Hi, good morning. My name is Cal Sternick. I am one of the managed care and facilities analysts here at JPMorgan , and I'm pleased to have with us here, Oscar, and CEO Mark Bertolini. Mark's gonna make a few introductory remarks, and then we'll move on to a fireside chat format. Mark?
Great, thank you. Good morning. Thanks for coming. I wanted to give a little bit of an insight on how 2024 is shaping up. We expect that we will have 1.3 million members when open enrollment is done. That is a 31% increase in membership. And if you exclude the California exit, it's a 38% increase overall, year-over-year. So double the market is pretty much how we've done. A lot of that growth came in existing markets, but also we had expansion markets. We did rural expansions off of our major metropolitan bases and provider contracts, and we saw appropriate level of profitable growth in those markets as a first-year entry. We expect them to be future opportunities.
There's a 500,000 life opportunity in those markets alone as we grow those. The company has experienced, over the years, entry into the market, a little bit of lower growth in the first year, but it accelerates as we establish our presence in the marketplace, and people experience our member experience, and talk to one another. So there's a lot of opportunity. To that point, this year, we expect our retention, for 2024 in the enrollment for this year to be as high as it's ever been. Both retention and growth occurred. That is why we have the numbers we have, double again the market growth, for the ACA. We expect 2024, as a result, to be profitable. We are just finalizing our 2024 plan.
We'll present that to the board the first week of February. So we will be profitable. We will meet those commitments. We'll have more insight onto the exact parameters of revenue, cost, and EBITDA, and we'll save that for our fourth quarter call, which is on February 8 . So good start for the year. That has allowed us now to focus on strategy as an organization, and so we earlier than I thought we would, because we've got good momentum in the business, we've got a management process that is keeping everybody accountable, and we have greater insight into the day-to-day operations and how we're functioning, both externally and internally.
So the next step is building a three-year strategic plan, which we will have ready for your review in late spring or early June at an investor day. It'll be a three-year strategy with financials that will highlight our extension beyond ACA into other markets. Our first market opportunity will be in ICHRA. We believe ICHRA's time has come, and we believe we have a different approach than most other people in that marketplace, that will give us an advantage in growth, in 2024 and 2025.
Ultimately, we will get into the Medicare Advantage business, but that's a few years out, using our +Oscar platform with health systems in the market, by enabling them to provide private label opportunities in their local markets to their patients, versus having to sell through brokers to the market.
Great. So, we'll touch on the guidance, come back to the guidance in a second, but, you know, first I just want to take a step back. I mean, you know, I'm sure you had no shortage of opportunities-
Yes.
So what was it that brought you to Oscar?
Well, six years ago, Mario and Josh asked me to go to dinner because they wanted me to join their board. I find boards death by a thousand pages of PowerPoints, and so I said no. They said: "Well, would you meet with us every once in a while?" I said, "Sure. I'm happy to meet with you guys.
You're still around," which was good, "and you're actually you've got a mission." And so we started meeting every so often for dinner, and one of the dinners they said: "Would you meet for just an hour a week?" And this was as the stock was getting lower and lower, and I said, "Sure." And so they gave me some shares in the company, as part of it, and we met for an hour a week, and we just started taking the business apart a little by little by little by little. And as you know, at the CEO level in any organization, the details aren't as clear on a day-to-day basis.
So, finally, one day they said to me: "Would you run the company?" I was just finishing my development of the new CEO at Bridgewater Associates, where I was co-CEO for 18 months, and I was getting ready to step back and enjoy retirement again. And they said: "Would you run the company for us?" And I said: "What would that be like?" And you understand the structure of my compensation and the way they put it together. I got, you know, a set of shares based on where the stock price is. And ultimately, the, the big reward is getting it back to IPO or higher. And that's, that's the mission, over time.
I joined the company on April 3rd, spent the first 10 weeks doing deep dives in every part of the business, every day, taking apart each piece of the business and developing a list of things that just good health insurance companies do to run the business effectively and generate internal capital. And what I thought was low-hanging fruit were really watermelons rolling around on the floor. All we had to do was pick them up, and we found substantive savings, which will be demonstrated in our guidance for next year when we give it, that will have full-year impacts that were started during 2023. Those include total cost of care initiatives. We renegotiated the PBM contract for a sizable return. We have built a management process-...
