Ontrak, Inc. (OTRKQ) Earnings Call Transcript & Summary

All right, everyone, so good afternoon. My name is Carlos Consuegra and I'm part of the Healthcare Distribution & Technology team at Credit Suisse. This afternoon, we have Jonathan Mayhew, CEO; and Brandon LaVerne, CFO of Ontrak, for a fireside conversation. Just a little background, Ontrak provides access to affordable and effective care, thereby improving health and reducing cost of care for people who suffer from medical consequences of behavioral health conditions and chronic diseases. I have some prepared questions, which I plan to cover. But if anyone in the audience wants to ask any question, you could email me. My email address should be showing up on the screen. It's [email protected]. And with that, let's dig into some of these questions.

And so first of all, for Jonathan and Brandon. For anyone that's new to the story on here, can you provide some background on your core business and how you're approaching new opportunities for provider networks and the employer market?

Sure. Brandon, I'm happy to start. Carlos, nice to meet you, and thank you for the opportunity for Ontrak to be here. I guess I would start by saying that Ontrak is really attempting to solve and be a material solution to some of the most difficult problems in healthcare. And that is to say, living at the intersection of where behavioral health populations overlap with severity of chronic disease. And I think we've all been exposed certainly through COVID in the large and growing crisis with behavioral health, the number of individuals who are suffering with anxiety, depression, substance use. And that's particularly acute in those individuals who have an underlying chronic disease burden. Some of the statistics that we frequently talk about, about this vexing difficult problem is a very small number of individuals in the U.S., particularly adults have a chronic condition and it tends to be numbers in the 3%, 4%, 5%, 6% of U.S. adults have a chronic condition. And those individuals have about 70% or 80% likelihood of having a behavioral health condition that's associated with their chronic condition, and they drive 40% to 50% of the total healthcare spend in the U.S. And so our program is designed to help identify those individuals and to provide outreach, invite them into a behavioral health supported program where we can help make sure that as they manage their anxiety, depression and substance use, it engenders for them confidence, understanding, education and support, which provides a better foundation for them to go manage their chronic condition spend. And we tend to work with individuals for up to 12 months. And when we have got individuals -- or we've been able to achieve a graduation rate or a graduation status with individuals. We then want to make sure that they're supported back with their community resources, their primary care resources and the health plans who we mostly do our work for today, their condition management teams then take over once the member of the individual has achieved a certain level of stability and support that gives them confidence and skills to go forward.

Okay. All interesting stuff. I was kind of curious on how and -- also on how you help with the value-based incentives -- value-based care incentives?

Sure. We have had the opportunity to contract across essentially all lines of business for our carrier partners, commercial, Medicaid as well as Medicare Advantage and some of the subsets of Medicare Advantage populations like dual-eligibles. And as we have been able to achieve a relationship that's based on trust and influence with these individuals as we help support them on their care journey and help facilitate their access to primary care, specialty care as well as behavioral health therapies and treatments that they might require, one of the opportunities that we have been in conversation both with our customers and the providers with is our ability to help make sure that the high levels of customer satisfaction and provider satisfaction that we generate when we support these individuals' pathways to care can turn into quality metrics that sit behind CAHPS scores and Star ratings, making sure that the therapist's documentation for the behavioral health needs is complete and thorough. And those kinds of activities sit as the foundation for risk-adjusted revenue, further HCC scoring enhancement. And those are really like the foundations of some of the principles that can help drive better performance of our customers' value-based care arrangements. And some of those very conversations around better support, better satisfaction, better documentation of the individual's course of treatment are also really interesting to some of the capitated at-risk provider groups that also live in this world of value-based care and incentivized risk-adjusted performance. And so it's those areas that are not, I'll say, primary to the support that we provide, but they are very important tangential halo effects that we can help create and support as more payers and more providers are treating individuals under value-based contract arrangements.

Okay. Yes, it's pretty interesting since a lot of stuff is going towards value-based care. Before I dig even deeper into the story and the company, I know you guys reported your results last week for the third quarter. Just wanted to know if you want to go ahead and highlight any other key highlights there that from the quarter reporting from last week?

Brandon, would you like to provide a summary of what we reported last week?

