Astrana Health Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 11 speakers on the call.

Operator

Good day, everyone, and welcome to today's Astra Health Third Quarter 2024 Earnings Call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session and instructions will be provided at that time. Today's speakers will be Brandon Sin, President and Chief Executive Officer of Astrana Health and Chan Basho, Chief Operating and Financial Officer. The press release announcing Astrana Health Incorporated's results for the Q3 ended September 30, 2024 is available at the Investors section of the company's website at www.astronahalf.com.

Operator

The company will discuss certain non GAAP measures during this call. Reconciliations to the most comparable GAAP measure are included in the press release. To provide some additional background on its results, the company has made a supplemental deck available on its website. A replay of this broadcast will also be made available at Astrana Health's website after the conclusion of this call. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Operator

These forward looking statements can be identified by terms such as anticipate, believe, expect, future, plan, outlook and will include, among other things, statements regarding the company's guidance for the year ending December 31, 2024. Continued growth, acquisition strategy, ability to deliver sustainable long term value, ability to respond to the changing environment, operational focus, strategic growth plans and merger integration efforts. Although the company believes that the expectations reflected in its forward looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. There can be no assurance that those expectations will prove to be correct. Information about the risks associated with investing in AstraZeneca Health is included in its filings with the Securities and Exchange Commission, which we encourage you to review before making investment decisions.

Operator

The company does not assume any obligation to update any forward looking statements as a result of new information, future events, changes in market conditions or otherwise, except as required by law. Regarding the disclaimer language, I would also like to refer you to Slide 2 of the conference call presentation for further information. With that, I'll turn the call over to Reschana Health's President and Chief Executive Officer, Brandon Sims. Please go ahead, Brandon.

Speaker 1

Thank you, operator. Good evening and thank you all for joining us today. Heading to a strong first half of the year, the 3rd quarter results we reported today continue to reflect the progress we are making as we build the nation's leading patient centered care agnostic healthcare platform. As we continue to drive our mission to deliver high quality, high value and accessible care to communities across the country, I want to remind the audience of the 4 pillars we have executed on for years, which we believe will allow us to achieve that goal. 1st, we will sustainably grow our membership in order to bring better care to more Americans.

Speaker 1

Next, we will increase alignment with outcomes by responsibly taking on greater levels of total cost of care responsibility for our members through value based and accountable care arrangements. 3rd, we will focus on achieving superior patient outcomes while managing total cost of care by empowering our providers with our technology and clinical infrastructure. And finally, we will continue to drive operating leverage across our business through our care enablement suite. I'll start with some key financial and operational updates for the quarter that reflect the success we are having driving each of these 4 operational imperatives. Then I'll provide an update on the close and integration of Collaborative Health Systems.

Speaker 1

And finally, Chan will discuss our financial performance and guidance outlook. Starting with financial highlights. We continue to execute at a high level as Astrana Health revenue grew to 478,700,000 Adjusted EBITDA was $45,200,000 continuing to demonstrate our differentiated ability to grow profitably even while bringing on newer cohorts of membership. As we had previously guided, earnings cadence was different this year compared to last year due to a timing difference in when certain incentive dollars were received as well as the move to accruing ACO REACH results throughout the year. To paint a clearer picture, on a year to date basis, adjusted EBITDA has grown 15 percent from $117,600,000 in the 1st 3 quarters of 2023 to $135,300,000 in the 1st 3 quarters of 2024.

Speaker 1

Moving on to core business updates. We continue to execute on our first strategic pillar, sustainably growing membership to bring better care to more Americans. Membership was at around 1,000,000 members as of September 30. And to set the stage for future membership growth, AstraZeneca Care Partners affiliates organically added over 200 primary care providers and over 900 specialists to our network across our core markets. We also continue to make progress on our second goal, increasing our responsibility for members' total cost of care and value based arrangements.

Speaker 1

As of October 1, 2024, our full risk business makes up approximately 61% of total capitation revenue compared to 46% as of October 1, 2023. And we continue to be on track to meet our previously stated goal of having around 2 thirds of our capitation revenue coming from a full risk ecosystem by January 1, 2025. Moving on to utilization and cost trends in the Q3. We continue to experience overall cost trend blended across all of our lines of business evolving as expected in the mid single digit percentage range. We believe that this is an ongoing reflection of our efforts to ensure access to high quality care for our members as well as to the technology enabled care management, disease management and care coordination programs that we operate for over a 1000000 members across the country.

