All right, thank you, and welcome everyone. My name is Michael Ha, the Managed Care and Healthcare Services Analyst at Morgan Stanley. Our next session is with Privia Health, one of the largest technology-driven physician enablement companies in the country. I'm pleased to have with us today, Chief Executive Officer, Parth Mehrotra. And, yeah, so just to jump right into it, firstly, congratulations on your promotion to CEO as of July 1st. So now that you're a couple of months in, since you've been so actively involved in the company's operations over the past roughly eight years, would it be fair to say the transition is more of a steady-as-she-goes approach or maintaining and executing the current strategic vision, or are there any notable strategic goals or areas of the business that you'd like to focus on more deeply?
Yeah. Thank you for having us at the conference, first of all, Michael. Very nice to be here. Appreciate the, the compliments. So as you noted, I've been here eight years, and Shawn, our previous CEO, and I had worked pretty closely for the last five years, executing on our strategy. It was a fairly smooth transition, and nothing fundamentally changes, you know, with the transition. We've run the same play now for many years, and really like where the company sits from an execution standpoint in having validated the business model in, in many states.
You know, we are nicely profitable, free cash flow positive, and have gone through this transition of having all our pre-IPO investors now exit the company and with a big secondary offering and being fully institutionally owned and have a great board of directors. So you know, me and the management theme really focus on just now putting our heads down and just executing on the strategy and the vision.
Great. Great. So maybe to dive deeper into the core Privia model for the next few questions. So when I think about the Privia model, I understand there are different ways you can enter the market, fee-for-service, ACO, but at a high level, I think building physician scale in markets, driving immediately higher rates, 5%-20% rate lift in day one, then equipping your physicians with tech capabilities, support services, aggregating data with multiple payers, the list goes on and on. But over time, the potential path is to full risk partnerships with these physicians in a capital-light, highly scalable model. Sorry, it's the model you already know. But, is that the right way to conceptualize at a high level, or do you think I'm missing any key components of the story?
Yeah, look, that's, that's broadly right. You know, we are consciously trying to build the model in a very consistent, replicable manner, and it may look heterogeneous at first, but ultimately, we're trying to do a very simple thing, which is big, build big medical groups in every state we, we enter, have a big risk entity that's synonymous with an IPA or an ACO or a CIN, whatever you might want to call it, that has all the risk contracts, and have a full suite of technology and services platform that supports both those entities. And it's a very unique model where physicians, doctors can join irrespective of their ownership structure, and they're part of these two entities holistically. And the TAM we are after is the broadest, and that's what leads to the different ways that we enter a market.
We are looking to build big multi-specialty groups, which by definition, is trying to attract all kinds of doctors, seeing every single patient from the time they are born till the time they're dying, in every single reimbursement model. And that's what makes the model fairly complicated, but ultimately, it's those three entities that we're going to establish. And then from an economic standpoint, you could just think about this business as managing the healthcare dollars for that particular patient that's walking in the door, that's seeing a doctor, and maximizing the yield per life for that doctor and then ultimately for the shareholders of this company. Payment models will change over time, so you have fee for service in certain aspects, or certain cohorts of patients that will remain.
And then you'll have value-based care, you know, come in and again, in all cohorts of patients, whether they're commercially insured, Medicare or Medicaid. Our view is that could we maximize the yield per life as we manage the overall cost over time, but that's, that's roughly the model.
Great. Great. I definitely want to get into the value of the PCP, but maybe drilling deeper into the clinical, the core clinical care model, specifically curious what initiatives or capabilities, services are tangibly implemented to bend the cost curve? For example, are there any strategies around specialist care or specific disease state programs or anything of that nature that's proven effective?
Yeah, absolutely. So I would bucket them into three components that if you take the community PCP and how we surround them with the capabilities. So number one is the governance structure, where we are forming big medical groups that are homogeneous, that are physician-led, physician-governed. Each PCP is organized into pods of 10 or 15 or 20 PCPs that are sharing in a particular risk pool. We assign a medical director that is managing them. Now, our doctors are not employed by us in the sense that we're not guaranteeing their income, so they are sharing risk with us in different value-based arrangements.
