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

Okay. Great. Welcome to our next session here at the Barclays Global Healthcare Conference. I want to over jump the gun there. So I'm Steven Valiquette, I do cover the health care services as part of our overall health care team here at Barclays. Next company will be with Premier. With us from the company, we have Mike Alkire, the President and CEO and also Craig McKasson, the CFO. This will be a fireside chat. So I think with that, I think we're just going to dive it in, right?

Great. Thanks, Steve, for having us.

All right. Great. So for those who follow Premier, the company has a couple of very distinct segments. We'll start off talking about the Performance Services segment or just PS. We'll probably refer to it as we're kind of going through the session. At your most recent Investor Day, which was now several months ago as time keeps line by here, you highlighted tech enablement and expansion in the multiple adjacent markets as really key growth drivers within the PS segments, whether those adjacent markets due to life sciences or payers or employers. Maybe let's just start off and you can maybe talk more about that potential expansion? And if you're able to sort of rank order some of that opportunity in terms of investment and opportunity side, that would be great.

Sure. So first, at the Investor Day, we talked a little bit about the growth. We're targeting mid-single digits to high single-digit growth through 2024. But when you think about our Performance Services, we've got 3 or 4 businesses that are growing faster in excess of 25% growth per year. And Craig, can add any color as he sees fit. But if you think about where we believe we have the most innovation, I would start with clinical decision support. So it's the machine learning, artificial intelligence, natural language processing that takes the insights from all of our data, and it actually writes it into the electronic medical records of Athena, Cerner, Epic. And so we believe we've got some true differentiated capability to drive better outcomes by leveraging that technology. That's number one. Number two, one of our most recent acquisitions was a company called IDS, and that's focused all on e-invoicing and e-payables. If you think about invoices, in the health care market, people summarize that still approximately 80% of all invoices are still being done manually. We think it's a technology that lends itself well to driving higher levels of efficiency, number one. Number two, we think it's an opportunity to be more accurate with managing invoices as well because it uses a lot of optical character recognition and those kinds of things, leveraging an AI platform. So we're really, really excited about the e-invoicing and e-payables platform. That invoicing platform also gives us the opportunity to look at everything that a health care system obviously gets invoiced for in terms of services or products so that provides a very, very unique leg up again from a data perspective for us to understand whether or not we want to put national agreements in place, regional agreements in place or local agreement. So we're really excited about that. Contigo Health continues to have some really nice growth. And just as a quick reminder, Contigo Health was -- is our initiative that we created about 3 years ago to help health care systems work more closely with employers and their markets. Subsequently, we've been -- made some investments in the TPA capability that really help service centers of excellence models for employers in this country. So we're really excited about what's happening with the progression of Contigo. And then the last area, Steve, is our focus on life sciences. Historically, we've been a provider of data to the life sciences market sort of this retrospective data slices and data cuts. More recently, we've been more focused on real-world evidence studies, working with pharmaceutical companies. And then more recently, we've been using that same platform of AI, machine learning, natural language processing to identify patients for trials. So looking at screens and lab values and patient characteristics and determining at the point of care, whether or not somebody would be potentially a good prospect to participate in a drug trial. So that's the basis of those businesses.

Yes. And I think to reinforce from a growth standpoint. So what we talked about at our Investor Day was the Performance Services business growing mid- to- high single digits in total, which is a combination of mid-single-digit growth in the core provider footprint of analytics and advisory service wraparound services that we provide there. And then those adjacent market businesses that Mike just described, for fiscal 2022 when we established guidance that those would grow at the 25% level that he referenced earlier. On a prospective basis, we think they actually have the opportunity to grow 30% to 40%. So a lot of opportunity to augment our core provider base into these adjacent markets as we move forward.

Okay. Okay. That's great to frame that a little more detail like that. So I guess staying on the PS segment. So I think some investors over the past few years have maybe focused on the fact that the growth might have been maybe a little bit slower in that segment than anticipated when [indiscernible] forward look from 4 or 5 years ago. Part of that is just COVID disruption. So I can't really blame anybody for that other than just bad luck, but we've seen growth really start to pick up in the past few quarters. And some of that might be tied into some of the things you just talked about. Maybe you can just provide more color though on really the tipping point to really start to accelerate the growth in that segment here most recently.

Yes, it's a great question. I think historically, maybe 5, 6 years ago, we were really focused working with the federal government. So CMS, HHS, those organizations. We still are very focused in those areas. But that was a primary driver of a lot of our Performance Services business. Really, it was all about supporting our health care systems as they move to pay for performance in those kinds of models. I think one of the lessons learned was that we needed to create more resiliency in our revenue streams in Performance Services and create alternatives to those models. And Steve, that's the reason we've made the significant investment in Contigo and in Remitra and Life Sciences business -- and our Life Sciences business.

And I think the only color I would add to that, Mike, is I think in the core provider space, we have seen a increased demand in some of our health systems for enterprise analytics and wraparound services to really do clinical transformation. And so those can be large engagements that have helped reinvigorate the growth in the core provider part of the footprint as well.

All right. Great. So you also just touched on this a little bit, but leveraging Premier's access to large data sets has been another key component of the growth strategy within the PS segment. Just kind of taking a step back, the way I think about this, I'm curious to see whether you agree or disagree. But when I think about data analytics and health care technology companies, it seems like a lot of the bigger data sets that can be tapped into and repurpose for analytical use come from the payer side of the spectrum. And there's some more restrictions on using data sets from the provider side, I think just could be additional patient privacy laws and HIPAA laws, et cetera. Maybe just talk through some of the different data sets, because you guys have done a pretty good job of still growing a lot of data analytics revenue. But just talk about sources of the data in different use cases of the data sets and how you're seeing demand, which I'm sure is obviously pretty strong, but just to reinforce kind of the sourcing of the data to be able to repurpose for analytical use.

