Alignment Healthcare, Inc. (ALHC) Earnings Call Transcript & Summary

Hi, everyone, and welcome to this next session at the Morgan Stanley Global Healthcare Conference. I'm Ricky Goldwasser. I'm Morgan Stanley's health care services analyst. And I'm really pleased to have with me this afternoon John Kao, CEO of Alignment Healthcare; and Thomas Freeman, Alignment's CFO. And before we get started, just to get out of the way, this webcast is only for Morgan Stanley's clients and appropriate Morgan Stanley employees, and it is not for members of the press. And for any disclosures, just visit our website at morganstanley.com/researchdisclosures. And with that, John, Thomas, great to have you here. Thanks for spending time with us. And I want to hand it over to you, John, just do some introductory remarks for those in the audience who don't know Alignment. Maybe you can talk a little bit about sort of the business model, kind of like your strategy and the markets that you're focused on.

Thanks, Ricky. It's always great to spend time with you. Yes. So Alignment Healthcare is a Medicare Advantage organization. We serve over 85,000 seniors in 4 states. And I would say, what differentiates us from everybody else is a few things. Number one, we are a payer. So we're really good at innovative products that are direct to consumer. But what really the focus of the company has been to serve the 20% that we know are chronic and are frail and are vulnerable. And we also know that, that 20% account for 80% of the spend. And so it stands the reason that if you're going to be able to bend the cost curve in Medicare Advantage, you really have to have the data, platform and the clinical model to serve that population. And so we refer to that as the virtuous cycle or our version of the flywheel. And so we use the data, and we could talk a lot about that to identify who that 20% of the chronic frail are. And then we use our at-home care model that we refer to as Care Anywhere to serve those folks and to make sure that they're taken care of. And what we've been able to do is to bend the cost curve consistently in every market that we operate in through this model. And then we do so in a way that partners with community physicians, and we can talk more about that during the interview. And so what that means is then we have to take those cost savings, and we translate that into very competitive coverages and benefits in the form of health insurance for our seniors. And that's what's been fueling our ability to grow the business. And it's a simple axiom, which is just high quality, low cost. And we treat everybody like there's your mom or your dad, and we serve them. And kind of culturally that has served us well. And really, that's really the essence of the business model. And so we absolutely believe technology is critical to this equation. Like getting the right data in the hands of our clinicians and our provider partners is equally important. And at the end of the day, we're taking share away from folks because we just have a better mousetrap. It's a better product. That's kind of the summary, Ricky.

So I wanted to start with the data, right? You use data to identify these high-risk population. And I think that with the uncertainty that COVID has introduced to the market, there's really an increased focus on the need for real-time data. You built Alignment Health around your technology platform, around AVA. That gives you visibility that some other carriers, I think, don't necessarily have. So what type of real-time data do you have? And how is it helping you manage your member population and have more predictability into the trends?

Thank you, Ricky. Yes, I mean, we have a maniacal attention to detail, and part of that comes in the form of real-time access to information. And so we have connections with all of our facilities. We have real-time connections. So anytime anybody goes into a hospital or is discharged from a hospital, is transferred from a hospital or still nursing, we know about it. That information is given to our care teams, that the care teams that have access to what we refer to as a patient 360 view, which is our longitudinal medical record of that particular member. And then we manage the care for that individual, coordinating that care with the PCP, with family members, even with the medical group partners that we work with. And so we're on top of this information on a real-time basis. And so I think what you alluded to was some of the latency of information that many of our peers are experiencing. And sometimes, and we've gone through this before, there are payers that have information that the providers kind of need access to in order to make real-time decisions. We are not just dependent upon claims data, which inherently is 30 to 60 days old, right? And so getting the information real-time, being able to do something about it in real-time gives us a lot of visibility, and frankly, a lot of comfort in the way in which we think about reserving, things about IBNR, and then the things about what our cost structure looks like. And kind of when you add to that additional information that we capture from the labs, we have real-time lab interfaces, real-time pharmacy interfaces, all of which are real-time running these algorithms, that if they create flags, we know about it. And that's basically what we keep telling people, is it's a true competitive advantage in terms of having visibility to what's happening with your member population as it relates to utilization.

So as you continue to build out the tech platform, what specific areas or what capabilities are you looking to kind of like target mixed?

