Good afternoon. My name is Lisa Gill, and I am Head of Healthcare Services with JPMorgan . It is with great pleasure this afternoon that we have with us Privia Health. With us today, we have Parth Mar-
Mehrotra
Mehrotra. I never can say that right after all this time. Parth is gonna run through a quick presentation and then sit down with me for a couple of questions. I'll turn it over to you.
Thank you, Lisa. Thanks for inviting us again. It's our fifth year at the conference, including a few private years when we were private, so really appreciate being here. In general, I'm Parth Mehrotra, for those of you who don't know me. I've been at Privia for nine years, since early stages of the company, way pre-IPO. Was President and COO before, and took helm of the company, mid-year last year, so pleasure to be here again. So we have about 15 slides to talk to you about the business. A fairly good overview. A lot of you know the story that I can see in the room, and then hopefully we'll just get into Q&A and make it interesting.
So the elevator pitch on this company is, we have a very unique physician alignment model, where we are creating integrated medical groups, risk entities, and a full service and tech platform all in one. We are partnering with every single type of physician, every specialty, every patient that walks in the door across any reimbursement model. We play the theme of value-based care in the broadest possible sense, including obviously the fee-for-service book, and we are transitioning these practices into value-based care over time. All that leads us to have the biggest TAM, multiple growth drivers. The business is highly profitable today, capital efficient profile, free cash flow generation, and, we're led with a great management team. Obviously, I'm biased. By definition, we have access to the biggest TAM in healthcare.
The pie chart represents spend in healthcare for each of the four segments. There's about $1.9 trillion of physician enablement spend. Privia touches about $6 billion. That's one way to look at the TAM. We have two other bullets on the right. Privia today has about 4,100 providers that are implemented on our platform, out of a potential 1 million in the country. So you can see, we're just barely getting started here. And then finally, collectively, those providers see about 4.7 million patients out of a total of 340 million U.S. population. So, huge runway to go. The model's applicable in any potential state. So while the TAM is big, we have a lot of headroom going into it.
We are one of the largest primary care delivery networks in the country already. You can see here our current footprint. It's 14 states, 4,100 providers practicing in about 1,000 care center locations, collectively seeing 4.7 million patients, and then 1 million patients out of those are in some value-based arrangement. You can see we have really good patient and provider NPS, really good retention rates, and we've been doing this, like I said, for over 10 years. The model is really proven and makes money. What we do is very consistent and replicable across every state in the country. We establish our presence by setting up an integrated medical group, multi-specialty in nature, coupled with a risk entity and a full tech and service platforms.
The medical group has a physician-led governance model that sits parallel to the management team of the company. Once we enter a state, we are looking to add providers in those medical groups, wherever they might sit in the healthcare ecosystem. They could be independent practices, small provider groups, big provider groups, sitting inside of health systems, sitting inside of IPAs or clinically integrated networks, or any other facility-based providers. Once we onboard those provider groups, we are looking to transform the practice, drive their profitability on both the fee-for-service and value-based book of businesses. We drive same-store growth. We grow the practices and make them viable, and increase, at the end of the day, the take-home pay for these doctors. And then ultimately, we are looking to transition all of these providers into value-based care reimbursement models at massive scale.
That's the underlying operative word. And what's differentiating for us is that we do this across all segments of the U.S. population: the commercial book, Medicare shared savings with CMS, where we're one of the largest participants, Medicare Advantage, and then, and then Medicaid. You can see here, we sit in the intersection of both providers on one side and payers of healthcare on the other, and we have a very unique value proposition to both these constituents. To the providers, at the end of the day, we're looking, like I said, to grow their practices, increase their take-home pay, make their practices more viable, grow them on a same-store basis, and these are the ways in which we add value to them, which is very self-sustaining, which is very deep, and it's very long-lasting.
To the payers of healthcare, we offer one of the largest care delivery networks with community-based providers. It's often the lowest cost delivery network in those communities. We are able to do value-based care in very innovative manner in a very innovative formats across those lines of businesses at scale. And we have a very flexible value-based strategy, where we can move these providers across the risk spectrum over time. As they get ready, the payers get ready, we have enough density. So it's not a cookie-cutter approach. That's the reality of healthcare in the country. And then we follow whatever the local geographic limitations might be, and we work best around that. All that leads to very significant shared savings across all our population cohorts. You can see here, just deep diving into our value-based book.
