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spk06: Good day, and thank you for standing by. Welcome to Alignment Healthcare Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephones. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to John Cahill, founder and CEO.
spk04: Please go ahead.
spk09: Hello, and thank you for joining us on our third quarter earnings conference call. We are pleased to deliver strong results through the third quarter as we exceeded our outlook expectations across each of our four key performance indicators. For the third quarter of 2023, our total revenue of 456.7 million represented approximately 27% growth year over year. We ended the quarter with health plan membership of 115,600 members, growing approximately 18% year over year. Adjusted gross profit was 60.6 million producing a consolidated MBR of 86.7%, while our MBR excluding ACO REACH was 85.7%. Lastly, our adjusted EBITDA was negative 8.4 million, ahead of our outlook range. Our third quarter success continues to demonstrate that we are executing against our founding vision of delivering high quality and low cost outcomes through our member-first operating model. This includes strong performance across three key value drivers, growth, utilization, and stars. In terms of growth, our strong intra-year membership growth momentum is a tangible sign that our sales and retention improvements are yielding results. Following our third quarter outperformance, we are raising the midpoint of our membership guidance to reflect 20% membership growth for year end 2023, while also increasing our revenue guidance to reflect 24.8% growth year over year. Further, as I'll share more during our call today, we're feeling confident about our AEP positioning and membership growth outlook for 2024. Regarding utilization, our MBR results in the quarter reflect continued progress in our clinical operations, improvements to our medical management model, and steady utilization performance. Our provider engagement and care anywhere teams enabled by AVA delivered 152 admissions per thousand in the third quarter, despite absorbing higher than anticipated new membership growth. Lastly, turning to stars, we are pleased to announce that 92% of our health plan members are in plans rated four stars or above for 2024. This significant achievement is a testament to the quality of our member experience delivered through the seamless relationship between our internal team and our external providers. Each of these achievements demonstrate the power of having a purpose-built MA platform, which unites the best-in-class technology with integrated member experience and provider engagement. Expanding further upon our STARS results, our four-star California HMO contract rating marks the seventh consecutive year in which our largest contract has achieved at least four out of five stars. Our strong result is particularly notable this year as the percentage of members and plans rated four star or better fell from approximately 80% to 55% across our California markets. In 2025, many competing plans will now face declining stars payments and the phased-in effects of the new V28 risk model. Amidst this environment, we will continue to capitalize on our relative funding advantage and our high-quality, low-cost operating model. Outside of California, our North Carolina and Nevada markets will have four-and-a-half-star rated contracts. As we continue to grow in our new states, we are driving continued improvements in star ratings by doubling down on our support with doctors across these regions to create a seamless experience for our providers. Turning to AEP, we are pleased with our results for the first two weeks of AEP, and we expect to grow January 1st membership at or above 20% year over year. For the 2024 plan year, we once again enhanced our portfolio of curated products supported by the strength of our stars and cost management capabilities. While many of our local competitors have declining or flat benefits, alignments, low-cost position and commitment to quality and product innovation enabled us to fund increased benefit richness across all of our flagship plans for 2024. Specifically, we are excited to share that 95% of our non-SNP members have the same or lower maximum out-of-pocket costs and monthly premiums. with expanded dental allowances across many of our plans. We also curated our selection of products to address the distinct needs of seniors everywhere, whether it's a health-conscious member who values direct savings or someone in need of more dedicated care regime. Further, the recent collaborations with leading household brands like Instacart and Walgreens exemplify our drive to integrate innovative solutions into the healthcare landscape. This is just a sample of how our pioneering and disciplined approach to product design leads us to be optimistic about 2024 membership growth. We look forward to providing you with a more fulsome update on our AEP results in early January. In conclusion, our year-to-date progress reinforces our confidence in achieving our 2023 guidance, our 20% growth target in 2024, and an adjusted EBITDA break-even result next year. Now, I'll hand the call over to Thomas to cover the third quarter financials, as well as our outlook for the remainder of the year. Thomas?