Yes. That's a great question. There are 4 areas. The first is really the virtual platform. We're just making sure that it's easier to use, easier to navigate for our own employees and our own clinicians. But I think there's more of an emphasis from a development point of view with provider transparency, just even more real time than we have now. And ultimately, I think the whole opportunity for all of us is to provide real-time on-demand care for members. And to make sure that the digital front door, if you will, which is being developed by us and I think a lot of other folks, is something that's going to be usable and adaptable. So that's kind of one area that we're focused on. The second area is I would call care navigation. And so the care navigation vision is to integrate kind of what we do as kind of member service and care delivery, just kind of one chassis, to really have a level of service and engagement with members that's better than anybody else's, which is -- we're really good at that right now given our Net Promoter Score is already at 66, but it can even get better. And so the vision really is, anybody that wants to access a clinician in real time, whether it be virtual, need to be given access 24/7, with information that's actionable at the clinician's hands. Part of the problem that we have today is you've got some of this -- the kind of the telehealth stuff that they don't have access to the data on the member, the patient record. So they call in, we outbound reach them, and they have access to clinicians full-time, 24/7. If they need to see somebody, we can either get our transportation vendors to get them and take them to a contracted urgent care or contracted PCP or even in some of our markets clinics, and/or to send one of our Care Anywhere nurses to their home. There's a whole concept here is just access and solving people's problems, giving them peace of mind real time. The third area I would say is continual really investment in our AI, in our AI platforms. And they're getting better and better and better. And the machine learning is getting more and more proficient. We're targeting that really toward identifying which members have the highest possibility of being hospitalized, for example. What is the greatest risk of readmission risk? We've spent a lot of time on AI with respect to predictive analytics around CAPS scores with respect to our STARS part of the business. And so I would say those 3 areas are really where we're focusing on. I guess there's a fourth also, which is really around some of the -- kind of just upgrading some of our back-end systems that kind of plug into AVA, the AVA platform. And that's all in the context of ensuring that we have consistent workflows to support the growth that we're anticipating. So that the workflow processes, the data and the way in which we ingest data with new providers and new markets and how we make sure we get data back and information to them that's actionable, all of that is just getting more and more formalized and consistent. So that when we execute the growth plans that we want, we're not reinventing the wheel every time. And it's -- as a reminder, like it's not just growth up, it's got to be profitable growth. It has got to make sure that we maintain the quality that all of our existing members are accustomed to.

So John, you mentioned CAPS and STAR rating. Is CAPS like changing to be more in line with member engagement? I think you're going to see a lot more emphasis right on that front-end connectivity and the 24/7. We talked in the past, and you said the heavy lifting was building the back-end. The front-end, that consumer digital interaction is something that we're working on. So what type of tools are resonating most with seniors? That's one. And second of all, because it seems like the industry is somewhat behind and these CAPS changes, I think, happening in 2023, is there also an opportunity for you to monetize on kind of like your tech stack?