With a cadence, a week, a month, the whole team gets together and reviews the business piece by piece for two reasons: one, holding accountability and making sure we're meeting our commitments, but secondly, and probably more importantly, creating a common heuristic or mental model about how the business works. Because one of the things we found is that we had claims and backlog over provider data, which is every insurance company's problem these days, and forever. I've never seen a good provider database. And what was happening is those claims were not getting into the reinsurance recoveries or not getting into the risk adjusters, and so we cleaned that backlog out. And we processed those claims, and that has been a huge impact on our risk adjustment and also on our reinsurance recoveries, which will go forward in maintaining that level of, of, of claims.
And that's why our DCP went down in the second quarter as we worked that backlog out. Because we had the backlog, we had a reserve on the backlog, we had a pad on the backlog of the reserves, and, you know, it was just gumming up our ability to manage our reserves as a company. So that will begin to show itself in 2024 as well. And so we started that work and the team, and we built a management process, and it's been fun. I'm enjoying it, and I think the team's excellent. We brought in a couple of people. My chief of staff, head of strategy and comms, was my chief of staff and head of strategy in comms and government relations at Aetna.
So Steven Kelmar has joined me, and he's running the management process and embedding that throughout the organization. And then I hired Kerry Sain, who used to run our bswift platform at Aetna and built out that platform for us, where we had more outside clients than we had inside clients. And Kerry's joined to run +Oscar as we start to separate that business out from the rest of the business. So we'll start reporting differently in the first quarter of next year, and Scott will talk about that in the fourth quarter call. But we're gonna start separating +Oscar revenues and operations and not have this kludgy corporate number that sits over the top of the insurance company.
Great. So you've been in the seat for almost a year.
Mm-hmm.
It sounds like from everything you just listed out, there's been a lot to do in that year.
It's actually been 9 months, so.
Almost a year. Yeah, right.
I could give you the date.
What have been the biggest positive and negative surprises that you've found so far, and, you know, what has been more challenging than you anticipated? I guess, like, where have you been pleasantly surprised?
Pleasantly surprised, I... You know, the culture of the organization is amazing. There's strong communication across the team. People are really in it for the good. We actually had to have a few conversations about there isn't an or in growing or being profitable, 'cause I would get the question from the team, "Are we gonna grow this year, or are we gonna be profitable?" "No, no, we do the same for both. Both have to happen in order if we're gonna stay in business. And I reminded them of my time with the Daughters of Charity, chairwoman Sister Joyce DeShano used to tell me, "Mark, no margin, no mission.
We do not make money, we do not continue our mission to serve our customers." And so the team is, you know. So that's been some of the. But the culture is amazing. The people are great. They all want to learn, which is fun. And, you know, in this role versus my other roles, which at, you know, Aetna, there's a creeping dumbness when you become the CEO and chairman of the company because there's a lot of stuff happening in the lower organization that they tell you not to worry about.
Now I'm, you know, down at the ground level, working with the team and, you know, walking around the shop, and it's fun to watch it work and to build a group of people into a common team that understands how the business works and how to succeed. So that's been the pleasant surprise. It's close to my home.
Mm-hmm.
So my German Shepherd, Kiva, and I get... I made the office dog-friendly, so we have dog day. But Kiva and I, my German Shepherd, we get in the subway, and it's a 30-minute ride down to the office, so that's pleasant. On the subway, on the 1, because we're at 75 Varick, which is in the middle of the Holland Tunnel exit and entrance-
Mm-hmm.
So there's no way to get there by any other conveyance. And so that's, you know. And the office is great, and the people are great, and everybody's pulling on the oars, so it's fun.
You talked about growing and being profitable, and it sounds like you guys are moving in that direction this year.
Yep.
So, you know, the 1.3 you talked about, and I think, you know, you guys talked a little bit differently about growth this year. How did the growth come in relative to what you had anticipated? And you also mentioned really strong retention.
Yep.
Can you talk about what was driving that?