Yes. I think from a revenue perspective, we reported about $18.6 million. We ultimately raised our guidance for the year to $82 million to $86 million for the year. We announced some acceleration of our pipeline, and then we spent a lot of time discussing new developments within our pipeline, some of the new directions we're going with provider groups in the employer space. And we announced specifically some discussions with some of these employer groups. We didn't name them, but ultimately, some very targeted conversations we're having that only wasn't national health plans, but also the employer groups and several providers. We did indicate that one of our current customers has signed our -- a contract to expand our program to include the mobile care solution. So that's something we're really excited about, too, is that mobile care solution. And ultimately, that same type of solution that will be launched into the employer space to support the lower acuity model. And those are kind of the big highlights. I did go into some details just about how the program financially works and we can get into those if we've got time here today.

Okay. Perfect. So just wanted to highlight on -- since you guys had a pretty -- it sounds like a outstanding quarter -- also from the executive perspective because I believe, Jonathan, you joined the company this year. So just wanted to see -- get an idea of what you bring to the table since you came on to Ontrak? And if there's any shift in the strategy, some of the reason why you came onboard?

Sure. I'm here to try to help. I guess my background is only healthcare, and I've only ever been in the health industry. And I think as I mentioned at the beginning, this is getting people access to behavioral healthcare and to help those individuals with severe disease burden and a cluster of comorbidities around chronic conditions seems to be one of the more vexing problems in the industry. And to come and try to help impact those kinds of problems for the total cost of care benefit as well as the very human benefit of improving people's lives, just seemed like a very worthwhile endeavor. And that's a big part of the reason that I'm here. I think the strategy and the mission of the organization and the very mission-oriented culture of the company with all of our care community and the people who really do have a passion for supporting individuals to our -- at times living on the fringes, might be falling between the cracks in society, have trouble understanding what services can be made available to them, don't have the confidence or even the understanding to be able to fully support some of these unmet behavioral health needs that they have is just a very rewarding and challenging environment to be in. And so anything I can do to sort of help support that approach from an industry standpoint seemed like a great opportunity. In terms of what we are trying to do to retool our strategy, I would say, it's to double down on a couple of things. The intersection of human care and technology is vital. I really think it's a false dichotomy to think that people are only capable of receiving support and education and accessing care in purely a face-to-face environment. And we can use technology to help drive interest, awareness, engagement. Once a human-enabled treatment regimen with clinicians and behavioral health providers can get started, there's a lot that we can do with coaches and technology to support that individual's treatment regimen. So whether that's modules of care, whether that's training, whether that's supporting various types of provider-sponsored digital interaction that helps facilitate the human either face-to-face or virtual or telephonic therapy that people go through, we're really finding that the use of technology blended with clinicians' human contact can produce durable clinical outcomes that are measurable and verifiable for the kinds of people that we support. And so to double down on that human care and technology interface through investments in data, data analytics, technology, the content that's associated with that technology platform, not only help our coaches, it can help the clinicians. And if it makes it easier and brings down some of the barriers, and the stigma and the access limitations that exist around people supporting their behavioral health needs, then we really can serve some of the most seriously impaired, some of the higher acuity circumstances. And bringing that, I'd say, continued and refined focus on the human and digital interaction is a big part of what we're doing. And the company started this well before I got here, there were acquisitions of mobile and digital platforms and a number of modules that help supported this high acuity population, but we really have the opportunity to look more holistically at the individual, look at the whole health circumstances and make sure the coach, technology and provider interfaces further evolve around the needs of the number.

Yes. All right. So I'm going to switch back to the business model in terms of when you were discussing the new developments, sources of revenues with provider networks, just kind of curious if you can comment on the expectations on how the mix between health plans, provider networks and employer markets will change.

