Okay, great. We're hitting the home stretch here in the middle of the afternoon session here on day one at the Barclays Healthcare Conference. I'm Steve Valiquette, the healthcare services analyst. For our next session here, we have Apollo Medical. With us to my right, we have Brandon Sim, one of the company's Co-CEOs. This will be a fireside chat. I think with that, I guess we'll dive right in.
Awesome. Thanks so much, Steve. Obviously, thanks to Barclays for having us here.
Yep. I think, in this case, we'll go a little more high level. You know, I think that all the investors know, you know, a ton about the company. I think the biggest thing is let's just start with having you walk through the growth outlook for 2023 and what are the key growth drivers you see, especially breaking it down maybe organic versus inorganic, and then we can kinda go from there.
Absolutely. Yeah. I mean, the company's gone through, I think for the new investors in here, the company's gone through a lot of change over the last four years. I mean, the company's been around for over 25 years, for most of its life as a private company. you know, we went public via reverse merger in 2017, you know, unique choice to say the least. kind of since then, from 2017 to 2019, we didn't even do earnings calls, for example.
Really the amount of change that has happened from 2019 until now in terms of professionalizing the company, building the right management team, building a technology platform purpose-built for value-based enablement, especially in the very mature value-based environment of California, where we were started and founded and continue to be headquartered, has been kind of a long journey in order to unlock a lot of the latent value that has been in our populations in California and take that scalable model outside of California as well. A lot of the growth that we're seeing from 2019, I think from 2019 to the midpoint of 2023 estimates, 27% revenue CAGR, 28% EBITDA, adjusted EBITDA CAGR.
You know, it's very strong growth while maintaining kind of the profitability that we've always maintained with around $90 million of free cash flow being generated last year out of $140 million of adjusted EBITDA. It's a real model that we have worked really hard over the last four years to codify, to build a platform around and to take that into new regions in California, Central California, San Francisco Bay Area, as well as into new states like Nevada, Texas and New York. Breaking down some of the growth outlook for next year, I mean, we've guided towards a fairly large range on the revenue side, primarily due to a couple of factors. Organically, everything in the guidance is organic.
Organically, we're looking at low to mid-teens, pure kind of membership headcount growth, with the balance of the kind of growth made up by improved payer mix, by, you know, some very incremental growth in our new regions in Texas and Nevada. I say that it's incremental because all of those are primarily still fee-for-service markets that we are working to move towards, you know, outpatient or one-day global risk, and we expect that to happen in the next 12-18 months. To this date, they are gonna be very minimally, contributing to revenue growth, but over time, that is something that's going to be a meaningful driver.
That being said, even in our core California regions, in terms of membership growth and improvement in payer mix and kind of blended PMPM, that's gonna already drive the, I think, I believe it's 17.5% revenue growth at the midpoint. It's actually gonna be a little bit higher than that. We've also baked in some of the Medicaid redeterminations into that growth number. You know, we expect around 5%-15% of our Medicaid book of business. Medicaid represents around 25% of our revenue. At the midpoint, 10% of that business to, on a gross perspective, to kind of be redetermined and maybe not qualify for Medicaid anymore. 10% of 25, so 2.5%.
We expect that impact to be spread across probably two years, 2023 and 2024. You know, not a huge headwind to revenue growth, but still something. We expect actually around 40%-50% of those members to be recovered or recaptured into a different line of business. As you all may know, we are line of business agnostic. We serve Medicaid members, commercial, exchange, Medicare Advantage, Medicare fee for service and ACO. Part of the benefit is that we can maintain care coordination, as well as maintain them in a risk-bearing ecosystem, even across different life circumstance. During COVID, for example, a lot of folks unfortunately lost their jobs. We saw them move from co-commercial coverage in the Apollo Medical risk-bearing ecosystem to Medicaid or to a subsidized exchange plan, for example.
It'll be similar here with Medicaid redetermination. The folks we do expect, you know, 40%, 50% of those folks to come back in another line of business for us. That kind of bridges us from, you know, the $1.1 or so of revenue that we reported in 2022 towards kind of our baseline assumption for where we're gonna land in 2023. Another big factor that we haven't taken into account in terms of that guidance is the acquisition of the Restricted Knox-Keene License that we announced late last year. For those who are unfamiliar in California, without a Restricted Knox-Keene License, provider group is actually not allowed to take on risk in both professional, which is outpatient, as well as inpatient or hospital-related risks.