Well, the retention is our NPS. People like what we do for them. And, and so we've tested NPS a couple of ways. Last year, we priced, and I was involved in some of those pricing discussions, before I was even on board. We priced by lowering some of the broker commissions or holding them while other people were raising them, and we didn't lose members. They stayed. They wanted to be with us. So that's one test. This year, what we did, is we entered some new markets, and we pushed on some old markets that were in second generation, like Georgia, and saw strong growth-
Mm-hmm
... and interest in what we had to offer. So generally, we get a younger, healthier population. We've seen that in the SEP membership that's coming to the organization, particularly on Medicare-Medicaid redeterminations. So that's why we've been a net payer all along as an ACA participant.
Great. You know, you also mentioned the strategy this year is more focused on growing into rural areas where you can-
Mm
Extend your provider network. So are there specific geographies you're focused on? Can you elaborate on some of the reasons you selected those, and how has the growth in those specific markets developed, again, relative-
Yep
to what you had anticipated?
I think they've developed the way we thought they would. They're gonna be slow in the beginning because you have to build awareness in the marketplace. Number one. Number two, they're on contracts that we have strong relationships with the providers, so we can extend that pricing into those markets. And then third, we take a look at the rates in the market and see how much margin there is-
Mm-hmm.
because we will profitably grow.
Mm-hmm.
That's our mantra, is we need to grow profitably, and we need to make money and grow, if we're going to be a force that I think we can be in the future. We look specifically at each geography, we look at the provider, underlying provider contract, and total cost of care, and then we add to that, you know, what do the rates look like, and what are the best markets to open up in?
Mm-hmm. And, I mean, just the overall market is-
Yeah
... we're seeing really strong growth this year.
Yeah.
Can you talk a little about, like, what you think is driving that? Are you seeing a tailwind from redeterminations?
There is some tailwind with Medicaid redeterminations. It's like, you know, 4.4... almost 5 million people-
Mm-hmm
... have come out of that, in growth in the overall market. We've seen our share of that, but it has not been the primary driver of our growth.
Mm-hmm. So, if we shift focus now to sort of the profitability side of things, right?
Mm-hmm.
You talked about last year, you know, about having about 80% of your members-
Yeah
... within your target MLR range, and you know, pulling out of California should take another step up this year. In terms of the MLR progression going-
Yeah
... next year, I know you're not giving guidance yet-
Yeah
... but how big of a lever do you expect California to be versus some of the core medical management stuff that you guys are working on? And can you talk about some of the medical management strategies you guys are implementing?
Well, yeah, so, let me just give you some sense. So we've improved by 8 points on our administrative costs since 2021. We've improved by 10 points on MLR over that same time period, and 15 points on EBITDA. So all of those are indicators that we're moving in the right direction and we're doing the right things. We're examining how we think about providers. I'm always puzzled by how value-based contracts, when there are a million of them, actually really work. I can't imagine a doctor saying, "Well, Mark's in my office today, and he's from Oscar, so that's value-based contract 102, and therefore, I need to treat him this way in order to win, so therefore, I'm going to treat him differently than the last person that was in here 20 minutes ago." That just doesn't happen.
So why do providers and if value-based contracts are all that powerful, why doesn't every provider or the majority of providers succeed in them? They don't. So as you look at value-based contracts, the question is, why do some providers succeed? And those providers succeed because they have constellations of providers that they work with that provides a better form of care, a better result of care. And so we've embarked on high-performing networks, a strategy to look at high-performing networks, with a company that used to be an Oscar asset, is now an alumnus asset, called J2, that looks at constellations of providers that are generally higher performing.
Instead of us having the hubris of telling people who to refer to and what hospitals to admit to, we're going to say: "We want your high-performing network front to back to be part of our program. And we want to wrap our virtual medical group around it, Oscar's Virtual Medical Group, with social determinants of health aspects that allow us to support you in the community when you're taking good care of these patients." So we're going to try that in a few markets. I would argue we could probably pay them fee for service, because they just do a better job altogether, and create better relationships by supporting them and providing overall care for the community. So that's sort of how we're thinking about total cost of care.