So data has sort of always been central to the Premier organization. If you think about why we were formed, it really was to create scale for health care systems. And one of those areas of scale was to leverage the data of these health care systems to really help them drive clinical performance improvement as well as reduce their cost. If you think about, Steve, to answer your question directly, where do we get our data? And it's a very unique aspect about Premier. So first, we pull data for our -- from the quality systems, from the administrative systems of the health systems. And so we're doing that quite often, some cases every couple of weeks. And some cases on a monthly basis. We pull data for our labor applications from the labor systems. We pull in safety data from the laboratory systems, real time. So we've got a capability to pull in lab data. We pull in, obviously, supply chain data as we have an ERPs, we're pulling in the data associated with supplies. We also pull an EMR data. So obviously, we've got partnerships with Epic and Cerner and Athena. So we pull in and standardized EMR data. And then finally, we do pull, Steve. We do pull in claims data. So we have sources to do that. And what's very unusual about what we do is, it's not just about the data, but we can take that data and we can synthesize it and we can build out use cases to help our health care systems drive performance improvement agenda. And that's been the focus of what we've been doing for years. And I think with our acquisition of Stanson a couple of years back, what we're able now to do with that data is once we have the insights is to take that -- those insights and then write them into the electronic medical workflow or record workflow to drive better clinical outcomes. So those are the critical data sets that we typically work with on a day in and day out basis.

And then we have an entire, as you would expect, process to de-identify the patient aspect of that data that -- so it's protected from a HIPAA standpoint, but still enables the core underlying evidence to support the performance improvement for the health care provider.

Okay. All right. Great. So I think we'll use this next question to bring some of the conversation around to the Supply Chain Services or SCS segment. But really, the question, I think, is valid for both segments. And really just ties into the topic of inflation, which clearly is top of mind for really all investors right now. Maybe you can just remind investors what impact inflation might be having on the business, both positive and negative? And actually maybe talk about that from the viewpoint of both segments.

Yes. So I'll start, Craig, and please that in. So -- as it relates to supply chain, obviously, the big issues with inflation are oriented towards labor and logistics, products that are made from petroleum and those kinds of things. So we are seeing some quite a substantial interest on behalf of suppliers to actually get an increase in price for products that have those kind of characteristics. The problem in health care is that the health care systems themselves don't get higher levels of reimbursements, right? So everybody else in the supply chain can pass along cost increases backwards. But at the end of the day, the payer, the provider doesn't have the ability to find additional funding. And so one of the key tenets of Premier was really to manage inflation. And that's been one of our key focuses over at least the 18 years that I've been here. And it's really all about building out processes and capabilities and contracts to ensure that we manage inflation appropriately. And so we have committees that are made up of our health care systems that make a lot of these decisions. Of course, we're going to bring the data and we're going to bring some different perspective to those committees, but it's really up to those committees as to whether or not they're going to agree to a price increase or agree to some form of some inflationary pressure. So that's number one on the supply chain. On Performance Services side, it's all about the inflation associated with labor cost. And so again, there's -- we've got labor shortages within health care both on the clinical teams as well as on the nonclinical teams. And that's putting a heck of a lot of financial stress on these health care systems. And so we're building out offerings and capabilities to help our health care systems really be as efficient as possible with their labor. We are building out technologies like I talked about using AI and machine learning like prior authorization. So prior off is an incredibly manual intensive process for a health care system or for a provider. And we're building out technologies that can automate that, that can allow for those resources to be utilized differently within the health system. And then the last area is I talked a little bit about Remitra. If done right, and we can automate that e-invoicing and e-payable capability, it will absolutely free up resources to provide other capabilities across the hospital. So Steve, we're constantly building these technologies out, evolving our technologies out to ensure that our health care systems can be as efficient as possible with their labor issues.

Yes. So I think a couple of builds financially, and we've talked about this. But on the Supply Chain Service side of our business in the GPO, given the majority of our contracts do have fixed firm pricing. And so it doesn't prevent someone for coming to ask for a price increase, as Mike described. We've been able to really limit that because of the diligence and the sort of comprehensive process that the supplier needs to go through. And so we have not had a material impact, positive or negative. Sometimes, I think people think inflation should just be a tailwind to a GPO. But again, our whole reason for existence is to not have that happen. So we haven't seen that in terms of managing that. Now there is increasing pressure and more suppliers coming to us. So that's something we'll have to continue to manage, but again it is managed through our clinicians and our supply chain organizations working through that process. Mike didn't highlight this, but the other part of our supply chain business that does have inflationary impacts is our direct sourcing business. And so we are contract manufacturing for product. We are at sort of risk for some of the increased costs for logistics and transportation and things of that nature as well. And our direct sourcing business actually goes through the same GPO process to get a requested price increase. So we have to convince the clinicians and the supply chain executives for the reason for that increase as well. So haven't had a material impact today, but something that we're continuing to manage. And on Performance Services side, Mike talked about the implications to our health care providers. We haven't seen a tremendous impact to our business as a result of inflation on Performance Services to this point. Although, as Mike described, we do think longer term, there is increased demand for our services in that side of the business as a result of the labor pressure that's coming out of it.

Okay. so yes, a lot of moving parts within that on just the inflation topic on the product side, but also on the labor expense side as well. So I guess tying all that together since investors like to compartmentalize and bucket companies in the categories. I mean, with the overall punchline conclusion be that inflation overall is net positive for the company, net neutral maybe slightly net negative or a big net negative. I mean, how would you summarize all that into one punchline directional trend for the company's business model overall?