We're only allowed to do outpatient risk or Part B risk in Medicare lingo. What that means is we're actually only taking risk on 35%-40% of the premium dollar instead of 85%, even though we're doing the work in terms of having the hospitals, the inpatient care managers, the transition of care coordinators, so on and so forth. Pending regulatory approval, you know, that's something that will also serve as a catalyst that isn't even included in this kind of guidance forecast for next year in terms of revenue growth, moving from 35% of the premium dollar to 85 on our 1.3 million value-based care members in California. Hopefully that helps.
Yeah, no, definitely. Touched on a lot of subjects that we'll dive into a little bit deeper. One thing that's gonna come up a little bit is within a lot of these publicly traded companies that are focused on value-based care, there can definitely be a, you know, a wide array of arrangements with the physicians as far as, you know, contractual relationships, how many are directly employed versus just contractually affiliated. I think you guys, you know, we built out a pretty detailed Barclays value-based care market model. I think you guys kinda stick out as a company with a fairly large number of primary care physicians that are affiliated. Yeah, I think a smaller number that, you know, as far as the physicians that are directly employed versus just affiliated.
Correct.
Maybe just talk through the strategy of when it's right to directly employ physicians versus you just having that contractually affiliated relationship and what are the pros and cons on both sides of that?
Yeah, no, absolutely. By way of background, it's around 11,000 affiliated physicians in the network, contracted on either our paper or one of our, you know, medical groups' paper. In comparison, or in contrast, like you said, only 30, around 30 owned and operated, you know, primary and multi-specialty clinics. As you said, definitely a larger emphasis today on kind of the affiliate model and enabling existing kind of physician groups and physician practices to participate in and succeed at value-based care. That's been by design. You know, it's an asset light... I mean, these are things I'm sure folks have said before, but it's a quicker way to enable value-based care in a place where that might not have been the case before.
you know, CMS, for example, has stated that they want all Medicare, original Medicare patients in an accountable care arrangement by the end of the decade, 2030. It seems infeasible to me if that is the true goal to build enough or to acquire enough or to employ enough physicians under one entity or a group of entities even, to accomplish that goal as quickly as CMS might want it to happen. Working with the existing infrastructure, working within the bounds and the trust that physicians in the community have built with patients over sometimes decades of their lives, following them from job to job, following them into Medicare eligibility, is something that we strongly believe in.
Enabling those doctors who are already ingrained in the community, who understand the specific levers that it takes to change patient behavior, and then giving them the tools to participate and succeed in value-based care, we think is sometimes more effective than going in, employing a doctor and expecting that they can build these relationships with patients from the ground up, within a very short period of time, in terms of expecting ROI on that investment. I think that's a big part of why we like to partner with physicians, especially those who have already been ingrained in the community, because sometimes they don't have the ability or the knowledge or the time, frankly, to engage successfully in value-based care. That's where we think we excel at doing that.
The reason that we also have clinics as part of the model is because it's important to supplement supply of healthcare when there is excess demand for that care in a particular region. What we find is, you know, if we're able to partner with physicians who are deeply ingrained in that community and can serve those patient populations, that's wonderful. Let's do that. If there's too much demand, for example, and not enough physicians there to fill the demand, we might have to build new centers, and we have done that. We've built the Nova centers. We may have to acquire practices and make them more efficient. That's something we've done as well. You know, at the end of the day, the operating model technology platform is agnostic to whether we own the clinic or not.
It really doesn't care. It's not like there's a different clinical pathway if we own the clinic versus, you know, it's a physician that we don't, that's an entrepreneur and has a private practice. The recommendations are the same. The operating models are the same. The economics are a little different, obviously, but at the end of the day, we're gonna do what is necessary to deliver a coordinated high-quality experience to patients.
Okay. Also, can you remind us too, just, within the 11,000, you know, total physicians, you know, mostly affiliated, what's the current mix related to PCPs versus specialists? You know, and is that ratio a very different number within 30 clinics that are directly owned by you guys? Also, how has that ratio of PCP versus specialists kind of evolved over time and going forward for that matter?