spk05: Thanks, John. For the quarter ending September 2023, our health plan membership of 115,600 members increased approximately 18% compared to a year ago. The year-over-year improvement and outperformance against guidance were led by both sales and retention improvements, as investments made earlier this year on our sales infrastructure increased distribution, and member experience began to take hold. Our favorable membership growth, combined with sustained revenue PMPM performance, drove our third quarter revenue to $456.7 million, representing approximately 27% growth year-over-year. Year-to-date revenue grew approximately 27% year-over-year and grew approximately 22%, excluding ACO REACH. Adjusted gross profit in the quarter was $60.6 million, reflecting an MBR of 86.7% or 85.7% excluding ACO REACH. As John mentioned, our results in the third quarter marked our second quarter in a row where inpatient admissions per thousand ran in the low 150 range. Continued strength in our performance was supported by strong member engagement with our clinical programs and stable underlying utilization trends. SG&A in the quarter was $83.1 million, Excluding equity-based compensation expense, SG&A was $71.3 million, an increase of approximately 19% year-over-year. SG&A excluding equity-based compensation expense as a percentage of revenue decreased year-over-year by approximately 100 basis points in the third quarter and 180 basis points year-to-date. Taken together, our adjusted EBITDA of negative $8.4 million was better than our expectations heading into the quarter. Moving to the balance sheet, we remain solidly positioned and ended the quarter with $515.6 million in cash and short-term investments. Our cash balance at the end of the quarter again included an early payment from CMS of approximately $146.3 million. We recorded the early payment as deferred premium revenue in Q3 and will recognize it as revenue in Q4. As a reminder, this does not have any impact on our income statement metrics. Cash and short-term investments, excluding the early payment, were approximately $369 million. Turning to our guidance, for the fourth quarter, we expect health plan membership to be between 117,600 and 118,600 members, revenue to be in the range of $422 million and $442 million, adjusted gross profit to be between $46 million and $54 million, and adjusted EBITDA to be in the range of a loss of $18 million to a loss of $10 million. For the full year 2023, we expect revenue to be in the range of $1.78 billion and $1.8 billion, adjusted gross profit to be between $206 million and $214 million, and adjusted EBITDA to be in the range of a loss of $34 million to a loss of $26 million. On the back of strong third quarter performance, we are once again increasing our full year 2023 membership guidance and raising our full year revenue guidance. Our latest membership and revenue guidance reflect 20% and 24.8% growth at the midpoint, respectively, consistent with our long-term objective to reliably drive 20% annual growth. Meanwhile, our narrowed adjusted gross profit guidance range for the full year implies an NBR of 88.3% at the midpoint, roughly unchanged from our prior outlook. Our latest guidance reflects MBR tailwinds from our strong year-to-date outperformance and utilization, balanced by a higher mix of new members in the fourth quarter. As a reminder, our year-end membership outlook has increased by 4,100 members at the midpoint relative to our initial guidance, and new members typically start at higher MBRs as we ramp up our clinical engagement activities. Additionally, we are reinvesting some of the year-to-date favorability towards certain clinical and annual wellness visit activities in support of our 2024 objectives. Lastly, our adjusted EBITDA range of negative 34 million to negative 26 million now implies a 200 basis point year-over-year improvement in our implied SG&A outlook as a percentage of revenue. This includes incremental SG&A from the ramp-up of resources to support our anticipated January 1st growth. As John mentioned, we are pleased that the strength of our product positioning is translating into solid performance during the first two weeks of AEP, and we expect to deliver January 1st membership growth at or above 20% year-over-year. To wrap things up, our year-to-date results continue to demonstrate the headway we are making towards our long-term growth and profitability targets, and we look forward to updating you on our AEP results in January. With that, let's open the call to questions. Operator?
spk06: Thank you, sir. As a reminder, to ask a question, you will need to press star 11 on your telephone. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And I show the first question comes from the line of John Ransom from Raymond James. Please go ahead.
