P3 Health Partners Inc. (PIII) Earnings Call Transcript & Summary

Okay. We're going to get started with our next session here with P3 Health Partners. I'm Steven Valiquette, the health care services analyst here at Barclays. And here with us from the company, we have Amir Bacchus, who's the Chief Medical Officer. And this is my first non-fireside chat. So I get to sit back and listen to a lot of useful information from Amir. So I'll flip it over to you to run through some slides, and let's go from there.

All right. Thank you, Scott (sic) [ Steven ]. I appreciate that. So as Scott (sic) [ Steven] said, hi, everybody. My name is Amir Bacchus. I am the Co-Founder and the Chief Medical Officer of P3. So I wanted to kind of give you a state of the union as far as where P3 stands today as well as have plenty of time to have questions at the end. I know I'm between now and cocktail hour, so we will make sure that we're efficient on time. And we'll have time for questions, as I said. So first of all, I'm going to talk about P3 and how we solve some of the health care issues that we see today. We're also going to talk about some of our results that we've seen not only with our patients, but all sorts of financial results for 2022 and guidance for 2023. So if indeed, you think of health care, right, and health care is a big, broad, huge subject. We think about certain things that we look at as far as solving that equation. First and foremost, we know there's thousands of independent physicians out there that are looking to try to go into value-based care. How do they compete against the corporate entities that exist out there, like the Optums of the world, et cetera? So P3 is really an enablement platform. We enable those providers with teams, tools, technology in order to perform in value-based care, not only from the incentives they get from seeing the patients upfront and show them how to change their behavior to do it, but also have shared savings for them so that they can compete and stay in business against some of those corporate giants. In addition to that, we also work with our payer partners. Our payers are looking for a number of key aspects. They're looking for better patient satisfaction. In order to keep and retain that patient base, so they doesn't move to other plans. In addition to that, they're also looking for ways to improve not only the revenue, through whether it's in looking at from a coding and documentation standpoint, but also in regards to quality. So we work with our payers as partners to do those very things and achieve those results. Health systems. Health systems are very big, clunky. A lot of times, they don't understand how to get the value-based care. So we work with them to try to drive them with the data that we can show them on each and every individual provider within their systems to create value. And we do that, and we do that very effectively and so that they can win on the value-based care equation as well. The network flexibility. We see there's a lot of inefficiencies in markets, right? If you look at markets today, markets are really a number of different siloed providers, whether you're a hospital post-acute, whether you're a specialist or a primary care physician. So for us, we sit there and look at that and say, "How do we come to the glue within that market or that community to drive the results?" I'll give you an example of that. So say, for instance, if you're in a hospital and you're in as a sick patient and as you get discharged, how that coordination of care happens in order to make sure you get your home oxygen, you get your hospital bed, you get those things delivered to your home within hours of being discharged. So that prevents readmissions and prevents patients from getting sick. That's just one small example of what we do. So we can do it from a hospital, from a concurrent review perspective. And at the same time, we can make sure that transition, if you need to see your orthopod, we can expedite that orthopedic surgeons, cardiologists, anybody within the system, our team can help coordinate to ensure that those things happen well, right? Because if they don't, that's where we see a lot of errors that are created and leading to excessive costs overall within the system. So why do we feel so confident about what we do? The reason why we're so confident about the way we do it and how we've done it is because we've been doing it for 20-plus years. Dr. Abdou and myself as Co-Founders of P3 have been actually doing global risk Medicare Advantage since the late '90s, right? First with Health Care Partners as we went there from DaVita and then from DaVita, we're able to leave and then start P3 in 2017. So we've been able, because of our relationships within the marketplaces, strong relationships with multiple different payers, whether you're talking United, Aetna, Cigna, regional plans like ATRIO, et cetera. We have a lot of extensive relationships that allow us to grow quickly. And with that -- in that, we have grown very fast. Not only what you see from the 60,000 to 101,000 from '21 to '22, but really from actually around 10,000 in 2018 to over 100,000 in 4.5 years, right? So our ability to grow is something that is innate to us. And at the same time, we have actually had experience because we've done this before, where we actually were able to achieve a 20-plus percent EBITDA margin on the businesses that we do. So in order to do that, you have to create a system that actually, really, in a lot of ways, becomes a flywheel. It actually circles on itself to continue to improve overall effects. So if you think if you have better provider satisfaction that leaves a better patient satisfaction, you can then make sure that you can improve clinical outcomes and drive down the overall cost of care. All of these things within that flywheel continue to build on one another. And over time, things just get better and better and better. Today, P3 is in 16 different markets. We're in 5 different states today, with that 100-plus thousand lives as I described earlier. For us, as you can see here in the bar graphs, we've been able to grow significantly through our providers within the markets that we're in. So we started with about 300 providers in 2018. We have over 2,800 providers today, okay? And that's primary care physicians. That's not counting our specialty networks, which is about 10,000 plus. In addition to that, you can see us in comparison to one of our peers, right? And agilon has been able to grow as well, but not nearly at the rate of we've been able to grow, primarily because our relations with small practices, not necessarily just large practices because there's lots of physicians, as I described earlier, looking to get the value base. So if you think of how we think of the business, P3 right now is at a major inflection point. Why do I say that? The reason why I say that is because of P3's growth over such a short period of time, most of our patients were always new, meaning coming in very high sickness burden, low economics to go with those patients as they came in. Now that we have persistent membership that we look at for the first time will be greater than our patients that are new coming in, we can obviously see a significant economics on those persistent lives. So for us, we can have probably 40,000 or so new lives in 2022, which leads us to having about 60,000 patients that we can do the right things as far as the right and appropriate documentation, coding, improve the overall quality and at the same time, improve the overall medical expense, right? Because you have to do both in order to do things well to create the medical margins