On the UM side, we're revamping a number of our things on the UM side to get to a lower level of metrics, because my 2009 experience at Aetna, when we missed by $500 million on earnings, was that we didn't understand the lower levels of utilization in the group, the intensity going on underneath the general indicators that insurance companies use to measure that. So we're looking at that as also, also as an important part of our management process going forward. So we think, you know, we think there's a lot of opportunity in our provider network, particularly as we grow and we build good relationships, and those relationships generate great member experiences that prefer people to use us.
Can you talk about what some of the building blocks are to getting to total EBITDA profitability next year?
So we had variable and fixed cost leverage this time. Our level of increase in expenses was far smaller than the revenue that we're going to generate.
Mm-hmm.
That was one of the things that Scott and I worked on. Scott, our CFO, who's standing there in the back of the room, making sure I don't say anything bad. What we did is when we had the first round of the plan, I turned around and handed it back to him and said: "There's no operating leverage in this. Go find it." We pushed the rest of the team on being more focused to generate our plan. So we have operating leverage. That's important-
Mm-hmm
... because that allows us to grow profitably.
Mm-hmm.
It's part of the mix of growing profitably.
Mm-hmm.
Secondly, in the total cost of care, we continue to push to get our MLRs down lower than they've been this year.
Mm-hmm.
And that's in the plan. And so, again, not giving any guidance, there's a huge opportunity there. On the PBM contract, we shouldn't wait to renew it. Every quarter is an opportunity to go after the MAC list and get better discounts because that's what the pharma companies do. They get better discounts, the PBMs, every quarter on the MAC list , and we didn't have that in our operating model. It is now in our operating model. And then again, opening... We're going back and, we have this new contract called PADU, Preferred, Acceptable, Discouraged, and Unacceptable. And each contract that we have with providers is measured by that on financial terms and on the terms of the contract itself.
And we have a list of what contracts need to be moved, first-generation contracts when the company got started, to that optimal status, and we're starting to go after them in manner of size, renewability, and setting targets for the team to get those contracts in a better place. So that's total cost of care. And then on the growth side, I mean, one, one of the things we did this year, Mario is a polymath and a genius in so many different ways. I thought I could read fast, the guy's amazing, and and heady stuff. And Mario did Monte Carlo pricing for every market for us this year.
Mm-hmm.
That put us in a sweet spot in virtually every one of our markets. Actually, in some markets, after the first round of rates came out, we actually went up on a few rates 'cause we could get more margin out of it. So we're using more sophisticated pricing models-
Mm-hmm
... to compete.
I mean, the name of the game, right, for managed care is always you have the balance between margin versus membership growth.
Yep.
So, I know we're not, you know, it's a little early to talk about 2025 and beyond here, right?
Yep.
But, you know, how do you think the growth profile looks beyond this year? I mean, is the expectation that you guys will continue to outpace the overall market growth going forward? Do you expect to take more of a balanced approach as you focus on profitability?
Well, so we will demonstrate this coming year that we can move margin and grow.
Mm-hmm.
and our goal is to be at 5%+ operating margin. You know, when we get there, we expect that there's a 1x revenue kind of firm valuation at that point. That's first priority.
Mm-hmm.
That's strategic pillar number one, make that happen. So we're gonna share with you our glide path on that for 2024 in our fourth quarter call, which, you know, we're excited about. The second part is really to extend lines of business and create a bigger individual market. So that's where ICHRA comes into place. 70 million people in middle market and small group insured employers, where we have an opportunity to make that model work. We believe our product set and the way we approach the market and the member experience are going to have a fundamentally different impact on these employer groups than they have in the past. And when you look at the macroeconomic environment, and particularly around rates, and the Fed, nothing's going to happen very quickly there.
In spite of all the Pollyanna stuff about they're gonna all going to go down next year, and we're all going to go back to happy land, it's just not going to happen. The Fed's going to keep watching employment, GDP, and inflation, and they're going to hit it over the head every time they think it's going to rear its ugly head again-
Mm-hmm
... which they got behind, in 2018. So this ICHRA product is a huge hedge for employers-
Mm-hmm
... and we're trying to control the inflation on their costs. So it's a macroeconomic opportunity. So we think that makes the individual market larger, which gives us more opportunity to grow-
Mm-hmm
... when we're even not fully engaged in all the markets where we could be on the ACA.
