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spk02: Good day, and thank you for standing by. Welcome to the Clover Health's first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's prepared remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Derek Newman, Head of Investor Relations and Corporate Strategy. Please go ahead.
spk05: Good morning, everyone. I want to introduce myself as this is the first earnings call as the head of investor relations and corporate strategy at Clover. And I wanted to express how excited I am about the opportunity here, as well as Clover's opportunity to make healthcare better. With that out of the way, thank you for joining our call today, where our CEO, Vivek Garipalli, our president, Andrew Toy, and our CFO, Joe Wagner, will discuss first quarter results and answer your questions. Note this call is being recorded. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risk and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8 file today containing our earnings release. Information about any non-GAAP financial measures referenced, including a reconciliation of those measures to GAAP measures, can also be found in our SEC filing and the earnings materials available on our website. With that, I will now turn over the call to Vivek.
spk08: Thank you, Derek. Welcome aboard, and thank you, everyone, for joining us today. We founded Clover to improve every life, and every day that passes brings us one step closer to that goal. We entered 2021 with strong momentum and continue to execute. Today, Clover is partnering with physicians to care for more than 130,000 individuals. That is nearly double the number of lives we had under management on January 1st. From the outside, we look like a typical health insurance company. From the inside, Clover is building and employing technology to refocus health insurance on improving patient outcomes. Our unconventional approach aligns interests and incentives so that healthcare puts people first. That's why we developed the Clover Assistant, disruptive technology designed to drive systemic change on a nationwide scale. In particular, the Clover system lets us bring equitable care to a broad and diverse community. We were recently interviewed by the National Committee for Quality Assurance, which is conducting a study with Rand on behalf of CMS's Office of Minority Health on strategies to drive the delivery of equitable quality care. They contacted us because of preliminary evidence showing our plan's strong performance on a prototype of the Medicare Advantage Health Equity Summary Score, or HESS for short. This is a newly developed measurement tool for identifying plans that do well at providing high-quality, equitable care to their members, including groups who are disproportionately affected by social risk factors. As a reminder, at the end of 2019, CMS data showed that approximately 50% of our members identified themselves as being of minority descent, which is substantially higher than the percentage of individuals who identify as minority in Medicare Advantage overall. CMS has stopped collecting and collating data on race and ethnicity, but we have no reason to believe that those figures have meaningfully changed. Thankfully, this new HES score, we believe, acknowledges the unique challenges in serving members at higher social risk and rightfully prioritizes health equity. We have consistently advocated that CMS reform its star rating system to better account for social risk factors and are hopeful that CMS will incorporate HES scores or something akin to it into the star rating soon. Doing so would recognize and reward rather than punish plans like Clover that take seriously the intractable problem of healthcare disparities in our nation and are committed to providing high quality care to underserved populations. Importantly, this test score would hold plans accountable if they do not ensure that solving this important problem is core to their model. Our high performance on this health equity score is significant validation of both our core mission to improve every life and our approach in doing so. In an effort to highlight strategies to drive equitable care that we shared with NCQA, we also intend to release a white paper soon summarizing our efforts around health equity. We are focused on delivering equitable quality care and are hopeful that this becomes a significant topic of discussion across the entire industry. We urge you to read the document and join the conversation. We believe our approach enables us to deliver what patients want, better care for less money, with more choice, and what physicians want, information they need to make the best decisions every time. At quarter end, we had over 66,300 Medicare Advantage members. And during the quarter, we generated over $200 million in revenue, a record for Clover. On April 1st, we launched our direct contracting entity, or DCE, named Clover Health Partners, And with it, added approximately 65,000 new lives across eight states through claims alignment alone. And we do not intend to stop there, as we will be adding more lives to our management through the voluntary alignment process throughout the year. Moving beyond Medicare Advantage into the largest segment of Medicare, original Medicare, not only is a strategic milestone for Clover, but also demonstrates the scalability of the Clover assistance. While other companies may be constrained by antiquated technologies, geographic