So when they meet together, they're sharing best practices, they're sharing, data, they're sharing, what they need to do to, improve the total cost, lower the total cost of care in the right manner. That governance structure, I think, is a big part of our secret sauce that we're trying to do at scale. So that's component one. Then we are surrounding them with key people, and capabilities that they usually did not have the capacity to, the money to, form themselves, before joining Privia. So just to give you specific examples, these include-...
A population health associate or a consultant who's helping them across their book of business on value-based care, and really guiding them as to, you know, how they grow their practice, how they grow their attribution, how they perform in those contracts. Do they need to hire another PA or an NP to support them, to take care of the more healthy patients, and they focus their time more on the sick patients? We are surrounding them with population health analysts that are doing. They crunch all the numbers in different value-based arrangements. They share that data in a logical manner with that particular practice, and again, highlight what levers they need to pull to lower total cost of care and improve quality.
We are then surrounding them with a risk manager that is obviously managing risk in a compliant manner, looking at things like coding and things like that, so that, you know, in the scale manner, we are very compliant. And then there are several national capabilities, such as 24/7 coverage, a care management team, disease-specific programs that we target for diabetes or CHF or COPD, that the care management teams are focused on for a particular subset of the population that may be more severely impacted, and how they support them outside of the care of the office. And then the last component is the tech stack. So obviously, we are developing our own tech stack.
On top of the EMR, we are having different tools and components, getting all the data in the hands of the PCP before even the patient shows up, how they are referring the patients downstream, how they are identifying, conditions that may be present based on certain comorbidities. So, we are using very sophisticated, tech tools in our stack to then enable them to perform well. So I think those are the three or four broad components that we surround that local practice with, from a care management perspective.
Great. And actually, just wanted to follow up on the 24/7 care team support. That's something I find interesting. So you're already risk stratifying your patients, employing these wraparound care teams. What does that actually look like? What does a care team look like?
Yeah, absolutely. So, you know, I would say there are three components to it. One is simply solving for access. So if a patient wants to call in after hours, after six or 7 P.M., wants to call in over the weekend, you know, they can call in and text, call, video, FaceTime chat, with a Privia provider that has access to their medical record and can guide the patient through whatever they need to go through, even though their primary care office might be closed. And they're not seeing their own PCP, but they are seeing a Privia provider virtually in certain manner, or they can come in, in a center or in a location that may be open, in certain cases.
So I think we're providing, we're solving for that access so that the patient's not going to the urgent care, not going to the ER, and so forth. Number two, we have care managers who are assigned to chronically ill patients, that are then holistically managing the care of that patient for a particular disease state. So this leads to medication adherence, this leads to following up with the patient. We ar also tracking key social determinant issues, whether they have transportation problems, whether they have, you know, people that are there in the household to take care of the patients, if they don't have that kind of access or support.
So in the cases where we can, we are having somebody follow up closely with the patient on all of those aspects. And then number 3, we have people called extensivists, that if a patient does show up in the ER on the weekend and just dial 911, in a hospital that is around our doctor's offices, we get notifications through API feeds, where we intervene, get our extensivists in there. Best case, try and get the patient back home. Worst case, it's an inpatient admit, not an ER encounter, and you're preventing all the duplicative tests. And then we can share the data with the health system, so we are preventing all of that. So this is now ground-to-ground battle in healthcare, on how you lower cost, improve quality over time.
These are capabilities that a small practice just can never come up or has the financial wherewithal to support themselves or stand up.
Great. Appreciate all the detail there. So pivoting to the MSSP program, CMS recently announced in late August, the 2022 MSSP results. Looks like $132 million shared savings for Privia. Any overall comments here? How did they compare relative to expectations, accruals? Thoughts there.
