Thanks, everybody. Gary Taylor, covering health care facilities and managed care here at TD Cowen. My pleasure to introduce P3. P3 is a physician-led population health management company serving Medicare Advantage beneficiaries across five states. The company has 2,700 affiliated physicians and over 100,000 at-risk lives. Today we have Atul Kavthekar, who's the Chief Financial Officer, and Amir Bacchus, who's the Chief Operating Officer.
The co-founder and the chief.
There's a lot of.
CMO.
Oh, Chief Medical Officer. Okay.
There we go.
My apologies. Anyway, you're maybe going to do just a brief 90-second or a couple of minutes overview just kind of on company and kind of where you guys are, and then we'll jump into Q&A.
Yeah, absolutely. For those of you who don't know P3, as Gary kind of described us upfront, we are a company that actually focuses more on, obviously in value-based care, but we do more of the affiliate model. So our model, 95%-98% of our model is working with affiliate providers, not necessarily building bricks and mortar and spending the expense of brick and mortar. We are more cost-efficient in doing so. And because of that, we enable providers, as Gary said, 2,700, almost 3,000 physicians across our markets today into value-based care. So we enable them with teams, tools, and technology, and things like that to do what they need to do so they can win in the value-based care world. One of the things I also would add real quick, we've been doing this a long time.
My partner and myself have been in the value-based care world since the mid-1990s. We were co-founders at HealthCare Partners when we built HealthCare Partners through the late 1990s, early 2000s, as that transacted to DaVita in 2012. One of the other things that's somewhat unique to us, we like the delegation model. So we like to be delegated and act like the plan in a number of different markets and drive more delegation as we go on in time because that allows us to manage not only our primary care physicians but also the entire healthcare continuum, whether it's from allergists to urologists to DME, home health, and everything else. We manage all of that as well as Part B pharmacy spend, etc. So that's a couple of 90 seconds, maybe 2 minutes on P3.
Maybe before I jump into my scripted questions, I just want to hit on the delegated piece a little bit because I don't think that's well understood by the market and may be impacting why some of your trends, I think you'll tell us, aren't adverse like some of the other non-delegated players are saying. But when you say delegated, that's for pre-auth and referral and claims payment. What all would you describe the difference?
Yeah, absolutely. So delegation is those things that you said, whether it's prior auth, concurrent review, claims building as well as management and paying to credentialing, network building. All those things are the things that are delegated to us by the plan. So we like doing that because, again, we can create the network that we know is a high-performing network through the physician base that we bring on. And at the same time, it gives us a lot of visibility to what's happening in the cost management standpoint, right? So if a physician, a surgeon as an example, wants to do a knee replacement, they'll schedule that knee replacement 2, 3 weeks out, whatever it may be. So that authorization has to come through us. So we automatically know and can predict that spend of what that spend would be.
So whether we're looking at it from the prior auth standpoint, as Gary mentioned, or from a claim standpoint because as we get those claims, obviously hospital claims come quickly, provider claims come a little bit slower. But we actually have a very good visibility to what that spend is as well as looking at our hospital census in any hospital that we are in any market that we're in in order to see how those expense trends are running.
And are you well, maybe remind us, when we look at your P&L and we see the medical expense on the P&L, how much of that is in the delegated model? And are you looking to convert existing relationships towards delegated model, or is that primarily on new lives and new plan relationships that would come in?
Yeah. So today, about 30% of our lives are in the delegated model. We're actively looking to expand that delegation further. We have a lot of conversations going on with some very large payers. Some of the delay in that delegation is just making sure some of their systems, there's been conversions in their own systems in some of these plans that we're waiting for them to finalize before we can take delegation. But yeah, generally, we go through the pre-delegation audit, and you do that probably the year before. So we have a number coming up. So we can look by end of mid-2024, January 2025, significant bigger population fully delegated.
Gotcha. So I'm going to go big picture, but I'm going to go small picture first because this has emerged as a question last week or so. Change Healthcare with the cyberattack and the outage, so a lot of providers have either seen pre-auth functions or EDI or their claims payment, etc. Do you have any exposure to Change Healthcare? And if you do, have you been able to shift that to other EDIs, or what's going on?
We have not seen any of those changes affect P3. For us, maybe we're fortunate, but we have not seen it. The information and the EDIs that we have, whether it's from the plans or from the hospital information, all the different venues and ways we get information, EMRs, etc., we haven't seen any hiccup in any of our systems.