Yes. So just for the audience, what Ricky is just talking about is that, as part of the Stars program, there's really 2 -- there's actually 3 or 4 different drivers. The 2 big drivers is HEDIS, a measure of quality. And I think CMS is actually pretty satisfied with the improvements of quality over the last several years across the industry sector. And so now CMS is focusing on experience, the member experience with respect to access to care, timeliness of care and the care coordination required, i.e., it's not okay to go and wait 2 months to see your specialist anymore. It's not okay to get an appointment and wait 2 hours in the specialist waiting room. And so CMS is -- what CMS is doing is they're changing the weighting scale associated with CAPS. And CAPS is really a customer satisfaction measure, an engagement measure. So anyways, so yes, it's critical. We've spent the last 18 months really focusing on a variety of things. One is just to make sure that we know the experience and the survey data at the point of care with all of our providers. That's just -- that's kind of the simple one that we need to know real time. Second is we use the AI to identify individuals who might be at the highest risk of being dissatisfied when the fact they get surveyed. And so then we have our concierge team outbound reach out to them and to make sure that we help them with whatever access issues they may have, whatever benefit confusion they may have. Or whatever the issue is, we get our concierge team to proactively outbound call these folks. The third initiative is really with the providers themselves. And oftentimes, a lot of these providers are doing approvals very quick in terms of any kind of authorizations. Most of the stuff is always auto approved now anyways. But then to make sure that the actual downstream specialty visit is actually scheduled in a timely way. And so we're talking real time with each of our downstream providers, such that if we're not getting that member in to see a provider within a week, again, our concierge folks are going to intervene with the individual member and make sure that they're happy. And we'll come up with solutions so far as to work with the specific specialist in the network to find another alternative for that member, all of which then we've been communicating with our provider IPAs. And the criticality of all this is STARS. And so we're aligned with our providers. We're aligned with the PCPs. We say we have to give a better experience because it's going to impact STAR ratings, which in turn impacts your reimbursement. If it impacts our reimbursement, it's going to impact their reimbursement. So I think that the emphasis and the workflow process is partly technology, partly provider engagement, but also, to the point you made, self-service through the -- and related -- kind of alluded to this on the digital front door, the ease of navigating self-service in terms of what can be reflected in the application for the member to get schedules online themselves and to make sure that the interaction itself can and may be virtual. I think that's going to be part of the solution in the next few years. It's just leveraging -- the irony is leveraging what occurred last year with COVID that created a lot of the digital adoption for the seniors themselves and the providers, I think, is going to be here to stay. What's missing is making sure that the data is available to the provider and is transparent to the member and that make it easy for that member to get the access. In terms of the monetization point, it's really interesting question. The -- and just to put in context. In California, we've been so successful because we took AVA and our platform of tools, essentially gave it to our provider partners. The monetization of the business model that was really growing through the top of the premium chain is the health plan, so everybody won that way. As we're expanding into different markets that have fewer risk-taking medical group organizations, this gets really interesting. They love AVA. They love the tools. They love our subject matter expertise. They love the fact that we can really move core this hybrid model of virtual and in-person. And so they're asking us a lot of questions around that, because, at the end of the day, if they're comfortable -- I'm linking this back to CAPS, if they're comfortable with your ability to produce the value drivers that will make you successful in Medicare Advantage, CAPS being an important part of it, HEDIS being another, risk adjustment, data gap [ close ] would be another, they are confident that you're going to be able to produce the products that are going to be more competitive than the next [ purchase ], and therefore be in a position to move market share. So we're getting a lot of questions around that. And so the monetization models can be -- we can still just kind of give them the applications and grow as the plan. We can give them the applications. And the other thing they're asking for is, gee, we love the platform. Can we apply this in a multiproduct and multi-payer environment? And we're saying, sure, we can do that. And the security of the platform allows for that. And we -- you have to put their firewalls up and all that. And then 3 is we've had some people ask us around more of a -- more traditional care as a service kind of a platform, more of a PMPM software as a service kind of offering. All of those, we're evaluating. I think all of this though for us is to make sure we keep our eye on the ball and execute the plan, stay true to the plan. And once we just keep hitting numbers and hitting numbers, we'll start introducing these complementary opportunities. Sorry, a bit long-winder on that one, Jay -- Ricky.

So John, we have a question here from the audience, really about your view. When you think about the concept of care navigation that you talked about, is this similar to what Accolade is doing on the commercial side? Except that in MA, you don't have an employer to pay the cost so you underwrite it yourself? Is that how we should be thinking about it?

I'm embarrassed to say, I don't -- I can't speak to what Accolade does, so I'm sorry. I've heard great things about them, so -- but I don't know what they do. What we're thinking about is really having one-stop on-demand care for the member. And so we've got our kind of on-demand concierge call line. We've integrated that with the Black Card, if you will, to a point where -- I've used -- I use my mom as an example. I mean she doesn't even -- she refers to our concierge line, the Alignment member service line. She doesn't even -- she refers to it as the Black Card, I'm calling Black Card. And really it's positive, but really it's -- you call that one line, and we just solve your problems. And whether they're traditional member service-related kinds of -- claims-related issues or whatever that is, but really, it's access. Access to care, timeliness of care, making sure all of those clinical questions people may have are dealt with real time. And so you need systems that take your CRM system, which typically -- in your phone call systems, and have that integrated with your care management systems so the whole experience is seamless for that member. And then you have multi-modalities, which -- whether it's telephonic, whether it's video, whether it's, again, someone to pick you up and take you into a physical location or somebody is sent to your home within 24 hours. That in my brain is the picture of where this industry needs to go. And if you have that, that's easily accessible through a digital front door, that is mobile also, you can start envisioning the kind of the digitization of this whole health care environment that everyone's been talking about for so long. But I think because Medicare Advantage is fundamentally direct-to-consumer, there is no employer group per se. It's direct-to-consumer, and it's recurring revenue. And the adoption of technology, both through the aging of just people, baby boomers getting into that senior age, and even with some of our older seniors that have been really -- having to adopt technology, that's the vision. The other thing I would say is we're kind of on this focus of, we believe that technology is a social determinant of health, but you haven't heard that one. I mean it is a social determinant of health because it's going to be such an important role. And it's the same with my mom. Every time I see her, what's this Google? Is Google the same as Apple? Is Apple the same as Gmail? Is Gmail the same as Safari? What's Safari? I mean all this stuff, they just don't know. And so education, the training, help desks, I mean, all of that stuff, I think you're going to start seeing in benefits [indiscernible].