Yeah, so I mean, we issued a press release like we do every year. We've been one of the largest participants in the MSSP program for many years now, and overall, really solid results, as you all saw from the disclosure. And CMS gives out data on every other ACO, so if you see our press release, you know, we grew our shared savings close to 30% year-over-year. Really strong metrics, and we give out relative statistics on if you look at ER visits, if you look at inpatient and outpatient visits, we not only outperformed traditional fee-for-service Medicare, but meaningfully outperformed other ACOs participating in the program by you know, anywhere from 10, 15, to 20-plus% on some of those numbers.
So that just speaks for itself in terms of relative performance, and then the actual total dollars that we saved. Obviously, we accrue every quarter as we get data, and, you know, like we've done in previous years, we'll do that across our book of business and then update guidance at the end of Q3 when we report.
Got it. But so far, it sounds like so far, so good in terms of guidance, and nothing's changed from that.
Yeah, we didn't say anything else-
Okay.
So you should,
Cool
... you know, so we'll update it when we report our Q3.
Great. Great. So I wanted to focus more on growth, sustainability, pipeline. As we think of the strength of Privia's membership, 27% attributed membership growth year-over-year. You're continuing to add new providers, partnerships each year, which is great. So I wanted to focus more on the sustainability of this pipeline. I was wondering if you could talk about just the at a high level, the sheer number of just untapped quality physician groups out there that you could potentially partner with, and how that can fuel your level of growth for years to come?
Yeah, absolutely. A great question. So consciously, with our business model, as we are looking to build big multi-specialty groups, build, build big risk entities, and see doing value-based care across the population cohorts, from the time you're born till the time you're dying, by definition, we are trying to attack the biggest TAM that's there in healthcare. Every single type of provider, every single specialty, every single state, every single reimbursement model. That gives us a very large hunting ground, and the model we've chosen is we do business development deals, where we partner with a high-quality group or a health system to enter a state. And then we run a massive ground game over the next five, 10 years, where we launch a sales and marketing team, and then we are building a lot of density in those states.
So if you take Mid-Atlantic, where we started nine years ago with four doctors, that's now 1,200 providers overall. Georgia similarly started with a practice that came out of Piedmont, 15 providers, that's close to 400. That's what we are able to do over five, 10 years, and I think it gives us a lot of TAM to go, and there's a big tail in healthcare, you know, with services at the first point of contact for the patient with the community docs that are really valuing the model that Privia has. They don't wanna be employed by the health system, they don't wanna be employed in a corporate roll-up by private equity or whatever have you.
They don't wanna sell their practice, but this best of both worlds, where they can be part of something bigger, yet retain their autonomy. There's a massive tail that we can attract in our model and build these big medical groups. So I think there's a lot of TAM for us from all of those perspectives, and we think we can be at it. I mean, we have 4,000 providers out of 1 million in the country. So I think there's a lot of headroom to go here.
Yeah, very, very much so. Maybe drilling deeper, and you sort of just talked about it, but the value to a physician or specifically, you know, PCP to join the Privia Platform, versus other competing alternative value-based care platforms, or even just fee-for-service, could you discuss the value of Privia, whether it's retaining equity, the power of your tech platform, or even flexibility in your contracts?
Yeah, absolutely. So there are two things that we talk about in whenever I'm pitching to a doctor or our sales team is, one, is fundamentally a model to practice medicine and how they wanna do it as a physician group, and it could be a single-doc practice, it could be a big practice. And then secondly, is a very tangible ROI. So on the first part, Privia is differentiated in that we have something to offer to the entirety of the practice. We're not going in and saying, if you are a four-doc practice and there are two PCPs, one OB, one cardiologist, we're just not going only to the PCPs. We are saying the practice as a whole can join Privia Medical Group, as a whole can participate in different risk arrangements.
For the entirety of the practice, every single patient that walks in the door, we'll have the right payer contracts, we'll move those patients into some risk-based arrangements. For the entirety of the practice, we'll solve your technology stack, we'll assign all of these people around you to help sustain and grow your practice, while you can retain your autonomy and yet be part of something bigger. Then from a tangible ROI perspective, you know, we take all their data, and we can demonstrate to them very clearly, on the fee-for-service book, how much can they increase their take-home pay. And that can come through better contracts that we have with the payers, that can come through expense savings on the tech stack, on different services.