limitations, or asset-heavy approaches, we believe our tech-centric strategy enables us to quickly and cost-effectively deploy software to physicians nationwide. Strategically, growing lives under management through DC feeds our virtuous cycle because we believe that as more physicians use the Clover Assistant, the software will get smarter and outcomes will improve, which will then reduce the cost of care. And perhaps, just as importantly, it allows us to more effectively scale to new geographies in Medicare Manage. As we follow into DC geographies with MA plans, we'll already have an installed base of physicians actively engaging with the CA platform. Additionally, we believe our direct contracting entity will have a material impact on lowering costs and improving outcomes for all patients across the Clover ecosystem. Clover is perfectly positioned to be a pioneer of the DC program for a few important reasons. First, our market-leading technology platform, the Clover Assistant, is designed specifically to align priorities, i.e., to lower overall medical expenses while enhancing the quality of care. And 100% of our DCE primary care providers are expected to use the Clover Assistant, which perpetuates our flywheel. We believe that having our value proposition centered around software will allow us to scale more rapidly than others who are dependent on brick and mortar or other asset-heavy approaches. Second, we already specialize in managing care on a wide and open network, which is critical expertise when seeking to manage the large population within original Medicare. At launch, we had contracted with approximately 1,800 individual providers across eight states and had over 65,000 claims-aligned beneficiaries. We believe we have access to up to 200,000 Medicare beneficiaries through our contracts with participating providers and are focused on growing our beneficiary base through voluntary alignment throughout the year. Our provider partners have already begun voluntary alignment activities, including making available both online digital enrollment forms and paper-based enrollment kits. There are still a lot of unknowns, as this is a brand-new program. But we see substantial opportunities to grow lives attributed to our direct contracting entity. The traction we have seen to date gives us conviction in our ability to grow through direct contracting. And as we do, we'll also be scaling our innovative home-based care operation. Today, the vast majority of Clover's members receive care through primary care physicians and get the benefits of Clover Assistant through this channel. But what most don't realize is that Clover Assistant also powers our home-based care operations. The Clover Assistant is vital here, underpinning two clinical models. The first clinical model covers the majority of our lives under management, those who receive care via regular visits with their PCP. In this sense, we believe we can truly scale like software. Our influence can scale to any PCP in the provider ecosystem through the deployment of the Clover Assistant. The second clinical model is our approach to home-based care, called Clover Home Care. It caters to our sickest, most medically complex members. often with advanced comorbidities. Our home-based care program is an innovative model and a further opportunity for the Clover Assistant to reduce costs and raise the standard of care. We believe that, unlike healthier members who can visit their PCP, the best place to care for our sickest members is in the home, and that's exactly what Clover Home Care does. We consider the Clover Home Care model to be progressive and note that there is a significant opportunity to control Med-X. as this small minority of members accounts for a disproportionate portion of our overall med-ex. Powered by the Clover Assistant, we are enabling primary care providers to help patients, whether they are homebound or able to attend visits, which helps deliver more efficient and better outcomes. We're encouraged by data showing Clover Home Care's ability to reduce hospitalizations, emergency room visits, and skilled nursing facility stays, and the impact that has had on patients' quality of life. Finally, we continue to strengthen our organization to support our growth as a public company. This quarter, we announced two new board members, Bill Robinson, formerly the president of Broadgate Human Capital and an HR executive at General Electric, and Dimitris Kouzoukas, who served as general counsel of UnitedHealthcare's Medicare and Retirement Division and as the director of the Center for Medicare and principal deputy administrator of CMS. We believe both will add a lot of value. We also hired Derek Newman, whom you met earlier, who will run our investor relations and corporate strategy. I'm proud of what we've accomplished and am energized by the opportunities ahead of us despite the pandemic's near-term uncertainty. Our software-based infrastructure enabled us to quickly stand up a direct contracting entity and rapidly double our lives under management. We believe this foreshadows our ability to enter adjacent markets in a highly scalable way, enabling Clover Health to lower costs, increase choice, and improve care for hundreds of thousands of people. We have a lot of hard work to do, and we're hard at work doing it. With that, I'll turn the call over to Andrew, who will talk about our tech and our work to expand the number of places where our members can get care. Andrew.