We have about 675,000 commercial value-based lives, about 420,000 government lives, which is split between about 200,000 lives in Medicare Shared Savings Program, close to 150,000 lives in Medicare Advantage, and about 70,000+ lives in Managed Medicaid. At the bottom of the page, you can see, we take... we're in enhanced track, or we take the maximum risk that CMS allows us to take in MSSP in about 70% of that population... on those lives, about 23% of our MA book is in partial or full capitation, where we are taking significant downside risk, and in Managed Medicaid, we're just doing it on an upside-only basis. I think this slide is gonna be very important last year and going into this year.
Any provider organization downstream from the payers looking to do value-based care, looking to take risk, has to manage that risk very prudently. I think we pride ourselves in doing this very profitably, and there are three components to how we manage risk. On the left is just diversification of the book. Each of our different programs are constructed separately across commercial, Medicare Shared Savings, and Managed Medicaid, and Medicare Advantage. That diversification allows us to hedge risk across these different books, and we're not succumbing to an anomaly happening in one book of business across 100+ payer contracts. We think we have one of the best, more sophisticated actuarial and data healthcare economics team and data scientists, obviously overseen by an audit and compliance function and board oversight, which is key.
And then finally, it's operational execution day in, day out, as we are managing risk. What's important to note is we share upside and downside with our physician partners, 60/40. The doctors keep 60% of the upside, Privia takes 40%. They also share 60% of the downside. That aligns very good interests. When we decide to dial up risk, we do it in a joint decision with our physician practices. That ensures that they are working and managing the risk alongside us, as a company supporting them. I think that truly differentiates us. This is an overview of our tech stack.
You can see the workflow of the physician office in this racetrack, and the punchline I wanna leave you with is, there is no one healthcare IT company that has effectively formed a cloud-based ERP for a physician's office that can see any patient that walks in the door, any reimbursement model for any specialty across both fee-for-service and value-based care models and across the risk spectrum. So if you look at all the functions that have had to happen as a patient goes through this racetrack, we believe we've taken a bare bones EMR revenue cycle engine and then added 30+ different tools and created this racetrack, where we are deeply embedded in each of our practices. All of them get implemented on this platform.
It adds a lot of productivity lift, a lot of efficiency gained, and we think it's our, it's a real competitive advantage to have a lot of our doctors on a common platform. We have two case studies. So all of that good stuff leads to real outcomes in both any state that we operate in, and then a particular physician practice, and then ultimately transforms... translates into the results for the company. So you can see here, Mid-Atlantic, which is Virginia, Maryland, D.C., is our biggest and initial market that we started in 2013. In 10 years, we've grown this from being almost nothing to 1,300 providers, which is one of the largest medical groups in that geography. You can see we are collecting over close to $600 million of fee-for-service collections.
We've grown attribution and value-based arrangements from almost nothing to close to 500,000 lives, and we've saved over $600 million in shared savings over the last eight years. You can see we've had same store provider growth both on fee-for-service and value-based on the right. All of that leads to is great density in the markets, and this is the network that we can offer to payers of healthcare. This is a market where we are exhibiting unit economics and margin profile that is well exceeding our long-term targets for the whole company. So this, this gives us confidence that the model works, it's proven, and we're trying to replicate this in other states as we grow. You can see the impact here in this case study for a particular physician group.
This is a 17-provider group, joined us in 2014 with very simple objectives: Can it - can this remain a viable practice? Can this thrive and have best-in-class technology platform, services platform? And then, can we reorient the practice to be to have a revenue stream around value-based care? And then, more importantly, they were bleeding doctors to retirement, and could we grow this practice on a same-store basis? So you can see the impact we've had in eight years. We've close to triple the revenue. We've doubled, close to double the provider base in the practice. We've increased annual patient visit volume by 35% and increased per-provider patient volume by over 24%. And you can see they earn today about $1.1 million in shared savings. So this is a transformation.