Sure. I think what we -- and we tried to emphasize this a bit in our call last week, but we continue to see the primary sources of revenue and business that we support being our health plan customers in the health plan marketplace. The good news is there are a lot of lives that are consolidated and accessible through the health plan marketplace. If we're in the business of serving high acuity, high disease burden individuals, the propensity of those diseases and the disease burden to be greater in the Medicare, Medicare Advantage and the Medicaid marketplace is what has had us continually skewing the work that we do towards government health plan-oriented customers. And I don't know if we see a big change in that as we go forward. I think we'll continue to gravitate towards high acuity. If high acuity populations live in more prevalence in the government programs, I think we'll continue to find ourselves in health plan-oriented government lines of business. And certainly, our existing customer base reflects that. The pipeline, which we've been very active with and growing reflects the continued interest in our services from a government line of business standpoint. But we also have a lot of legacy and a lot of lineage as an organization around supporting commercial populations. The digital platform that the company bought a year ago has quite a bit of exposure to the large self-funded national and international customer base. And so one of the things that we have found is as we've develop our product road map for our employer customers, it has further invited conversation with the third-party administrators and the commercial health insurers that support those customers. So I think our goal is to continue to expose ourselves to a broad set of channels and access points for our service. But if there is greater disease burden and greater cost of care in the government lines of business, I think our services will naturally be more attractive and inclined towards the greater disease spend. But it's not as if you can't find expensive complicated individuals that need support in the commercial population, it's just the frequency of those occurring, particularly in adults just tends to be a little bit lower. So our goal is to double down on health plan, make sure that we're really relevant for the government programs, but we don't want to rule out the ability to support commercial and employer populations. And the last thing I would say is they're sort of awaiting of our services. If you think about sort of a spectrum of care, where there's sort of all digital and all human, and we're trying to really fuse and create a level of interaction between technology-enabled healthcare, you might have more technology support for the employer in commercial populations, and you're probably going to have more human support for some of the harder to reach, older and frailer populations. But it's not as if we won't have technology in all of our products in human contact and all of our products, we really will. I think the dimensions and the levels of technology or human contact will vary depending on the age and the access and the underlying sort of frail nature or instability of the individual based on their chronic disease will sort of dictate how much human care versus technology support those people receive.

Okay. Since you mentioned technology, was kind of curious on how AI data analytics help you identify, engage and treat health plan members with like unaddressed behavioral conditions, whether it's diagnosed or not, or the 5% that drives the majority of commercial health care cost?

I maybe sort of cite 3 things from a technology standpoint with our program. One is we do use a set of advanced analytics to help identify those individuals who could be eligible for the kinds of services that we provide. Those individuals may or may not have an absence of behavioral health diagnoses in their claims. They may or may not be treated or untreated. And so a lot of what we are continuing to evolve our model and try to use the individuals that we treat to retrain those sets of advanced analytics is, can we impute somebody's likelihood to require our services or to engage in treatment? And so there's a lot of work that the team is doing now around those elements of identification of people who are eligible for our services. Second thing is virtual care and in-person visit has certainly, I'll say, skewed up dramatically, right, as we have entered COVID and as we've started to diminish some of people's hesitancy to go into clinical settings for face-to-face visits. We have always been a company who has been capable of supporting virtual care. Nearly 95% of all of what we do and have recently done is a virtual or telephonic interaction. But there are certainly individuals based on maybe where they land, being in an urban setting, having a certain set of clinical circumstances where they would benefit from face-to-face interactions and making that available to people as broadly as we can. But the virtual care support for our program is a big part of the technology spend and investment that we've continued to make. And then the third is, machine learning around what drives people's willingness to engage, stay engaged and ultimately, graduate from the program. And so the more we can learn not just about who's willing to engage and how can we identify people, but once we've identified them, and we've got them enrolled in the program, how can we understand from both a data and a utilization standpoint what keeps some people willing to continue on with a program, have more success for the program. And what they might look like from a data standpoint is very similar individuals from an age, and a gender and a chronic disease burden. But why one individual will stay engaged and provide themselves with more sort of longitudinal benefit and other people may have less success with the program. We're using technology around those machine-learning principles, around engagement, and treatment and success. So the 3 areas from technology standpoint that we've continued to make sure are priority for the company.

Okay. Great. Trying to also gauge kind of like the discussions between providers, health plans, employers like describing the sales cycle for each of those segments?

Yes. We talked a little bit about this last week as well. The health plan sales cycle tends to be longer. Just one because organizations are large and there are multiple departments with our customers that go through or are involved in the buying decision. So whether that's the clinical teams, and it might be the population health teams, it might be the behavioral health teams, there are all data individuals that either will furnish us with the claims files and the data feeds or the people who will financially analyze those. So to go through those series of conversations tends to be a set of steps that we certainly understand from a health plan standpoint. And what I think our experience has been is, it is a multi-month process to activate a new health plan customer. Many of those steps either don't exist for some of the provider conversations that we're in or certainly the employer conversations if the primary conduit to an employer accessing our services, the digital app and accessing -- having their employees access that digital app, there are a number of complexities in that sale that just don't exist. And so I think, again, our goal is to continue to be really robust in what we do for health plans, but to also open up the provider in employer channels, one, because the sales cycle feels a little bit different; two, is our ability to support those populations and channels with the core offerings that we've built are really very similar. So it has to do more with maybe the distribution cycle and distribution timing versus the kind of core capabilities and the core services that we provide.