that you need to create. And we can do that while we're growing our markets, right? We can look at our markets as contiguous markets, not only within the counties we're in, but extensive counties right outside, let alone whole new markets that we continue to be offered to come to all the time, which is a very good thing to have. So you may use our Arizona market as a good example of time and how things change. So you can see here from this slide that our membership has significantly grown in our Arizona market, starting at about 10,000 and being about 50,000 today, all within about 4 years. In addition to that, you can see that we've had our overall revenue significantly increase to where, before, started at about $86 million. And today, we're at $454 million, $460 million just in this market alone. More importantly, you can see that our revenue, the revenue has significantly increased over that period of time, right? And that shows a lot as far as how we get our physicians to understand the patient base that they have, making sure they are appropriately identifying the codes and knowing those patients and the sickness burden that they do have and so that we can manage those patients more appropriately, right? In addition to that, the medical margin. Medical margin is really what I like to see because the medical margin tells me not only how we're producing and doing well in the revenue standpoint, but also how we're doing on the medical expense standpoint. In order to drive those margins, we need to see improvement in revenue, right, at the same time, decreases in overall medical expense. And the key thing about this market that's really kind of interesting on this slide, you can see that we've been able to do it at the same time of significant growth with our PCP base going from 300 providers to 1,600 or so providers and this is our PCPs within that market. And at the same time, doing it as we grow our health plans to perform overall in this market, driving the values that you see above in the bar graphs. Medical expense. Very important to be continued to drive down medical expense. Now the other thing that we will talk about here very soon is that mature lives, the more mature the lives are, the better you can bend the cost curve because you know them better. The more you know them better, the more you understand about their COPD, their diabetes, their hyperlipidemia, whatever it may be in order to improve their outcomes. So this slide shows us that indeed, if it's a new patient population, only a year old, we can start right off the bat but bending that cost curve by about 5%. If it's 2 years old, 7%; 3 years old, 8%; and it just gets better, right? So for us, it's very important as we train our clinicians within our PCP basis within all the different communities is understanding and working with our care teams, right, and the technology and the information that we give them, who are those patients of the high-risk rising risk patients because we all know, 10% of the patients drive about 70% of the cost. So if we focus and you work with us for those populations, we can have significant effect. The key thing also to understand about this slide, this all happened during COVID, that we've been able to bend the cost curves the way that we've been able to bend them. And you can see here from the direct KPIs, or the key performance indicators, that we look at that our admits per 1,000 have dropped significantly 34%. We've been able to decrease our post-acute utilization by 40%. We've also been able to decrease our actual ER utilization by 50%, all during COVID and managing the populations, especially as we manage them through time. Okay? So I talked about the overall margin improvement. Let me, again, tell you why it's important when you look at the maturity of a population. The more you know that patient and the more you're engaged with that patient, the better the outcomes. Now as I said earlier, we have a bigger base of persistent lives than we've ever had before. Before, it was always the opposite, more new patients than persistent patients. So because of that, that leads to that inflection point. So now because we have those more persistent lives that the mean margin progression is, therefore, driven through that maturation and we create more value. In addition to that, we've been able to be more efficient in our operational expenses. And as we've been more efficient in operational expenses, that's been able to drive down our OpEx costs and, therefore, improve the overall bottom line. In addition to that, we like to be delegated, which is unique in comparison to others in our peer space. Delegation means that we actually become a rack like the health plan. So we end up managing the entire continuum of care as I said earlier in the first slide, whether it's from a hospital setting, post-acute setting, from our specialists, allergists, to urologists and everybody in between, to manage the entire cost of care in making sure we're doing prior authorization, utilization management, Part B cost of care management, Part B drug cost of care management. All those things fall under our purview to manage and manage well. So those are the things that we do in order to make sure that we're getting to the results as I kind of described earlier on this population that's now more persistent than new. We also have a very engaged board, which is great, looking to make sure that we have the financial wherewithal to drive what we need to drive throughout the rest of the year, especially on these persistent lives so that we can have a very successful '23 as we lead into 2024 and the profitability that we look at. So for us, we want to sit there and get to what we know we have done before, and that's for the $200 million or 20% EBITDA margin on over $1 billion of revenue. Let me reaffirm our current '22 guidance. We said previously that we would end up with an adjusted -- or excuse me, a previous revenue number of $1.025 billion to $1.075 billion. That is going to be true, and you'll see more about that towards the end of the month. In addition to that, we gave guidance on our $118 million to $128 million negative overall adjusted EBITDA, which is inclusive, by the way, a significant audit and legal costs in this past year of approximately $40 million, okay? So we are expecting significant reductions in those costs going forward, especially with the extensive audit as we went public and those types of things. In 2023, we expect to be about between 115,000 and 120,000 lives. We expect to have about 150,000 or so lives on our platform. In addition to that, we are looking to make sure that we're going to be driving $1.2 billion to $1.25 billion in revenue, which is up about 14% to 20% from where we've been this past year in 2022. So if you look at '23, the preliminary adjusted EBITDA guidance that we're putting out, we're looking to see us fall and probably in the range of $40 million to $60 million negative, which is about a $60 million improvement from where we were in '22. Okay. Things continue to get better and better as we see more and more of our persistency and lives. In addition to that, we want to make sure that our adjusted EBITDA is positive by 2024, and we have a very good glide path to achieve that very thing. So for us, on over $1 billion of revenue for -- we know that we can achieve that 20% EBITDA margin and then get to that over $200 million of embedded EBITDA as we move forward from '24 and beyond. So I am going to shut up now, make it easy for everybody. And let's see if we have any questions going forward. And Scott (sic) [ Steven ], any questions from you or anybody out in the audience?