spk04: Thank you, Vivek. As everyone knows, we believe that our technology, specifically the Clover Assistant, is what differentiates Clover from anyone else in the market. Continuous iteration of the Clover Assistant is not only critical to our mission to improve every life, but also directly tied back to our financials, supporting the positive alignment between our business and the health of our members. In recent months, we have been focused on ensuring that the Clover Assistant is built out with specific functionality to support our direct contracting efforts. I'm pleased to say that these features have now launched with the first direct contracting users beginning to use the system now. An example of this is the integration of additional, rich, real-time clinical data sources to power the Calibra system. These include historic, personalized claim file data and EHR extracts from our partners. This data further enables the Clover assistance to personalize its recommendations for everything from powering specialist referrals to calculating care gaps to making recommendations for enrollment into our home-based care program. I'd like to also emphasize the real-time aspect of this data, as we believe this differentiates us from other managed care companies. For example, we are now able to ingest admission and discharge event data from a wide network of hospitals and surface numerous actionable events in Clover Assistant in less than a second. As a reminder, the power of the Clover Assistant lies not only in the total size of the data set, but also in making it actionable by a physician. And moving towards real-time processing is just another step towards that. For all these features, what is also interesting is the synergistic relationship between the impact we expect to see in direct contracting and the impact we expect to see in Medicare Advantage. That is, we believe we have identified opportunities for significant cost management in the direct contracting program that have the potential to positively impact our Medicare Advantage business as well. I also want to touch on our efforts to reduce access to care barriers that our members face by ensuring that Clover Assistant is managing their care outside of formal healthcare environments. In our first example, we have improved the technology that drives member identification and enrollment in Clover Home Care. We believe our approach of using a sophisticated software algorithm for risk targeting combined with PCP-led enrollment in the program is industry-leading and differentiating. This approach to home-based care combines all aspects of what I think makes Clover, Clover. First, we use technology and data to identify those most in need. Second, we partner with our existing wide network of PCPs to enroll members in these supportive services. And third, we continue to support the member across the care continuum using the Clover assistance. In a second example of broadening the reach of the Clover Assistant, we intend to soon launch a beta view of the Assistant that is designed specifically for hospitalists operating in an inpatient setting. Powered by the real-time admit discharge speeds that I spoke about earlier, we believe this feature will enable us to get Clover Assistant usage into one of the most critical locations in a member's health journey. In our third example of driving care more broadly with the Clover Assistant, I want to touch on a pilot partnership with Walgreens, aimed at increasing access to basic healthcare services in our communities, starting in New Jersey. We have been working with Walgreens to integrate data from the Clover Assistant into Walgreens Health Corners, which are custom-built health destinations within select Walgreens stores. Clover members have been visiting health corners in Walgreens for blood pressure testing, BMI measurements, comprehensive medication review, flu shots, and more. Currently, over 30 health corners are open to Clover members, and approximately 26,000, or almost 50% of our New Jersey membership, now live within one mile of a Clover-powered Walgreens health corner. Since we began the program, over 1,100 care gaps have been closed. As you can see, the Clover Assistant continues to scale and grow within our core Medicare Advantage business, and into new lines of business, like direct contracting. We're focused on constant iteration, deployment to new practices, and sites of care, as well as integrating into new data sources. Before I hand it off to Joe, and on a personal note, I want to express how proud I am of every member of Clover's team. I recently put up a post on LinkedIn calling out a reporter from Bloomberg on what I saw as a dismissive comment on the quality of our engineers based solely on his skepticism regarding the quality of talent outside the U.S. I want to make it clear to everyone, all of our engineers and all Cloverites are crucial to our success, growth, and strong long-term potential. To everyone from our Clover members, to our employees, to our physician partners, our regulators, and our investors, my commitment is that we at Clover will fight for all of us as human beings. Our mission is to improve every life, and we mean it. Thank you. Now over to Joe.
