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

Okay. Great. A historical 8-K indicates that the Greater New York Hospital Association contract is priced somewhat lower from a fee share perspective than the rest of the book. Can you just help us understand how to think about the historical pricing of that contract? And whether that -- those contracts have grown in line with kind of the rest of supply chain services or net admin fees?

I would say that the Greater New York book of business has grown in line with the rest of the Premier membership in terms of just the business. Fee share, as we've renegotiated, we have seen higher fee share on renewals than at the time of the original agreement. But again, it does vary based on the size and scale. Similar to Premier, Greater New York had members of all sizes. They had obviously the very large health systems here in the city, but they had members all around the Greater New York area and the tristate area. Some smaller that don't command that level of fee share.

Okay. Great. And I just -- this is sort of my final question on the Supply Chain Services part of the business. Historically, Premier was priced slightly below market. I think you guys have migrated to be in line with the market. By FY '26, FY '27, are you kind of exactly at parity with competitors? And any additional concession -- you're not -- you're no longer vulnerable to additional concessions? Can we conclude that?

Well, I will just say there really isn't a market because we are different businesses. So if you think about Premier, we have a pretty robust technology organization that we will often create value with that technology organization that maybe some competitors can't. So when Craig and I say there really isn't a market, there really isn't sort of the standard that everybody goes to because of the value that you can create outside of just providing GPO services and an admin fee share back. So just one example of that is our focus really on -- really creating true value around e-invoicing and e-payables. We have a very, very unique solution that helps health care systems centralize the way they actually do invoicing and do payables, provides a ton of value to them in terms of cost takeout, cost efficiency and those kinds of things, when you can technologically automate those processes. So those are things that we add in addition to an admin fee share back. Hence the reason Craig and I always say, there really isn't a market because we will be providing other technologies and services as well.

Yes. And the only thing I would add to that is that with the market dynamics and the pressure that we are seeing from competitors at times, not in all cases, but it is putting pressure on fee share as well despite us having a differentiated value. I think that as we renegotiate agreements, if we do see fee share increase, obviously, as that happens, it is only eliminating the ability for them -- for competitors to differentiate only on fee share.

Right. Okay. That is very helpful. I wanted to just ask, any change in kind of the scope of the GPO contracts, either that you've observed or that is your intention? Or should we expect purchasing to kind of grow low to mid-single digits over the long term in aggregate?

Yes. Strategically, our focus continues to be through technology enabling the entire supply chain is to capture more spend. We actually do see today. So it's not a change as we move forward. But when we actually are winning new members from our competitors, we see a greater level of spend coming through our GPO contract portfolio than what they were purchasing historically. But that's not -- that's been intentional through our process of technology enabling to actually identify off-contract spend to make sure there are opportunities to move it and to have a broader contract portfolio to enable that. So I wouldn't say it's a different trend, that's a historical trend that we will continue to try and administer. Overall, just given market dynamics, we would expect overall GPO spend to continue to be in that low to mid-single-digit growth. But obviously, our focus is on how do we continue to capture more and more of that.

Okay. That's really helpful. And final question on SCS, just does net admin fee kind of flow through at either incremental or decremental 100%-ish or so EBITDA margin? And then are you all contemplating any OpEx cuts to kind of offset some of that pressure?

Yes. I mean the nature of the GPO business, obviously, is you've got the manufacturing line of generating the contracts and then access into the contract. So by default, it is effectively all incremental margin. There's not a lot of variable costs associated with driving an additional dollar of purchasing through the GPO. Having said that, we will continue to be very focused on managing the infrastructure. It is, in large part, the rationale for the technology enablement again. So that you're eliminating manual process that is more expensive to actually administer the program. We have already been taking costs out over the past couple of years recognizing this trend. So I wouldn't say that there's a large amount of additional operating expense leverage we can get out of that side of the business.

Okay. That's very helpful. So I want to move on to Performance Services. In terms of business mix, how much of Performance Services is kind of core provider services? And how much is adjacent markets, Remitra, Applied Sciences, CDS, Contigo? And anything I'm missing in that list?

About 3/4 of our Performance Services segment is what we would call core health care provider business, and then about a little under 1/4 is the adjacent markets, which, as you indicated, is our Applied Sciences, Clinical Decision Support, Remitra and Contigo.

Okay. Great. And then maybe which of those businesses are kind of multiyear recurring or high-visibility revenue? And then how much is kind of transactional or engagement-based?

Yes, really, for all of the business in Performance Services, it's a mix of both. So it's not that there's a distinct one or the other. So within our Performance Services health care provider market, we have our core technology assets. A large portion of those, either SaaS-based or license agreements, are long-term contracts more so than episodic within our advisory services component of the health care market, which is consulting. Again, we have a combination. A lot of it is regular consulting, which is more ad hoc as you go. But as part of the larger engagements Mike talked about earlier, when we do an all-in engagement with a member around Supply Chain and Performance Services, that can be a long-term labor expense project over multiple years in order to help the health care provider improve their performance. We also have what we call performance collaboratives in that part of our business, which you should think of as subscriptions, like a 3-year program, to actually access and improve a particular objective, be it participation in accountable care organizations or bundled payments or things of that nature. So that's the health care provider side. As you look at the adjacent markets, it is a combination. So in life sciences, as an example, I won't run through every one of them. But in life sciences, as an example, we have long-term engagements. We announced a big engagement to help a very significant life sciences company with a clinical trial. That is a 3-year contract. So it's recurring for the next few years. And then we also do ad hoc sort of data extracts and individual projects that might be shorter in duration. That applies for all of those businesses. Remitra is more of a longer-term recurring type business given the nature of the transaction of that piece.

