can manage the cost effectively.
But when you say enter new markets, like do you mean like Nevada and Texas, kinda go into like adjacent counties, or are you saying like enter entirely new states? And, and what is your rationale in terms of like how you're thinking about, you know, geographic expansion broadly?
We're always doing the former. I meant more of the latter-
Got it.
... in terms of entering new states. I think there's a desire to, I mean, there's been a lot of questions, obviously, and right, rightfully so, around how the model scales-
Yeah.
... or if we can operate in other-
Right.
... in other states. For example, in Nevada, we started a fully delegated, full risk, upside, downside contract in MA this year. That means we're paying the claims, we're doing the prior auth, et cetera, which I think a lot of folks weren't sure if that was even possible outside of California.
Yeah.
And we're starting something similar in Texas by 1/1/2025. So there's certainly a desire to continue showing the progression of our existing kind of non-California markets, but to plant the seeds in other areas where we think there's potential for value-based models to work. To answer your second part of the question in terms of, I guess, where, without saying too much, I, I'd probably you know, we're probably avoiding Florida, to be very honest.
Yeah.
But other than that, I think other areas in the Southwest, Pacific Northwest, and select parts of the Eastern Seaboard are pretty interesting.
Because they already have some value-based care direction?
Yeah, exactly. We think there are innovative payers in the market-
Yeah.
... or there's regulation, you know, Medicaid waivers, whatever the case might be, depending on the state, where it makes it attractive, and demographics, you know, look similar to markets we've operated in. Vegas, for example, was an instance of basically everyone from LA moving eastward, either into San Bernardino, Riverside counties, or further east, frankly, into Las Vegas here. So I think there's, you know, obviously, Arizona has similar trends, Texas, and other Southwest states.
I remember when we were writing the initiation for Cano Health, we wrote, about DMG-
Mm-hmm.
... the DaVita Medical Group, that started in one market and was really successful, and then they had trouble expanding. We wrote that as like a risk for what could happen to a primary care group. Cano ended up being that exact scenario where-
Right.
... they were successful in Florida, and they expanded into new markets and ran into trouble in terms of, like, how things performed versus expectations, and ultimately, you know, didn't have a good outcome. So, like, how do you prevent that scenario from happening? Like, what did-- I guess you don't know what they did wrong, but like, you know, from an investor perspective, it's like you're expanding into a bunch of new markets.
Mm-hmm.
You've clearly, the model works in one, but like-
Mm-hmm.
... how are you, like, where are you drawing the line of like: Okay, Nevada and Texas are ramping as we thought, and therefore this can export. Like, what is the data point that gives you that confidence?
Yeah. So the really interesting thing is, there probably aren't, if any, certainly not many platforms that have made it work-
Right.
... in multiple markets as successfully as they have made their first market work. However, there do exist models that work in each given market.
Yes.
Like in Florida, there is something that works-
Right.
... in New York, in Texas, and wherever. So probably Optum is the only one that has managed to kind of-
Right.
... make it work everywhere. And so the interesting thing is, if there are models that actually work-
Yeah.
... why can they not work when under the same umbrella of one company? And I actually think the reason is because companies often become too dogmatic in terms of believing their care model is the only care model that works, instead of understanding that there could be different care models, different modalities of engaging physicians and patients that need to be taken when you go to a different region. For example, like hypothetically, if someone were to create a holdings company that just acquired assets in different states and just let them run as they were already running, in theory, that combined holdings company would work, quote, unquote, across the different markets. And one might argue that that kind of looks like Optum, for example.
But so, so why couldn't a, you know, a company actually make it work? It's because they aren't flexible enough with their model, or their model doesn't have the configurability to support different types of modality of how a community wants to be, wants to experience their healthcare. I think that's where our model really shines. We, as you know, we have the Care Partners business. We can go out and affiliate with independent doctors, literally on an office-by-office basis, or we can affiliate with large groups, as we've done with, you know, CFC or BASS or others. We can go in and employ providers in a de novo clinic setting, or we can acquire clinics and integrate them into our clinic business in the Care Delivery segment.
Here in Nevada, for example, tomorrow, we're doing a grand opening for our newest Blue Diamond clinic, quick plug here, which was a de novo opening. And we can support providers via the CareEnable, our technology platform as well, flexibly, if that's what they want to do, which we did with CFC prior to the acquisition. So I think the key is, as we go into new markets, we're figuring out which modalities work the best in that market, at least to enter, rather than imposing the view that, for example, all markets must be led by a 20,000 sq ft clinic and 10 of them-
Right.