This is a classic example of the impact we can have on a small community practice that, if left on its own, probably would not thrive in this macro environment in a healthcare ecosystem which is consolidating. And so this is what Privia is able to do. All that leads to, you can see, these are six financial metrics that we guide every quarter. The two units for this company, at the top left of the screen, are implemented providers and Attributed Lives. We wanna get doctors on the platform. They see patients. We wanna move as many patients into value-based arrangements. We collect dollars on all of those patients, fee-for-service and value-based, that's practice collections, and we charge a management fee that translates into Care Margin for this business.
We charge about 11%-12% on fee-for-service, 40% on value-based care, and we own a care management fee on top on most of our value-based lives. Our Platform Contribution takes into account all the costs that we incur to service these practices, and then the gap between that and EBITDA is sales and marketing and G&A. You can see we've grown EBITDA pretty consistently over the past five years, meaningfully so, since we've gone public. You can see our year-to-date results on the far right. What's more important is 80% and 90% of EBITDA converts to free cash flow. Our annual CapEx is less than $100,000. It's a very capital-efficient business, and that's what we do. We reiterated our guidance. This is our guidance as of Q3. At our earnings call, we are reiterating it.
It's the exact same slide that we showed at our earnings call. Across all these metrics, you can see the initial guidance at the beginning of the year and how we updated it at Q3. So we are reiterating all that guidance, including the free cash flow conversion across all these metrics. Finally, we have a very strong capital position and balance sheet. We have no debt on this business, $371 million of cash, fully diluted share count of 125 million. So, and the business is, like I said, generating, converting 80% of EBITDA into free cash flow.
So that gives us a lot of capital to take risk, to grow the business organically, and not rely for any external sources of capital, and then go address the TAM that we are able to go. And with that, we'll take questions.
Great. So, Parth, let's start with the model, this physician enablement model and the competitive landscape today. Can you talk about when a provider is choosing Privia versus others? One, has the competitive landscape changed in the last two years? And two, what is the value proposition that this physicians are really looking for, when they select Privia?
That's a great question. So fundamentally, as I alluded to before, we think we have a model that is very unique, that is looking to partner with the entirety of the physician practice, every single specialty across all lines of business. I think other than Optum Care, we don't think there's a model that's actually creating big integrated medical groups in the country. So our value proposition is to the whole practice, and I think that's very differentiated day one. Secondly, I think we are looking to do value-based care across all lines of business. That's a very tough undertaking. We are deeply embedded in the workflow of these practices. We do fee-for-service. We are transitioning those practices into value-based care. There's a natural path to this.
We don't think the composition of the U.S. population is going to change. 55% of us are gonna be commercially insured. To do value-based scale at scale, you have to attack that population as well. So while I know there's a lot of focus on Medicare Advantage, and that's a big opportunity on a per capita basis, doing Value-Based Care across the book, I think, is true differentiation for us. I think those are the reasons some practices join us as we are willing to do that.
You talked about the risk component, and you know, you talked about 150,000 Medicare Advantage lives that are in some type of risk relationship today. When I think about what's happening right now from a utilization perspective, we heard large managed care companies back in June talk about we're seeing an increase in outpatient procedures, orthopedic, cardiovascular. And then over time, we started to see some of the other models have an impact, right? Where they said that higher utilization. I know you have less when we look at your overall, just 23%, right, are in these types of relationships. But is it that you've been able to manage this better than others? Is this that because it's only 23%, you know, you're seeing an offset to this?
How do I think about how you've been able to manage through these changes in utilization in 2023 versus kind of the marketplace?
Yeah, I think there are a few points, and I go to this slide where we call it, it's called a risk for a reason. I think, like I said, any provider entity taking risk has to manage through all those elements. Utilization can go up, utilization can go down, how you're contracting with the payers, what MLR thresholds you get, under which you'll make money, and the doctors will make money. Having a real healthcare economics function, data scientist function, having a real data warehouse where you can get the data. Not having optimal data is a risk you have to manage, and you don't get it equivalently in all of those buckets. So I think we've structured the company from day one, with all of this infrastructure in place for that reason.
I don't think we are immune in any of our risk books. I do wanna highlight one thing. Despite how much downside risk you take financially, you still have to manage risk.
Right.