Mm-hmm. And I want to touch on ICHRA in a second, but we think about the overall individual market.
Yep.
There's obviously been a lot of volatility over the last few years. It's, you know, SEP, right?
Yep.
You know, even since the inception, you had the three R's, and, like, you had issues in the first couple of years.
Oh, yeah.
Yeah.
Oh, sure.
I'm sure you remember that. How are you thinking about the market now, now that I think some of the pricing has started to rationalize a little bit? Are you thinking it becomes a more stable environment-
Yes
... from a pricing and margin perspective?
So if you go back to 2007, when we were worried about the next election and what would happen to Medicare Advantage, all of us in the industry said, "If we can get to 20 million lives, they can't shoot it. It's just too big to kill." And we're gonna get close to that this year. So I think it's here to stay.
Mm-hmm.
I think the individual market's going to continue to grow. When you hear that the state of Texas is considering building their own healthcare exchange, that's a sign that the Republican resistance around that's going to go away.
Mm-hmm.
I actually see a longer-term market where the individual market is one bucket of people.
Mm-hmm.
Not Medicaid, not COBRA, not ACA, where people can go to one place to buy an individual product and keep what they have.
Mm-hmm.
We think that's a huge opportunity if the individual market becomes that much larger.
Mm-hmm
... across the country. And we think that's an even bigger TAM-
Mm-hmm
... for us over time. So I don't have any concerns about it. I think on the subsidies, it's going to have an impact.
Mm-hmm.
I don't know, I don't know that the Republicans not passing it is a good idea, given that a lot of the constituency that is supporting the party now are those people. And so, you know, what kind of dynamic is it going to take to get those subsidies renewed?
Mm-hmm
... on the 400% FPL?
Well, they did try to do repeal and replace with no replacement plan, so-
Right
... I feel like nothing's out of the question anymore.
It didn't get anywhere far. It didn't get that far. I don't think that's going to happen again.
Mm-hmm. So do you think when we get to 2025, is it just looking like another temporary extension is most likely? Do you think they get made permanent?
I have no idea. If you're asking me, I mean, I used to be pretty good at predicting what the federal government was going to do, now it's literally-
Mm-hmm
... a random number generator.
Mm-hmm.
I mean, they can't even sit in the same room with each other without calling each other names. It's, it's actually really sad.
Yeah. No, I agree. Do you think it matters the outcome of the election in terms of, you know, how that impacts what happens with the subsidies?
As long as it's a divided government, it's going to continue to be the same mess it is.
Mm-hmm.
So, you know, I think we just play through it.
Okay. So, let's move on to ICHRA then.
Yes.
You know, what drives increased adoption of ICHRA here? And, yeah, like, how does the go-to-market strategy for those type of products compare to the way you approach-
Yep
... the ACA market?
So I, you know, I grew up in Detroit, and you never went to a car dealership and said, "I have $350 a month, how much... what kind of car can I buy?
Mm-hmm.
That's how health insurance works... you know, you get a premium, and then you know, you go get your warranty card, and then-
Mm-hmm
If you break, you present yourself to a dealership, and with some pocket of money out of your own pocket, you get fixed. And so this idea of conflating the financing arrangement with the investment-
Mm-hmm
is a problem. And what most people have done around defined contribution is talked about defined contribution as a financing arrangement. They've not talked about the underlying investment that's gonna stabilize the population so that when the employer gives up the insured policy and gives up choosing the payer, that they're not gonna be stuck arguing with their employees about whether or not the defined contribution amount is enough.
Mm-hmm.
And so the only way to do that is because most people in those groups are over-insured for a small group of people that are sick, is what kind of products can we design for the people who are sick to stabilize the growth of that, defined contribution over time?
Mm-hmm.
Start there with the employer, versus going right to defined contribution, saying, "You have to give up your control of these things.
Why do you think it hasn't taken off yet? Like, what are the challenges in getting employers to switch to this type of benefits?
Nobody's talking about the investment, they're talking about the financing.
Mm-hmm.
Here's an easy way for you to get out of this trouble. Just do defined contribution for your employees.
Mm-hmm.