... in these areas. That flexibility, I think, essentially allows us to look slightly different in each market, but allows us to find, you know, economic success and, and sustainability in those markets.
One other plausible angle, potentially, that I've been thinking through, of like how that could be the case, where there are groups in every county throughout the country that are making it work, but they can't all like expand and make it work themselves, is like, you know, when you're taking risk, you can lower costs, but like your benchmark matters a lot. And so like there is a scenario where in California, value-based care became very prevalent, and there are like a consolidation of groups, and they have like purchasing power or pricing power, where they can go to managed care and get a strong benchmark. And that's true in Florida, and that's true of Optum-
Mm-hmm.
... where they have 50% market share in MA in most of their counties. And so, like... Is there a risk that, like, you do have good pricing power in L.A., and that's why the model works, because you're getting a good benchmark? Whereas you go to Texas, you go to Nevada, you go to these markets where you're much smaller, and you go to the group Humana, and you're like: "You're paying me 90% in California, but here I'm giving you 85% because you're really small." Like, is that possible that that's the explanation, or are you kind of getting reasonable benchmarks everywhere?
I think we're getting reasonable percentages of premium everywhere. The Nevada contracts, the Texas contracts don't look that, frankly, that different from the California teams or the California contracts, even though they're different teams, obviously.
Yeah.
... from the national payer side. And I think it's possible that that might be the case for groups that feel like they must grow kind of just for the sake of growing, because then they become price takers and not-
Yeah.
makers, and so they might have to take on extraordinary risk on subs, or they might have to, you know, take on a very low percentage of premium just to get, just to get a contract.
Right.
or whatever the case might be. I think because we don't feel any necessarily any kind of burning pressure that we must grow just because, you know, we're free cash flow positive, we'll be around. I think we can wait and choose the markets that-
Right.
We think will actually have reasonable, a sustainable path to profitability.
So you're negotiating prior to entering, like, what is my cap rate gonna look like?
Yeah, totally.
Yeah.
We're modeling everything out prior to the entry. So if we enter, we think it's, I mean, it's a fair deal, but we think-
Yeah.
There is a path for us to get to profitability over time.
Okay. And then in terms of the California business, you know, you recently got the Knox-Keene license for both Medicare and Medicaid. You've talked about on the earnings calls, which has been very helpful, like the percentage of premium that you currently are in full risk and where it's going. I've been trying to come up with, like, the math in terms of what you're implying, and it comes out to around, I think, $800 million in incremental, like, run rate annual premiums off of 2Q. So first, is that like a reasonable kind of like math to do in terms of the revenue opportunity? But then, you know, if you assume a 5%-10% margin on that, it comes out to like $40 million or $80 million of EBITDA-
Mm-hmm.
-on top of whatever you're doing today. And so are those numbers reasonably, you know, directionally accurate? And, you know, what is the timeline of achieving them, and what are like the big, you know, potential stumbling blocks of not being able to?
Yeah, yeah. I think the potential opportunity is right.
Yeah.
Is in that ballpark. We probably will not achieve the full potential-
Yeah.
because we probably wouldn't have every last member of the book in a full risk up-down.
Right.
arrangement. In particular, part of the government programs, we will over the next 12 months. That timeline, you know, is shrinking as we make progress, but probably commercial, we will not be in full up-down arrangements anytime soon. So I think, you know, instead of 800, it might be, you know, 500-600, but I think the potential sizing was correct. And then in terms of the EBITDA opportunity, you know, there is coordination we need to do with the hospitals, in order to implement our care model. So as an example, when we work with the hospitals, we'd like to have influence over the discharge process.
Typically, if you don't have your own hospitalist in the hospital, or you have no influence over the hospital, they can kind of discharge to any-
Yeah.
Random place they want. Oftentimes, they're trying to rush people through the beds. You know, they don't have enough capacity, so they'll just call, like, 20 different SNFs and see who's the first to pick up, and then discharge immediately to that SNF. You have no control over where the patient's going. You have no idea, you know, if they're gonna stay in that SNF for two months or two years, or who knows? And the cost kinda can balloon out of control. And you also can't implement any care programs that you've developed in-house. For example, we have an in-home care program. If they get discharged to a random SNF that we don't know, it's hard to get them now, repatriating them back into our in-home care program that we think has benefits to the patient.
So to financially incentivize hospital systems, which we've been doing as we move into full risk to work with us in this, in this model, we often share part of the risk pool savings with them. And so that probably means that we won't get to the full margin expansion that we might expect because, say, 20-30% of that will be shared back to the hospital. So we might get 70 or 80% of what you just said, but maybe not 100%.
Okay.