So we are looking at, in the MSSP population, even though we don't take 100% risk, CMS shares with us, we are looking to bend all those elements of the cost curve, ER visits, ED visits, you know, facility costs, and so on and so forth, for our underlying patient population. We're trying to manage disease states for the most chronically ill patients. So you have to... When you're taking risk, you have to manage those lives, and I think that's a combination of, everything on this page, including operational capabilities. And I think, when things don't work right, is when folks appreciate this page. And I think, hopefully, companies like ours stand out for the capabilities we have.
Going back to your comment that you need to do more than just Medicare Advantage when we think about the commercial market, and I know Shawn had worked for one of the prior physician practice management companies back in the nineties, and it didn't succeed in the commercial market. Why do you think that the market today is maybe in a position via value-based care, via physician enablement, finally there for the commercial market? Over what period of time do we really fully get there?
Yeah, it's a great question. You know, I fundamentally think, going back to our business model, it's very hard to do risk and commercial as an outside entity that is just helping physicians without running medical groups. On the commercial population, like all of us in this room, we are having very sporadic encounters other than our annual well visit. It's largely fee-for-service.
Right.
Unless you are doing it from within a medical group setting with real physician governance, and you can do it at scale, where you take a network to the payer of healthcare and have contracts that can stratify the population and allow the medical group entity to do value-based care for each subsegment of the population. You can start with pediatrics, with children-
Mm-hmm
... with women, and then obviously, you know, I would call it the healthy working adults from 23 to probably 50. And then you're managing the pre-Medicare lives between 50 and 65. I think doing commercial risk is very sophisticated across each of those buckets. We are looking to get paid based on quality outcomes, children getting their vaccinations, children showing up for their annual well visit, mental health issues.
Mm-hmm.
... in that 50-65, you're trying to do all the preventative stuff.
Right.
Cancer screenings, colonoscopies, so on so forth, vaccinations. And so how you get paid at scale matters. And I think you can only do in an integrated structure like ours, where you can take a big network with a large number of lives, and then it becomes interesting for a payer of healthcare to do.
Are you seeing payer interest in these kinds of programs today?
I mean, absolutely. We've got 675,000 lives, and on each of those lives... So we see 4.7 million patients. If you take 55% are commercially insured-
Right
Just generally, you can see on 1/4 of those, we are trying to do value-based care, where we've taken a simple fee-for-service reimbursement model and added a care management fee and added shared savings on top of that. We may not increase the fee-for-service reimbursement as much as we can increase the other two. So the doctors are now finally starting to get paid, and you have a value orientation on a commercial population, which is seeing the highest cost escalation. I think that's very unique for our company to do with the payers, and they are interested in doing that. The other important factor is they're very interested in everybody who's turning 65.
Right.
We are a unique model where we know everybody's birthday, we know when everybody's turning 65. If we manage that population really well from 50 to 65, that's a very healthy MA patient, MA life, that's entering the Medicare Advantage book. So I think for all those reasons, payers are looking to, again, work with us in markets where we can get density in our integrated medical group structure to do this.
You know, the other area of growth you've had in the last few years is health systems, and I would think that health systems are probably looking for something different in the relationship that they have with Privia. Can you maybe just walk through a traditional health system and some of the opportunities you see there?
Yeah, absolutely. Close to 50% of all providers, give or take, the case study, are employed, aligned, affiliated with health systems.
Right.
Historically, they've built big medical groups to feed the facilities.
Right.
As reimbursement model shifts, it's not a natural place where you can do value-based care. So we've become a very good partner to them for a few reasons. Historically, health systems have looked to acquire or employ doctors-
Mm-hmm
-oftentimes subsidizing the medical groups-
Right
... for the inpatient line of business. That's unsustainable. I think COVID has escalated some of those trends, the cost pressures, the inflation pressures. So health systems, number one, are looking to us to have large medical groups and grow their medical groups without buying practices, and the Privia model is a very natural way for them to do, across all lines of business and all specialties. They're interested in all specialties, not just primary care. Again, our business is uniquely structured to do that. From a defense side, you have a lot of employed providers that are looking to exit health system employment, and the health systems don't have a catchment area for those docs. So a Privia model becomes oftentimes a place where they could land and still have, all the affiliations with health systems.
And then finally, I'll just complete the, the thought. The last is obviously this transition to value-based care.