spk08: Hey, good afternoon, everybody. Just thinking long-term, I know you've got some long-term margin goals that look a little bit more like a traditional MA. Where you sit now, what kind of revenue and or membership do you think you need to get to get to those longer-term margin goals?
spk05: Hey, John, this is Thomas here. The way we would think about that is a function of not just a certain level of membership or revenue, but additionally taking into consideration the pace of our new market expansion initiatives over time. just given the drag on profitability, both MBR and SG&A that a new market has. And so, for instance, I think if we were to focus on only driving market share gains in our existing geographies and not add a single incremental county or new state over time, I think we could likely reach that goal faster. I think given the value proposition of extending our care model and kind of capturing some of that growth opportunity outside of our distant geographies means we will likely continue to add new markets looking out into maybe 2025 or 2026. And so I'm not sure we're going to draw a line in the sand on a certain revenue or membership target. I think that's how we sort of think about the main drivers as to the pace of that over time.
spk10: Thank you.
spk06: Thank you. And I show our next question comes from the line of Scott Siddell from Stevens. Please go ahead.
spk03: Hi, thanks. Good evening and nice to be joining you all on the call tonight. Question, just appreciate the initial color and visibility into the growth in the AEP and just be interested if you can break that down a little bit more in terms of what you're seeing in terms of growth from traditional individual MA as compared to to D-SNP and then maybe some observations on sort of how the growth is looking in the core California market as compared to your other markets. Thanks.
spk05: Scott, happy to provide some color there. So we're obviously a little over two weeks in now, and I'd say what we're seeing so far is generally consistent with our expectations heading into AEP. So we've shared in the past that we see a significant growth opportunity across our counties in California. and that will likely continue to be the largest driver of our overall net membership growth looking out into 2024. Based on the first two weeks of results, I believe that will continue to be the case, and you'll continue to see that be the largest driver looking ahead to next year. Outside of California, it's probably a little too early to provide too much commentary, but we're seeing some pretty solid progress across most markets, and we're excited about what that means for our 2024 setup. In terms of our product mix, as John mentioned in his section, We really try to take a balanced approach to design products for different populations across the acuity spectrum, across the income spectrum, different products tailored for different ethnicities. And the idea is that we really want to have a product offering that meets the needs of really every type of senior consumer. And so I'd say what we've seen so far is a pretty balanced level of growth across our different types of products. To your point, we do have about 30% of our members today that are dually eligible. and we've enhanced some of our C-SNP products heading into 2024. I think we'll see some nice growth there. But we've also designed products on the other end of the spectrum, looking at products that are more cash-rich or rebate products that tend to attract a younger or healthier senior. So we're really seeing nice traction across the board, and we'll continue to try to drive a balanced mix of growth across all products in the future. Okay. Thank you.
spk06: Thank you. And I show our next question comes from the line of Nathan Rich from Goldman Sachs. Please go ahead.
spk07: Hey, good afternoon. Thanks so much for taking the questions. John, I wondered if you could maybe provide a little bit more color on the relative funding advantage you called out, I guess, particularly in California and maybe where you invested in the business. And, you know, I guess as it relates to retention as well, you know, what you're expecting for 2024 relative to 2023, I think you saw some improvement this year that helped. So just be curious what your expectations are for next year. And then just as a follow-up, you know, how should we be thinking about MBR next year just in light of the growth expectations that you have that should result in, you know, what seems to be some market share gains? Thank you.