So I'd probably guide with those caveats in place to those improvements in both revenue and EBITDA happening probably over the next 2 to 3 years, and probably kind of in a fairly even cadence across those years.
But to your point about, like, having the hospital, it's like if you go to them and you say, "Hey, we're gonna take full risk now, and we're still gonna give you some sort of shared savings, but it's less than what you've gotten before," like, are they pushing back and saying, "Okay, now you can't have your hospitalist here?" Or like, is there like... What is changing in terms of dynamic, or is it really that you're just giving them a rate cut and nothing else is really changing?
I think it depends. It's kind of, this is not, you know, a great answer, I know-
Yeah.
... but I think it's very situational.
Yeah.
Hospitals, especially, some of them are doing. It's like a tale of two cities, and I'm sure you know, you-
Yeah.
You guys cover the big players, but some of them are doing very, very well.
Right.
And some are struggling, right? And so I think it doesn't hurt us—it doesn't really help us to have fewer options for patients-
Yeah.
... in a given region because then we have zero pricing power with everything owned by one person-
Yeah.
or one company. So I think we negotiate our arrangements in a way where we can ensure that community hospitals that patients love can sustain and stay open-
Right.
but in a way that we think is fair, you know, for the amount of work, relatively, that we're doing.
But are you at all reducing, like, the number of people that are in hospitals that are affiliated with Astrana? Like, the hospitalists, are they directly employed by you, and that's not changing, or?
We employ hospitalists, even in hospitals that are not-
Right.
... currently in arrangements with us.
Yeah.
But again, yeah, kind of a hospital chain-by-chain negotiation.
Right.
in terms of what they'll let us do, how much of the shared savings they would demand
Okay.
... et cetera.
...So that's part of the arrangement, is like even allowing me to have a hospitalist as part of, like, the whole structure?
Right.
Okay.
Right. Or having the right data feeds so that-
Yeah.
when someone gets admitted, we hear about it even before the-
Okay.
... ADT stuff, and we can deploy someone to help the patient.
Because, given like what percentage of costs hospitals are, it would seem important that you need like-
Very much.
...a feed and a person there, and that not having that would change something.
Very, very much so. Yeah.
But you're saying in general, like for most of your hospitals, that's not getting completely eliminated or?
Right. Right.
Okay.
No, we would absolutely want to continue to do that-
Yeah.
... and then supplement it with, you know, other methods. But it's obviously nothing beats literally being there.
Yeah.
Right.
Okay. And in terms of the growth you were talking about before into new markets or even within California, like you've been doing a lot of deals, in the last, I guess, 12-18 months.
Mm-hmm.
So what is the thought process around organic versus inorganic? Like, are you building any clinics ground up, or is everything kind of like through a deal? And then, I guess, how are you thinking about like the cadence and like sizing of M&A generally?
Yeah, that's a good question. We're doing all of the above. Yeah, so as I mentioned earlier, kind of the clinic tomorrow is a full de novo build.
Yep.
There are a couple others in Nevada that have been built, and California, for that matter, that have been full de novo builds. There have also been acquisitions. CFC was an acquisition of a network-
Yep.
... for example, and we've acquired a couple of clinics here and there, you know, as well. I think we just see it as a we kind of choose the option that has the highest ROI. Like, either it's a buy versus build decision. Even an acquisition is still requires some build, right? You have to integrate it, you have to, you know, do all the TI, you have to kind of hire all the providers in. So there's still some kind of dip in the J- curve, just not maybe as deep. So what we do when we evaluate whether we're buying or building is just to figure out, does it make more sense? First, is there anything to buy at a reasonable cost?
If there is, at some cost, you know, what do the curves look like, and where do we think we're gonna get more bang for our buck versus going out and building? I mean, I saw that. I think one of the questions people often have is, why even bother buying a network of providers? What are you even buying? Like, you're not buying-
They could walk away or something.
You're not buying a clinic.
Yeah.
You're not buying a, you know, piece of physical asset, I suppose. And I think the real question is really, how much would it cost and how much time would it take you, and how much profitability opportunity cost are you losing by not having that network?
Yeah.
Is that worth kind of what you're paying for it?
Right.
Would I pay 20 times for a network? Absolutely not.
Yeah.
But the CFC multiple was also, you know, 6x upfront, and-
Right.
... turned out to like 8. So, you know, we think about the ROI and kind of our hurdle is pretty high, so we think about all those factors when we go do that. The other thing is that networks often, depending on the quality of the network, not all networks are made the same, but some are actually high quality and have a lot of stickiness with the providers, and some don't. So I think we would try to verify kind of what that stickiness looks like.