Yes. Okay. I would just want to see how you characterize the discussions you've been having with the -- your health plans, the ones that are in your pipeline. Also, anything you can share regarding the Cigna and Aetna contract losses? And if you're having ongoing discussions with those 2?

Yes. I mean I would characterize our prospect and customer conversations as -- particularly again in, I would say, my tenure and the new leadership's tenure with the organization as we've been very active both with a growing number of prospects. Our pipeline, I think, as we commented on last week, has continued to evolve pretty rapidly. And as we have wanted to evolve our more sophisticated analytics approach as I was trying to describe, this whole health approach to member engagement that drives clinical outcomes as well as financial outcomes, we really have wanted to do this in a really customer-symmetric way. So whether it's some of the former customers that you mentioned or whether it's some of the existing customers or our prospects, we really have wanted to ideate and help make sure that the evolution of our program is occurring in a way that would meet the customers' needs. And we've been fortunate to be able to have those kinds of conversations with both our former customers as well as existing customers and prospects. And it's helped, I'll say, sharpen or crispen the elements of execution that we need to be focused on as a team to make sure that we're driving feature and functionality that really meets market need. What it's helped to reinforce for me is -- and the team, the leadership team is the real opportunity around supporting higher acuity, more complex populations because it's harder. I think the market hasn't naturally gravitated there. There's a lot of digital apps. There's a lot of digital, they cater health programs. There's a lot of digital population health programs. But sort of gravitating towards some of the more difficult populations to work with, I think, continues to be -- at least the feedback that we're receiving continues to be an area that sounds differentiating for Ontrak.

Yes. Okay. So I'm going to switch over to the other end of your business in terms of like the physician network. Can you give us a sense of how your network or behavior healthcare and other providers is structured?

Sure. We tend to start -- again, because the majority of our business today is based and built around of the health plans and the health plan marketplace. We tend to start with their credentialed behavioral health network. And what we will do from there is begin to work down to a subset of those credential providers who we can build bidirectional, supportive and increasingly technology connected relationships with. And so if we're treating somebody, can we share bidirectional treatment notes? Can we make sure that we're helping to make sure that the availability and the scheduling of that individual with the clinician occurs? Can we help reduce no-show rates? And while people are getting coached to and through care, we can be a very relevant resource in between the clinician meetings. And so we don't need the whole behavioral health network that most of the health plans have to do that. So we try to make sure that a well-refined quality subset of the credential health plans network is what we really need to make sure that it's geographically appropriate for where we would intend to support the health plan. And then what I would say to that is we have the ability for national relationships that we have across all of our relationships to supplement where there might be pockets or clinical deficiencies in availability with any of the health plan's network. So we can bring any of our national relationships to bear and help supplement what those health plans have. It provides a way to help round out the support that we can help provide around access improvement and quality standards for the health plans.

Okay. And just for clarity, are they employees or you were mentioning like the network?

No. We, to-date, do not have any employed clinicians that provide treatment as part of our program. We've got clinicians, vast majority of our coaches are clinicians, but they are not treating individuals as a licensed clinician.

Yes. Okay. So just turning to the competitive landscape. Trying to get a sense of what separates Ontrak versus other behavioral telehealth companies? And who do you consider like your competitors?

Yes. I appreciate the question. I think it really sort of goes to the things you've heard a couple of times from me so far, but our ability to identify and engage severe and chronic individuals tends to be what we hear as a differentiator in the market. If we can continue to evolve our claims-based analytics and our predictive modeling capabilities, if we can continue to understand the things that drive an individual's propensity to engage when heretofore they had not been engaged any particular population health program, I think those elements differentiate us from lower acuity programs that would be founded off of a digital or mobile platform. So I think those are the elements that we've continued to understand differentiate us. As we go forward, if we can also understand more broadly the whole person needs, right, so what is it in their communities, what is it relative to other clinical support requirements that these individuals have, can we help get them trained up from a skill or a knowledge or an access to those community or social or clinical services that they require, that takes a lot of work. Our coaches are well-positioned and well-trained to be able to support people's ongoing self-management and confidence as they move towards graduation from our program. And I think that level of whole person care and support, you're just not going to find from many of the solutions that have sort of proliferated through the beginning of COVID as people have become increasingly aware of the behavioral health crisis and people's needs for support services have sort of not matched the level of supply in the market for behavioral health support. So I think the coach-driven model or a coached-influenced model is a great way to help make sure that behavioral providers are better supported, people got self-management and confidence in their treatment. And that also should align with primary and specialist care. And we just think we're really well-positioned to be able to do that in a way that many dissolutions in the market today are not built to try to accomplish those things that you just mentioned.

