Premier, Inc. (PINC) Earnings Call Transcript & Summary

You mentioned -- I mean, obviously, we talked to providers and labor as the #1, #2, #3 topic. What -- PINC is primarily GPO, what can you do other than just knocking down their supply costs? But what else can you do with all your portfolio of assets to help with the labor problem, if anything?

Yes. So first of all, I'd say we believe we're much more than just a GPO. So a GPO is part of our Supply Chain Services business. But we have our entire Performance Services segment, which is a $400 million business that is focused on driving quality and outcomes improvement, and looking for opportunities to drive performance improvement clinically and operationally for health care providers. So we actually have analytics that enable and look for opportunities to get the administrative tasks that are on a value-added basis removed from what health care providers have to do. So the ways that we're looking at actually directly achieving that are clinical decision support, which we just talked about, where can we actually reduce the administrative burden that clinicians have and in the processes that they're doing to actually make their encounter with a patient more efficient. So that maybe they can see more physicians -- more patients than they're seeing today if they can actually leverage that clinical decision support capability. If you think about prior authorization, we talked about that earlier, early innings, but the amount of clinicians that it takes to review a potential claim and see if it's authorized. If there's actually AI and ML capability to automate that, you can repurpose those clinicians to other activities within an institution. I talked about Remitra earlier, but if you think about the level of back office labor that is required to chase down short-paid invoices, collections, all those sorts of matters that they're having to deal with, given the manual nature of the payment function in health care institutions. If you can automate that through Remitra, you can directly influence that. And then we do -- I mean through the supply chain side, to your point, we have relationships with temporary staffing agencies like AMN where we can help leverage and find short-term solutions. But there are things that directly we're trying to do to make the health care institutions more efficient in terms of the way they operate.

So I think our lens of looking at, say, hospital companies through HCA or Tenet is distorted because they've -- your margins have actually gone up from what our read of what's happening with the not-for-profits, it's been a financial burden. COVID has not been a good guy for them. So from your standpoint, the financial pressure on your customers, has that gotten to a point where it's causing you problems? Or is the glass half full that they need you more than ever and you're able to actually benefit from that? For lack of a better way to ask a question.

It's a good question. I actually think it's the latter. So I think that they have come out of the pandemic and the realization, the pressure they're going to have on cost that they're going to need us more. Now the challenge becomes getting them to focus through the crisis moment because sometimes you got to lean into the opportunity to get help. And so I actually think we haven't -- we performed well through the pandemic. I do think the health care institutions are under a lot of pressure. I think inflationary pressure and labor pressure is not going away in the near term. And so I think they're going to continue to be under pressure. But I think that it's a longer-term opportunity for us in terms of them needing us more than they did even before the pandemic.

So just going back to Performance Services, and I do find what you're doing very interesting. Some of the areas where you have invested, you've got competitors, that's all they do. And sometimes, these competitors can lose money while doing it. So how do you balance investing in those services versus competitors who that's all they do, and they probably have more resources to bear? So what's your -- and there's a long history of companies who go into a technology area, but they just don't -- can't stand the pain of the R&D and all the other things that tech companies can do with stock comp and things like that. So how do you balance the need to make money versus the need to invest versus the need to stay competitive?

Loaded question. We could probably spend a lot of time talking about that one. I think we are focused on leveraging the core competencies and capabilities we have around improving outcomes and reducing costs, first and foremost. So strategically, that's where our focus is. It is leveraging the actual data assets that we have and how can we actually enhance the opportunity set by virtue of that. A lot of those companies don't have 45%. None of those companies have 45% of the discharge data in the country to be able to leverage to look for opportunity. And then what I would say that is unique and distinct part of Premier is this long-standing relationship that we built with these health care providers over decades. And so as we think about areas of opportunity, we're not going into a back room to do R&D and building an application and hoping it might work, and there will be adoption. We are actually co-innovating and partnering with the health care providers with their clinical teams to understand what is the opportunity set and then bringing that to market. So I think that that's a differentiation that we have. But it's a constant tension that we will always have in terms of finding the right ways to create more efficiency in existing data capabilities and assets and technology capabilities so that we can free up resources to invest in newer growth opportunities that are going to be the future of where we go.

So the company is -- part of its public journey went through a repricing with his customers also collapsed down a large GPO in New York into your own. You recontracted for 5 years, that finishes back half of this year. So as part of all that, I mean, the obvious pain was that the margins and EBITDA reset. But was there any benefit you could point to in terms of going back to your customers in terms of learning or tighter long-term agreements with them? And how should we think about -- one thing you've talked about is we think that we can earn back some of this margin that we gave away over time. So maybe kind of talk -- and that's implied in your longer-term guidance for revenue and EBIT and EPS. So maybe just kind of talk through and especially for those who aren't in the weeds on Premier that might know that history. And maybe you could kind of talk through that.