That works the first year.
Mm-hmm.
And then, if they have an increase in experience, and the employees can't get the coverage they need, they're asking for more.
Mm-hmm.
We actually believe that there's actually a sizable reduction in the overall cost to the employer by going to defined contribution with the right products underneath it.
Mm-hmm.
We actually picked up, I think, 240 members in this year's enrollment that are out of ICHRA plans-
Hmm
... which I found interesting, without us offering a product.
So when you are, either you guys or brokers are approaching employers about this, like, what are they getting excited about? Like, which aspects of the pitch are generating the most traction so far?
We haven't done any pitches yet because we're still, you know, getting through the process of buttoning down the product-
Mm-hmm
... so we can have that conversation and start there-
Mm-hmm
... versus talking about the defined contribution.
Mm-hmm.
But the work we've done with our research team,
Mm-hmm
... we have a team set up, dealing with us, shows us that there's a lot of interest.
Mm-hmm.
More interest now than there ever has been.
Do you have a sense for what the timeline for a conversion looks like? Because when I think about the employer market, it's, like, people will switch carriers year to year, but-
Yeah
... it feels like the, you know, if you're changing the funding mechanism, that is maybe a bit of a bigger shift, and this is a little more... You know, this is a really relatively newer development in the market.
Mm-hmm.
Are employers saying, "Hey, you know, this is interesting, but maybe I'll sit on it and think about it for a year, and let's discuss in the next selling season," or are they switching in the same year?
I think we have an opportunity in 2024 to put some membership on the books, but we're not talking about that yet.
Mm-hmm
... what the number could be.
Mm-hmm. Okay. You know, for the employers who have moved to defined contribution, what's been the feedback like, both from their side but also from the employees' side?
Good. The people who have adopted it like it.
Mm-hmm.
You know, unless they have a major explosion in their underlying cost structure, that starts to affect the defined contribution they have to pay.
Mm-hmm. Okay, and, you know, thoughts on the... I mean, is there anything we can do from either administrative or regulatory perspective to really encourage faster adoption?
Well, I think the law is very encouraging. The changes they made, during the Trump administration are good-
Mm-hmm
... and it should work. It's just nobody's made a compelling go-to-market strategy other than, "Well, why don't you go to defined contribution and stop worrying about, you know, picking your health insurer?
Mm-hmm.
I just don't think that's worked.
For which groups do you really see this getting traction? Like, is this, are you seeing a lot of-
Small group, 50.
50 and below?
50 and above.
50 and above, okay.
Yep.
Mm-hmm.
Small group, and then I think you'll have some success in the middle market-
Mm-hmm
... on the insured side-
Mm-hmm
... including those that are reinsured with spec and agg .
Mm-hmm.
And then, I think the larger employers who are self-funded are gonna be a harder pull.
How does it compare to something like, you know, we've heard for the last couple of years, a lot of traction about level-funded plans? How would you compare, you know, the move for, to ICHRA versus level-funded?
Level-funded plans is just another version of an insured plan with the same premium for everybody.
Mm-hmm.
And I think it's a way to keep some insurance risk and margin return, but I don't think, you know, that is an anti-selection problem .
Mm-hmm.
You know, you can choose the groups and underwrite them in the way that you believe are the safe groups to underwrite with that kind of model.
Mm-hmm.
Then, you push the others into the ACI-
Mm-hmm
... which we've seen.
Okay, and so, you know, the other thing you've talked about besides ICHRA, in terms of, you know, expanding into other product lines, has been Medicare Advantage.
Yes.
What do you see as the opportunity for Medicare Advantage, for Oscar?
Yep. You know, having built, rebuilt that program at Aetna in 2005 and 2006, we were at one point making 80% pre-tax margins by just bolting a nurse to every patient that had two chronic comorbidities. We actually liked people that were 75 with two chronic comorbidities, 'cause all you had to do was get a nurse bolted onto them and take care of them, and they got better, and you made more money on the Risk Adjustment.
Mm-hmm.
