Claritev Corporation (CTEV) Earnings Call Transcript & Summary

MultiPlan Corporation. Dale White, President and CEO; and Jim Head, Chief Financial Officer. So thanks to both. Before we start, Shawna is going to run us through some -- I guess, some legal commentary or disclosure here. Thank you.

Okay. So on the screen, you can see our forward-looking disclosure language. Quick reminder, our remarks responses, questions may, forward-looking statements outlined on the screen. Actual results may differ materially from those forward-looking statements due to a number of risks. A summary of these risks [indiscernible] found in our annual report on Form 10-K and other documents [indiscernible]

Thank you, Shawna, and thanks, everyone, for joining and thanks for the team for [indiscernible] Jumping right in, Dale, I know looking back -- personally, it's about the second quarter, it's about one of the worst quarters I've seen from a volume perspective in the industry. And I know how sequentially that plays into your third quarter with kind of the 3-month lag. And I know you've discussed some of the components of the recent shortfall. Could you walk us through kind of 2Q into 3Q, what you were seeing, and how those utilization trends played into that and some of the savings' measures before [indiscernible] discusses the most recent quality [indiscernible] if you can give us a backdrop there?

Good. Very good. Okay. Larry, thank you. I think, look, there's no doubt, but let me say from the outset [indiscernible] and we fell short of our expectations, we know it even though one of the single largest factors was the softness in the claim's utilization, but we still own it. We fell short. We fell short of our expectations. And when you look back at it, as you look back at Q3, there were really 3 or 4, the 3 main drivers of that, the largest of which was that softness in utilization. I think we said it was about $19 million in utilization that due to patient -- decline in patient utilization of health care services and a shift in our claim mix. The second -- the second reason is we had a partial program loss with a customer that accounted for about $8 million. And then there were some onetime client adjustments and other contract adjustments that came into play. And when you add it all up, it -- we fell short of our expectations in Q3. The biggest component of that when you think about the utilization and the decline in the utilization by patients, that softness began to occur in May, June. You have to remember, we still have that 2-month lag, right? So think of that claim lag as 2 months before. So data services is May and June, we don't really see it for -- see that claim and process it for about 2 months. But you started to see a softness creep in and then accelerate through Q2. And that accounted for most of it, but not all of it. The second was the partial program loss with the customer that was anticipated, and we reflected that in our guidance for Q3. But we continue to be that our relationship with that customer is healthy. We continue to discuss initiatives with that customer. We continue to own the lion share of the business with that customer. And ideally, we'll launch new opportunities, new initiatives with them to drive additional value and additional savings and ultimately revenue for the company. Maybe, Jim, you just talk for a few minutes about the details, the numbers utilization?

Yes. The -- as Dale mentioned, we did see utilization softness. And that -- it manifested itself in lower savings, which is our lifeblood. So in the core of our business, a 90-plus percent of our revenues, it's a percentage of savings. So when utilization comes down, we see it. And we -- because we're focused on out-of-network, we probably get a, what I would describe as a higher beta relative to the overall claims' environment in network plus out-of-network. Our clients were telling us that they saw softness as well across their book, and we saw a little bit more softness because our network is a little bit more discretionary. But I would just additionally say that we have a platform in place, it's an ecosystem, if you will. You've got providers, 1.3 million providers, and they were essentially the same in Q3. Not a lot of shifts, but nobody is going in network in droves or anything like that post NSA. We have our payer relationships. We are distributing out to plan sponsors over 100,000 plan sponsors. So as we looked at that ecosystem in Q3, it was pretty much intact. What changed was membership behavior. Over 60 million members in our ecosystem that are represented by those plan sponsors. They changed their behavior. And that was a little bit of a surprise to us. But we saw the leading indicators in the hospitals and others soften in Q2, as you said, Larry. I just -- I think we did not anticipate the -- how quickly that was going to turn down. And it was in discretionary categories. Our NSA services, we said on our call, were a bright spot, and a bright spot, meaning they were pretty steady. And that is emergent care versus discretionary care, where we saw some softness was discretionary categories, things like chiro, skin, orthopedic and lower ASC where it was less severe surgeries, minor surgeries, we saw some decline there. So we get hit a little bit harder because we're out-of-network focused.

So to that end and speaking a little more about where we're at, even today. I know we've heard in July was relatively tough in volume. But we picked up dramatically in August into September, and it seems like we were trending positively. Are you continuing to see those types of trends?

Yes. It give us -- it's like we -- I would say 2 things. We're lagging. We're still lagging, so 2 months. So right now, we're -- in October, we were seeing kind of August, if you will. I think -- and when we provided fourth quarter guidance, I think we were being kind of cautious that there was a -- we weren't betting on the snapback and utilization. Longer term, multiple quarters down the road, we definitely think that...

Trends are going to come through.

