Hi, everyone. I'm Steve Baxter, the healthcare services analyst. We're very pleased to be joined by P3 Health Partners, a company in the physician enablement and value-based care space. From the company, we're pleased to be joined by Dr. Abdou, the CEO, and Atul Kavthekar, CFO, and also Karen Blomquist from Investor Relations. So I'm gonna hand it over to Dr. Abdou for a brief presentation, and then we're gonna follow that up with both Q&A.
Great.
Take it away.
Thank you very much, Steve. We really appreciate it, and thanks to all the Wells Fargo healthcare team, and to include us in the conference today. So, I'm gonna get right into it and be more engaged in the Q&A. And I'm sure you're all by now, I stand between you and a drink, so, so I'm not gonna belabor the point. So there will be a test on this, so you need to memorize all that stuff. With me here is our Chief Financial Officer, Atul Kavthekar. And just as you can tell, I'm a physician by training, and I have been doing population health management value-based since I graduated from training in the early nineties, and we did it on a larger scale thereafter.
So, pleased to be here, and thanks again. Dr. Amir Bacchus, our co-founder, could not be here, but he sends his regards. So we'll get right into it. We always say, you know, start everything with the end in mind. So we believe that we're in the right space. As you're all very much aware, Medicare Advantage is the fastest growing sector of the insured populations in the United States. And within the Medicare, people expect it by 2050, that will reach a 50/50 between Medicare Advantage and Medicare. And in 2023, we already exceeded the 50%. It's 51%. And the unique thing about Medicare Advantage is the patient chooses individually. So the patients have unique experience, and they have chosen to do that.
So we believe we are in the right space. We also believe that we're in the right model. So there are three models, as you're all very much aware, an acquisition aggregation model, or a build a clinic and hire doctor and wait for... and staff model. And finally, the MSO or affiliated model, which is Agilon, Privia, and ourselves lead the pack on the public stage on these models. And we believe that model also allow us to scale with a very capital efficient way. But also, we believe that we are on the right team. Having the co-founders, that both physicians and been doing this for over 30 years.
I think that the answer or the value that we added when the market told us in 2021, "It's all about growth," we were the fastest growth to the point that we're in today, and we will share that with you. When the market pivoted in 2022 and says, "It's about profitability, stupid," we're the fastest to profitability, as we demonstrated by the latest quarter that we reported last month. Also, it's the right time, and we'll go through the challenges. Healthcare is fragmented. Healthcare is, I wouldn't call it in crisis, but it's near breaking point, where you don't get what you pay for in healthcare system in America today. The value base, our model, can have the answer to that.
And finally, it's the right investment. We believe that we're undervalued, and we valued on a fraction of a percentage in our peers that have the same model, have the same trajectory, but get much higher value. And that you can extrapolate the number from there and imagine if you invest today in the current valuation, what it looks like in three to five years. So quickly, 30 years of experience in the team. We're we moved from 10,000 to a 130,000-member platform today, in only four years of full operations. We projected and guided the street to $1.2-$1.25 billion in revenue. And as you will see, we started with $86 million in revenue in 2018.
We operate in 18 counties, 5 states. We started with one county, one contract, and today we're in 18 counties, 5 states, and over 17 or 18 health plan contracts. That will tell you the scalability with the capital efficiency of the operator. And we have guided, always sustained, that we will reach a long term of 20+ EBITDA. And the reason we keep saying that number, specifically when HealthCare Partners that we were co-founders in transacted to DaVita in 2012, we had 21.8% EBITDA for a period of time. So I wouldn't belabor that point. You're all aware of the challenges that we do today. Physicians are flocking into being employed by health system, but they don't wanna remain independent.
We think that we can have the solution for that. The payers wanted to grow while improve the quality, improve the funding, being compliant, we can solve that. The health system that look at their primary care physician as a point of inefficiency and cost center, we have dealt with multiple health system, where we help them to turn their primary care employed staff into a profit center. And, you know, it says here in inefficient local markets, I think the entire market is inefficient. You all know that and highly aware of every wise healthcare system, you know how inefficient it is. But what we do is we aggregate that local network and make it high-performing, efficient, and economically profitable. So, how do we make money?