The government's figured that out, and the providers have figured that out. The government's not gonna push back on Risk Adjustment this year, number one. Number two, a lot of provider systems are leaving Medicare Advantage contracts because they don't feel that that opportunity that is at the insurance company is translated down to the health systems. So our view is we could make a compelling value proposition. I sort of see Oscar as like a pirate ship with cannons amidst Spanish galleons filled with gold, they're called big insurance companies, who are not gonna wanna give up middle market and small group insured or Medicare Advantage.
Mm-hmm.
So if we could go to these providers and say, "Listen, we've got a platform that can put you in this business. It's called +Oscar. You don't have to worry about broker commissions upfront, you just sign up your own patients. You have all the data in the system, we can use that to get to star ratings as fast as we can.
Mm-hmm
... as a private label offering in your market. Your current -3% on Medicare, on 50% of your business, can go to 4%, and that 7.5% swing by going into Medicare Advantage for all your patients will generate a 3.75% positive impact to your overall margin as a system. Do you wanna do it? And that's, that's gonna be the pitch.
So, but I think the, you know, underwriting risk really isn't the core competency of a lot of health systems, so-
That's for sure.
Mm-hmm. So, you know, how do you get them to make that move? And do you see-
We can do quota share with them.
Mm-hmm.
So we'll go to work with them. We'll, I mean, the real issues is the system integration and business process reengineering that needs to occur to make that happen.
Mm-hmm.
The system part's easier, the idea is easy to say, but going in and actually setting up a set of metrics that look different than the way the hospital succeeds and the way the health insurance company succeeds, and building a model that is more holistic, like social HMOs used to be back in the '70s and '80s, and to build that into the way they operate is gonna be really important. So as we look at this venture, we're gonna be looking for systems integration partners, large companies that have a shopping list, a channel of customers that they could bring us into. I don't wanna build a systems integration, a business process reengineering capability. We don't need to be in the consulting business.
Mm-hmm.
But we can partner with other people who can do that. That'll get us to market quicker.
Mm-hmm. What do you feel like the timeline is to start?
That's part of our strategy work on what does it take to harden the platform and get it SaaS-enabled?
Mm-hmm.
Because if you're gonna go scaling this business, SaaS enablement is gonna be important to allow the customer to configure it the way they need to use it, along, you know, with systems integration in mind, not having us do all the conversion at Oscar. It's too much of a cost driver for us to be able to make that work-
Mm-hmm
... at writ large-
Mm-hmm
... at the scale.
I recognize you guys are really early-
Yeah
... in the planning stages for this.
Yeah.
But as you see it, I mean, is there a critical mass of lives that the system would need to sign up in order to flip that margin from, you know, negative-
It'll depend on each system-
Mm-hmm
... you know, what their revenue flow is, where their patients are, what kind of patients they have. I mean, you have to do a whole set of work on-
Mm-hmm
you know, like if you're talking to an HCA or an Ascension, you know, HCA has very little primary care, so you have to build a primary care network.
Mm-hmm.
Can we use the Oscar Virtual Medical Group to do that or some part of it? You know, how do we build those things? So each one is gonna be bespoke in a lot of ways, and that's why, you know, each one's gonna be different, in what level of success we can achieve.
And so you mentioned HCA, Ascension, obviously very large-
Yeah
... health systems.
Yeah.
Do you see that as the opportunity here? Is this something that would really be, you know, only for large health systems? Is it something where it could be, you know, medium and even smaller systems?
Again, too early for us to comment on that.
Mm-hmm. Okay. You know, taking a step back, I mean, the tech platform, I think, is something you guys have talked about as differentiating for a long time since you've been public. You know, can you talk about how, what the opportunities are to leverage AI and how you're deploying it today?
So the interesting thing about our platform, given that it's completely developed front to back, and it has one version of the truth with the data, so the data set is clean, is that we can use large language models a lot more easily.
Mm-hmm.
And the company's been using them for three years, and playing with them. And, you know, it's been one of Mario's fascinations. And he's actually co-authored an industry-wide piece with the administration talking about how we can manage this safely, just recently was published. And so we have, what I would call, an ongoing process of testing things that we can use large language models in for our system on the back end first, because we can get better leverage. So we improved our risk adjustment results by 20% by running a large language model against it after we'd reviewed the files, and got more out of it than we otherwise would have if we hadn't.