Right.
So health systems have established their own CINs, their own ACOs. They're trying to take risks. And again, their core competence is running facilities, running complex surgeries, and I think we can help them manage that book.
Do you think that they're on the right trajectory, though? When I think about value-based care, a lot of it is shift in site of care when we think about moving towards lower cost settings. You know, to your point, that the hospitals, they built these big, elaborate organizations and then hired a bunch of doctors to feed those organizations. Do they understand, like, that this is the way that it's moving and the reimbursement models are changing?
Look, I think they absolutely do. I mean, they are run even both on for-profit and not-for-profit side, you know, the health systems are run by very capable executives. They understand it. They're dealing with a legacy set of infrastructure-
Right
-costs and investments that they've made. But if you look at where they're looking to invest incremental dollars, a lot of it in, is in the outpatient, setting. I think they understand that the hospital is a place where you can have complex surgeries, but then you can do a lot of surgeries and procedures in an outpatient setting where the health system's investing in. I think this transition is going to be by health system, by geography, and it's not gonna be homogeneous. Some health systems are gonna be ready, some are not. Some have very large, not-for-profit mandates and be critical access hospitals for the Medicaid population, and I think that's a mandate that they have with their foundation. So I think they're serving a need that is very hard to do in a for-profit sense, so I think you've got to respect that.
But I think over time, a Privia model is not right for every single health system, but the most-
Mm-hmm
Forward-leaning ones are looking to partner with us and do that.
You know, you've called out that the startup cost, $4 million-$6 million when we think about these health system partnerships. It's basically a hunting license, if I think about it correctly. And so you go out, and you sign up those physicians. How do the economics on the health system partnerships compare to your traditional physician partnerships?
It's actually very comparable. So, you know, we spend anywhere from $2 million-$4 million in any state that we enter, and that's to set up a leadership, that's to set up sales and marketing, implementation costs, before even a single doctor joins us. That cost is very similar, whether it's a health system partnership or not. I think what the health system partnership gives us is a lot of relationships in an existing geography.
Mm-hmm.
Like, when we show up in North Carolina, nobody knows us.
Right.
Everybody knows Novant. Same with OhioHealth in Ohio. So I think it leads us to have an accelerated path to building big medical groups, which is what we are looking to do. But the cost structure is the same.
Point of break even or profitability?
Yeah, I think we're looking to get to, you know, 200 or 300 providers when the markets break even, if it's on only fee for service. If we can do value-based care sooner, that can happen sooner. We're looking to lower that threshold as we've grown the national scale of the business. So obviously, if we entered six new markets, we highlighted-
Yeah
-we've spent about $10 million of, you know, new market cost. That's negative EBITDA markets, but over the next two or three years, we're looking to break even those, and they'll all be positive contribution.
When I think about, you know, the competitive marketplace, right? This is something I'm sure you have to answer questions on every day. It doesn't feel like your competitors are doing the exact same type of partnerships with the health systems. Do you think the competitive landscape shifts because your offering is successful? Do you maybe just talk about, you know, specific to the health system market as we see it today, how would you characterize the competitive marketplace, and how do you think that changes over time?
Yeah, so fundamentally, going back to the slide, I don't think any of our competitors are building integrated medical groups, risk entities with a full-service platform across for all specialties and all line, all patients walking in the door. That's fundamentally how we've set up the business. That's very hard for somebody to do overnight if they've never done it. Running a fee-for-service line of business where you're running revenue cycle, where you're processing claims for 50+ specialties is not easy to replicate. So I don't think there's any competitor that we come across that is doing exactly what we do in the way we do it. If you find it, let us know. We've got $400 million of cash. We wanna buy it. So I think the value prop that we offer is very unique.
like I said, it's not for every health system, but I think it gives us an edge, which very few have. It's a very hard model to run. You can have individual capabilities in one or two of these lines of businesses, but to undertake what we are doing in an integrated manner-
Right.
We've done it now in 14 states, is very hard.
And if I think about going back to your comments around specialty, you know, it brings to mind the Greenville ENT relationship. When I think about you said all specialties, all areas, are there areas, though, specifically that you're targeting? So maybe use Greenville as an example. Like, how did that come to you, and why did it make sense?