That also comes through massive productivity gains because the 4 doctors now don't need to spend time on things they never learned in medical school. They don't need to worry about the tech stack, they don't need to worry about payer contracting, they don't need to worry about optimizing the workflows in the practice. So we take on all of that burden off of their plate. That frees up one or two hours a day, or more in certain cases. They can see more patients, they can have better work-life quality balance, and then all of that can lead to more take-home pay at the end of the day. And we've demonstrated we can increase take-home pay by 10%, 15%, up to 40% over a three, four, five year period. And then over time, keep sustainably increasing that with value-added services.
So we can do clinical trials now, we can have ancillaries that they can participate in. We can include, you know, if they never did value-based care before, we start to add patients in certain programs, even on the commercial book. It's very obvious in the MA book and with seniors, with MA or MSSP, but even on the commercial book, they're, they are earning, you know, incrementally on top of the fee-for-service reimbursement. So that all sustainably increases the take-home pay over time. So I think both of those reasons are pretty strong for us to differentiate and attract these, doctors.
Great. Great. So maybe double-clicking into more granularity. Utilization, I understand the aggregate book across fee-for-service and value-based care. It's been favorable so far to the business, but with that said, curious to get your update, how it's tracking through 3Q, specifically higher outpatient surgery you've seen in Medicare and how that's tracked over the summer, and if you've seen any moderation at all?
Yeah. So a couple of broad comments, and then I'll answer the question specifically. So overall, as you noted, the benefit of our broad business model is, you have this diversification between fee-for-service and value-based care, and so these things normalize or at the end of the day, could help us. And then within our value-based book, we have a 1.1 million lives. 650,000 are in commercial value based, where we're not taking too much risk, and it's upside only, mostly. Increased utilization actually doesn't impact us from that perspective in lowering some of the shared savings. The MSSP program benchmarks get adjusted for inflation. So again, you know, we are a little bit immune from that perspective. And then obviously, in the MA book is where we are exposed.
Now we've seen ambulatory utilization be at an elevated level, and that continues, and that actually benefits us in the fee-for-service book. On the MA book, you know, we haven't seen much of an impact on the outpatient surgery spike. If anything, on the MSSP book, you know, it helps with the benchmarks, as we are performing relative to them. So if there's general inflation that is higher and we continue to perform relatively pretty well, it actually helps us. So we feel pretty, pretty good about it.
Great. Great, I think the power of the diversification remodel. So then flipping to what has been a very, very topical subject, MA risk model revisions. And as we head into the first year of phase in, it's going to impact high-quality providers, and disproportionately, the ones that, you know, have more aggressive risk coding. But for Privia, with the thinking is less impact because diversification of your business, only 35% of your GAAP eevenue in the first half of 2023 is even value-based care related. 14% value-based attributed lives being MA, and only 23% of those MA lives in downside risk. So it's understandable why it wouldn't be a material headwind. But that said, have you done any analysis to quantify that impact to Privia? And also curious, what, what the average risk score of your MA lives are?
Yeah, absolutely. So if you look at, you know, we have 4.5 million patients, 1.1 million in value-based arrangements, 350,000 of those 1.1 million are MA eligible, which, they are either in the MSSP program, about 200,000, and then 150 in some sort of an MA risk arrangement, upside only 50/50, and then downside. Our average risk score is at or below one in most of our states. So obviously, even on the MA book, which is a, you know, a relatively smaller piece of our business, it's the risk score is not that high. We don't see much of an impact.
If anything, I think as we work with the population and we take more risk, I think there's a lot more opportunity for us, and so we don't see much of an impact.
Great. Great. So staying on the topic of 2024, looks like the street is currently at slightly north of $90 million in EBITDA. I was wondering if you could walk us through some of the headwinds to consider, as well as positive EBITDA bridge items to help investors get more comfortable with the bridge to 2024. And specifically, I think you may have mentioned in the past that new market entry costs could potentially roll into 2024. Could you speak to that as well and how it fits into the bridge story?