Okay, great. All right, Steve, there was a Scott in the last session. I think [indiscernible] actually.

I'm sorry. Steve, I'm sorry.

Yes. No worries at all. No worries at all. No worries at all.

I got the S right. Okay.

All right. Great. So, yes. I think one thing that's been sort of coming out of the conference a little bit is you're following the proposed Medicare Advantage rates for next year. I think some people are worried about for some of the value-based care providers, the trickle down or slowdown of some of the impact from that and how that might impact some of the economics for value-based care companies. So yes, since that's really top of mind, maybe talk about how you're thinking about that for your business for 2024? Clearly, you're not giving any guidance yet for next year, but just -- let's just talk about that topic for a couple of moments.

Sure. Sure. Yes. Right now, everybody is very concerned about the CMS changes from Version 24 to Version 28 in regards to the overall risk adjustment model. We, as a relatively young company, our current RAF, it's about 1.0, just a little bit over 1.0. So we're not a company that sees RAFs of 1.5 to 1.7 that you see in probably other companies that have been around for a while. Not to say that those companies have been doing anything wrong as far as the RAF accumulation that they've been able to do. But because our company is relatively young, a lot of the bread and butter diagnosis that we have are indeed that bread and butter diagnoses. So we do not see when we evaluate Version 24 and where we sit today versus Version 28 any real exposure for risk. In fact, if anything, as we look at Version 24 to Version 28, we think that we actually probably see a slight pickup from what others are concerned about, especially with the higher RAFs as they pull off diagnosis codes such as peripheral arterial disease, blood disease disorders as well as behavioral health disorders. So that's something that we are fairly confident as we run from '23 as we move towards '24, and thus there's April 3, CMS backs off a little bit with the lawsuits that are coming from United, Humana, et cetera, in the threats of decreasing benefits to patients to pay for it. So we're fairly bullish. We think that the overall changes that Medicare is making are prudent for the most part. And we have no fear as far as what that will look like going forward to '24, if it indeed is enacted as they stated.