Speaker 1

Diving a bit deeper into our utilization trends. For our senior lines of business, Medicare Advantage and ACO Reach, we are experiencing stabilizing cost trends, which came in within our expectations. In our managed commercial book of business, we are seeing slightly lower trend than expected. And for our Medicaid book of business, we are seeing higher trend slightly than expected. For our Medicaid business, excess cost trend relative to expectation was a few 100 basis points of increase due to an acuity rate mismatch because of Medicaid redetermination, a situation we expect to be resolved in the future as redetermination and rates re normalize.

Speaker 1

At a blended level, this was partially offset by lower than expected cost trend in our commercial book of business. We believe that our ability to manage overall cost trend within our predicted range is a feature of our payer and line of business agnostic platform as well as a testament to the investments we have made in care delivery and care coordination. Moving on to recent activity, our acquisition of Collaborative Health Systems has closed as of October 4th with integrations well underway in terms of people, processes and technology. As a reminder, CHS has a complementary footprint of around 2,500 primary care providers serving around 100,000 primarily senior members with a set of payer agnostic relationships across the South and the East Coast. Financially, we expect to see an approximately negative $4,000,000 adjusted EBITDA impact in Q4.

Speaker 1

I continue to believe that we are on track for approximately $450,000,000 of revenue contribution in full year 2025 and breakeven adjusted EBITDA contribution by the end of 2025 from this business. We will continue to provide updates about the progression of this business in future quarters. With the closing of CHS after the quarter end, Astrana Health now serves over 1,100,000 patients in value based care arrangements across 12 states. By deploying our technology platform and leveraging our operations to drive efficiencies and reinvesting those savings into improving access to care and enhancing local clinical capabilities for our patients, we have the unique ability to drive better patient outcomes and savings and risk bearing arrangements. Approach is continuing to pay off, driving what we believe is sustainable profitability, even as we grow rapidly in communities across the country.

Speaker 1

I look forward to continuing to accelerate our reach and our impact as we strive to provide accessible, high quality, high value care to all. To conclude, I want to thank all of our teammates, new Mendoza, our providers and our partners for their continued belief in our mission to transform healthcare delivery nationwide. With that, I'll turn it over to Tran Bhashogg to discuss our financial performance and guidance outlook. Tran? Thanks, Brandon.

Speaker 2

Turning to our financial performance. We reported total revenue of $478,700,000 a 37% increase from the prior year period. This growth was driven by our continued progress in the transition to full risk as well as additional contributions from the CFC acquisition. Adjusted EBITDA for the quarter was $45,200,000 a 13% decrease from $52,000,000 in the prior year period. As Brandon previously mentioned, our cadence in earnings was different this year compared to last year due to timing differences related to the recognition of certain incentive dollars and ACO reach performance.

Speaker 2

As a result, viewing financials on a year to date basis better reflects the growth of our business. We reported adjusted EBITDA of $135,300,000 for the 9 months ending September 30, 2024, up 15% from $117,600,000 in the prior year period. Similarly, while net income attributable to Astra for the quarter was $16,100,000 down 27% from $22,100,000 in the prior year quarter. On a year to date basis, net income attributable to Astrona was $50,100,000 up 4% from $48,400,000 in the prior year period. Earnings per diluted share for the quarter stood at $0.33 down from $0.47 in the prior year period.

Speaker 2

Year to date earnings per diluted share were $1.04 compared to 1 0.03 a 1% increase from the prior year period. From a balance sheet perspective, we remain well capitalized ending the quarter with $348,000,000 in cash and cash equivalents and total debt of $442,000,000 compared to $325,000,000 in cash $446,000,000 in debt at the close of the previous quarter. As we adjust our full year outlook to incorporate CHS' financial contribution, we're revising our guidance ranges. For revenue, we now expect between $1,950,000,000 $2,030,000,000 dollars up from our prior range of $1,750,000,000 to $1,850,000,000 We anticipate adjusted EBITDA to range somewhere between $165,000,000 to $175,000,000 compared to our previous outlook of $165,000,000 to $185,000,000 Lastly, we now project earnings per diluted share to be between $1.06 to $1.19 compared to our prior guidance range of $1.12 to $1.36 To conclude, AstraZeneca Health has made significant progress this year through strategic growth and disciplined execution. Looking ahead, we're focused on the seamless integration of acquisitions and new provider partners, strengthening our financial position and delivering sustainable value for our members, providers, payer partners and shareholders.