CMS pays the payers set a premium, adjusted for the risk adjustment factor. We take a percentage of that premium, let's call it 85%, and we grow their revenue. We grow the value of the 85%, and you will see here that the 85% that we got in 2018, in one of our market, was a little over 600, and today, four years later, it's almost $900. So the same percentage is yielding almost 30% more value. So that's how we sustain the quality, we grow the membership, and we increase the funding in a compliant and highly integral way to do that, and then we manage the health of the population that results in a lower cost. It's not the other way around.
You don't manage the cost by lowering the cost, you manage the cost by improving the health of the population that you have the privilege and honor to serve, and that will result into lower cost. What we've done also is we focus in our operation efficiency, so recently realigned our line of services into a combined care team, and we'll get that in a minute, but this is how we make money. We grow, we improve the funding, reduce medical costs, increase the medical margin, become more efficient, you make money. Again, it's proved the capital efficiency and scalability, and you can look into our balance sheet and how much debt we've accumulated over the year or otherwise.
Within four years, we were able to expand across the United States in 5 states, 18 counties, 130,000 on our platform, 2,600 primary care physician, in a very efficient way, because we honor that relationship between patient and doctor, go where they already existed, surrounding with team tools and technology. I'll talk about that in a minute, and that will differentiate our model from others. So case in point, Arizona, our first market. I'll just reiterate the numbers and then we can, I'm sure, talk about it during questions. Starting with 10,000 lives, almost 50,000 lives today in Arizona. Started with 300 physician that we put together in the first year, today, almost 1,600 primary care physician, with a 92%-98% retention of the physicians.
And because they told us, "Unless you hire them, they're gonna leave. Unless you joint venture with them, you're gonna leave." What we've seen is if you provide the service that you promised, they're not gonna leave. Even though the contract is usually about five years with a year or two out, but we have a 98% retention of our physician. We started with one contract, today we have six in the health plans that we're in, in the counties that we're in. We started with about $80 million, give or take, in revenue, and today, almost $500 million in revenue sits in our Arizona market. The value creation that I told you about in the funding started with about, right about $600 PMPM, $628.
Today, it's $824 PMPM. And so very steady, very reasonable. Nothing that looks out of sort, rather, every single year there is an impact. But the most impressive number that you will see, that we started with $53 PMPM negative medical margin, and today we sit at about $124 PMPM in the medical margin, in the population that we're serving. And in that, and we'll talk more about the Q&A, we like to look at this as our cohort, not single population and just track them over time. We look at market as our cohort and track them over time because of the dynamic nature of population health management. The model works as we said. You will see here our operating expense was over $80 PMPM when we started.
Today, we're under $40 PMPM, almost 50% improvement per member per month because of the efficiency that we implemented in place. The EBITDA was negative $126 PMPM or $125 PMPM. Today, we're positive $10 PMPM, while we're growing in the rate that I just shared with you. So total revenue, and this is the last quarter that we just reported. So 2022 versus 2023, $270 million, $330 million, 22% increase. Medical margin, $72 per member per month, $161 per member per month, over a 124% improvement in our medical margin. Why, you ask? Because the maturation of the population, but also the maturation of the network, the...
Because we sustain the growth within the same counties, within the same network. So the doctor that had 10 patients with us, today, they have 100 patients, and they are producing those results faster. Our adjusted EBITDA second quarter last year, -$95 PMPM. Today, it's modest, but it's a positive nonetheless, $1 PMPM positive in end time. Our operating expense, $102 PMPM, down to $85 PMPM. Be more than happy, and Atul will walk us through how did we do with that and how we're gonna sustain that moving forward. So what's the path to profitability looks like? It looks like a sustainable level of growth between 2022 and 2023, 11% on all the population.
If you go to the mature population, you will find it much higher than that. Again, the number of lives, we have reiterated these points when we presented in our last second quarter and other conferences as well. The maturation level is about 36 months, but what we were noticing, that the maturation level can get sped up by the maturation of the network. So not only that because we have the patients for 36+ months, but because we have the providers for 36+ months, we can notice that the maturation to this level becomes faster. So we increase the planning appropriately, compliantly, and sustainably. We maintain our patient and our providers' high level of satisfaction and high level of retention.