Okay. All right. That's helpful. Actually, are you able to pull up that last slide again, if you go back one? Or is that way beyond? Okay there we go around. Yes. I think a lot of companies with similar business models for years have talked about embedded EBITDA and you're going to have that on this slide as well. But maybe just to reiterate again, the time line, so the true profitability and then aside from something RADV would not be a major risk factor in relation to that from your perspective right now. Is there anything else you see as really risk factors that would maybe disrupt that time line to profitability, the way you see things right now? Let's pick up things that are unforeseen, but just...

Sure. Sure. Yes, there's -- you never know if there's any headwinds ahead of you. But for us, most of the headwinds that we had to deal with is probably making sure that all the audit, legal, those types of things as we've gone public are behind us. That's probably our biggest headwind that we've had. We're looking to get past that for sure as we head into '23. We'll be talking about that more as we look into the -- our earnings call in March as well as our release of 10-K -- our 10-K in this month as well. So for us, there's not too many things besides even the RADV rule in calling back things back to 2011. Again, for us, that's not a headwind because the company started in really 2018 with our first contract. So anything as far as clawbacks from dollars from that, we don't expect any exposure for that, let alone '24 going forward. So we believe that we will be successful in driving to that $200 million embedded EBITDA and looking forward in '24 to being a very significant year for us as we move towards 2025.

Okay. Great. All right. We still got a minute or 2 left here. Maybe I'll just check the audience if anybody wanted to ask a question. We've got some microphones if we need it. I think we got one over here. I'm waiting for the microphone for a second.

I'm actually with Barclays on the health care services team as well. And I just wanted to quickly clarify the 138% PM margin growth that you showed earlier. I was wondering if you could elaborate a little bit more on that on how you expect to achieve that in year 4? And also, how do you look at any kind of organic activity or acquisition activity in terms of growing the member base for the company?

So one of the things about the P3 model is that we are very efficient in our capital. What I mean by that is we don't buy groups, we don't have to. There's like I said, literally hundreds, if not thousands of providers that want to get to value-based contracting. And us as an enabler, it's really a contract and then we can start working with the 25,000 lives that they have in their practice, whether it's any of the major MA plans or even if it's ACO reach. So for us, there is no -- the cost of acquisition is extremely low. It's not like others and our competitors that we see or peers within the markets that actually buy practices that we don't have to do and has worked out very, very well for us. As far as this 138% margin that you see here, that 138% margin is based on 2 things primarily: one, medical expense. We are very good at driving down medical expense, okay? We're very good at engaging our providers, showing them with our teams and the tools and the technology that we deliver to them, ways to decrease costs. And they latch on and get within 12, 24 months start to understand very quickly how to improve the outcomes for those patients, especially with major chronic diseases. So the medical expense is one thing, the revenue side. The revenue side is driven really by a few things. Number one is the patient's age that are persistent. As they get older, each year, there's more revenue attributed to it, one. Two, quality. As we improve the quality, you get more reimbursement from CMS. That's two. Three, is Medicare risk adjustment, which Steve was talking about earlier, is there a big concern of losses for that. We don't have that concern primarily because, again, our patients are newer within the system. So the longer we have them, the more persistent in understanding that we can have in their diagnoses. And as they age, they will have more diagnoses. So that revenue top line will continue to go up as you drive down the medical expense, which improves that margin.

Okay. Great. All right. Great. Well, I think with that, I think we're out of time, so I think we'll wrap it up there. So I want to thank you for your time and for the presentation today. Certainly, a lot of useful information within that. And hopefully, you enjoy the rest of the day and the rest of the conference.

Awesome. Steve, thank you so much. Appreciate it. See you next year. Okay.