Okay. So even if you're in a delegated model and you're paying claims to providers, those pipes are running directly from you to provider, or are they running through other?
So they run directly to us. If we're delegated, they will pipe directly to us. So we will see those and pay those claims and/or adjudicate those claims, whatever that may be. And the other portion that aren't, they go to the plan, and then the plan sends it to us, and then we adjudicate with the plan.
Got it. You don't feel like you're seeing any less visibility lately because of this delay or anything that's happened?
Not that we see.
Gotcha.
No.
Good. I want to go bigger picture-ish, and apologies for the noise behind us. But most of 2023, I mean, sort of the biggest trend that we've seen is that Medicare Advantage utilization has increased, and whether the MA plans have reported that out, have struggled with that. Some of the other downstream value-based care providers taking capitated risk have struggled with that. At least as of January, when you were at another conference, you were still saying, "We're broadly not seeing that level of utilization increase." So can you explain why you think that is as a function of the maturity of your markets, the portion of your book that's delegated? How do you frame that? I mean, Humana cut their earnings in half, right? And people see that and think it has to flow downhill to the capitated providers.
Yeah. I guess for us, when you look at some of the large plans, whether United and/or Humana, etc., what portion of their lives are under a value-based care system versus are they continuing to pay fee-for-service claims for an MA population, right? So we know the majority of their population is still not under through what we would say value-based care. So they probably saw significant increases for that population as well as or medical margin squeeze as potential revenue coming down as well as expenses going up. So for us, in the value-based care world, it's still a very small portion overall that are truly doing value-based care throughout the marketplaces. So we, as a P3, for instance, in managing all those costs, having delegation that allows us to have visibility where cost trends may lie, what they are able to do, we can maneuver, right?
We can maneuver to manage those cost trends better. I'll give you a simple example: oncology, right? Oncology drugs, Part B drugs, skyrocketing. Part B drugs are kind of skyrocketing everywhere as if you're in the space. But the ability to manage the oncologists and things like that from the spend that they do and making sure they're utilizing the appropriate drug and/or medication for that patient has really been able to help us bend that cost curve. I gave the example before in, for instance, in our Nevada market where we had with oncologists that were practicing $105-$110 PM/PM medical expense cost, right? When we were able to see that trend, we were able to quickly say, "Well, this is not going to work," have a conversation with the oncologists.
Even with that conversation with that oncology group, which was a national oncology group, we knew that necessarily wasn't going to work. So we rapidly brought in our own oncologists, and we went from $105-$110 PM/PM to $45 PM/PM medical expense, right, for an entire market. So we were able to change that cost on that population significantly and quickly. So that ability to do those types of things allow us to then say, "Look into each and every market, look at that cost trend, whether for specialty and/or primary care or hospital, and to say what things we need to do to manage it more effectively short term.
I appreciate that. Are you saying, though, that this deferred care, conceptually, seniors which had deferred care during the pandemic and seeing that growth, that in your view, that's happening outside sort of the value-based care paradigm and that sort of deferred care trend just hasn't been a phenomenon in your markets?
Yeah. No, I think two things. Number one, because of so much of the Medicare Advantage space that is truly not under value-based care for those plans, they saw a higher proportion of costs go up versus the ones they actually take value-based care. Because I can tell you from what I understand, in Optum in the West Coast and the Northwest, they did not see significant increases in the Optum model, right? And again, it's a small world for those of us in value-based care. And those friends of ours said, "No, we didn't see it. We saw a little blip in December with COVID, flu kind of combining. But for the most part, we did not see excessive increase in overall expense. In fact, I can tell you for January, we're looking at expenses actually better. They're actually lower than actually what we projected, which is good.
I think there's kind of two different things when people just say Medicare Advantage overall versus how many of that Medicare Advantage are truly in value-based care arenas.
Yeah. I mean, there does seem to be some evidence that some of the Western markets where managed care not managed care, value-based care, the concept of that capitation, IPAs, has been more mature, has been less impacted by this volatility than maybe, let's just call it Southeast or call it Florida or whatever. What about supplemental benefits? I mean, that's been another place where plans have been investing heavily. A few years ago, CMS allowed them to do these social determinants of health benefits, and a lot of that has turned into OTC and flex. And now it's almost like you're just basically giving cash on a card. But if you're taking capitated risk, including that supplemental benefit, a PCP doesn't have the same opportunity to impact how much money somebody's going to spend at Walgreens or somewhere.