spk09: Yeah, sure. Hey, Nate. Good to hear from you. With respect to the relative funding advantage, what I'm really talking about is the revenue PMPM associated with STARS. And obviously, that's going to be something that impacts everyone in the sector on the STARS that we just were notified on heading into 2025. But I think that combined with the V28 risk model changes, And the two together we think are material advantages to us. And so what I mean by that is getting the stars advantage is pretty significant. I think we're one of four health plans in California that have four stars or higher. And two of those other health plans are essentially vertically integrated health systems. And the third one is really interesting. Got a four-star rating, but only 20% of their membership actually resides in California. And the H number is actually outside of California. And so the significance of that is that the way in which we work with our delivery system is a competitive advantage. It's all about provider engagement and making our contracted provider network more successful than whether that's in the form of IPAs, medical groups, or directly contracted providers. And so that's starting to manifest itself through the star ratings. And I think that's going to continue to be just a competitive advantage. On V28, you know, we've said this before, we have not run the business at a, you know, a very high RAF number. We've been very, very conservative and compliant. And we'll continue to do so. And I would say others have been more aggressive. And I think the relative advantage we have with some of the headwinds on V28 are significantly to our favor. Those two I would expect to be reflected in the upcoming, not only in the upcoming 2024 bids for 2025, But also, we predicted a lot of this in the 23 bids for 2024. And it's starting to all manifest itself. The last thing I'd say is kind of the financial discipline we've exhibited to protect margin is going to start paying off. And I think that's one of the underlying reasons why I feel so confident that we're going to get to our margin profile and get to at least EBITDA break even next year. Those are the two big drivers. And our bid strategies were spot on. And I'm feeling very, very comfortable with where we are two weeks in. And we'll share a lot more in January. Does that help, Nate? Did I answer all of it? Did I miss one or two?
spk07: Um, no, that, that, that's helpful. Maybe just, um, a follow up on just the, the MBR and how we should think about that next year. Any kind of early thoughts?
spk09: Yeah, no, I think we're going to make, well, two things that, yeah, I think we're gonna make incremental improvements on retention. You know, I think we, we signaled earlier in the year that we had some abrasion with some supplemental vendors. I think we've addressed all of that, cleaned all that up. It's already starting to show in all of our, uh, just member satisfaction metrics and retention metrics. So I would expect us to have continued improvement in that. And in MBR, there's a lot of initiatives that we are undertaking, both that are EVA-centric, meaning more refined stratification models, more consistent stratification consistency, higher degrees of engagement with our Care Anywhere levels of engagement. I would say continued focus on the mitigation efforts associated with V28. So our risk adjustment, we're going to get that, the mitigation offsets, operational workflows. So all of that, and I would say also this whole notion of just having more doctors talking to doctors. We've already proven, I think, again, through STARS and some of the shared risk MLR that we've got, we're working with these IPAs really well. Like we're setting ourselves apart from everybody else that we're making it work and supporting IPAs that we don't own. We contract with them. And the next logical step for us is to work closer with some of the doctors that want to work closer with us to have even higher degrees of performance management. I think those two things, given me a lot of optimism for even improved MBR performance heading into 2024. Now, I would say, you know, we've got to focus on the members that we have in 2023 and, you know, kind of the members that have been longer with us for a year. Obviously, we're going to continue working on the MBR of the newer members as well. But overall, I feel very, very good about just every operational part of the company right now.
spk07: Great. Thanks very much for the caller.
spk09: You got it.
spk06: Thank you. And Aisha, our next question comes from the line of with from Learing Partners. Please go ahead.
spk04: Your line is open. If you have your phone on mute, please unmute your line.
spk02: can you hear me now? Yes.
spk09: I don't know.
spk02: I had set problems. Um, um, I had a question just on stars and, um, I mean, it was kind of an exciting star season for everybody. Um, and just looking at the, the new numbers, um, I mean, I think you guys may be tight, um, on at least one of your contracts. And I just want to hear kind of what you were happy with, not happy with, um, any initiatives you have underway to, uh, you know, ensure that you retain the four-star designation, whether focused on caps or anything specific you'd like to call out?