Demand is going to come back. But we're spending our time focusing on addressing the business here now. Dale, maybe you can talk a little bit about some of -- on our call, we talked about what we're focused on.

Yes. And I think the -- I think our focus is, right? I mean nobody expects utilization to stay where it is. To your point, Larry, starting to see some leading indicators indicate that there's some increased level of utilization in certain categories. For us, we'll ultimately be the beneficiary of when that utilization comes back or comes back to whatever the new normal. In the meantime, we've got our heads down and focusing on the things we can control. We can't control utilization. We can't control membership behavior. But what we can control is working with our customers to identify new opportunities for new products and new initiatives, developing new products, developing new products, diversifying our product portfolio. We're the -- obviously, with the long and trusted relationships that we have with our customers and how embedded we are with our customers into their claim's environment are advantages for us. So we want to diversify into Medicare Advantage and into other government programs as the population continues to age and as our payers focus on that. We want to deepen our penetration into the in-network side, right? As Jim said, we're largely an out-of-network claims player and historically have been that for 40 years. But for us, we want to diversify into the in-network side with new products and new services. We indicated on our call that we expect to launch some very new promising products in 2023 around the smart scoring and smart claims routing, and developing a program where we can focus on non-NSA-related claims and remove the balanced billing challenges that exist on NSA segment. So we're focused on continuing to work with our customers, collaborating with them on new initiatives, drive -- identify, cultivate new products, manage our costs. And continue to refine our growth trend, right? Retool our growth strategy and look out longer term and diversify a way, focus on our core. We still -- there's still great opportunities in our legacy business and with our core products, but diversified.

[indiscernible]

[indiscernible] we're still -- it's still young, right? It just -- it's about 6 months -- 6 months ago, for those of you that may not know, we made an investment in Abacus Insights, and they are an interoperability platform. And for us, we're very excited about what they're doing, but we're also excited about the opportunities, the commercial opportunities between the 2 companies. And so that's -- it's still early in the infancy, but we're excited about the commercial opportunities that may exist between the 2 companies, where they can -- we can -- they can help us and we can help them and look at ways to cultivate each other's advantages to drive more businesses.

Just getting started. Okay. I know a question I've gotten quite a bit recently in terms of the NSA process? And you said it's kind of more or less playing out as planned. And what we're hearing on our side from all the [indiscernible] management companies to back up in the tens of thousands of claims, the inability to adjudicate those claims and only a small handful of real benefit [indiscernible] Has that -- how is that playing out relative to what you thought? And how is that impact one way or another? Maybe it's not, but what are you seeing today? And how that whole dynamic is having an influence on your business?

From our perspective, when you think about NSA and as we said in Q3, it's been -- it's the steady eddy. We didn't see the decline in what we'll call emergent versus nonemergent or discretionary. So the volumes of claims that we process through our engine on behalf of our payers was in line with our expectations and continues to be. And when you think about it, if you think about the NSA process to your point, you have MultiPlan ingest the NSA claims from its customers, from its payers, customers. It applies a QPA rate on behalf of the customer, QPA being their median contracted rate or another MultiPlan solution. It returns that claim to the payer to be adjudicated and processed and paid. And then the provider decides if that reimbursement is reasonable enough or not. If not, they raise their hand and ask to negotiate that claim. Most -- in several cases, it's with us on behalf of the payer. And then if there -- if we can't reach settlement, then it goes to IDR. The lion's share of the claims is what takes place up through the point of where we repriced, and the provider has received payment. The numbers go down in terms of those that are unhappy with the reimbursement where we ultimately take it to IDR. We said, it's still early in the process, and there's been some hiccups with the IDR process. And so from that perspective, we've only -- in fact, we've settled -- I think we've settled about 1,200 cases. We've seen decisions from the government, and we have about 18,000 claims in process with the IDR entity on behalf of our payer customers. And that's out of -- I think there was a study that was just published by Blue Cross and AHIP that talked about 9 million surprise bills that had been prevented. So when you think about the numbers, it's still small.

Relatively strong. But it sounds like your process is more on the front end of that equation?

We spend the lion's share of our time on the front end of that process and meaning identifying a surprise bill, repricing it, returning it to the payer, and then a smaller number where we're actually doing the negotiation on behalf of the payer, if the provider is unhappy and then the numbers drop in terms of what goes to IDR.

Okay. Okay. Before I kind of hit the audience with questions, can you talk about the $8 million contract loss in terms of -- is there anything unique to that partial loss of that contract in terms of competitive dynamic or anything otherwise? Or is it just some, I'll call it, somewhat unique in terms of loss of that small contracts?