Speaker 2

We appreciate your continued support and confidence in Astrana Health.

Speaker 1

With that, I'll turn

Speaker 2

it over to you, operator, for questions.

Operator

All right. First up, we have Ryan Daniels of William Blair.

Speaker 3

Hi, all. Congrats on the quarter. This is Jack Sampson for Ryan. Thanks for taking the questions. I wanted to touch on the updated guidance that now incorporates CHS.

Speaker 3

Can you just remind us on the top line and bottom line impacts of adding CHS? I believe you said it was maybe a negative $4,000,000 EBITDA hit in the Q4. I'm just kind of trying to parse out the magnitude of the Q3 performance on your updated guidance versus the CHS individual performance. Thanks.

Speaker 2

Hey, how are you? In terms of top line for CHS, in Q4, we're expecting about $200,000,000 in additional top line. In terms of adjusted EBITDA, it's going to be about a $4 ish million hit to EBITDA.

Speaker 3

Okay, perfect. Thank you. And then if I could just sneak in a follow-up here. We recently saw a headline regarding, I believe it's called Proposition 35 in California. It's basically giving doctors in California a boost and pay for those that serve Medi Cal patients.

Speaker 3

Can you guys just elaborate on what this is? And maybe just if this will impact you and if it is going to impact you, maybe like magnitude and then kind of how this does impact each of your business lines? Thank you.

Speaker 2

Sure.

Speaker 1

Hey, Jack. This is Brandon. Thanks for the question. I'm just going to say a few quick words and then hand it off to John to discuss the financial impact. We just wanted to say that we're pleased to see increased Medicaid funding in California.

Speaker 1

It's a population that we think we spent a lot of investment and time on and it's something that we think is going to be great for those communities. John, do you want to discuss some of our anticipated impact? Sure. Thanks, Brandon.

Speaker 2

So Jack, in terms of overall, what this means to us, we value that the voters of California believe in Medicaid, believe in the fact of continuing to make sure networks are sustainable. And with this higher funding, we expect to continue to reach more Californians and continue to build high quality networks. In terms of specifics for 2026 and beyond in terms of where rates will really impact us, we're in ongoing discussions with payers and we'll keep you apprised as those discussions continue.

Operator

All right. Next up, we have Brooks O'Neil of Lake Street Capital.

Speaker 4

Thank you very much. Good afternoon, everyone. I wanted to just pick your brains a little bit at a high level, recognizing your gradually expanding from your California roots across the Southeast and up into New England. I'm hoping you could give us a sense of physicians, payers and hospital players as it relates to capitated healthcare and the role you can play to help them be successful in what they're trying to do. And then I'd also love any color as it relates to major geographic variations on the themes you might discuss.

Speaker 4

Thanks a lot.

Speaker 1

Hey, Brooks. This is Brandon. Thanks for joining the call and for the question. It's good to hear from you. You have a great point.

Speaker 1

And as we've talked about many times, healthcare is very local. Each region is extremely different in terms of the community that we're serving, in terms of the payer mix, demographics, social determinants that may apply or may not apply, etcetera. Is that something we're taking into account as we look at drastically different communities ranging from Texas to the Southeast to the Northeast? And I think what we're trying to focus on, which is our strategy is to reduce the variability that can be reduced, while giving tools to local providers and clinical teams to appropriately address the actual needs of the community that they are serving. And so what I mean by that, for example, is that nationwide items such as claims variation, fraud, waste and abuse, as well as care management protocols, which we strive to be evidence driven are standardized by our technology platform, including our pathways care management, disease management, proprietary technology.

Speaker 1

However, at the local market level, we are working with regional leaders, regional chief medical officers to create the right network topology, whether that's primary care, specialty care or hospitals, as well as the right relationships so that we can appropriately influence providers to succeed and help them succeed in value based care contracts. So while I won't maybe go into detail of each particular region and its systems and its players, I think it is extremely important. It's a great point that you brought up that we're keeping in mind as we continue to grow.