spk07: Thanks, Andrew. We are thrilled to have delivered a first quarter of more than $200 million in revenue. Our total revenue increased 21% compared to the year-ago quarter, primarily due to an increase in membership. As of quarter end, we are now serving approximately 66,300 Medicare Advantage members, which represents an increase of approximately 18% over the first quarter of 2020. We expect to continue to expand both inside and outside New Jersey, as well as through direct contracting, as we view market expansion as a key to driving growth and proliferation of the Clover Assistant. Moving to MCR, Our total estimated medical costs for the quarter were $214.4 million, resulting in a gap MCR of 107.6%. Similar to the fourth quarter of last year, we incurred significant costs caring for members that were diagnosed with COVID-19, and these costs are the primary driver of our elevated MCR. To put some specificity around the impact that the pandemic is having on our medical costs, remember that we focus solely on Medicare, which inherently means an older population, 90% of our members resided in New Jersey, and we have a significant percentage of minority members. CMS data shows that the COVID hospitalization rate of Medicare beneficiaries in New Jersey is roughly one and a half times the national average, and that minorities have been disproportionately affected by the pandemic. The combination of these factors has resulted in short-term disruption to our MCR. Fortunately, we are seeing lower COVID costs from month to month in 2021 thus far, as more and more of our members become vaccinated. Our non-GAAP normalized MCR for the quarter, which excludes the net impact of the COVID pandemic and any changes to our estimate of prior period revenue and medical costs, was 95.4%. This is an increase compared to the 90.5% normalized MCR that we reported for full year 2020. We believe our relative performance here is related to a few factors. First, we are seeing some return of previously deferred care in certain non-COVID utilization patterns. Second, we have the continued impacts of the physician fee schedule increase that was implemented in late December, as well as some limited COVID-related headwinds relating to lower risk score capture for 2020 dates of service. Third, we identified several areas where enhancements to our internal processes and cost reduction initiatives, while making progress, are taking longer to be realized. In an effort to address the COVID-19 pandemic, we made rapid and substantive changes to help our members get the care they needed, and now with the increase in vaccination rates, we are just starting to reprioritize our ongoing processes to promote cost efficiency. We would like to highlight a few key points from our MCRs that we believe are relevant to our investors. First, our first quarter normalized MCR for returning members who see a primary care physician that uses the Clover assistance continues to be lower than the normalized MCR for those who don't. And this differential was over 1,000 basis points as compared to an approximate 700 basis point differential for full year 2020 normalized for COVID. We believe that this illustrates the Clover Assistant continues to power improved financial outcomes. The second point is that our first quarter MCR for markets outside of New Jersey remained lower than our MCR in our New Jersey markets. which supports our thesis and strategy for geographic diversification. Lastly, when considering MCRs, remember that Clover today has higher than industry average growth rates, obvious plan designs that have richer benefits and lower out-of-pocket costs than many of our competitors' plans, and a current three-star plan rating. For now, we estimate that these differences add as much as 1,500 basis points to our MCRs when lined up next to those of our competitors. As these factors play out over time, continued scale and geographic diversification, higher star ratings, and continued iteration and coverage of our Clover Assistant technology, we maintain full conviction these items provide a tailwind for future margin expansion since we are just in the early innings of our story. First quarter non-GAAP adjusted operating expenses, which exclude non-cash stock-based compensation, were $61.9 million compared to $48 million in the first quarter of 2020. This was in line with our expectations and increased by $13.9 million from the first quarter of 2020, primarily due to investments made in infrastructure to support our direct contracting initiative, as well as higher professional, legal, and consulting expenses to support Clover's status as a public company. Our non-GAAP adjusted EBITDA loss for the first quarter was $76.2 million, compared to last year's first quarter adjusted EBITDA loss of 21.7 million, driven by the higher MCR and operational investments. After normalizing for the MCR impact of COVID, our non-GAAP normalized adjusted EBITDA loss for the quarter was 52.1 million. We reported GAAP net loss for the quarter of 48.4 million, compared to a net loss of 28.2 million for the first quarter of 2020. Like many dSPAC companies, our current period results were impacted by SEC guidance related to our accounting for public and private placement warrants. Applying the updated accounting treatment, we recognized a gain of $85.5 million in the first quarter of this year for the change in fair value of the warrant