So obviously, I'm not gonna comment on any particular guidance. I mean, we'll give our guidance for 2024 in February of next year. But generally speaking, to answer your question, you know, the puts and takes always, and this is fairly consistent in the last couple of years we've been public, and even before that, you know, if we enter a lot of new markets in the past 12, 18 months, you know, we're obviously investing in to set up those states to go live. So there's a business team, there's a leader, sales team, implementation team. Even before a single doctor shows up on the platform, we set up all of that cost structure in place that scales nicely once we get doctors over the next couple of years.
So if you have a period of time where you have five, six markets, that's an ongoing recurring cost that will scale over time. So, and if you see empirically what the business has witnessed, I mean, 2022 was a year where we grew top line close to 50%, EBITDA 50%, cash free cash flow, close to 50%. Now, that happens time to time when things hit in our scale, and then we enter a period where we enter five, six new markets. And so some now, we don't add back all of this cost to Adjusted EBITDA. We kinda guide it, as to what our level of spend will be, but that'll be some of the headwind as we are investing in these new states. At the same time, we're trying to accrete EBITDA year-over-year.
So, I think you get a nice mix of growth and profitability with this business, where we do see EBITDA growing next year. It may not be 50% because we've entered 6 new markets. So I think that'll be some of the headwinds. Obviously, you know, we'll evaluate our whole value-based book and see where we are from a utilization perspective, how we are performing. So that has puts and takes. As you saw in the MSSP program, we grew our shared savings 30%, so that's a big, big upside this year from last year. We are growing our attribution in all of our ACOs. We are growing our value-based attribution broadly. So I think we'll evaluate all of that, see where we end the year.
We're having one of the best sales years, so a lot of new doctors joining the platform. Then, you know, once we give our guidance in February, we'll come up with a full picture and, and update it. That'll be some of the puts and takes.
Great. Appreciate that color. So I think another element that's really core to the story with a lot of upside optionality is path to full risk, right? So 65% of your revenue, fee for service, 35% value-based care. You're at 33,000 capitated lives versus you're now 350,000 total Medicare MSSP MA lives. So very early on in the path to full risk, and ultimately, I understand it's called risk for a reason. I think you guys mentioned that a lot. So taking a more measured approach could be the most prudent. But over time, how do you increasingly get comfortable in your ability to take full risk to the point where you know you're 100% ready to really begin accelerating that shift in your markets?
Yeah. So a couple of broad comments, and then I'll answer the question specifically on the MA book and full risk. So one is, I think this is... We have a much more nuanced answer with our model, in what does risk-taking mean, and can you take full risk across every single patient that walks in the door? So 50% of this country, or 180 million people, are commercially insured. And that's not changing as long as there's working-class America. And I think it'll be a long time till provider entities downstream take full risk, let alone partial capitated risk on commercially insured patients. So that's a reality that we are dealing with. So I think there's a simplistic view of the world, where you do value-based care equals only full risk.
In our model, we do commercial value-based care in a very big way with about 650,000 lives. I think you'll see us do increased level of risk and work with very sophisticated payers to, you know, manage that population much better and lower the overall trend in inflation in healthcare, and increase the yield per life because of all the good work that we do. So that's a big part, you know, 50% of our population, that you're likely not gonna see full risk for a long time. Then in the MA book, the MSSP program, we actually take the most risk CMS allows us to in a number of our ACOs. And CMS is talking about even having provider entities take more risk than the enhanced track.
We manage close to $1.8 billion of spend with about 200,000 lives this year in MSSP. The rev rec doesn't reflect that in our top line, so while you stated it's 65-35, the apples-to-apples comparison is much, much more different. So we are actually already taking a lot more risk with MA-eligible lives with the biggest payer in the nation, which is CMS. That could be full risk equivalent. In our minds, we are seeing all the data and how we've performed and been all the stats that we talked about from an ER, inpatient, outpatient, utilization, et cetera. So we think that's very good proof points that we are already taking risk in a very significant manner.