Okay. That's helpful. I do have just a quick one on Remitra. But first, I wanted to ask you, I think you've spoken to low to mid-single-digit kind of core growth in Performance Services, 20% plus in adjacent services. How much visibility do you have into those growth rates? Maybe entering the year, what's the level of visibility? And how much is kind of go get?

Yes. That's a great question. So typically, when we enter a fiscal year for Performance Services overall, we have between 70% and 75% visibility to the full year revenue. It does vary by those subcomponents of the business. So for example, in the technology aspect of the provider market, we're probably in the mid-80s in terms of visibility for the year. Our advisory services, which is a consulting business, historically would be more like 50% visibility. I will say coming into fiscal 2024, and we actually talked about this a couple of quarters ago, we had more visibility coming into '24 than historical. So it was actually about 80% visibility to the advisory services part of our business for this year. As you get into the adjacent markets, some of those are more nascent in nature. So you would expect there is not as much booked under contract moving forward. So Remitra and Contigo as examples would be more in the 60% kind of visibility range. But overall, 70% to 75% is under contract and in place for the year.

That's very helpful. I don't know that I appreciated you had higher visibility on the consulting side into 2024 -- or FY '24. So that's helpful. Can you give us a sense of just how many of your GPO members kind of subscribed to either a core provider service or an adjacent service? And what's the opportunity to attach a Performance Services contract to some of your GPO renewals as kind of a condition of the repricing?

Yes. So broadly speaking, about 1/3 of our membership is Supply Chain Services only, primarily GPO; about 1/3 is actually Performance Services only; and then about 1/3 is actually in between. So leveraging across both parts of the business. That has inched up over time as we do continue to focus on it in terms of the types of business that we're delivering. Relative to your last question, we absolutely tried to bundle everything in. Mike talked about that earlier as a differentiation that we have. I wouldn't say it's a condition of a renewal, but it is absolutely an intention. And strategically, we have been able to prove with data when we show members, the more they engage with us, the better their performance from both an outcome and a cost standpoint. And so some people might ask the next logical question, which is why is it only 1/3? Why isn't everybody using everything across both your businesses? We have very, very long-standing relationships with a lot of these health systems. Some of them know us for 20 years at what we did. They were supply chain customers. That's what they do. We do have a large footprint. Some smaller rural community health systems around the country that don't have the bandwidth necessarily to subscribe to some of the clinical capabilities. They're more focused on just keeping their doors open and delivering supply chain every day. So there are lots of reasons, but it is a focus to absolutely try and further engage with them every day.

And I do think it's a pretty unique aspect around our business model. And that as we think about creating services for those health care systems, we have many opportunities to sit down with those health care systems. As many of them participate in either the governance of the organization or they provide an advisory sort of role to the governance of the organization, where they're sharing with us what the issues are that they're dealing with, what kinds of technologies they think they're going to need to drive efficiency, higher levels of quality, move to more value-based care kind of payment models. So where we sit, obviously, we have the ability to continue to create or change the offerings that we have to meet their needs on a pretty regular basis. And that changes quite a bit. As we have seen in health care, a significant focus more towards labor just because of what's happening in the labor markets and the high cost of labor as we come out of COVID. So many of our activities are really focused on building out labor extenders for the health care system. So technologies, as I said with Remitra, and I think you have another question on Remitra, how do we centralize invoicing across the health care system that will reduce the amount of labor costs associated with actually providing that invoicing capability? Or if you think about things like prior authorization, where you have clinicians that are doing chart reviews and those kinds of things to do approvals, to look at authorizing procedures going forward, to the degree that we can use technology to enable that process as opposed to having manual efforts, we're going to continue to build out those kinds of capabilities.

One thing I would add because you asked about this, I just want to clarify. With respect to the adjacent markets business, a large -- actually the majority of that -- of those businesses is actually outside of the provider market because it's actually adjacent. So it's -- in the life sciences business, it's actually with life science and medical device companies as opposed to providers. So we're leveraging the data and capabilities that we get from providers to go to that market, but that revenue and that opportunity to grow is actually with other stakeholders. Contigo is with employers, although there's a piece where we actually do try to go to provide capabilities for payviders, which are health systems that are actually operating health plans. Remitra is both suppliers and members, and then our clinical decision support business is automating prior authorization for payers. But there is also an HCC coding accuracy component of that business, which would apply to providers as well.

Okay. That's very helpful. So my Remitra question may have to wait until your next earnings call. But Mike, I want to wrap with your first 2.5 years as CEO were marked by half of pandemic, a couple of tuck-in acquisitions and a comprehensive strategic review. Considering all these events, what have you learned about your customers? And how is Premier kind of poised to create more in value in FY '24, FY '25 than ever before?

Yes. I think our -- what I've learned is that it's an incredibly dynamic market. A lot of pressure on health care delivers. As I said, over my last couple of minutes of conversation, our focus is really going to be focused on technology enablement of services and processes, specifically in supply chain and performance improvement for our health care systems to help them obviously drive more efficiency, reduce costs, again, improve quality and safety and then help them as their journey on to moving to value-based health care delivery.

Awesome. Thank you very much for the time both of you.

Thank you. Appreciate it.

And look forward to the F 2Q call. And catching up on Remitra then.

Thank you. Appreciate it.