We continue to improve in the medical margin by having these two elements, and we continue to focus on our operating expense. Quickly, I'll tell you what we did. For example, we had, we had a quality department, and we have a risk adjustment department, and we have a care management department. Each department would go knock on the door, meet with doctors to address their own area of expertise. What we've done, and, you know, I learned that from Atul, that we, we did the Toyota Way , where basically everything is in quality. Our quality has been inserted in everything, so we collapsed this department, and we made them a care team.
When you go to the doctors, you talk to them about the quality and gaps, you talk to them about coding, and you talk to them about the care management program. So we created efficiency in our operating by realigning the functionality and cross-training our team members. And we're gonna continue the disciplined growth, where we expand in the local counties first, expand in the county next door, so we can leverage the infrastructure before we go to the next state and the next state and the next state. So just tell you a summary of what we just shared with the world. We projected 115-120 thousand Medicare lives in by the end of the year.
Total revenue, we guided the street, as I mentioned, $1.2 billion-$1.25 billion, and we are well on our way to meet and exceed that number. In our medical margin, we talked about $155 million-$175 million or $120-$130 per member per month. If you compare it to last year, it was in the negative single digits. Finally, the adjusted EBITDA, we guided the street to -$50 million to $30 million for the entire year this year, and we reiterated our strong belief and confidence that we will have 2024 to be our first profitable year altogether. Finally, I'll end with where I started. I believe we are in the right space.
I believe we're in the right model. I believe that we're in the right team, and I believe it's the right time. I think for all investors, I believe this is the right investment opportunity for... We believe that. Anyway, with that, thank you very much. Really appreciate your giving me a few minutes in the afternoon, and I'll turn it over to Steve.
Why don't you join us over here?
Sure.
Wherever you like. So yeah, appreciate all the details. Obviously, it's a very attractive model. It's great to see that, you know, it's, physicians are winning, you guys win, the patients win, payers win. Like, it is a great model overall. When you think about how your model is differentiated from other MSO players and what the right fit is with physician practices, why do they select you? Why do they choose to work with you compared to some of your competitors? What are you bringing to the table that's unique?
Yeah, I appreciate that question. So 2 things. Number 1, we've been doing this for 20-plus years, so a lot of them not only believe in what we're saying, but they can call several people and payers and others and give them the reputational success that we have accumulated over the last 20 or 30 years. So it's not a trial and error, it's something that we've done for a very long time. And number 2, our model fits in their workflow, not the other way around. We never ask the doctor and the providers overall, whether it be nurse practitioner or otherwise, to change their workflow. We fit our model into their workflow.
A lot of, the MSO would require them to do some either electronic medical record or a some technology formatting to their model. We don't. We fit right into them with the interoperability and with the other tools to allow them to access the data without having to change anything or the workflow overall. So I think these are the two things that differentiate us, the team experience, as well as the willingness to fit in their model and not the other way around.
I would actually add a third, and I think Dr. Abdou is being modest. The company is run by physicians, and I think there's a definite appeal from physicians to do business with someone that understands how they work.
Makes sense. And then I think a lot of people would understand, you know, the county entry model that you have to grow the company. You've also, in the past, I believe, discussed a payer-led entry into markets to help them with some of the problems that they might be having in a specific geography. Can you talk a little bit about that and how that makes the company a little bit unique?
Yeah. So again, it's almost the same two points that drives to this model. UnitedHealthcare, Humana, Aetna, they've dealt with us in 20+ years. They work with us. Our claim of fame is in Nevada, we took a market from United that was losing almost $92 million in 1999. In 2000, they registered $20+ million profit in that market. And you become kinda legendary in the halls of United. And when they run into any challenge, they call you. And a lot of the time they will come and say, "Here's a county that we got some challenge in it. Has 15,000 lives.
You can lean on our network for the next 12-24 months till you put it on your paper, and we'll introduce you to our providers, and they would rather work with you than United anyway. So, we've done this in numerous counties and states where the payers got a challenge. They have 15,000-20,000 lives and say, "Come start with us." And we usually graduated from shared savings the first year, to shared risk the second year, to full risk the third year.