Look, I'd love to -- I've been with MultiPlan for nearly 20 years, and the company has been around for 42 years now. And I'd love to say, we win 100% of the time. And I'd love to say we bat 1,000, we don't. And over time, there have been puts and takes and this is one that we felt that it was important enough to flag and for the market. And for us, it's -- we still -- the relationship with this particular customer is still very healthy. We continue to do business with this customer. It was a partial program loss, there were, I think, reasons unique to the customer and why they did, what they did. And for us, it -- we continue to provide services on the largest portion of the business. We're engaged with the customer around potential new opportunities and new savings opportunities. And ultimately, for all of our customers, right, it comes down to value and results and performance, and to make sure that, that's what we do for all of our customers is deliver on the promises we made and the commitments we've made and deliver the value and expectations for a fair and reasonable price.

I would just also say, context required in the competitive environment at large. In 2021, there was the biggest RFP for our services ever, and it's called the NSA. And if there was ever a moment for competitors to try and unseat us, that was the moment. And I think we passed through -- we described how we lost 1 customer, a partial program loss in-house, partial program loss to a small competitor. And we won -- we actually won an additional larger player. And to us, that was a pretty good litmus test for whether somebody could come in and unseat us. I would also just remind everybody that we invested a tremendous amount of money in our client environment. So if you see what our capital expenditures are each year, a lot of that is basically putting money into configurations, software, et cetera, into the client environment. So the competitive barriers are high. As Dale said, we're not going to win all the time, but we're also not sitting still. We're making ourselves stickier every year inside our client environments. And our savings results are showing them.

To that end, do the payers or your customer, if you will, are there any different expectations today? I know a year ago, we sat, and you said NSA were looking at a certain -- was an opportunity. What do you think about it today versus where you were a year ago? And are your customers or your payers, are they asking for anything different than we expected? Has their behavior changed at all?

No, I would say, as we get through it, they're very focused and Dale can add on here, but they're very focused on operational excellence. But they're also very focused on this back end. I think it's interesting because on one hand, the sheer volume doesn't suggest that it's the most important piece of that puzzle. But from a client perspective, it's really important. So I think their expectations are a lot around data analytics and understanding what's going on. And so we're putting resources against that to make sure that we're fulfilling that because it's critically important to our customers. And it also makes it stickier if we're providing that level of service. So I would say, volume-wise, everything is playing out. But from a customer expectation perspective, their demands are high, which makes us stickier.

Right. Okay. Why don't we go ahead and open it up to the audience to the extent that there are questions? I know I didn't want to have anything specifically addressed, I'd rather not. No questions? That's a surprise. But yes.

Just for a strategic question. There was -- there were reports about significant overpayments on Medicare and Medicare Advantage most recently. And I wonder if you are working on any products that for Medicare kind of pricing and charge integrity?

I think what they're referring to is the risk adjustment part of the Medicare Advantage market. Risk adjustment is where essentially making sure that retrospectively, that a patient is getting reimbursed at the right level from the government. So there was some news recently. We are an independent provider, which is a real advantage. We have a small piece in that business through our Discovery acquisition. We think it's a real opportunity long-term. And doing it -- as an independent an opportunity to actually create a real kind of strong case for whatever the reimbursement level should be for a patient. So to us, it actually feels like an opportunity as an independent player to get into that market. And as Dale mentioned, that's an area where we think we have a distinct advantage.

I was just curious, if you have any thoughts on capital structure, capital allocation, leverage targets? Maybe speak to that?

We're at a credit conference. I'm surprised it took that long to get to that question. And you're probably wondering why we have $440 million of cash lying -- we're sitting on top of and sleeping on. But I would just -- it's interesting. So I'm going to go back to the future a year ago. I was 2 days into the job. And I'm going to repeat what I said 2 days into the job. It's my 1-year anniversary at MultiPlan. 2 days into the job, I said, we have a priority for capital allocation, and it's invested in the business, which is called P&L and capital expenditures. And that's not big potatoes because we'll explain to investors what that means. It's not going to take up all our cash flow. And we do that today. And then we talked about 2 main pillars, which is M&A and ultimately, debt retirement. And I was -- at that point, I was on the call with Dave Redmond, who had an unbelievable track record of paying down debt and -- paying down debt on time and fully. And here we are today, almost a year later, and I think our strategy is the same. The only difference is we've amassed some cash over the course of the year. And that's -- today, the cost of care is higher. Today, the cost of capital is just different. And I think we still have that same framework. And I would just say we need to continue to address our debt stack. We've got $4.9 billion. We've got plenty of time, but we need to chip away at it methodically. And so I don't think our strategy has really changed. The methods, et cetera, are to be determined. We said on our call that it's a dynamic environment and all options are on the table. But we understand that we can't sit on all this cash forever.

Jim, can you talk about to that end, what the M&A environment where you would be deploying capital M&A side, what opportunities may about -- and potentially, if you could size them? Is it a kind of what you...?