It appears some of the other Value-Based Care companies just didn't fully appreciate the benefit offering that they were undertaking. So they've all cited higher Supplemental Benefits costs as a pressure on 2023. I don't think you guys have as much. So it's another one. Did you feel like you had more foresight to see plans were doing this, more of it got carved out, or why hasn't that been a pressure for you?
Well, and I would say, Gary, there is a mixed bag, right? You see some that actually try to buy, and I'll put that in quotes, "more of the market" by having increased supplemental benefits versus others kind of pulled back on some of their benefits, understanding version 24 to 28, potential loss in revenue, and therefore pull back, right? So you saw a mixed bag. From what we've been able to see, and you're right, as far as the plans and as they discuss in the bids and things like that, we like to be working with our plans in the bid. So we want to be if they're looking at the bid, which kind of starts now, March, April, May, kind of becomes the bid time, to be at the table and talk with the plans and saying, "What are you thinking about?
This is what we think about. This is what we're seeing with our providers," so we can inform the conversation. So having that information and informing that conversation allows us to have a better understanding of what we're looking at from that next January as far as what those benefits will be. So we can plan for it a little bit better as far as what that expectation is.
So October's too late.
Yeah. Yeah. October's way too late.
I mean, would you just say not naming anybody specifically, would you just say, "Hey, there's kind of almost a new class of almost fly-by-night providers"? It's a little derogatory, but maybe it is what it is that didn't have a few decades of experience, and you just kind of I mean, this topic, the supplemental benefit topic, really seemed to take a lot of folks by surprise when even we were writing about it from a health plan side. But just being in the game longer, knowing how to be there.
Being older, sometimes it's very good, right? So being older, being around a long time, understanding what it is because, again, this is 25+ years we've been doing this in the value-based care system. At HealthCare Partners, we were 100% delegated and ran all of our plans, and we were in, and we decided what the benefits were. So understanding that as we go into and have been doing this with P3, the other thing that is key to us is having the knowledge of how to contract with that plan such that if there's significant benefit change because we do have certain plans that say, "Hey, we may not want to tell you everything that we're doing. Okay.
But we're going to make sure in the contract, if there's any percentage change in the contract, this doesn't fall to P3's ledger. So we're smart enough to make sure that, "No, you're not going to just pass down $30, $40, $50 more PM/PM cost down to P3 that we just have to eat." No, you did it for a reason, for the reason why you did it, but now we have security in our contract so we don't take that.
Seems like if it was a difficult year, that might be a very contentious conversation to get that reconciled, but I guess it just is what it is.
Well, it's always a conversation. And we like the conversation because, again, we are in this together. I mean, the plan in us, it's not adversarial. We're here to work with our plans to make sure they're successful because we want them to grow, right? But it is sometimes harder conversation saying, "Guys, you just can't pad the benefits and expect us to eat that cost when you're just benefit from the growth." And then we end up having coming in brand new patients with lower RAF and med expense that we have no idea.
Yeah. But it's certainly going to be a topic of conversation for the following year, right, as we talk about it, how we carve it out, how we structure it. There's a lot of innovative ways where we can also help facilitate the growth of the plans, which is beneficial to everybody, but also manage and at least quantify and have very clear visibility into that risk.
Gotcha. One more big picture. Where do you think most of your risk is in MA, if not all of it? But where do you think the MA plans stand now just in terms of value-based care, wanting to expand their capitated relationships? I guess it's a very good thing to have in place if you think costs are rising, but with the risk model creating volatility for some providers that really are just going to need a higher percent of premium, otherwise they might just be out of business. I mean, there's a lot of noise in the environment. And again, maybe more of that noise is more Southeastern focus. I think that's fair in terms of where we're seeing the biggest V28 changes.
But in your markets, where do you think we stand now in terms of where we were two or three years ago in terms of MA plans saying, "There's a value and importance to us to contracting with P3 and expanding our membership with you because we get X, Y, and Z benefit out of that"? Is that noisier now, unchanged, undisrupted? They're pouring gasoline on it. They want to accelerate. How do you feel about it?