That's a good question. Technically, we haven't disclosed kind of that ratio, but I would say it's around 20%, 30% are PCPs. You know, call it a 2,000, 3,000 PCPs out of that 11,000. The rest are specialists. Again, all contracted in our paper. It's not, you know, piggybacked off of insurance contracts or anything like that. Of course, that ratio is definitely different when we look at our employed model clinics. In our employed model, it's primarily primary care physicians. It's over 50%. We do have some specialties. We own a CLIA-certified lab as well. I mean, really, it's all about. It's not that we want to be a major lab player. It's about fulfilling demand for these kinds of services in places where historically they just haven't existed.
Absolutely the mix looks different in our, in our employed model because we focus specifically on, you know, more on primary care.
Okay. Just to build on that a little bit further. Within the employed model then, as far as the, you know, the specialties that you're focused on, you just wanna give a little more color around which areas, you know, in particular that you're really, you're trying to drive, you know, value-based care initiatives?
Yeah. I mean, it's still primary care.
Right.
As we said. It's a lot of kind of high demand specialists who traditionally may not want to work or just by whatever circumstance, just are not in a particular region where we have a great density of patients that we feel the need to augment that demand and supply imbalance. For example, dermatologists, you know, we're in L.A., but typically dermatologists don't tend to go too far east, for example, of downtown or Beverly Hills. You know, it's a stereotype to say that, but it is more difficult in terms of access in the more rural regions or more low-income regions to high-quality dermatologists.
For example, we do employ several dermatologists for that reason to fulfill kind of a demand for medically appropriate dermatology services in certain regions that traditionally wouldn't have someone in that community to serve them. Cardiology is another example, where, you know, it's very difficult. OBGYN is another example where often culturally sensitive OBGYNs are hard to come by in certain regions and not everyone has access to the same level of care as they might living in a kind of more densely populated region. These are some, just some of the specialties that we employ, but primarily it's primary care physicians.
Okay, got it. Okay. You know, in that first question, when you provided some of the color on the business, you talked about some of the states already where you're looking to expand, you know, outside of California. We don't have to rerattle those off. The yeah, I think just given how competitive value-based care has become, you know, really across the entire healthcare continuum, you know, across almost all geographies, you know, it's probably more challenging than ever to recruit physicians in some of these new markets. What's the strategy when you are entering these new markets? You know, are you still trying to do it more through, you know, the affiliation or do you wanna have, you know, the anchor locked in, you know, employed physicians?
Mm-hmm.
You know, just to give you more control over cost containment and everything else, when you're kind of thinking about entering the new markets?
Yeah, totally. No, that's a good question, and it's one we thought about a lot because in some sense, Steve, it really does feel extremely competitive, right? All the companies here at this great conference, you know, a lot of folks are really talking about investing in billions of dollars in value-based care, not only in primary care, but now we're hearing specialties as well. That's kind of a great area of investment for a lot of folks. On the ground, it's interesting because it often feels still that there's an amazing amount of white space. I mean, millions of completely unmanaged fee-for-service construct members that really, it's not like we're fighting with, you know, some of our peers to get.
I mean, they're just out there, and it's our ability to go and implement our clinical model repeatably, an operating model as well, repeatably in some of these areas that will allow us to kind of win or penetrate some of these markets. In some sense, yeah, it feels like it's very invested in. If you look at the broad landscape, I truly do feel like there's. I mean, the numbers bear it out as well. I mean, the percentage of patients in an ACO, for example, is nowhere near even 50%, definitely not 100%. There's still a lot of white space out there, I think.
The key is going to be who is able to scale the model effectively, who is able to provide a value prop to providers that gets them paid more and allows them to spend more time with their patients and, you know, bringing that model to those places. That's something I think we're very focused on. For us, it's also about depth over breadth. I mean, we'd rather have a real, very coordinated system that we've created in, just to rehash things really quick, but Nevada, Texas, New York, versus having a more shallow presence in 30 states, for example. I think that's where we can really start to affect clinical outcomes in a meaningful way.
Okay, got it. Okay. Even though the company's been around for, you know, a long time on a relative basis, you know, pretty strong market share and presence in the state of California, and just the overall model. I think only more recently over the past couple of years have you really started to highlight the internal technology, you know, kind of label yourselves as a, you know, tech-enabled VBC provider. For a little while there, that was worth probably 3x the market cap versus, you know, what the company was getting previously.
Right.
you know, maybe just talk about the technology component of what you're trying to do. you know, I think from meeting with you guys previously, I think a lot of that or almost all of it was developed in-house. Just talk about how that, you know, could be a point of differentiation on controlling costs versus some of the other companies that are out there.