Speaker 4

Great. That's very helpful. I really appreciate that. And I wish you the best in the end of the year.

Speaker 1

Thank you so much.

Operator

All right. Next up we have Jalendra Singh of Truist Securities.

Speaker 5

Hi, thanks. Thanks for taking my question. And apologies if I already covered this because I missed some of the prepared remarks. I want to ask about the medical cost trends. Did you have any update to your first half medical cost trend as more claims trued up?

Speaker 5

As a follow-up, you previously discussed reinvesting from the upside, your experience in medical claims back into the business to drive future growth. Just curious what areas are you reinvesting back into?

Speaker 2

Hey, Jalinder. How are you? Thanks for the question. In terms of medical cost trend, despite having concentration in regions that are expressing higher than average trends such as LA, our ACO trend continues to be relatively lower than national. In terms of MA, I'd say we're also trending lower than regional trend, kind of low to single digit numbers.

Speaker 2

Medicaid, on the flip side, has been trending higher. And we think as excess redetermination kind of works through the system, that trend will start to stabilize. In terms of how we are reinvesting, we continue to reinvest in our clinical programs, our care management programs to really continue and both provide the necessary care for our members that need it the most.

Speaker 5

Thank you. And so just following on Medicaid, I mean, this is something that some of the managed care companies have talked about, the rate mismatch. Is that what you're referring to that you're seeing some rate mismatch on your book of business? Is that something kind of manageable range? Can you elaborate more on that?

Speaker 2

I think it's partially that. I think it's partially just as others have said, as we determine members are moving into other lines of business, we are seeing that net impact.

Speaker 5

Got it. Thanks a lot.

Speaker 2

Thank you.

Operator

All right. Next up, we have Michael Hall of Baird.

Speaker 1

So firstly, I just wanted

Speaker 6

to confirm, is the narrowing of the full year EBITDA guide to the lower end of the range solely related to that CHS dilution in the 4th quarter? And I guess my main question is also on redetermination. Is that part of the guide update as well? Or are you expecting sort of that better exchange marketplace trend to continue offsetting this elevated utilization? And I guess ultimately, sorry for the run on question, just given the magnitude of impact these large Medicaid plans are seeing and the fact that they've been blindsided by it, like what's your sense on like magnitude of concern?

Speaker 6

And do you have any sort of like risk corridors in place embedded in your contract to potentially like insulate or protect from any unexpected trends in Medicaid? Thank you.

Speaker 2

Hi. Thanks for the question. So kind of just breaking apart question number 1 in terms of how we're doing in or what we said in terms of guidance. As we said before, dollars 4,000,000 of that guidance is really associated with CHS.

Speaker 1

That one,

Speaker 2

it's a variety of other items. Topic number 2, in terms of Medicaid trend, We're seeing it more in terms of the change in the overall mix of Medicaid members and we do expect that to normalize into next year. And we see margins starting to stabilize in mid to late 'twenty five going into 'twenty six.

Speaker 7

Okay. Thank you. And I

Speaker 6

guess my second question, just in terms of, I guess, Medicare Advantage, all the volatility, the headwind payers are facing, not just this year, but next year in 'twenty six. I've spoken to a lot of the large MA plans and they've expressly told me their appetite, their desire to increase global cap has gone up significantly. But really that one hurdle and it's really a common thread amongst all of them is there's a lack of quality value based care providers and that's what's preventing them from increasing global cap. So I was wondering, are you seeing a notable increase in that appetite that's dire from your payer partners? And just wrapping it all together, I guess, in addition to your full risk conversion, the title weighted growth, my question is, are you also on the organic growth front seeing this stronger tailwind from MA into 25% and potentially into 2056?

Speaker 2

We have seen payer partners being open to us moving towards full risk. We continue to operate in that ecosystem. And we have been doing it in a large way. So for us, it's not really as much something new. For us, though, it's very much thinking thoughtfully in terms of do we have the appropriate I wouldn't necessarily call it guardrails, but our ecosystem in place to make sure we can best take care of members in that specific geography with that pair partner.