We see just as much interest today as when we started. So we know most of the plans that we deal with and again, we have 20, 22 different MA contracts that we deal with, let alone the ACO REACH, which is a whole other depth opportunity that we've started in 2023 and going deeper in 2024. But for us, the plans continue to ask, "Can you be in this county? Can you be here?" And our phone rings often. And as we balance and I'm sure we'll probably talk about this a little bit later, that profitability versus just growth opportunity, we want to balance that equation well so that we show that profitability and that we can do what we said we will do.
Growth is not a problem, but we need to temper that growth so that we have a certain good ratio of persistent lives that are driving good medical margin versus bringing on tons of new patients at very high cost, low margin that would prevent us from being profitable. We can still grow at a very good clip, but being smart is how we grow.
Got it. And then just going to growth, you're in 5 states now. How much room do you have in those markets? If we're thinking about targeting 20% or so patient growth, can you do that for a while in existing markets, or should we just continue to think about every year there's another state or 2 or market that you're going to enter?
So we can. We have a lot of opportunity within the markets we're in today to go 20%-20+% growth, not only in and when you say market, I'm going to use market as the state for right now. So for instance, in the state of Oregon, we've opened up a number of new counties in the state of Oregon that have all asked us to come. But it allows us to leverage our team that's already in Oregon versus going to another state and having to build a whole new team. So because of that value that we can create for lower OPEX costs, but still grow in contiguous counties where our reputation starts to precede us, it works well because those physicians know each other. They don't think of counties. Doctors just think whether one county or another.
So that allows us to get more lives quickly without having to do a lot from an operational expense standpoint for growth. So although that is new growth because it's in new counties, it's in that "market" in Oregon for us to do it. So we have a lot of leeway. Now, same thing in California. In mid-California, Stockton area, San Joaquin Valley, lots of opportunity around it all the way through Sacramento and down. Continue to get questions and saying, "Can you be here?" Okay. Makes it easy for us to do. So there is significant growth opportunity, but at the same time, leveraging off of physicians that already understand the program so we get to better value creation quicker than brand new de novo market as if I went into, let's say, Minnesota and didn't know anybody.
One question I was going to ask, how many of your affiliate positions are only taking risk with P3? Or if it's easy to answer the other way, how many of your affiliate docs would be in an IPA or something that might be taking, whether it's MA risk or commercial risk or Medicaid risk with another either an IPA or an MSO or some other sort of physician organization? Do you require them to exclusively be taking risk with P3? What are your thoughts on that?
As you look at the landscape, a lot of others do. Like Optum, you're exclusive, right? And that's in their affiliate network. So when we're looking at different markets, a lot of exclusivity exists within those own MSOs, so to speak. For us, we have probably I mean, as a number of physicians, probably less than a handful that have been in more than one network, right? Because most of them align to one network because that's where they rely on all that information instead of for a physician to say, "Okay, I got this system and this system, and how do I reconcile between the two, especially if you have all the plans," right? So they look at kind of at the plan level.
So there's really not a reason to be on this unless they have a plan, meaning another entity that you don't have, which doesn't really exist for us. So for us, we have pretty much all the plans in the markets that we're in so we can deliver the entire enchilada to them. So it makes it easier for them to say, "Okay, I'm working with one system. And how my payment works, my incentives work, the data that I get works, all that," versus trying to jump between different things to have clarity. It'll make it harder for them to operate.
Right. So it's not a big issue. It's not a big overlap for you. I just want to go back to the delegated piece just for a minute. I mean, given all the advantages that you cite for having delegation, do you actually look or can you look at kind of cost trend performance in the delegated book versus the non-delegated book? Is there a way that you can peel that out, and does it show difference in trend?
Yeah. I'm smiling because I just got asked that question earlier today. I love the question. We have not discerned the population delegated versus non-delegated. We've looked at the entire medical margin as it's improved over time, but we have not necessarily said, "Okay, here's all the lives delegated versus not." It's a question that came up earlier, which we will look at. I don't have that answer for you today, though. We know for the expense of the delegated team, which is not inexpensive because it's a lot of people to do that work. We know we drive a significant ROI on every single employee in that department.