So John, you have real-time information. And if you think about it, right, you, I think, were one of the few, if not the only one that had -- earlier this year, I think when you reported, you actually saw a benefit in your risk adjustment accruals. So when you think about all of that and when you think about where we are now in terms of utilization, I mean, clearly, back when you -- kind of like on your second quarter call, you said that COVID-related hospitalizations were still, I think, 5x lower than a year ago. And how has that changed since the Delta virus sort of resurged? What are you seeing now with your population in terms of core non-COVID, so core utilization and COVID utilization? And we have kind of -- after this, I have a question for one -- a time for one concluding remark because we're almost at time.

So just 2 questions. The first one is on the risk adjustment. If you recall, everybody had issues with respect to gap closures in the industry, the first half of 2020. And because of that, it created visibility, revenue visibility issues coming into January 1, 2021. And so what we did, and we leveraged our clinical organization, working with the community providers, was to very systematically close those gaps in the second half of the year. And so we also told the street that we had a really good AEP for 2021 and that the reimbursement we were getting from the new members was typically 10% to 15% lower than we've historically seen. And so as we head into the midyear sweep of June, July of 2021, the members that we had and the members that we took care of with respect to closing those gaps really is what drove the positive areas. And so we're very proud of that. The new members that we enrolled that had -- there were other payers before the 411, we didn't get the kind of lift that we were hoping for. On a blended basis though, it was still a net positive lift. And so the workflow processes and the clinical focus and the application of our technology for '21 is applied to the whole book now for 2022. And so it's kind of like just because of COVID, we had to get better. And we used the technology. We got better with the workflows. We got better with our provider engagement. And so I'm really happy about that. With respect to utilization going into the second half, a contextual comment will be, our metrics that we track on a daily basis is really something that we refer to as admissions per thousand. And we've for the last 5 years been consistently running at about 160 admissions per thousand. And that includes the spikes that we experienced in November and December of 2020. And so if you put that in context to the 2021, it's really March, April, May, June of 2021, we saw COVID go way down. And so we kind of are looking at July and August, and we're, what? 8, 9 days into September, and I think we're still on track. And I'm pressure testing this internally, and it's because we have such visibility to what's really happening out there. And of the hospitalizations that we do have, 75% to 80% of them are unvaccinated and 20%, 25% is vaccinated. And we're over 85% vaccination of our members because of the engagement that we've had with the members. They trust us. They like us. They listen to us. And we've got them vaccinated. Partly also, I think, is what we experienced in November and December of last year was just the contrary to what everybody else was experiencing, right? And I think some of the bigger payers were saying, they're 15% their baselines. Last year, we were having these spikes in California. I think part of it is that's the opposite is occurring right now just because of -- we have such high vaccination rates, both from a geographic perspective and just from our engagement perspective. With respect to Q4, the one thing I'll say is we're running a lot of the predictive analytics. We're tracking the utilization. We normally have some seasonality in Q4 anyways because of the flu. And for December of 2020, I think our utilization went up to something like 205 admits per 1,000. It was materially above our 160 baseline. And so I think we're feeling pretty good so far.

Great. Well, we're in time. So John, Thomas, always a pleasure. Thank you. We could have talked -- we could talk for hours, but thank you very much.

Thanks, Ricky. Sorry.

Thanks, everyone.