liability. Clover had approximately 408.1 million shares outstanding at the end of the first quarter. And our cash, cash equivalents, and investments totaled $720.1 million as of March 31, 2021. Our merger with Social Capital, which closed in the first quarter of this year, delivered approximately $670 million net of deal-related expenses to support growth and working capital. Despite near-term impacts and volatility, especially around expenses due to COVID, We expect to continue delivering solid revenue growth as we continue to expand our market share and begin the new direct contracting opportunity. We are reaffirming our guidance that Medicare Advantage membership is expected to be in the range of 68,000 to 70,000 by December 31st, 2021. On direct contracting, as Vivek noted, we started the DCE program year on April 1st with more than 65,000 aligned beneficiaries, virtually all of which were claims aligned. Similar to many of our fellow DCE participants, we began the program with fewer claims-aligned beneficiaries than initially expected. This was driven by a few factors. First, some beneficiaries belonging to select participating providers did not successfully exit their preexisting Medicare shared savings program relationships. Second, some beneficiaries lost Medicare eligibility, passed away, or enrolled in Medicare Advantage. We believe that we still have access to up to 200,000 Medicare beneficiaries through our DCE contracts with participating providers. We expect to see increases in the number of our aligned beneficiaries as voluntary alignment continues throughout the year, but the specific timing for such increases is difficult to predict. We are taking a conservative approach, leading us to forecast that we will end 2021 with between 70,000 and 100,000 total aligned beneficiaries. Voluntary alignment will occur quarterly, and we expect the majority of the incremental voluntary alignment to become effective in the fourth quarter, given CMS's submission calendar and programmatic ramp-up time. We look forward to bringing on many new lives for the claims alignment process for 2022. Based on these updates to direct contracting lives, we are updating our guidance on total combined revenue for the year, which is now expected to be in the range of $810 to $830 million. inclusive of a preliminary estimate of approximately $20 to $30 million of revenue generated from direct contracting. We are reiterating our revenue guidance for Medicare Advantage since the first quarter was in line with our expectations. Consistent with our discussion a couple months ago, GAAP estimates for direct contracting revenue are dependent on the finalization of accounting treatment, which we expect will be complete by the end of the second quarter. Our initial direct contracting per member benchmark is higher than originally predicted. Medicare benchmark expenditures under management for direct contracting are now expected to be in the range of $700 million to $800 million, reflecting the revised forecast on 2021 aligned lives and this higher per-member benchmark. The Medicare benchmark represents the level of estimated medical expenses for the beneficiary population being managed by the direct contracting entity. Given the nuances of revenue recognition under this program, we continue to believe the estimated CMS benchmark expenditures are a more appropriate measure of the size of the opportunity and its impact on the company's financial outcomes. Total Medicare spend under management, which includes revenue from the Medicare Advantage Program plus the estimated CMS benchmark for direct contracting, is therefore expected to be in the range of $1.5 to $1.6 billion, more than double 2020's level. Normalized non-GAAP MCR for Medicare Advantage is now expected to be in the range of 94% to 97% for full year 2021. We anticipate that certain factors that are driving our first quarter results will continue somewhat into future quarters as well. And we believe this range captures the impact of seasonality, but also allows for improvement in core processes that will occur throughout the year. We estimate full year non-GAAP adjusted operating expenses, which excludes stock-based compensation, will remain within the range of $250 to $270 million, reflecting the use of a portion of the proceeds from the January merger to make investments in marketing, network expansion, and technology to support future growth. As always, we remain focused on growth and continue to make appropriate investments to fuel that future growth. Normalized adjusted EBITDA loss is expected to be in the range of $240 to $190 million. Note that we are not providing net loss guidance due to the potential for significant variability of several components of net income, including mark-to-market accounting of the fair value of the warrant liability that we discussed earlier. As a reminder, the liability was reduced by $85.5 million in the first quarter, which could materially increase in future quarters due to stock appreciation, which would in turn negatively impact net income. We are seeing encouraging traction across our business, but we are only in the early innings. We continue to build Clover for the long term and have several levers to drive growth and initiatives underway to improve our cost profile. We are committed to delivering shareholder value over the long term. I'll now hand it over to Vivek for closing remarks.