I suppose it wouldn't even be a market, right? It'd be payer-specific, market-specific where you'd be taking delegation. So it would require some footwork, I guess. I want to talk about liquidity a little bit just because, I mean, the stock's trading at a place where the market seems to be implying they think there's a liquidity issue. I think $40 million in cash in January and expecting zero burn rate for the full year of 2024. Is that roughly correct?
So, just to clarify, yes, about the $40 million. When we provided guidance at that prior conference that you referenced, we talked about EBITDA. We specifically didn't talk about cash.
Oh, EBITDA breakeven. Gotcha.
So what we specifically didn't talk about cash, the reason being it's a little bit more difficult to be too precise with the cash flow trends. And the reason for that, of course, is on the delegated side, one of the advantages is that it's a very predictable cash stream, right? You're paid currently for the surplus that you generate. And we've been generating surplus, as you know. For the non-delegated, that timing is a little less predictable. And so we've been a little bit more circumspect in how we've sort of communicated that. Now, we're doing things that will help accelerate that, right? There is a settlement period for settlement contracts.
We've been doing things like transitioning to delegated, working with our health plans to talk about opportunities to do that, as well as there are other mechanisms like care coordination fees, which are new to the company this year, where you're getting paid a certain amount of PMP, almost a capitation that you hadn't had in the past. And those things are moving around a little bit and make it a little less predictable on timing.
While we're on that subject of kind of plan settlement, I feel like maybe if you've heard how one plan settles with their capitated providers, you've heard about one. But hopefully, it's maybe a little bit better than that. But could you generalize for us? I mean, I think the thing that investors struggle with and I mean, the cash flow modeling is exceedingly hard. But let's just take here's a plan with patients in a market. In the first quarter of 2023, you generate medical surplus, or you believe you have. When does the plan, on average, when do they settle that with you? They look at the premium you presumably took, whether it was delegated or not, what the costs were. They come to an agreement. Maybe you have to argue over what it is. But then when are you six months later, on average?
Do you have to get into the next calendar year? When do you feel like you get that settled out, generally?
Great question. You summarize it very, very correctly, which is you've seen one plan. You've seen one. So even within the 15, 16 or so actually, it's fewer than that of settlement-based plans that we have, they're kind of all over the map. Some of them are quarterly. But generally, they're more annual settlements. So let me just give you some framework, trying to answer your question constructively. So for the calendar 2023, we would expect for a settlement-based plan for which we generated a surplus. Surplus is usually calculated in a consistent way. It's usually medical, it's revenue less the medical claims expense less some capitation amount that are paid equals surplus. And typically, there's a runout period post-close of the year. So think of it in sort of September-ish or third quarter, fourth quarter of 2024, of calendar 2024. You would typically presume to settle that amount.
Having said that, we're still settling claims from 2022 right now, right? So they do tend to be all over the map. That's a general timeframe.
Is that because the plans are slow, because the data is not good, or because you have a disagreement over what the right number to land is or all the above?
It could be a little bit of all the above, right? And so it could be that the plans just take a longer period of time, then they require some time to analyze it. We then, to your third point, it takes us some time to make sure that we agree and believe that that's correct and that that's the appropriate amount that the settlement should be. And once all the parties agree, then we settle. So we're balancing as a growing company, we're balancing the need to settle promptly and receive the cash versus making sure that we're actually receiving what we're actually entitled to, what we've earned. And so those are the things that all so it's difficult to give you a very general view, but hopefully, that helps you understand how.
Well, delegation be very favorable to your cash cycle.
It absolutely is favorable for multiple reasons. Not only does it give us control and to the point that Dr. Bacchus made earlier, we suspect that may be some added benefit and return associated with the investment we make. But yes, absolutely. As you grow, there's generally the benefit of receiving capitation premiums immediately. And usually, there's some claims lag before those same new members that you've grown into require cash outflows.
If a plan is doing a quarterly settlement, that means they're going to measure the surplus, let's say, in the first quarter. Is it still another couple quarters before you get paid?
Yeah. You'll need some time for the claims to fully be informed, right? Which is still even different than revenue settlements, right? So that's a whole other different cycle versus just.
Member attribution settlements?
Well, just on, yeah, from the HCC/RAF improvement cycle, which is a whole different cycle, right? So you're dealing with all these cycles when you're dealing with the plans. And/or quality settlements too.
Okay. Gentlemen, thank you very much. Appreciate it.
Thank you.