Yeah. So originally, when we started Privia, it was focused on primary care-
Right.
And then we expanded the definition to be gatekeeper doctors, so whoever's the first point of contact in the family. So pediatricians for kids, OBGYNs for women, family medicine, internal medicine. We then morphed that to be folks that take care of the chronically ill, so think about endocrinologists, pulmonologists.
Mm-hmm.
And then we got into specialists, nonsurgical specialties, ortho, cardio, onco, so on and so forth, but not surgical. And when we had health system relationships, you're getting all the other specialties attached to it. We think having integrated medical groups is the way to go because 80% of the cost sits downstream from the gatekeeper doctor.
Right.
For us to be-
Probably more than that, right?
Probably more than that, yeah. So, depending on, you know, the life and-
Yeah
... and where they are. So for us to do value-based care, when 80%+ of the cost is sitting downstream, we see a lot of data, and we can manage those costs, and if we can keep a person in the Privia network, we can monetize that life in many ways and manage risk and even share some of the shared savings with the specialist. I think that's the next stage of evolution of value-based care, so it's a very conscious strategy. And like I said, 55% of the commercially insured population and everybody else needs specialists, and I think to exclude them from the equation is very artificial.
So if I think about your model, should I think about this, all of the regions that you're in, will you look to add specialists across the board so that everybody's kind of within your network, so it'll almost be like, a mini HMO model? Or you know, if I think about a closed model, right, like Kaiser or someone else in the marketplace.
That's a great observation. So you know how each state evolves will be different. I think we are going in with a primary care orientation, because that's where attribution sits-
Mm-hmm.
for the gatekeeper doctors. If you look at the Mid-Atlantic case study, at 1,300 providers, we are one of the largest medical groups, and we can now offer that network to a commercial payer or to a self-insured employer in a very HMO-like format. You're not gonna restrict access, but you can take risk-
Manage it
... in a commercial life-
Yeah
... if you can provide-- if you can have a high-quality, low-cost, state-of-the-art physician network that can do this at scale with specialties included.
When I look at South Carolina was the sixth new state you've entered, when I think about the number of states that you're in today, what makes sense? How many... Is it all 50 states, or are there certain states that just don't make sense for Privia to be in?
Yeah, absolutely. I mean, theoretically, given the breadth of the business model, it's applicable in every single state.
Mm-hmm.
So we got 36 to go, in theory. In reality, we are chasing physician density, which corresponds to population density. So I think there are naturally some states where we are not unless there's a real angle, you know, we're not prioritizing.
Right.
But if you have to prioritize states, I mean, there's a lot of white on this, on this map, so, and with 4,000 providers out of 1,000,000, I think we have a lot of legroom to go. I do wanna highlight, in the largest state we are in, which is Mid-Atlantic, we still have just about 10% of the market share for independent providers. So there's a lot of legroom for us to just increase our density-
In these-
in all of these existing states. So even if we didn't add a single state, you should expect us to keep adding implemented providers in all the existing states and running the playbook.
Is there a strategy around density versus expanding states, or is it, you know, just looking at each market independently?
It's each market independently, but we run both in parallel. I think we've got a management team. Each state is run by its own president.
Mm-hmm.
We manage that book of business, like an independent P&L, and once we enter, the goal is to build one of the largest medical groups and run the playbook like we've done in Mid-Atlantic.
Your stated goals are to add 400-500 new providers each year. Can you maybe just talk to us about the visibility that you have in any given year? As we sit here at the beginning of 2024, how much visibility do you actually have for 2024?
We have over 90% visibility because there's a 5- to 6-month lag between when we sign a provider and when we credential and implement them. These providers leave their legacy tax ID, leave their legacy stack. They're joining our medical groups, our payer contracts. So as we sit here today, when we give our guidance for 2024 in about six weeks-
Mm-hmm
... you know, we're sitting with 90%+ visibility, so that's why we—you've seen our track record. We've. If we give guidance, we hopefully meet or exceed it.
Well, you're the only 2021 company that has. You know, you entered your first fully capitated MA contracts in 2022. I talked a little bit earlier about the 150,000 lives. How's that contract performing relative to your internal estimates? And then secondly, are you entering into additional full risk contracts as we think about 2024? Is this a big push for you?