Absolutely. Yeah. I mean, I'm a technologist by background. I'm not a clinician, I have to admit. You know, I did my undergrad and graduate studies in computer science and building machine learning models. I used to do that at Citadel on the buy side as well. You know, one of my background is in risk management and alpha generation and machine learning. I'm probably the first to admit that tech enablement is not the end all be all in healthcare, and it will not be, at least in the foreseeable future. We do build, like you said, all of our technology in-house. It's a recent thing because I was the first software engineer ever employed by Apollo. We now have a team of close to 50 engineers, data scientists, machine learning experts in-house on shore.
All that has been for the aim of enabling physicians and not just to say that we have a shiny kind of technology platform. The results bear that out, I think. From 2019 until, I mentioned earlier, till 2023, we've really driven scalability, we've driven revenue growth, we've driven real earnings by being efficient on the G&A side, as well as by helping physicians with maybe optimizing some of their care workflows. I don't want to go too much into it given time, but the technology platform is really kind of multifaceted. We built what the business has needed and not what we think philosophically, AI this or machine learning that, even though that is kind of what my background is. For example, we built payer tools.
We automate 90% of our claims processing. That's really saved costs in terms of, you know, there have been estimates out there from payers, hospital systems, $10 a claim. We process millions of claims a year, many millions of claims a year. Automating a lot of that has really cut down on costs. We automate 60% or more of our prior authorization requests. I might remind the audience that we are delegated for all of these payer-related services in California. I think that's rare, kind of unique to the state of California outside of the payer retains kind of control of prior auth claims payment, credentialing, contracting, and so forth. That's all something that we do in California for, you know, the same percentage of premium.
For prior auth, for example, it used to be that even the most routine, obviously medically necessary requests needed to be reviewed by a nurse or a coordinator. Now the obvious ones are automatically approved. The patient can actually, in that same visit, get that approval and then go do that procedure, you know, the follow-up procedure right away. This is a big deal. I mean, one example I gave in dermatology again, oftentimes, you know, for a biopsy, for example, the patient will need to go get an initial consult with a dermatologist, get a referral for the biopsy, get it approved, and then go back to the dermatology office to actually get the biopsy performed. It's an extra visit for absolutely no reason. What we can do if we can automatically approve that authorization is we approve the auth in that same visit.
The patient doesn't have to come back. They bill once for the visit and the biopsy altogether, the patient saves a lot of time as well and gets the results back faster. Higher patient satisfaction. The derm doesn't feel like they've wasted time having to see the patient twice for no reason. It's simple things like that where we can really enable workflows, at least on the payer-related side. Obviously on the provider-facing side, you know, we've built, you know, we have an NCQA-certified HEDIS engine to calculate gaps in care. We have HCC suspecting algorithms. We've built models to predict different risk profiles of patients and stratify patients by risk.
All that flows into clinically guided care pathways for each of those risk stratification buckets that our team of clinical coordinators and MPs and social workers at the corporate level, we have hundreds of them, use that platform every day in order to identify and then act on parts of the population that are higher risk. All that together, you know, it's a couple basis points here, you know, 50 basis points there. All of it leads to kind of these industry-leading clinical outcomes in terms of inpatient bed days, in terms of avoidable readmissions, in terms of, you know, ER utilization and so on and so forth that drive the profitability of the business.
Okay. All right. Just jumping around here a little bit.
Sure.
You know, this next question, I'm not as close to this as I would be since I don't, you know, officially, cover the company right now.
Yeah.
The, you know, just given that 80% of your revenues in 2022 were comprised of capitation payments, how much disclosure have you given around just your mix of the individual payers and kind of where your strongest relationships are and, you know, where, you know, most of the revenue is coming from? Unless you're not giving any color on that, but just wanted to just, you know, peel you on your back on that a little bit.
No, totally. I mean, we have, I don't think we call each payer out by name, but we do have a pie chart in our investor deck and 10-K around the kind of distribution of payer of payer revenues. The biggest guy is, you know, 50%-ish of revenue. I think it's no surprise that that is CMS for you know, in terms of Medicare payments. Other than CMS, there's not a single payer, I believe, that has more than 20% of our revenue. You know, in a way, we've played Switzerland with a lot of our payer partners. We want to have a payer-agnostic relationship with the patients.
