Astrana Health, Inc. (ASTH) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the Apollo Medical company presentation. My name is Ethan Taylor. I'm an associate in JPMorgan's Healthcare Investment Banking Group. It is my pleasure to introduce Brandon Sim, Co-CEO of Apollo Medical. As a quick note, at the end of the presentation, there will be some time for audience Q&A. So please have some questions ready. And with that, Brandon, Take over.

Awesome. Thanks so much for the kind introduction. I'm also joined here on stage by ApolloMed's Chief Strategy Officer and Interim CFO, Chan Basho, and we'll both be taking questions after the presentation. I just want to start off by thanking everyone for being here, braving the rain, thank you JP Morgan team for having us here in the obligatory regulatory slide. So ApolloMed is a physician-centric technology-powered health care platform that really is accelerating the future towards one in which everyone can have access to high-quality, value-based evidence-driven health care. To that end, we are serving entire communities of patients not just focusing on any one given segment such as Medicare Advantage or Medicaid or commercial or ACA exchange, but really building flexible and interoperable technology that allows us to serve members throughout the continuum of their stage of life, the type of plan they choose, the type of payer they choose, whether they have a job or not or what ethnicity or age they might be. Because of that focus on the entire community, we're able to access a large TAM of $2 trillion and growing across all populations and regions. In addition, the scalable approach that we've developed means that we can allow entrepreneurial providers, both those who own their independent practices or those who want to be entrepreneurial and work with us in one of our own and employed clinics to deliver value-based care and effectuate industry-leading clinical outcomes, which we'll talk a little bit about later. There's also a proprietary technology platform that we've built over the last 4 or 5 years, which allows us to leverage the 25 to 30 years of real-world data that we've had, taking risk in the California market, systematizing the things that need to be systematized so that we can scale in a sublinear fashion and replicate this very successful California clinical model we've created, not only in new geographies in California, but in states and geographies outside of California as well. All this means that we have profitability. We have highly replicable unit economics, and we have stable revenue growth year-over-year to the tune of around 25% to 26% over the last 3 years and adjusted EBITDA growth of around 36% to 45% depending on the range for this year's guidance. At the heart of what we believe is in the sanctity of the patient provider PCP relationship. And all that we have built is to enable that relationship to flourish and for the provider to help change behavior in the patient over the long term. We believe that value-based care is, at its core, must be done, one at scale; and two, with low churn because investments that we make in the population health -- population's health today must be realized over the lifetime value of the patient in our risk-bearing ecosystem. And that's what we've designed our payer-agnostic and model-flexible platform to support. To that end, we have long-standing relationships with over 20 payers, national ones, local ones, familiar names, unfamiliar names that we've had and cultivated for over 15 years. We currently serve 4 states directly via our independent practice associations or IPAs, our medical groups and our ACO and another 16 states outside of that via our affiliate ACO network. All that has led to 40% growth -- over 40% growth at the midpoint for 2022 relative to '21 and a 25% to 26% CAGR over the last 3 years. We're well diversified across various lines of business, like I mentioned, around 55% in Medicare, 25% in Medicaid and the balance in commercial third parties. And a majority of our revenue is extremely predictable recurring revenue in the form of capitated payments from our payer partners. Like I mentioned earlier, that focus on the entire community, allowing us to -- our providers to serve an entire family when they come in, not just the senior, not just the one with a job, not just those who qualify for Medicaid, really allows us to capture an outsized TAM and is better for patients, providers and payers in the ecosystem. Patients, for example, do not have to leave a polymed ecosystem if they change a walk of life. For example, during the COVID pandemic which is still ongoing. But during the worst of it, many patients lost their jobs, for example, and they had to switch from commercial insurance to Medicaid or find a plan on the exchange. Even through those changes in their life circumstances, they were still in our ApolloMed risk ecosystem, and we were still able to support them with the same technology, infrastructure and care teams the same way that they did when they had a different ID card in their wallets. If they age in for example, to Medicare eligibility, we can also support them in the same way. And so it means that we can really longitudinally affect outcomes in a patient population over time and reap the benefits financially of the investments that we make in their health at one point in time, at a later point in time. In addition, it's better for providers as well. There have been countless providers who have told us how challenging it is, how frustrating it is to have to switch between various point of care solutions depending on what patient walks in the door that day. If it's a commercial patient, I've got to log into this website with my commercial insurer. It's a Medicare patient, got to use this other risk-bearing entities proprietary platform for those patients. And so what the focus on the entire community allows us to do is provide a unified and full stack solution for providers without having to switch between various point solutions. And finally, for payers, it's just much easier to work with us as a risk-bearing partner. When they're going to reinsure some of the risk on their patients, we are able to take both Medicaid, commercial exchange, Medicare off their hands instead of focusing only on 1 patient segment, forcing them to find another risk-bearing entity to take on the remainder of the risk. And so we think this model, focusing on the patient provider, secret relationship, focusing on the community, enabling providers to serve that community well is going to be the better rock of our consistent growth and profitability for decades to come. So as I was taking a step back, as I was alluding to earlier, it really is challenging for providers in a world transitioning towards value-based care. As many of you know, the promise of