spk08: Thank you, Joe. We built Clover Health to improve every life. And in the face of the challenging environment Joe outlined, we're executing against that mission every day. Our two key clinical differentiators, the Clover Assistant and Clover Home Care have already helped us to lower costs, increase choice, and improve care for tens of thousands of people. And we believe it will help us do so for many more as we continue our expansion. The launch of our direct contracting entity illustrates the scalability of our software-based model and foreshadows the potential breadth and depth of our future reach. Before we take questions, I want to leave you with three things. Firstly, We're extremely excited about the launch of direct contracting and very bullish on the opportunity ahead. Secondly, our Clover Assistant technology is a market leading differentiator for Clover. And finally, we are focused on creating a healthier society, which means delivering high quality, equitable care to everyone. We look forward to demonstrating our progress in the quarters and years to come. Before we start on questions, today in a first for Clover, we are also including some questions from the strong community of Clover investors on Reddit. As a quick aside, we are a big believer in the retail investor community. On a personal basis, I started off as a retail investor over 20 years ago, probably trading too frequently. I made money, then lost money through that experience. But that experience really made me want to become a great investor, and importantly, wanted to understand business and industries in much more detail. I'm very much a buy and hold retail investor today, focused on companies with a long-term orientation, going after an important mission with technology at the core. In the spirit of that, we believe it is vital we play a role in engaging our entire investor base in answering important questions. With that, operator, let's please take the first question.
spk02: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Kevin Fishbeck with America. Your line is open.
spk06: All right. Great. Thanks. I guess a few questions here. So when you guys first did the transaction, you guys had a pretty aggressive rant on the number of members, getting to half a million members in a couple of years. How do you think about that outlook today for direct contracting? Is that Is that still right that we should be thinking about that as members that you would have access to instead of necessarily members that would be signed up? Or is there some reason to think differently about that direct contracting goal? Thanks for the question. Joe, do you want to take that?
spk07: I can jump in. Sure. Hey, Kevin. Good morning. Thanks for the question. Yeah, I think, you know, Kevin, we're not, you know, going to – give guidance for future years at this point. But I can say that, you know, a couple things, I think, as we think about the opportunity, you know, first, you know, we're excited that we still have access to 200,000 members, 200,000 assigned lives this year. So that has not changed. And that's been, you know, kind of consistent with kind of what we've said all along. I think, you know, as we know more and more about claims alignment and voluntary alignment, we'll certainly, you know, refine some of those numbers for future years. I think, One certainly encouraging thing. I mean, I guess a couple of encouraging things is one, we've got a great start relative to others in the program. So we're super excited about that. And secondly, as we think about, you know, tailwinds, you know, looking ahead, you know, obviously we're in the program now, which is great. You know, there are others that aren't in the program at this point. And so, You know, we're revisiting a lot of conversations that we've had earlier in the year with some ACO partners that originally were looking to do other things and now, you know, are looking to potentially partner with us again. So I think we're really excited about where we are. I think it's too early just to say for future years kind of exactly where we're going to end up. But I think, you know, we have great traction so far in voluntary alignment, and we're excited about, you know, the rest of this year.
spk06: Okay. And then I guess just trying to understand the MLR bridge. You know, when we think about maybe a normalized number for this year versus last year, versus maybe 2019, which is the last year where it was not impacted by COVID. I mean, I guess on a face of like MLR going down 200 to 500 basis points, are you kind of saying that these adjustments that you mentioned, you know, bridging from last quarter to this quarter, you know, still point to kind of a true core improvement of closer to 800 basis points or 900 basis points? How should we think about the progress over the last two years, you know, within this guidance?