All right. I think we're running up on time, so I have like-
Cool.
... one last question here.
Sure.
Kinda going back to our earlier conversation about like, what makes certain models work and what doesn't. We had like UnitedHealth Group here the other day, and we kinda asked them this question, and they were saying: "We don't think it's our vertical integration that makes Optum Health work," meaning like the dynamic between UnitedHealthcare and-
Mm-hmm.
... and Optum. But they said it was their horizontal integration, which could mean either scale or integration with like specialists or something. Like they're referring to, I guess, I don't know, pharmacy benefit management or surgery centers or urgent care, and I guess you do a little bit of that.
Mm-hmm.
And so how would you answer that question in terms of, is it important to be vertically integrated with the payer? And if not, like, what about horizontal integration actually works? Because it intuitively doesn't fully make sense to me that being aligned with a specialist is actually a good thing because you now have a misaligned incentive where maybe, you know, you wanna... I don't fully get how the horizontal integration helps, but would be curious to hear your thoughts.
Yeah, but that's a great answer from United. I-
They kinda have to say it, though.
Yeah. Yeah. I think vertical integration can mean different things, right? So in our risk-bearing entities, the restricted Knox-Keene licenses, for example, they are actually, you know, licensed health plans in the state of California. They're not plans that can go market-
Yep.
... and, you know, construct a benefit design and a plan design and kind of be on the marketplace or anything like that, but they are, you know, fully licensed health plans. And so in some sense, we've picked and chosen kind of the parts of the vertical integration that we actually want.
Yep.
What we want is the ability to take on full risk in a multi-payer-
Right.
... setting, in a multi-line of business setting. By sitting outside of the kind of single vertical payer, and you may know that we used to have an MA plan, or our affiliates used to have-
Yep.
... an MA plan, but that restrained us, especially at our scale. We're not obviously United scale, restrained us to, you know, that one vertical of our MA plan, our groups-
Right.
... and our technology platform. By having a plan that can take approximately 85% of premium with all of the other plans, we can kind of create a single-payer vertical in which we are vertically integrated. We have the "plan," quote, unquote, which that's taking 85% of the premium dollars.
Yep.
We have the medical group, both owned and affiliate, and we have kind of the infrastructure to support all of that. So there are elements of vertical integration that help. I think that's part of the, that's part of the story of having the restricted Knox-Keene license and why that's beneficial. Not having it, i.e., not being vertically integrated and being only an outpatient group-
Yep.
... definitely is worse than kind of having the plan entity involved. And that's something we're continuing. In Nevada, we have the—there's no restricted, you know, there's no Knox-Keene Act-
Yeah.
... so there's no RKK, but we have the appropriate licenses. In Nevada, we-- I mean, in Texas, we have the appropriate licenses to essentially operate as a pseudo-health plan. The other comment around horizontal integration is something we've also talked about before, you know. The company is founded by specialists. We have a lot of specialists in the network. Two-thirds of the 10,000 doctors are specialists that we talk about. And even in our employed group, which is around 150 employed providers, we employ specialists, too. We employ cardiologists, derms, endocrinologists, internists, and obviously, PCPs. So I think there's merit to that as well. You maybe don't get the-- to your point about quality, we like to think that we obviously have-
Employ the high quality, yeah.
-high quality, and we employ and affiliate with high-quality specialists. But, by the way, we actively unaffiliate with-
Right.
low-quality specialists. We have a medical committee that's obviously always looking at that. They may not be literally the highest quality, like cardiologists in all of Los Angeles or all of the state. But I also think that there's something to be said about the balance between access and, and kind of literally like having the world's number one-
Yeah.
-cardiothoracic surgeon or something, because if you can get someone into access at a good enough quality, that's, that's quite good for the patient. Not every patient literally needs the number one-
Yeah.
-surgeon, No. 1 orthopedic surgeon, whatever it is, in the country. But what they do need is not to not wait 3-6 months-
Yeah.
-to see their cardiologist or their, or their radiologist or whatever the case might be. So I think that's the balance that we strike in a value-based system. At the end of the day, we are responsible. We take on the great responsibility of, I hate to use this word, but kind of resource allocating, our healthcare system to the public in a way that optimizes for their health. And so we think that our hybrid model, and this is probably what Optum United are saying as well, in terms of them also owning clinics, affiliating with different high-quality specialists, and then kind of really integrating all of that into a coordinated system, can help get to that more efficient healthcare system.
All right, great. Appreciate the answer.
All right.
Thanks so much for joining us.
Thanks, Sam.
Thanks.
I really appreciate it.
Appreciate it.