Speaker 2

And once we have that in place, we definitely are seeing the inbound focus by plans and we're very much open to moving in that direction. But again, we're very cautious as we go down that path.

Speaker 7

Okay. Thank you.

Operator

All right. Next up, we have Jack Sluven of Jefferies.

Speaker 1

Hey, congrats on the quarter. Really nice work. Just a couple of quick ones. A peer of yours called out some significant challenges around Part D and this maybe goes in line with the last question. But can you just speak to how you treat Part D risk in your contracts?

Speaker 1

Or can you remind me if you carve that out or sort of what the approach is on Part D overall in for risk deals? Thanks. Hey, Jack. Thanks for the question. Yes, we've heard some of the similar comments around risk bearing provider groups in general and Part D as well as supplemental benefits.

Speaker 1

This is something that we, for many years, have been prudent around, we believe, because we have tried to minimize our exposure to Part D and supplemental benefits. I'll just lump those together, because we believe certain things are out of our control. We would rather take risk on items that we have more visibility and more ability to coordinate the provision of. So to answer your question, in our contracts, we typically have either a corridor or a minimal level of risk related to Part D, which is again something we've negotiated from the start, even if that is at the expense of taking a lower percentage of premium dollar from an Actharial perspective. It's something we believe strongly in that when we take risk, we want it to be something we can actually improve for the patient and we're going to continue doing that as we expand across the country.

Speaker 1

Okay, got it. That's really helpful. Thanks, Brandon. And then just my follow-up, a quick one. I wouldn't expect a change here, but just given all the moving pieces that we're seeing around the space, as you look at CHS coming in, is the outlook still that you think that that will attract to breakeven in 2025?

Speaker 1

Thanks. Hey, Jack. Yes. I think I mentioned it, but just to reiterate, we are expecting it to be breakeven adjusted EBITDA for the CHS business by the end of 2025. Okay, awesome.

Speaker 1

Thanks guys. Thank you.

Operator

All right. Next up, we have Ryan Langston of TD Cowen.

Speaker 8

Hey guys, thanks for the time. Good evening. I guess just first, any high level puts and takes on 2025 other than the CHS acquisition that just closed that you would broadly point us to, we should be thinking about for modeling purposes?

Speaker 1

I think, Ryan, the

Speaker 2

items would be our continued conversion to full risk as well as the growth of CHS. Those would be the 2 main items.

Speaker 8

Okay. And then just real quick on the follow-up. Are you booking any economics in MSSP in 3Q? Or do we have any economics anticipated in the guidance for 4Q? Thanks.

Speaker 2

We don't have any economics in 3Q or associated with MSSP. As we've said before, as we get more comfortable with the program, we'll get to a point where we can start accruing for it. But at this time, we are booking things on a cash basis. So we would be booking our shared savings from the program in Q3 of next year.

Operator

All right. Next up, we have Adam Raun of Bank of America.

Speaker 9

Hey, thanks for the question. I was going to ask about 2025 as well. But one thing you didn't mention a couple of things you didn't mention on the puts and takes for next year is one around Medicare. So I know you've been doing a lot of work on risk adjustments. So curious if you think that that is a material tailwind next year.

Speaker 9

And then also alignment has been calling out that this year there was unit cost pressure in Medicare Advantage that the government is fixing for next year through higher rates in the LA County. So the 5% benchmark increase in Medicare Advantage, wondering if you think that's a significant tailwind. And then lastly on Medicare, are payers in your market cutting benefits significantly? So all in on risk adjustment rates, benefit cuts, like do you see significant MA margin expansion next year? And then on the headwind side, you kind of mentioned Medicaid redetermination, we don't think it's going to have fixed until 2025 and 2026, but I guess is it still a year over year tailwind?

Speaker 9

Thanks.

Speaker 1

Hey, it's Brandon. Thanks for the question. Yes, I apologize. That was not a completely fulsome list of puts and takes. I think that's something we typically would guide towards later in the year.

Speaker 1

But to answer your questions, I would agree with you that Medicare, MOR has tailwinds associated with it, especially given I think we alluded to it in the prepared remarks as well, or Tom, when you answered the question, especially considering the concentration of members we have in certain counties such as Los Angeles, which have a larger benchmark adjustment. And that adjustment not only impacts Medicare Advantage, but also the ACO reach as well. So it's something that we expect to be a tailwind in Medicare Advantage. We continue to move members into forward arrangements in Medicare Advantage. That's part of the bridge towards getting us to that 2 thirds rate by January 1, 2025.