I think people broadly understand that fee-for-service primary care economics are under pressure, just broadly seen as unsustainable. Can you talk a little about what it means for physician practices that get up to full maturity in terms of the kind of the take-home earnings of the practice? Like, how much of a difference does practicing your model have on the P&L of the physicians?
So we try to measure. We never really go and ask them, "How much did you make last year?" and try to do that. But what we have from all the data in MGMA and others is what is the average primary care in the counties that we're in are the revenue. And sustainably, what they see by year two is a 50% increase in their income from the average of the county that they're in.
You mentioned that, you know, you kind of slowed down the growth a little bit of the company to focus more on, you know, showing a really good path to profitability. I guess over a longer period of time, I think we all can understand the broad tailwinds that are helping MA, and, you know, MA's grown in the high single-digit range now for a few single years. How are you thinking about the growth of the company, maybe over a three- or five-year horizon? I guess, what do you need to see to re-accelerate growth in the next couple of years?
So, the maturation of the population to reach a certain level of positivity, that would allow us to reinvest our sustainable profitability for almost a year, three quarters out of the year, end of the year, overall profitable. I think that will accelerate our ability to start expanding as well. And I'll tell you, we've got spoiled. For as long as the counties that we're in, we can create a double-digit or more growth year-over-year-
Mm-hmm
... there is no pressure for me to go to the next state. Or, if I can cross the country and get 5,000 lives and make them profitable tomorrow with capital efficient and leverage my infrastructure, why would I go get 3,000 in three different time zones and start all over again?
And then you mentioned the company is obviously targeting profitability for 2024. I guess, what are the key levers to get from where you expect performance to land in 2023 to get to that level in 2024?
Well, we think of it in a couple of components. I mean, first is membership growth. I think we are a growth company, and we expect to grow membership. I think we're gonna manage that in a way that is a controlled level of growth. Our ability to get funding and identify patients appropriately for acuity as it exists, and document it efficiently and effectively, that's an important thing, and we've gotten a lot better at that over the last couple of years. The persistency in the lives of the members, I think, as Dr. Abdou was talking about. And it's not just the persistency in the lives of the members, but it's also the maturation of our provider base, of our network.
We find that as the primary care physicians are the longer they've been in it, the more effective and the better they are in their jobs. And then the last component, of course, is always operating expenses. Those are things that we had some great success in the second quarter compared to the first. It was almost a 25% reduction sequentially, and I think there's probably still some opportunity for us to be smarter and better and, you know, it's a continuous process. I think we don't really look at that as one and done. But those are the basic pieces.
Obviously, utilization has been a huge area of focus for the market, given kind of the news that we heard out of United and Humana a couple of months ago and from some of their peers. What are you guys seeing on the utilization front, and how is your model controlling utilization, perhaps differently than what we're seeing in the unmanaged fee-for-service market?
Yeah, this is a great question. What we've seen is a shift from in-hospital utilization to out-of-hospital utilization. So if you look at it in isolation, it says utilization of our patients is increasing.
Yeah.
If you look at the overall medical cost, is actually going down.
Mm-hmm.
Because, in... If you do surgery in a hospital, the charges are more and so forth. So, what we're seeing is shift into outpatient utilization, but not overall cost increase.
Okay. So that's something you would have planned for, and when you look at what you're seeing in terms of outpatient surgeries and things of that nature, like, you'd view that as consistent with what you would have been expecting?
Correct.
Okay. And on your earnings call, you mentioned, you know, some really impressive utilization management results for inpatient and ER. I think over the last 10, you know, over the last 18 months, they were down something like, you know, maybe 20% and 19%, respectively. Can you just talk a little bit about the clinical model and how you're driving those kind of results out of your business?
So number one is access. We work with our primary. As soon as you get on our platform, we work with you to improve our access. We walk you through how you reserve spots in any given day, so you can allow the patients to reach and have access to visits right away. But more importantly, what we've done is redefined the world access. In the fee-for-service world, unless you have the patient get in the car, drive towards your office, wait for the visit and see them yourself, you cannot charge them. You cannot produce. In our model, you don't have to do that. You can call the patient. That's an access if the patient needs something and get a receiving.