And on the MA book, with about 150,000 patients, I think you'll see logical progression that we increase the level of risk we take. Even there, our preferred model is actually to share some of that risk with the payer, so that you're not adversely impacted with some new drugs coming into the market, where there's a lot of chat about GLP-1 these days, that the payers don't change, change the benefit design. So I think full risk is a payment model at the end of the day. It's not necessarily the best end state to manage the cost of a patient's life, and we like to share that with the payer in a thoughtful manner and increase the yield per life in a risk-adjusted manner.
So I think you'll see us do that more and more so with our 150,000 MA lives is where full risk will happen.
Great. Great. So maybe weaving a couple questions into one, just on pace and timing and the payer eagerness to delegate risk. So how should we think about the pace and timing of converting to full risk from your 33,000 lives now? And what's the payer appetite to delegate that risk to providers? What are you seeing in your markets? Are payers generally very open to delegation, or are they more reserved and guarded and more willing to take a slower ramp that starts with partial risk?
So the answer, you know, will vary. It's an evolution by payer and by state and by the population that's there in the state. So I think you're seeing, logically in the country, where you have dense MA-eligible lives, or duals, Southern Florida, California, parts of Texas, where you have these models much more broadly adopted and much more advanced. I think in some other states, we're headquartered in Virginia, and MA penetration's about 10%-12%, give or take, by county. Maybe it goes up to 15% in certain counties. You're not gonna get that level of density, so I think the path's gonna be a little bit longer to get there. So I think, again, we are having a lot of discussions. The payers want to work with us. The...
Ultimately, you know, the balance of power, I think, resides with the medical group entities like ours. That's where care is delivered. It's not delivered by the payers. It's delivered by the doctor in the community to, to those patients. So I think we are very uniquely positioned to have the best point of contact with any patient walking in the door, and then, taking more risk in managing the cost of the, of the patient, and then, you know, sharing in some of the shared savings.
Great. Great, and I know we have about a minute left. Wanted to touch on a couple more. Maybe quickly on capital position, solid, over $300 million in cash, EBITDA positive, no debt, basically minimal to no annual CapEx. With that said, how should we think about priorities? How does M&A fit on that list, and if so, what types of assets?
Yeah, so we really like our overall capital position. We've managed the business in a very conservative manner and focused on free cash flow and having no debt. You know, number one is to grow the business, so you're seeing us do these smaller deals where we've entered new states by spending anywhere from $5 million-$30 million, based on our disclosure, to buy a risk entity, a medical group, an ACO, whatever have you, and different ways to enter a new state. So I think you'll keep seeing us do those deals. I think there'll be opportunities to do much more bigger M&A as things rationalize in the world. I think the private markets are still lagging some of the public market rationalization.
I think we find ourselves in a very solid position to take advantage as things and opportunities come, but we'll do it in a thoughtful manner and hopefully in a very accretive manner to our shareholders.
Great. In the last 30 seconds, what do you think investors are missing about the previous story that they'll come to appreciate in 12-18 months?
Yeah, look, I think we touched a lot about... I think, there's been a lot of noise in the public markets the last, you know, 2, 3 years, a lot of companies going public and some of the rationalization happening. I think ours is a complex business which is trying to attract the biggest TAM and go after value-based care in the broadest possible sense.
I think, there's a unique, very myopic view of the world, where MA full cap is the only way to do this, and I think people take that step further to say, "If you're not doing that in a very big manner, then you don't even have the capabilities." But as we talked about a lot in the past 30 minutes, we think we have one of the broadest platforms to play this team across all levels of population, and it's been recognized by the payers, and I think the business is snowballing and growing really fast, and, we are now in 13 states and 37 more to go. So I think hopefully, as things rationalize, in the public markets and private markets, I think hopefully that's appreciated more by investors.
Perfect. Well, thank you, Parth. Thank you, everyone. Have a great rest of your day.
Thank you.
All right. Thank you.