Yes. Okay. I know Ontrak serves members in health plans in about 40 states and the D.C. So are you guys planning on expanding to the other states? Or are there any impediments due to regulations?

No. I would say our footprint will follow our client base. So where our customers and clients are, we're fully capable of supporting them in the geographies where our customers might have members.

Okay. So turning to a little bit about the COVID since I know you've mentioned a few times within behavioral health. How are you thinking about the utilization and the impact from COVID as you head into 2022?

It's a good question. I think it'll continue to put sort of more demand. And I don't know that we anticipate the behavioral access crisis diminishing at all. I think the real challenge is around mental illness and people accessing support services for mental illness. They're going to persist long past everybody having their vaccinations and their boosters and all that kind of stuff. So I think the demand and the importance of what we're trying to do will persist for quite some time. I think it will also change the underlying medical cost spend of individuals if -- coming through crisis, people avoided many of the clinical encounters that supported their chronic condition. They were afraid to go into the doctor's office or doctor's offices were closed, particularly if you think about sort of elderly and frail individuals, right? They were really advised to stay away from clinical settings. So it's created, I think, a bit of a pent-up demand for people needing to go back and get their preventative services, get their routine support services. But as all of that continues to happen, it will drive up -- or I should say, shift at least the underlying medical spend to be more chronic disease-oriented the way it was before COVID. And as hopefully, some of the COVID costs reduce themselves, you'll see the continued rise in chronic care spend. And what we're well positioned to do is right to support these behavioral health services that help hold down chronic care spend. So I mean, I think our position would be, we -- the relevancy of what we do will only continue to grow as we come through COVID for those mentions I -- for those reasons I just mentioned.

Yes. Okay. So then I have a quick question for you regarding everybody mentioning the labor issues right now ongoing in the economy. So I know for you, employees are very important. So are you -- have -- are you seeing any type of pressures in terms of attracting and retaining talent?

I think it's always an issue. Honestly, I don't know. Before COVID, during COVID, after COVID, I think making sure that we continue to hire and develop a world-class workforce is always essential for us. I think -- and it will be interesting to see as we come through COVID how much of remote work continues to be a really attractive thing for people. But before COVID, we were an employer of choice, and we were really attractive for a lot of people because we are a virtual healthcare company, and it provided people with the opportunity to work remotely. Everybody has been working remotely through COVID, but I know there's a lot of resistance in certain kinds of industries with the speed or the frequency that people are being asked to return back into the office. And so if that continues to emerge and we continue to be a virtual workforce, I would think that flexibility and our ability to sort of have it figured out how to run a virtual employee population can continue to make us an attractive place for people to work. And if you think about it rightly, probably sitting here today, 90-some-odd-percent of our coaches are nurses. And so if you're in a nurse, we're a pretty attractive work environment compared to perhaps other clinical settings that nurses might have their choice to go work in. Same thing is true for licensed social workers, right, that we have the opportunity to employ. We're just a pretty attractive work environment for individuals in here. So hopefully, those things, plus a quality organization is what can have us continue to grow the workforce as we need to.

Yes. Okay. I appreciate it, Jonathan and Brandon. I think, almost 40 minutes. And so lastly, anything I didn't cover that you might want to highlight or touch upon really quickly?

Let me ask Brandon since I did a lot of the talking. Brandon, is there anything that we missed?

No. I think we touched on a lot of the great topics. For us, it's -- we've got a lot of opportunities in front of us. We have a significant amount of activity and, I'll call it, accelerated activity going on in order to win and close those deals. Really excited about the product, the new leadership team that's in place. And so I've been at the company for almost 2 years and just never seen this kind of focus-targeted and really rewarding activities. So looking forward to the quarters to come.

Okay. Perfect. Thank you, guys.

Thank you very much, Carlos.

Thank you.