value-based care has been talked about for decades, but we are still, we think in the infancy of its adoption throughout America. And part of the reason adoption is low is because providers face such complex administrative care coordination and operational hurdles to even participate in value-based care, even if they might want to, set aside not even talking about the providers who may or may not actually want to participate in such a model. What a polymed does is we act as a pseudo single payer, connecting the health ecosystem for payers, providers and patients alike in integrating clinical technology and administrative support for our providers on the platform. If you follow me through the diagram here, first, the over 20 payers, I talked about earlier will pay us a percentage of their premium dollar in order to assume risk in a value-based contract for their patients, again, across multiple lines of business if necessary. Then for all of the providers on our platform, in the ApolloMed ecosystem in the middle of the slide, we are actually acting as a single payer for them. All their checks coming from a ApolloMed or one of our affiliated entities and not necessarily from 20 different checks from United, Cigna, Aetna, Humana, Centene or CMS. And finally, we reimburse providers in a subscription model and share savings with them, thus aligning their financial incentives with ours and with the patients. Diving a little deeper into what that ApolloMed ecosystem looks like. At the center of this ecosystem, of course, is that PCP patient relationship that I was talking about earlier. What we do systematically in each geography and community that is we take that PCP patient relationship. We build high-quality specialist and facility network around that PCP and their patients. Then we onboard them onto our technology platform, giving them administrative support in terms of revenue cycle, in terms of contracting, automating their operations. We onboard them onto our technology platform, which they get for free, which allows them to have point-of-care tools which we'll go a little bit deeper into later as well as analytics and risk stratification. And finally, we support them clinically via care teams that we employ at the Polymed level, over 350 health care professionals who serve as care teams, on care teams, we serve in quality programs or clinical support programs, we serve utilization management and care management or do social work to support the patients in our ecosystem and prevent them from falling through the gaps in care in between patient -- in between their provider visits. And at the end of the day, what this means is that our patients are supported longitudinally, even if they visit -- even if they make separate visits, the fragmented parts of the care ecosystem. It means that physicians have choice, whether they want to be employed, whether they want to be entrepreneurial or whether they want to continue practicing the same way they've been practicing for decades. It means that providers don't have to worry about the administrator reporting technology problems of the status quo situation. And it means that patients can see their same PCP and the same specialist network regardless of their walk of life, life circumstance or age. Here's just a couple of examples of some of the technology that we provide to our providers and to our patients. This is a screen shot of the ApolloMed provider portal. On the right side, you'll see some propriety information is bored out, but you'll see that providers have access to viewing their quality measures, which we are certified by the National Committee for quality assurance, NCQA, to calculate. It shows them their risk adjustment. It shows the member eligibility. It allows them to track care plans across the patients, various visits to independent doctors in an ecosystem. They can set claims, prior author quest, they can calculate those gaps in care, and they can finally see a longitudinal patient record that incorporates not only their EHR information, but also the HR information from a specialist visit or from a lab or from a radiology center for example. I'm sure many of us have had the experience of having to facts or call a specialist to get them to transfer the record to another provider or god forbid, download something onto a CDROM and bring it to the next person. This is -- the longitudinal patient record is what allows us to forego get around some of those problems that currently exist. In addition, we also have -- we also build technology for patients. This is a patient app that we have that allows for patients to see and message our virtual nurse practitioner clinic, for example. We hire NPEs at the corporate level who are tasked to respond to patient requests, patient questions. Patients can request the telehealth visit, for example, and enter a virtual waiting room. They can check their personal data, not only from the EHR, but also through remote patient motoring programs that we have built. You can see There's an RPM tab on there. And finally, they can see their past and upcoming visits as well. This is constantly kind of in production. It's constantly being approved as patients requested. And these are kind of only the patient and provider facing applications -- on the back end, we've also got payer tools where we automate, for example, over 90% of our claims that are processed. We processed close to 10 million claims a year. If we -- the only way to scale sublinearly as new geographies is to have this kind of automation that allows us to do this at a low OpEx burden. We also automate a lot of our prior authorizations, simple tasks that don't need a lot of complex medical knowledge to know that something should be approved should just be automated and what that means to the patient is that they can have access to care a lot more quickly than they might otherwise waiting for an insurance company to 24, 48, 72 hours to approve authorization. At the end of the day, all of this means that we've built what we think is a flywheel that is powered by 30 years of experience in the California managed care market -- it means that we can attract providers differentially into our network, especially the high-quality providers and with them, attract patients to be long-term participants in the Polymed health care delivery system. And that will allow us to continue to invest further dollars in that ecosystem, driving down medical costs for those populations over time and reaping the awards financially to the tune of 15% to 20 -- 10% to 20% long-term adjusted EBITDA margins. There are a lot of logistics in terms of how we actually grow but at the end of the day, they all fall into 2 very simple categories. We either increase the number of members that are in the ApolloMed risk ecosystem or we take additional risk on the