We have embedded an RN or LPN in doctor's offices that has enough volume, where the patient can come in and see the nurse. They don't have to wait for the doctor. The doctor is gonna stop by and wave. So you create access. The number one solution to ER visits and admits is right away access. We work with shifting the mind, shifting the paradigm from, "I only care about the people that come through the door because that's the only way that I can make money," but rather, I serve all this population all the time, regardless if they're in the office or not.
So, our providers and medical groups have greatly embraced that model, and we see the access had improved, and we see the right documentation and exchange of data are improved significantly. So we believe the... It's paying off with the results.
And then in 2024, we're gonna see the first year of the new risk model, one-third phase in. Obviously, that's a huge area of focus within Medicare Advantage broadly, but especially for value-based care providers. Just talk to us a little about what the transition to the new risk model means for your company, what the impact is, and what you guys are doing to offset any impact that there might be from this transition.
Yeah. So, we started the transition the first time they issued the, the proposal. We didn't wait for the final, ruling. We, we started the transition right there. We removed the, the, the V24 codes that they proposed, removed and replaced them with the, with the right codes. Immediately went to our doctor and say, "That's the way, the new way, that you're gonna need to diagnose." The general diagnoses are pretty much gone, and, we actually acted as if it's all gonna take effect 1/1/2024. We did not... I mean, the fact that they turn out, they're gonna-
Yeah
... ease it over three years, that's a plus for us. So we immediately shared the material with the doctor. We immediately have translated the weight of the HCC in a very compliant way with the doctors to be able to understand the impact on their economics as well. And finally, we continued to put the front is the new codes for all of us. Even if it's not there, just learn about it in the education. So I think education, appropriate weighting of the scale. Early, we jumped on it very early on. We think it's gonna still have an impact. It's not gonna be the huge impact that we would worry about it. Otherwise, I think it will have. If we increased last year, for the persistent life, about 9%-11%, and I would say there's gonna be 1%-1.8% reduction in that.
Okay. And obviously, taking out, like, operating costs and becoming more efficient is a big part of the journey that you're on. You know, you've made a lot of progress on that front, clearly, as you showed us on the slides. What are the big remaining areas of opportunity for the company on operating costs?
I think at this point, we probably don't have any big bang opportunities left. There's no specific area that we've targeted that clearly needs to be addressed. I think it's going to be much more of a continuous improvement cycle in pinpointing efficiencies, decentralizing where it makes sense to decentralize, centralizing in other places where it makes sense to centralize. So it's gonna be a bit of a journey. I don't think you're gonna see any big, splashy, you know, movement at this point.
Got it. When it comes to ACO REACH, would love to hear how you guys think about the program. Like, could that be a bigger driver of growth for you in the future? I guess, how do you evaluate the changes that have happened to the ACO REACH, as in particular, the revenue side of the model over the past couple of years?
So we like the ACO REACH. We can work within the revenue model, even though with the adjustment of limitation, you still can accrue a significant improvement year over year-
Yeah
- because you're impacted with your region and the increase in it. We believe that it create an area of growth because now 50% of the Medicare population that were out of reach, now they are into the risk program and can join the program. And the quality metrics, it's actually simpler and more directly. It's like, you know, readmissions, and it's much less complicated than MA quality metrics and the star rating that you have to achieve. So we think it's a great opportunity. We think it's a great growth opportunity. We have, thankfully for our experience and the model, achieving profitability in that from year one.
Okay.
So, which is harder to do with the-
Yeah
with the MA, with our Medicare Advantage, because they... Again, our model, the difference that we always build our principle on, is you honor the relation, the existing relationship between doctor and patient, and you surround with team tools and technology, the outcome will improve, the outcome of funding, the outcome of quality, the outcome of medical costs, the outcome of experience, all, all of the above. And, you know, the Medicare patient probably been with the doctors for a long time, so the doctors know them, they know the doctors. The doctors tell them, "You know, here's what you're gonna go for cardiology. Here's what you're gonna go for, surgery." And patient usually comply with that. So we think eventually the ACO margin will equal MA or better.
Okay. I think that's a great place to leave it. Thanks so much for your time. Thanks for being here.
Thank you.
Thank you for having us.
Appreciate it.
Really appreciate it.
Thank you.
Thanks, everyone.