spk09: Yeah, hey, Wade, it's John. Yeah, no, we're happy with what was just announced for the 24 stars. And, again, I think the new methodology, the two-key methodology, was tighter for everybody across the board. And so I'm just very happy about that. You know, for dates of service in 2023, I feel even better positioned than I did earlier in the year about dates of service in 2022. And a lot of the initiatives that we've taken on administration, on HEDIS, and then Part B, I feel very comfortable with. And then CAPS, obviously, is something that we've had challenges with. And it's, I think, central to some of the initiatives we're focused on in terms of provider operations and provider engagement. Not just IPA management, which I think we do a very good job of, and we support the IPAs, but also working with some of the underlying doctors and making sure that their success and performance metrics continues to improve And so I feel good about the initiatives with undertaking and caps But I got to tell you with what I have seen thus far in terms of all the other Measures and we're basically tracking Numerators and denominators for every single measure on a daily basis so that we can ensure that gaps get closed on a daily basis and I sit in on a lot of these conversations and So I see it live. I'm very comfortable. We're going to be four stars or more and really I'm pushing people to get higher. That's, that's kind of the mode that we're in.
spk02: Okay, good. No, that's, that's helpful. And second question, just maybe just an update on broker strategy. I know you guys have really tried this year to tie up tighter with a number of brokers. I don't know, market like Texas or something kind of comes to mind. Just, feedback, feeling better or worse after seeing other plan offerings that are out there? How do you feel about the progress you're making?
spk09: Yeah, a lot of tailwinds. And again, it gets back to some of the just kind of comparative benefit advantages that we have that I think are a result of what I said earlier, tailwinds with respect to stars and tailwinds with respect to V28s. It all manifests itself in your product strategy, and we have very strong products. If you have very strong products and you have the operational sales control that I think we have in place now with respect to distribution, we're getting very, very good results from the broker community. And the quality of the brokers, the compliance of the brokers has been very good. And we need five-star brokers. If you're not a five-star broker as measured by CTMs and just general satisfaction, you're not going to work with us. It's really just implementing and enforcing that. So I'm very happy with that. I would also really shout out our sales leadership and sales operations teams have done a very good job this year. It's just, it's at a level of just kind of organization and control and visibility and transparency. All of it's very, very good. So again, I'm very optimistic about that. And again, I think that shows in the first couple of weeks of AUP. And that momentum is, I keep asking every day, you know, is that momentum continuing? And people are saying, yeah. So we'll see what happens, but so far, so good.
spk06: Okay.
spk09: Thanks, guys.
spk06: Thank you. And I show our next question comes from the line of Jessica Tasson from Piper Sandler. Please go ahead.
spk01: Hi, guys. Thanks for taking the question. So I wanted to ask just, we know alignment was kind of first on the debit card supplemental benefits. Can you just discuss any areas of innovation for 2024 and just what would you expect the members Or how would you expect membership mix shift as a result of that supplemental benefit innovation?
spk09: Yeah, hey, Jess, it's John. No, we're pretty excited about a couple of announcements that we've made. One is with Walgreens. We've got some co-branded plans and select markets with Walgreens. That is going exceedingly well. The brand name is helping us a lot. The brokers love it. And then the other one I would call out is Instacart, which is very, very innovative. And we're looking to deepen relationships with them across more geographies. But kind of introducing Instacart as a primary grocery benefit is very innovative. And we have bulked up. some of our resources and our member experience teams to ensure that we can navigate and help our members through that. And so far, the early indications are very positive. People love it. And once you kind of get the hang of using the app and navigating the app, they really love it. So that's That's something that I think you're going to see more and more of this kind of retail technology convergence with benefits design. And I think when you kind of combine that with the degree of service that we provide them, which I'm super happy with, you know, there's this kind of promise of convergence between health insurance or traditional MA health insurance with senior lifestyle and kind of health, social determinants of health. You can see that convergence starting to, I think, materialize.
spk01: That's really helpful. I guess just one quick follow-up there. On the Instacart benefit, do you have any more visibility into purchasing patterns or just better control over kind of discounting relative to a retail store? And then just a follow-up would be on the community center in Southern California. Just interested to know kind of what is the plan there, and is that a one-off, or is the intention that those types of centers expand across markets? Thanks, guys. Appreciate it.