Yeah, so if you look at our guidance, which we've reiterated, you know, that would lead you to believe that our accruals and how we've performed with those contracts has been relative to, you know, similar to our initial expectations, so that's gone fine. I read all of your research during the holidays, and everything you wrote about the MA landscape with, you know, 35% of the plans in 4.5- or five-star plans are gonna disappear, impact from V28, plans changing their benefit design-
Yep.
having MLR thresholds for provider groups taking risk at unreasonable levels, so on and so forth. I don't think it's an environment you would tell me, "Go dial up risk and do as much capitation.
No.
So-
I would agree with that.
So, if you believed all that... Now, again, this goes in cycles. Sean would have told you this happens every five years in MA.
Yep.
The beauty of our model is we are very flexible, and I think the world's shifting our way finally, when we kept saying... I think there was a misconception that you have to do full capitated, full risk MA to do Value-Based Care. I think we can save a lot of shared savings for payers, for our providers and us, not taking full risk.
Right.
If the environment is not right, we won't dial up risk. The key is for us to be paid to take risk. If you're not getting paid appropriately, and our doctors are not getting paid appropriately, I don't think we are going to. The best contracts that we've had are where the payer, Privia, and the doctor all have skin in the game. We and our doctors always have skin in the game, 60/40. We love the payers to have a skin in the game. That leads to less anomalies happening-
Right.
better data flowing, all of the risks you highlighted earlier. So... And I think that'll be more appreciated, going forward. So you can have a couple of years here where we may choose or not choose to dial up capitation, but that doesn't mean we are not going to increase the number of lives in our value-based book across all those lines.
Just going back to your comment, around the payer and, how the payer thinks about that, that risk relationship. Are you having different relationships or different conversations with them today than, say, a couple of years ago, just because of your success in recruiting physicians, your success in what you've been able to produce?
Yeah, absolutely. I mean, when we originally got... I've been here nine years.
Right.
So when we got started, everybody thought we were just another roll-up. You're gonna add a bunch of providers, and you'll go to the payers and beat them up on rate increases, and it's a big fee-for-service machine. I think what we've proven to them now, especially with our value-based book on this page, and our willingness to do commercial value-based care, not only just MA and MSSP. You have to realize, in the commercial value-based book, a disproportionate of the shared saving accrues to the payer, not Privia.
Right.
If we can bend the MLR by 100 basis points, that's a lot of EBITDA accretion for them relative to us.
Right.
They are seeing that value orientation, and so they understand, if you look at the benefits that we had outlined to a payer on this page on the right, there are very few models that are saying we're gonna keep independent community doctors independent.
Mm-hmm.
They are often the lowest cost setting in healthcare. We're gonna supercharge them and make them very sophisticated to see folks in the community, and we are gonna allow you to take risk and do value-based care at massive scale. The payers love that because if you have just 10 locations in a particular MSA, nobody really cares for- with a few docs.
Right.
If you can go to them with 200,000 lives or more, or 500,000 lives, it really moves the needle. I think our willingness and ability to do that with now a proven model, what that changes as we enter a new state, we don't need to repeat those conversations. We can show these case studies in our previous states, and then they enable us, day one, to run this model.
You know, there's been a lot of talk about ACO REACH and the success you've had in both Medicare Shared Savings as well as ACO REACH. Do you think that the ACO REACH program has been successful? You know, do you think that we'll see further changes to that program?
Yeah, it's a good question. I mean, we've been one of the longest-serving participants and the largest participants in MSSP with CMS. You saw close to 200,000 lives. Theoretically, we can move all of those lives into ACO REACH. CMS allows you to participate in one program or the other. Our simple underwriting is: would we have enough shared savings for both the government, for our providers and us, in both programs? If they made it equivalent, we converted day one. I think there's a misconception where one program is better or worse. I think it's a newer program. I think they introduced it to fill certain gaps that they didn't have in MSSP. You could see certain convergence in those programs.