We're using large language models for simple things like turning Chaucerian English into plain English, so people don't call us to ask: What does this mean? We are using, on the back end, ways of looking at fraud, waste, and abuse, and eliminating vendors who now do that for us by offering and using large language models to make that work. So we're full speed ahead on that. We call it a continual hackathon. We're just always looking at ways to use large language models. On the front end of the business, the data set's not good-
Hmm
... anywhere in healthcare, because there are multiple versions of the truth. And as we work with provider systems on our Campaign Builder, we have to clean that data up all the time. So we're actually looking at, can we create a data factory? But even if you clean that data up, a lot of the data available today are Caucasian and wealthier populations versus diverse minority populations, and medicine can't be practiced homogeneously-
Mm-hmm
... particularly in the African American population, around things like, kidney function and hypertension. So we've got to get that data set right before we start putting the company at risk, and people at risk, more importantly, by using large language models to develop insights.
Mm-hmm.
It's all about the data.
Mm-hmm.
Our own internal data works really well. When we work with external partners, their data's largely a mess.
Mm-hmm.
We have to figure out what version of the truth is the right one.
Mm-hmm. And is that an opportunity to help other health systems?
Totally.
Mm-hmm.
Yep. And so part of our campaign, we have 500,000 lives on Campaign Builder already in 2023, that are health systems using it to engage their populations, the medical groups. We see that if you take that capability and you look at what it does at its very basic level, which is engage constituents, if you open up the aperture of the lens on that, we can use that for brokers. We can use that in our own business for many different places, where we can employ that constituent engagement model on almost any population that we're working with.
Mm-hmm. So I want to go back to something you mentioned earlier, where you were talking about value-based care.
Yeah.
What do your value-based care arrangements look like? And I know it's, when we talk about value-based care , it's typically in Medicare. But how do you see value-based care evolving, particularly in the individual exchanges?
If you see one, you've seen one.
Mm-hmm.
You know, we have, like everybody, can report that a percent of our population, I think it's 49% of our population, is covered on a very value-based contract. Or, yeah, and it's like, who cares?
Mm-hmm.
What does that tell you? It doesn't tell you anything.
Mm-hmm.
And there are multiple contracts with multiple different arrangements. Some of them are only prospectively, you know, on the good side, rewarding-
Mm-hmm
... and not any penalty on the backside. Where we have penalties on the backside, it's hard to collect when the systems don't work well. I mean, it's a big risk.
Mm-hmm.
So I'm not sure the way value-based contracts are developed right now, they work.
Mm-hmm.
You know, and unless you're giving away full risk to a medical group on a population like Medicare Advantage-
Mm-hmm
... where, you know, you can do that. But if you look at what happened with HealthSpring, they had all these, with the NAMM physician groups, they had full-risk contracts, and when the rates kept going up, who were the winners?
Mm-hmm.
Medical groups.
Mm-hmm.
Those medical groups, so you didn't have any opportunity, margin-wise, to increase your margin on Medicare if you had full-risk contracts. But there are groups that'll do that, and those do succeed.
Mm-hmm. Okay, so we've got about a minute left here, and we always like to end with this question, and not to front-run your investor day here-
Yeah
... but, you know, what do you think investors will appreciate about Oscar a year from today that they don't currently?
I, when I was running Aetna, I had this mantra that said, "We underpromise and overdeliver, and we beat and we raise, and we beat and we raise, and we beat and we raise." And when we get to that point, it'll be a lot more happy for our investors, instead of them wondering what's going to blow up now, or what bad thing could happen, or are they going to meet their numbers? So our first thing is to be, make sure internally we have a management process that works, and we hold people accountable, and we know what to do next. So we have lever boxes. If this happens, here's what we do. We pull this lever, so we can run the business effectively and meet our commitments. I think we need to prove to the Street that we can meet those commitments continuously.
Mm-hmm.
that they can rely on us on what we say about how we're going to perform, and invest with us in a way that believes they're going to get the returns they expect as a result of hearing what we committed to. So that's our first priority.
All right, great.
Yeah.
Well, thanks very much for being here with us, Mark.
Thank you.
Mm-hmm.
Thanks, Kyle.