That has served us well, for example, in times where, especially in the payer space in MA, has been very competitive in terms of benefit design and rebates and so on and so forth. For example, in Southern California, this is local market dynamics, but we saw payer A, not to be named, lose a lot of membership to payer B, who had very strong, kind of supplementary benefits that year. At the end of the day, we got a lot of questions about, "Hey, does this affect you? Payer A stock price, you know, was affected materially by this." At the end of the day, it didn't really matter because we had contracts with both. We were payer agnostic.
We continued the continuity of care for that patient regardless of the benefit package that they were choosing, regardless of the formulary that or broker relationship that they had that particular year in AEP. We were able to continue to deliver them care, same PCP, maintaining that relationship. Actually, in subsequent years, some of those benefits were peeled back, so the patients moved back to the original plan. All good, right? Same continuity of care. It's really that longevity of that patient-provider relationship that we can engender in this payer-agnostic model that yield some of the outcomes of value-based care. Value-based care is not a game for, you know, one, two, or three years. It's an investment you make now in a patient's health that may not materialize in improved MLR, improved clinical outcomes for many years to come.
If you're investing now and that patient is no longer in your risk ecosystem three years later, it's almost as if those investments you've made are now gonna accrue, those benefits are gonna accrue to someone else, the person, you know, the new risk-bearing ecosystem that they're in, even though you might have been the one to make those investments into their health, preventive care and all that in the first place. I think a key part is not only providing the preventive care that we're talking about, that the technology enables, but also keeping that member in your system so that when the benefits accrue, they accrue to you and not to someone else. Big part of our payer agnosticity is to keep that member in our risk-bearing ecosystem so that that actually happens.
Okay. Within that, you know, 50% mix that is, you know, CMS is your largest payer. I think you got a pretty good mix of, you know, Medicaid within that, where it's not just Medicare.
Right.
Maybe we're kind of running low on time here, but maybe just talk about, remind everybody kinda what you expect around Medicaid redeterminations and how that impacts your overall business. You know, is there a way to neutralize that? How are you guys thinking about the exposure on that and how that impacts the, you know, the flow of the mix and profitability as the year goes on, and also into 2024 as well?
Sure thing. That and the RADV stuff have been, I think, the top two questions I've gotten.
Yeah.
it totally made sense.
Yeah.
I think I mentioned earlier, Medicaid, 25% of revenues. We expect 10%-15% of the members to be probably not eligible post redetermination. That impact will be spread over 2023 and 2024. You could call it 10% at the midpoint, spread over two years, so maybe 5% of that 25% of revenue each year. We expect to recapture 40%-50% in, you know, an exchange of commercial products, probably kind of a subsidized exchange product potentially. And we have, you know, all lines of business, so we would probably recapture that. So the overall impact probably wouldn't be, you know, the worst in the world, given where we stand today. We'll obviously update, you know, the group, investors as if that changes.
There are also tailwinds in terms of California Medicaid. You know, 1/1/2023, all people who qualify from a financial standpoint, regardless of immigration status in California, signed by Governor Gavin Newsom, you know, are gonna be eligible for Medicaid. That changes to everyone above 26 years old in 1/1/2024. There are, you know, slight tailwinds to Medicaid eligibility, obviously bound, you know, puts and takes with Medicaid redetermination. In terms of 2024 RADV, I know we're out of time, but I think that's just a common question I've gotten. You know, we are actually typically undercoded. I mean, our This is public information, but our Medicare book of business is running at 0.95 to 1 RAF score across the board.
You know, like I mentioned, this has not been a super technology-enabled company prior to very recent times, and it takes 18 months for some of the RAF sweeps to come in. Some of the more recent efforts we've built around getting coding, you know, more accurate, haven't really shown up yet and we're still undercoded. I think, look, I know everyone says they're gonna be fine, but we've run the analysis on the prevalence of some of the big hitters that are going away, you know, diabetes with complication, you know, morbid obesity, some of the CHF items. You know, it's really not gonna be a big impact.
That coupled with the higher demographic for new members', RAF score, you know, we think the puts and takes are gonna come out, you know, on balance around equal or if not even a slight tailwind. Truly we've done some analysis and are not too concerned about RADV either.
Okay, great.
We'll see what happens on April 3rd, right?
Yeah, that's right. Yep. All right. That certainly helped. Well, okay. With that, we went over by a few minutes. I wanna thank Brandon Sim for his time today, and enjoy the rest of the conference. Thanks.
Absolutely. Thanks, everyone. Thanks, Steve. Really appreciate it.