members that are already in that ecosystem. And what we've done is highlighted a very clear strategy do both at the same time, which will allow us to drive 30% growth year-over-year in the medium term. In terms of expanding membership, many of you may know that we started off in California. And so in our core California counties, we can leverage our dense, high-quality provider networks to continue differentially attracting patients who want to be seen by our doctors, who want to use the patient app, who want to be able to schedule visit seamlessly, who want to have access to specialists especially high demand specialists at a reasonable amount of time, and they will join our network and become part of the ApolloMed health ecosystem in these core counties. New California counties such as San Francisco, where we are today. We are continuing to expand our primary care presence, extend our specialists and facility partners around the primary care patient relationship, like I described earlier, and continue to grow in terms of partnering with new provider groups in new counties. And finally, outside of California, we've recently entered 3 other states, Nevada, Texas and New York, with a very similar model. Starting off with primary care, building high-quality specialist and facility networks around primary care and supporting everyone with the infrastructure, both on the operational, administrative and technology parts of the business. In terms of increasing risk in value-based contracts there are some interesting things that we can do as we flip "Patients from a fee-for-service construct to a value-based construct." Historically, outside of California, patients are normally paid -- or providers are normally paid when patients see them on a fee-for-service basis in kind of a volume x dollars per visit construct. What we are able to do in California is not only align patient provider incentives with ours, but also do that by having capitated payments flow through to us as a single payer, downstream to our provider network. Our ability to have done that in core California markets is something that we'll try to replicate both in Nevada and Texas and New York. And we think there's a huge opportunity to grow revenue by doing that. Currently, in California, we serve only professional risk in our GAAP accounting. And what that means is that we are taking around 40% of the premium dollar give or take, in our GAAP revenue. We recently acquired a license called the Restricted Knox-Keene license, which allows us to pending regulatory approval, of course, take on up to 85% or more of the premium dollar in our GAAP revenue and manage that care and manage that risk and assume that risk rather and reap the rewards that may come if we are able to manage those cost effectively. And so you can see in the graph below that there are incredible amounts of opportunity for us to move patients along the risk ladder track from something as simple as fee-for-service to varying levels of risks such as professional risk, full risk. And finally, all the way to that 85% of premium global risk track. There are a lot of -- I won't go into the details here, but there are a lot of kind of very tactical things that we can do that we have clear line of sight into to spur that 30% plus growth over the next 5 to 10 years. But growth is only one part of the equation. It's easy to grow membership. You can offer them things. You can give them free tools. You can make it very attractive for providers to join your network. What really matters at the end of the day is to not only grow but to manage the risk that you're taking as you grow effectively. And that's something that we think we are truly differentiated in terms of our clinical model and the outcomes that are effectuated by that clinical model. For example, you can see here that in our Medicare Advantage lines of business, we're consistently under CMS benchmarks in patient bed days in emergency room visits and readmission rates. And that doesn't stop only in an HMO construct. Many things that utilization management or denials are the way that one might be able to control the medical expenditures of a population. But we see very similar results even in our ACO, our original Medicare patients where they can see any provider in the nation that accepts Medicare, consistently lower than benchmark in terms of inpatient bed days, emergency room visits and readmission rates. And we do this across a very diverse set of patients. Not only are they diverse in terms of walk of life, in terms of line of business, in terms of age, but they're also very diverse in terms of ethnic or demographic background. And so we truly think that the clinical model is agnostic of any of these characteristics, and it's something that we feel we have a moral and financial imperative to scale across the country in local communities throughout the country. I'd like to end by summarizing some of the points that I went over today. We have a very clear path towards nationwide expansion by landing in a new geography by creating a primary care network, building specialists and facilities around it, supporting them with our infrastructure and filling in the gaps with our care teams. That's led to 25% to 26% 3-year revenue CAGR as well as gives us clear line of sight into 30% plus growth over the next few years. Secondly, we have a proven track record of being able to manage that risk once we've grown. We were the #1 accountable care organization in the country among analogous ACOs and gross shared savings for CMS over the past 2 years. The third year after that, we're the #4 in the nation. We've got a flexible, very capital-efficient model with very predictable unit economics. We're paid on the 80% of our revenue is a subscription-based model where we are paid a per member per month fee, and that's something we can predict very easily and sustainably going forward. Our unit economics are also very predictable. Once all the costs are taken out, once all the admin is taken out because of our focus on automation, we've been very consistent in having 14% to 17% adjusted EBITDA margins over the last 3 years exactly in the middle of our guided range of 10% to 20% long-term adjusted EBITDA margins. Our technology-powered integrated care delivery model has been proven to ship -- lead extremely high-quality clinical outcomes demonstrated by our number of bed days, ER visits, readmission rates. And finally, most importantly, to me, what gets me up every -- each and every morning is that we feel we are extremely strongly positioned to create a future in which all Americans can have access to high-quality, value-based and evidence-driven health care. So with that, I'd like to open up the floor to questions. Chan and myself will be here to answer anything that you might be curious about. Thank you.