Yes. I think in the beginning of the year, we actually saw a lot of pipeline 2021 was quite a strong year in the markets and in health care, and what we saw is a lot of companies come to market in the early -- in the first half of '22. So we were being nimble. We were looking at a lot of stuff. I think that has slowed down a little bit because of the -- just the broader market environment. So the pipeline is a little bit slower. But at the smaller level, we're still looking at buying and building and partnering. Abacus is a good example. But at the smaller level, it's still there. I think our M&A ambitions are going to be relatively that HST, Discovery type of that would be the sweet spot for us, where it's not using all of our cash flow to the point I just made, it allows us to think about debt retirement as well. And so I think we've always said the bar has to be super high. And quite frankly, with our leverage levels where there are, we can't stretch our balance sheet too much at this stage in the game.

The MultiPlan has been -- historically has been incredible at taking acquisitions like HST and Discovery and others in that tuck-in environment and snapping it onto the chassis and then using the incredible client relationships we have to grow the business. I think that strategy has worked well for us in the past. To Jim's point, anything beyond that, the bar has to be really high, but that's our sweet spot.

Before you can jump in on the question. But I know in the call you've referenced the Data iSight initiative for 2023, I think it could be as much as kind of mid-teens revenue as it rolled out throughout there. Can you just touch on that real quick? I'll jump back into a question in here.

Sure. I think it's -- what Larry is referring to is what we do 7 days a week, 24 hours a day is we look at ways to -- we work with our customers. We collaborate with our customers and identify ways to generate savings. And in this case, Data iSight, we were able to look at data out of site and modify the with the methodology to generate additional savings for our customers and revenue for the company to somewhere about $6 million. What beyond that is we -- I think the $14 million to $16 million that you were referring where we work with our customers and looked at ways where we could increase the value and savings that we deliver to them, either by adding more products and services or by reconfiguring the products and services we were currently have and currently providing to them. And the combination of those 2, we'll see a little bit of ramp in Q4, but we'll get the full benefit of that going forward in 2023. For us, we came -- when you think about over the past 3 years, we were just talking about this in one of the last meetings. We came right into -- we came in 2020, we went through COVID, utilizations shifted dramatically, shut down during the height of the pandemic, went right out of that into sort of post-COVID, a little bit of utilization come back only to have Omicron surface in the fall only to be followed by record-setting inflation earlier this year. So we're focusing on the things we can control. And that's really where we've got our head down, we're laser-focused, we're not standing still, and we're reloading. That's the best way to say it. We're reloading and using and looking at ways to diversify into more products, move into an in-network, move into Medicare Advantage and continue to refine our growth strategy in the '24 and '25.

Right. Okay. I think we had a question or a question in the audience. No? I think [indiscernible] can you move into in-network and MA and so forth, is that an organic opportunity? Or is that something that you need to kind of acquire or is it a little bit of both?

I would describe it as probably a little bit of both. We built a business that actually got into the -- and spent a lot of money organically to have our pipes directly connected with these big players as well as the -- all the way through the long tail of the -- of our client base. And we basically sat at the switch. So in-network, if claim went one way, out-of-network, the claim came to us, right, it came off the adjudication system. But because we're plugged in, we've got an opportunity to look at in-network claims. And so in some of our clients, we're actually doing that in a for payment integrity. But there's other -- once you're attached to those claims, there's other values you can add, benchmarking, risk scoring and things like that. And so for us, that product opportunity is pretty big. The distribution is already there. Product opportunity is pretty big. So to answer your question, Larry, do we build it organically? Answer is yes. Do we maybe partner to get some capabilities? Yes. Or do we acquire small -- not big companies but smaller companies to snap on to that flow? All of those are -- all of those things that we're thinking through. But -- there are so many start-up companies that would love to be able to have the access to the claims flow, but they just can't get into the IT environment. We've been there for 40 years. That's a pretty interesting position to be. And that's one of the reasons why we're focused on looking beyond our out-of-network heritage, which is unbelievably powerful. But putting more onto that platform with high incremental margins and low distribution cost. That's a pretty good opportunity.

Do we have any other questions in the audience? No? It looks like not. I'll ask one. Just one last one to wrap up then. And if you're extending off of that, is to push into that dynamic? Is that -- is there currently players of a large footprint? Or is it more like I said, one-off smaller companies that are play in the space right now?

I think it's probably smaller.

And it's all smaller. There's no other...

Product capabilities. Dale talked a little bit about it's a great distribution system, we need more product. For us, it's a very efficient way to -- either we develop it ourselves. There's time to market or we find a smaller business that's actually put together a really nice product, but is -- needs that customer channel.

Yes. Okay. Okay. Well, I think we'll go ahead and wrap up. Thank you, Dale. Thank you, Jim.

Thank you.

Thank you, Shawna as well for joining. Thanks, everyone.