Yes, sure, happy to. So I think what's important is when the company went public, we had contractual terms in place. And we did have a complicated structure with member owners having an equity interest and receiving a what was called a tax distribution that helped and was a form of economic return to them. All of that ended up being sort of upended with tax reform, which changed the economic terms that they were receiving, which couldn't have been anticipated at that time. And so that complexity along with just sort of the sheer complexity of 2 classes of equity and the overhang of what were the health system is going to do with their stock, led us to this place of wanting to simplify and restructure the business to get the health system economics more akin to what they were prior to tax reform in terms of the return that they were receiving to collapse the share count, the shares into just Class A shares so that we didn't have sort of that complexity anymore. And what I'd say we learned through that process was actually the strength of the long-standing relationships that we have with these health systems. We went to them in the midst of their contracts and talked to them about extending and renewing agreements on a long-term basis. We had very good success achieving that. It actually was being done during the pandemic. So sort of loss that we had to actually accomplish that entire restructuring during the height of the pandemic. We were able to get them to focus and pay attention to doing that while they were trying to figure out how to learn how to treat COVID patients. And it reestablished and reaffirmed sort of the trusted long-standing nature of the relationships that we have with these health systems and have had for a long time. In terms of the opportunity moving forward, we think it set the platform for us to really focus on the longer-term growth objectives that we have moving forward, the mid- to high single-digit growth across both of our segments in revenue, adjusted EBITDA and adjusted EPS that we've laid out and articulated in our Investor Day a few months back.

So one thing that is not apparent to outside observers is I take 2 simple facts. You have hospitals that are struggling and probably need cash, and then they've got this liquid security. And yet, we haven't seen a lot of them maybe reducing their stake to raise cash. Why do you think that is?

It's a good question. So first of all, I will say, I think the market for the past couple of years, at least a lot of our health systems, just like investors, has been positive for their nonoperating portfolio. So in many cases, a lot of the large IDNs that we work with actually aren't as strapped for cash as you might think. But I think more importantly, these health systems really enjoy and view being a part of this strategic asset as important. And so this was never about them trying to just monetize and go to the bank and run with it. They appreciate being part of this vision to improve quality and reduce cost in health care and the role that they can play. Certainly, it's a market. So some have monetized, but a lot of our larger health systems have continued to hold on to the equity and view it as an important part -- an important partner. I think what's important is when we ask our health care systems this every year, but 90% of them don't view us as a vendor. They view us as a strategic partner. And so we're not just a transactional organization that they operate and work with. We are actually in their executive team room, in their boardroom, working with them on a routine regular basis to advance their strategies collectively and virtually as an IDN kind of cohort group. And so the equity component of that has not been something they have looked to just monetize and get out of.

So if we were to look 3 to 5 years down the road at Performance Services, what capabilities, assets, investments, would you expect there that are not there today?

I think you'll continue to see investments in Contigo. I think there is very much a need in the marketplace for self-insured employers to want to work directly and look for new opportunities to partner directly with providers. And so I think standing up more capabilities to enable direct-to-employer provider relationships is an area that you'll see investment and focus to grow the Contigo Health brand. I think relative to Remitra, again, the digitization and the automation of the electronic -- or the invoicing process in health care. I think there are opportunities there. I don't think you'll see Premier per se be a supply chain financing organization. There are banks and lots of people that can do that. But I think you'll see us invest in relationships, partnerships and technology to help enable that because I think there's a tremendous opportunity to create efficiency for both suppliers to health care providers and the providers around doing that. So I think you'll see focus there. And then I do think in the clinical decision support arena, you'll continue to see, and I couldn't answer your question earlier about exactly which specialties, but I think there will be focuses on investments to enable better decision support in how health care is provided. A, for providers to their patients; b, in that prior authorization arena that I talked about. So I think it's the areas of focus that we've highlighted.

So this is a selfish question I'll admit, but I'm on our benefit committee at Reg A and it's $170 million plan, 25,000 people. So we kind of worked through the traditional PPO Mercer consulting. So if you were to come to us and say, gosh, we can do a direct contract in Tampa for your home office employees, what would you come in, the pitch book that you bring in, what would that give in terms of kind of pros and cons if you're pitching? Or are we not really your target audience for Contigo? What savings are you able to offer people? What kind of friction can you take out of the process by kind of going over the top and going direct?

Yes. I would say you wouldn't be the target audience to entirely replace the current relationship that you have with a payer for those services. I think it would be are there aspects of your business. So for example, for the self-insured component, we believe that we -- depending on the size and scale of your program could provide TPA services more efficiently than you're getting -- paying for and what you're getting on that basis today. More importantly, there might be, if you had a Center of Excellence program, where for certain individuals within your plan that need care of certain services, that's what we do. So Amazon, Facebook, Lowe's, all those large organizations. We administer that center of excellence program. So it wouldn't be to replace entirely there might be aspects within your benefit offering that you would look to Contigo. Contigo can do lock stop for kind of smaller employers, but they're not necessarily looking to outsource an entire organization today.

Okay. With that, we will have to break out. Thanks.