spk09: Thanks, Jess. Yeah, the first one, a little bit too early, but we will share that once we get through AEP and get you some metrics on Instacart. I think that's a good question. with respect to the Laguna Woods Retail Center, that has been met with a huge amount of positive feedback from the community. And so I think you're going to see us have more of these, I would call it mixed-use centers that would not only necessarily be concierge centers, but also be clinical centers. So it's a little bit of a hub-and-spoke model, if you will. But in either case, we're finding it to be positive that if you have the bulk of the engagement, particularly around that chronic patient at the home through our Care Anywhere models, that's still the most capital-efficient, most effective way of serving the needs of these folks. But we're also finding Having a physical presence that people can actually see, a big sign that says alignment, and they can go in and just get all of their questions answered. They can go in and have an annual wellness visit. It's not only going to be kind of a branding advantage, but it's going to, I think, accelerate the degree of engagement that we get on the clinical side. And just before anybody goes too crazy, it's just like we're not going to be doing a whole bunch of bricks and mortar. We're not doing that. I think that's very expensive. But in select markets, I think you can expect us to do that, see us do that.
spk01: Got it. Thank you so much.
spk09: You got it.
spk06: Thank you. And I show our next question comes from the line of Adam Ron from Bank of America. Please go ahead.
spk10: Hey. Thanks. I just wanted to ask a question about the guidance update. And I know you mentioned that, like, the implied MLR is pretty similar to what it was before, but it did go up a bit. I just want to clarify that that's related to basically new membership outperformance and the higher MLR on those new members. And then I have one quick follow-up to that.
spk05: Yeah. Hey, I'm Thomas here. Yeah, I think that's exactly right. So particularly coming out of the third quarter with the favorable utilization that we've been able to achieve year to date, we also invested a few million dollars and plan to invest a bit more heading into Q4 regarding some of our clinical engagement in annual wellness-based activities, which is really about setting us up for a successful 2024 and beyond. To your point, we also then added that we did raise our guidance for the full year by 4,000 roughly members at the midpoint, which, as you know, our year one members typically do have higher MBRs than our loyal or returning members. So that's the second part of the driver. But I would think about it as favorable outperformance and utilization, essentially funding a lot of these investments that we're making to set us up for a successful 2024 and then the incremental growth on top of that.
spk10: Makes sense. And then I guess following up on the discussion from last quarter, we're like nationally payers and MA had problems with utilization and you weren't really seeing it, but now that, you know, you have more claims data from like May and April and the time period from when payers are really worried about utilization. Is there anything that you're seeing that's similar to that commentary or you're still really just having a different experience from, from all the other public companies? And, you know, if so, what is it just geographic, like geography that would explain the difference or. Or what else would you point to?
spk05: Yeah, so from an outpatient standpoint, similar to our comments last quarter, we have not seen a considerable increase in 2023 relative to our 2022 experience. So I think on a year-over-year basis, our overall outpatient claims PMPM are up in the low single digits, again, kind of within the realm of our expectations heading into this year. I think our kind of theory as to why that is is twofold. So I think first of all, you know, we saw a pretty considerable increase in our outpatient spend in 22 relative to 2021. And so I think to a certain extent, perhaps based on the markets we're in or other factors, I think we saw some of that return maybe earlier than others. And that was kind of captured as part of our run rate in 22 heading into 2023. I think additionally, while a lot of our focus with Care Anywhere is on those chronic complex members who we have the opportunity to really improve things like unnecessary or avoidable hospital admissions, improve the readmission rates and things of that nature, I do think there's obviously some benefit with our broader clinical model and provider engagement efforts. that helps on the outpatient side as well. It tends to be less of a material driver where we generate the savings, but I think that's a tailwind for us relative to many of our competitors. Awesome. Thanks.
spk06: Thank you. And I show our last question comes from the line of John Ransom from Raymond James. Please go ahead.
spk08: Hey there. Thanks for the follow-up. There's been some industry trade chatter that hospitals are dropping MA plans and it's getting harder to assemble networks. How has your go-to-network strategy either changed or not changed in light of some of that, or do you think that's overblown?