Speaker 1

So there's going to be tailwinds there as well. And organic growth based on the new book of business in terms of CHS as well as our existing markets will continue to build growth. On the tapes, those newer cohorts of members are going to be probably a gross margin drag for some period of time. We've typically guided to around 2 years. So new members can take can eat into profitability, relatively speaking.

Speaker 1

We also, as John mentioned, anticipate further Medicaid redetermination trends. Again, we're talking about a few 100 bps, not 5%, 10% necessarily, but still an impact and a headwind that we're looking at. And there are going to be continued new market development costs going into next year as well.

Speaker 9

Okay. And then kind of another cleanup question on ACO reach. Is there any way you could update what's happened this year versus expectation? Thanks.

Speaker 1

Hey, Adam. I'm going to let John, our CFO, answer this question. Thanks. Hey,

Speaker 2

Brandon. Hey, Adam. Great to hear from you. I think on the ATO reach, we're in line with expectations and where we budgeted the program for the year.

Speaker 9

Awesome. Appreciate the question.

Speaker 2

Thank you.

Operator

All right. Next up, we have Zach Hagerty of KeyBanc. Your line is now open.

Speaker 7

Hey, good evening, guys. This is Zach on for Mac Gilmore. Just on the full risk, I think it was 61% for the quarter. Where did you guys exit the quarter?

Speaker 1

Sorry, I was on mute. Hey, thanks for the question. I believe it was actually not far off from the 61%, but I will let Sean confirm that number.

Speaker 2

So we have CHS coming on probably, I think, 7 days into this into Q4. So with CHS, we'll be exceeding that benchmark

Speaker 9

that we've set for us this year.

Speaker 1

Just to be clear, the 61% did not include the CHS impact. So the 61% was kind of the standalone number.

Speaker 7

Got it. Okay, helpful. And then just as my follow-up, I guess any update on the Anthem partnership for primary care clinics? I think you guys said last quarter that you were expecting to add a couple of clinics this year, others on track and I guess any early takeaways from the partnership so far?

Speaker 1

Yes. We are continuing to evaluate new sites for a clinic. We have identified a site and that's in progress as we speak. We also have now attributed a few 1,000 members to our first clinic. And so things seem to be going well.

Speaker 1

I think it still doesn't rise necessarily to the level of materiality, so to speak. But I think as we continue to prove out the model, especially during this AUP period, we look forward to further expansion with our value partner.

Speaker 7

Appreciate the time, guys.

Speaker 1

Thanks.

Operator

All right. It looks like our final question in queue comes from David Larsen of BTIG.

Speaker 10

Hi. I think you had about 30% of members in full risk. What could you get that up to over say 2.5 or 5 years? Could that get up to 60%? And what kind of revenue impact would that have on your overall book of business?

Speaker 10

Thank you.

Speaker 2

Hey, Dave. It's great to hear from you. In terms of our book of business and where we think we can go long term, I think we're always going to have a portion of our business not in full risk, because as we continue to grow, as we continue to evolve, it takes time for ecosystems to get to a point where we feel comfortable. And there's if to kind of go to your question relative to the 30% that you laid out.

Speaker 10

Okay. And then just any sense for what kind of revenue lift that could imply?

Speaker 2

I think it's going to be pretty significant. I don't want to kind of box myself in a number here. So I probably leave it at that. Sure. Sure.

Speaker 2

Because it depends on line of business, it depends on geography. There's just so many factors. I wouldn't be doing the question justice if I just took a swing at it. It's a great question.

Speaker 10

Yes. And then can you just provide some color around like 2025, I guess, premium increases by your health plan partners? They're usually like in, let's call it, the mid to high single digit range. Will Astrana benefit from that? Will you capture a portion of that?

Speaker 10

Just any thoughts there would be helpful. Thank you.

Speaker 2

Are you speaking specifically about MA? Yes. So puts and takes there as we one of our counties with a large majority of our members, LA County has fee for service benchmarking increases as Brandon was mentioning before that will help in terms of overall rates. We have certain plan partners where star ratings are going up in terms of paid star ratings. And we also do have some other plans that are going down.