Yes. We have a mic runner in the room. So if anyone has questions, feel free to raise your hand and I'll direct it but I can kick things off for one question. So could you maybe expand a bit about your forward-looking growth, the number you said 30%. Where is that coming from in terms of the mix of inorganic versus organic numbers and then between the 2 levers of shifting to a higher risk versus just growing membership?

Yes, absolutely. So that 30% number we talked about doesn't include inorganic growth at all other than deals that we've already announced, the small tuck-ins in Nevada and Texas and here in San Francisco. And so that 30% growth is -- plus growth is really driven by the combination -- the product of those 2 levers that I talked about earlier, growing membership and taking additional risk on that membership. We're seeing a very strong annual enrollment period, which just ended. There's open enrollment that continues, and we're seeing very encouraging membership numbers. I would say that probably half of that contribution is from pure number of membership growth, another half from taking on kind of a higher blended per member per month revenue on those existing members that we have, those 1.3 million members. So if there is any incremental M&A in our pipeline, that would be to additive to the 30%.

And then is there any update in the coming year regarding the Knox-Keene into development?

That acquisition was announced, that fit out agreement was announced. We are still pending regulatory approval we -- I think we had guided to late Q1 of this year. And so we think we're still on track there.

How much of the growth you -- or maybe current state own center versus affiliate where do you foresee the future growth path?

Yes, it's a great question. I think another part of the difference in our model is that we're -- not only are we payer agnostic, but we're also agnostic to the care delivery entity that is providing the care, whether it's one of our employee W-2 doctors or if it's an affiliate doctor 1099 doctor, the technology platform doesn't really care whether the doctors employed by us or not. Of course, the additional overhead we incur and benefits from owning and operating a clinic, right? We have to hire the front office, higher the reception is higher the MAs, PAs, whatever it is. And there are some benefits with that. Of course, we can control the EHR that they're on, we can be a little more integrated in terms of programs and where we can really drive downstream to provide behavior. But to answer your question, outside of California, we think that it's going to be primarily driven by own employed model growth to really have a solid foundation before we start building out that affiliate outside of those clinics, ex California. In California, I think it's still going to be primarily driven by affiliate model growth. We feel very comfortable with the footprint we have. We're very comfortable with managing care and managing medical costs in the affiliate model in California. And I think that's not going to change dramatically, although we, of course, are building facilities where necessary to support the demand for health care.

Happy to take initial questions if you'd like or if not.

Yes. back to you. Maybe we can give a moment or 2. I'll have one final question from my end and then not welcome anymore. But you talked about some very impressive utilization numbers that you guys have. What trends are you seeing in that area? And do you see any significant changes moving forward?

So from '21 to '22, we have seen a slight increase in terms of our utilization. We're seeing it very much flat line and we're -- as we go into '23, we don't see any large increases.