Like with any program, any new program, when MSSP was introduced, you know, many years ago, there were many iterations, and it got to the stage it is today as one of the most widely adopted, most successful programs out of CMS. So ACO REACH is going through changes that are, again, natural. CMS does that really well. You know, for us, again, I mean, we'll decide on a year-by-year basis whether we should move or not. I do wanna highlight one other point. If we move each one of those lives into ACO REACH, we'll close to double our GAAP revenue.
Wow.
And that's an anomaly-
Yeah.
- because you can start recognizing-
Right.
Revenue rec has been all over the place.
Right.
I think there's a misconception if you do REACH, you're doing more risk, and you're doing more value-based care, but MSSP and Enhanced Track is as good, I think, or even better, you know, than ACO REACH. So we are biased, but.
Would the EBITDA be roughly the same, I mean, even though the...
That's the underwriting we do.
Yeah, yeah .
We are trying to maximize shared savings.
Yeah
which translates into our EBITDA and what our providers keep and the government keeps, because they share 25% of it. You know, we're not focused on top line, but you can see, you know, how rev rec has not been consistent across the industry. But that's a key factor for us. But ultimately, we think, you know, the programs are good, and they'll keep getting tweaked to keep improving them.
I know we only have a couple minutes left here. I know it's early to give guidance for 2024, but as we sit here today, is there anything for us to keep in mind when we think about headwinds, tailwinds heading into 2024?
Yeah, absolutely. I mean, we said this on many of our earnings calls.
Yeah.
Like, the units of this business are you increase implemented providers, they see patients, you increase the number of Attributed Lives, and those are the two units that drive the business forward.
Right.
You should expect us to increase those. We've had great sales year in 2023. You should expect us to increase the number of implemented providers, Attributed Lives. Obviously, we've entered six new states.
Mm-hmm.
We talked about new market entry costs. That's medium-term positive because it gives us more hunting ground and more TAM that we are accessing, but that's, those are negative EBITDA states.
Right.
So, you know, that's gonna be an impact, you know, that, that'll have its impact on EBITDA on a run rate basis. And then we talked about the MA book and value-based care. So whether we dial up risk, whether we pull back risk, how we underwrite and accrue for our value-based book, can we increase shared savings, will be the other driver. So in six weeks, we'll put it all together, and we'll do... I think you should-- Our commitment is to grow EBITDA and free cash flow-
Right
... in a very sustainable manner, despite all these headwinds or tailwinds, despite new market entry costs, and then minimize the downside and not have negative surprises.
Not specific to your book of business, but just given the amount of fee-for-service business you do do , I would think that you have some pretty good insights as to how utilization is, is firming up as we end the year. For many of you, I think you may have been in the CVS presentation earlier today, where they talked about utilization a little higher than they anticipated in the fourth quarter. How would you characterize utilization overall right now?
Yeah, so as you can imagine, with an integrated medical group, we are seeing encounters-
Right
... which precedes claims that the payer sees.
Mm-hmm.
And so we are probably at the front line of utilization. We've seen very good utilization trends on the same-store basis. Now, we have only 4,000 providers in select geographies. It's mainly primary care-
Yeah
... plus select specialties, so it doesn't represent the country or nation. But everything we see, we think utilization on a same-store basis is trending up. It's staying there. We think this is the new normal. It helps us underwrite our value-based book. It gives us a much more balanced view on how much risk we take, and for that reason, I think it's served us right. And we think actually this is the new normal. We don't think there's gonna be a big cliff where utilization drops. We think actually it's gonna be elevated, and this is the new normal.
Great. I think we have about 30 seconds left in our last couple of seconds together here. What, what do you hope people appreciate about Privia next year, that maybe they haven't appreciated in the last 12 months?
Yeah, I think since we've gone public, I mean, our consistency in how we've delivered results, that has gone... If you just go backwards from there, in our diversified business model-
Yep
... all lines of business, integrated medical groups, everything we talked about in the last 30, 40 minutes here, I think people will realize this is a very unique model. It doesn't exist. Nobody else is doing what we do. The diversification of the business leads to very less volatility in earnings and with a lot of predictability, and we can play the value-based theme in the most broadest possible manner.
Mm-hmm.
We're gonna keep executing and, hopefully keep delivering for our shareholders.
Great. We look forward to the guidance.
Thank you.
Thanks very much, everyone. Great job. Thank you.
Great questions.
It's so nice to see you.