Speaker 2

So it's a bit of a wash. We've seen slightly improved benefits year over year. And we have the full kind of we have the full V-twenty eight kind of flowing into the models.

Speaker 10

Okay. That's very helpful. And then Brandon, just one last quick one.

Speaker 2

Sorry, 2 thirds of V28 flowing in. So on in terms of a net basis, I'd say, we're looking at revenue being maybe flat to maybe a couple of basis points below, but I don't see any material changes.

Speaker 10

Okay. And then, Brant, one of the questions I'm asked all the time is your technology infrastructure, how are you able to drive good margins when a lot of your peers are very challenged in the space, especially in the MA space? Can you maybe just highlight the tech infrastructure? Just any color or thoughts or updates there on your ability to sort of in a very timely way identify what your cost trend is, how that's different from some of your peers? And just any more color there would be great.

Speaker 10

Thank you.

Speaker 1

Hey, Dave. Thanks for the question. We've always been fairly adamant about building out some purpose built tools internally in order to ensure that we can operate our value based care platform appropriately in terms of cost and managing that cost. So for example, I think one of the biggest items we've spoken about on these calls is the fact that we operate primarily in a delegated environment, not only in terms of delegated financial risk, but also in terms of delegated services that we provide, which are payer like in nature. And so our ability to process, approve and deny prior authorization requests in a real time fashion, our ability to process claims and build our own networks and ensure that we're able to manage those networks appropriately,

Speaker 2

as part

Speaker 1

of the model. And then I think the other part I talked about in an earlier response to your question, I believe, in terms of minimizing variance when appropriate in terms of clinical protocol and clinical care management, while still allowing the flexibility for local care teams to express that view, so to speak, into their local communities as appropriate for those communities. So I think it's a combination of those 2 as a core kind of pillars. I always hesitate to bring this up, but and I think in a future quarter, we'll discuss this a little more. But we are also finding some pretty interesting uses for AI in our technology stack ranging from patient summaries to prior auth automations to even claims automation.

Speaker 1

But that's something we think is more of a 25 factor.

Speaker 10

That's very helpful. And then just one more quick one. Some of the plans have talked about higher inpatient acuity is the way that they described it. In my mind, what that means is because of the 2 midnight rule, there are fewer observation cases and those cases are counted as inpatient cases, which result obviously in a higher cost. And then some have also talked about higher specialty trend possibly because of the Inflation Reduction Act and the coinsurance and catastrophic coverage plan design is basically less out of pocket costs for the members, which is increasing specialty spend.

Speaker 10

Are you seeing any of this in your book? Is this weighing on your margins at all or not really?

Speaker 1

That's a great question. We have never really taken advantage of some of the maybe margin prior to the 2 midnight rule. I think others have spoken about this as well. But given the contracting landscape and the healthcare ecosystem in California, that's not really as much of a factor, frankly. And so when that happened, it also was not much of a factor for us.

Speaker 1

It has not really been a drag on margin really at all in our experience.

Speaker 5

On some of the other items, that's something that's kind of

Speaker 1

a constant balance that we work with the plans in order to figure out how we design a benefit package, how we design a formulary and co pays and otherwise, kind of all have to go together to ensure that costs are not spiraling out of control for one reason or another. I also did mention earlier partially the limitations of risk on things that we can and cannot control. We are at the end of the day not a plan despite partnering with some plans to create some provider specific plans or offerings. But I would say overall for the items that you mentioned, we don't view those as large risks to the business and we haven't experienced them as a large headwind so far this year.

Speaker 10

Okay. Thanks very much. Appreciate it.

Speaker 1

Thank you.

Operator

All right. And at this time, there are no further questions in queue.

Speaker 1

All right. Thank you, everyone, for joining our Q3 2024 earnings call. We look forward to hearing you seeing you again next quarter. And if you are ever in Los Angeles or Las Vegas, we remain open to meet with you in person. Thank you again and have a good evening.

Operator

And with that, ladies and gentlemen, this does conclude your call. You may now disconnect your lines and thank you again for joining us today.

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Earnings Conference Call
Astrana Health Q3 2024
00:00 / 00:00