spk09: Hey, John. It's John. I'll take that one. Yeah, no. There's been a lot of public scrutiny around this topic where you've had health systems that that have entered into global cap arrangements with different payers exit the business, and they're just not taking global cap anymore. And in the conversations that I've had with many of the health system CEOs, they are concerned about the headwinds associated with STARS funding and B28 funding. When you're taking global cap, and I've said this from the get-go, you've got essentially two insurance companies within one supply chain because there's not enough money to go around right now. And so that's why a lot of these health systems are getting out of it. And the other problem that the health systems have right now is access and capacity problems, meaning a lot of the branded kind of A, what you all consider A-tier health systems, are running out of space. There's so much demand because the brand is so strong. And so what's interesting is a lot of them are approaching us where their solution is not to just take global cap. That's not what they want to do. Rather, what they want to do is actually leverage Ava care anywhere and lower senior admissions into their hospitals. And in turn, replace those admissions with commercial admissions. admissions, which are, frankly, just better funded. So I think, thematically, that's going to be a trend you start seeing as a growth opportunity there. And I think one of the things that they've commented to us is some of the larger national folks, the long-term viability of working with some of these folks is really challenging for them. And so I would see that trend continuing across the board, you know, kind of geography, you know, agnostic. I think it's a consistent theme that I'm seeing everywhere. I don't know if that answers your question, Joe.
spk08: That's not what I was expecting. That's interesting. So just to tack one more on, ACO Reach, is that ever going to be any kind of material profit driver? Do you think the government has made that program attractive enough for it to fade in, or is it just going to be one of these little Another one of these Medicare programs where the government saves money, but nobody makes any money participating.
spk09: Well, it's hard to underwrite it. I mean, we've been consistent with that also. We think it's probably a pretty good program for physicians, kind of as an onboarding and on-ramp to value-based care. But it's hard to underwrite it when they reset the benchmark every year. It's just like it's kind of a, I don't want to say it, but it's kind of a race to the bottom, which is why we have not deployed capital like some of the others. I've kind of seen that before. So I do think it's important to have it as a part of our portfolio simply because we want to help doctors. And so a lot of the doctors that we have good relationships with, do have a component of either an MSSP or ACO REACH or, you know, just kind of some form of ACO program and DCE program. And from a workflow point of view, we don't want it to be different than the MA book. So we're helping them, you know, just provide better care and have better economics. But for us, I'm not sure it's something that we would we would underwrite.
spk08: Thank you, sir. That's it for me. Thanks.
spk06: Thank you. I'm showing we have one more question in the queue. That question comes from Scott Fidel from Stevens. Please go ahead.
spk03: Thanks. And I guess since John started round two, I'll tack on there. And actually wanted to get your view, too, on one industry level, just dynamic that that's sort of where California has been a bit more of the tip of the spear recently, just in terms of, you know, sort of the union dynamics where we saw Kaiser agree to this new contract and then the minimum wage bill that was approved for health care workers. And definitely interested in how you're sort of factoring that into your thinking on the you know, sort of upcoming unit cost and negotiations with the systems out in California. Not really, I guess, as much for 24, but even thinking more for 25 and 26. Hey, Scott.
spk05: Thomas here. I guess there's kind of two parts to how we might think about that. So, the first is, in terms of its direct impact on our clinical workforce, the impact is generally negligible just given the level of nurses and doctors that we employ across the state. So not something that we view as a major driver of our kind of 25 and beyond outlook. I think in terms of your point on how that may eventually flow through to our conversations with hospitals, we typically are contracting with hospitals on a percentage of Medicare basis. Typically it's 100% of Medicare. And so the way it will work for us in general is As those hospitals are getting pressure, we often see that that leads to greater levels of Medicare rate increases, which flows through to our contract, to your point, but it also flows through to our revenue benchmark. So I think in general, our kind of contracting approach is pretty well insulated from some of those dynamics over time. Okay. Thank you.
spk06: Thank you. That concludes our Q&A session and today's conference call. Thank you all for attending. You may all disconnect at this time.
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