spk07: Yeah, Kevin, that's a great question. I think certainly, you know, from a normalized perspective, I think when we go back to 2019, obviously our business was very different, different benefits, different membership mix, et cetera. And so, you know, we ran, you know, kind of 98, 99 back then. And so certainly seeing progress, no question about that. And I think for us, as we look at kind of the mix of tailwinds and headwinds, there's a lot happening in this first quarter, obviously. We got hit pretty hard with COVID. We've seen some return of deferred care. We also have some headwinds, as every other MA plan does, in terms of some depressor score coding, although, again, not as much of an issue for us, and the physician fee schedule increase. So I think, you know, your statement is absolutely true in that we are absolutely seeing momentum as we look, you know, kind of over a longer term in terms of normalized MCR. I think the guidance that we're giving for the remainder of this year is appropriately conservative, just given kind of what we're seeing in the first quarter. And I think we'll certainly see progress as we continue throughout the year. But I think that's the way to look at it, right? If you look at it over the course of two years, we're seeing, you know, certainly progress from, I'd say, the high 90s into the low and mid 90s. And then I think as we think about kind of longer term, you know, our view is, you know, what is our earnings power, you know, kind of going forward? You know, obviously, some headwinds for this year, not only as it relates to COVID, but also as it relates to risk scoring, position fee schedule, et cetera. You know, as we think about the long-term earnings power of the business, you know, we really think about for MCRs kind of the two points that I mentioned just a little bit ago. You know, one is, How do we think about the differential of clover assistant versus non-clover assistant? That's really the most important metric for us, and we'll continue to focus on that metric. And then secondly, as we think about MCRs compared to others, when you think about growth rates and, more importantly, star scores, we line up very well. So I think we're certainly happy with the progress that we're making as we look long-term for the business.
spk06: Okay, let me just ask a question. Is there a way to size what you guys think the coding headwinds was this year, you know, maybe the basis points to MLR?
spk07: Yeah, I think, you know, it's a range for us, Kevin. I think for us it's probably around 150 to 200 basis points, probably a little bit higher than we had originally anticipated. You know, I think last quarter I said 100 to 150. It's probably a little bit higher than that. Again, you know, I'd say roughly that 150 to 200 is kind of where we are and where we came out just when we looked at, you know, at the coding impact.
spk06: Okay, great. Thanks.
spk04: Okay, great. This is Andrew. So we'll take our first question from Reddit now. The first question is a compound question, but it came to us in one piece. What is Clover Health doing to make sure that Clover assistance remains the leading AI for healthcare? Are you working with any data analytic companies or data scientists or expanding data sets? Will you license out the technology to other insurance agencies? How does Clover Assistant help physicians offer individualized care? So I will take this first question, and so thanks for that. A few different answers. Number one, we see Clover Assistant as being unique because while there's, you know, a few technology-powered insurance companies out there, we're really focused on clinical care, right? There are physicians on a wide network using Clover Assistant, And what that lets us do is focus on providing actionability around any data model. So to the question about how do we remain the leading AI for healthcare, that closed loop on clinical models where our data is being sort of reacted to and actioned on by real physicians, and then we take those actions in that conversation and figure out what happened, that lets us train models further, advance them further, iterate faster than we feel anybody else, whether it be big tech companies or other insurance companies or clinical companies. We feel we have all those components in Clover Assistant, and we can iterate faster, and that's how we stay ahead. On the point about licensing out, that's a really interesting one. Our mission is to improve every life, so it's something that we might consider in the future. Something that I find interesting here is a few years ago, we did do some testing with the Clover-assisted data engine and ML engine in international markets where we verified that our data platform and training actually does work very well in non-U.S. and even non-English data sets. So we were pleased by how well that works. I think that sets us up technically for some pretty good advancements in the future if we ever want to expand. On the question in terms of individualization of care, so clover assistance sessions are personalized to the individual in the care encounter, and that's rerun every single time a senior comes back and has another PCP visit. So we are already deeply personalized in the content data and suggestions That we show through Clover Assistant, and we think that that's a very powerful part of the overall product. So that can range from suggesting clinical program enrollment into Clover Home Care to just something simple like a diagnosis reconfirmation to a care gap closure. All of these things are absolutely personalized in any care encounter that is based upon the Clover Assistant platform. So we're always developing new models, new rules, things to drive those actions. We'll talk about those as we roll those out. And so, yeah, going into the future, I think that's the way to think about this overall is that Clover Assistant, number one, as Clover, as a Medicare payer, our technology is uniquely focused on the clinical side of the business. We are focused on helping clinicians. That is where our R&D is focused. all of our data models that we build have an actionability component to them. So it's not just about prediction, but prediction and action. And then we're always feeding those actions back into our core model training, which we think gives us a systemic technical advantage in terms of improving the overall product and improving the outcomes and benefits for our seniors. So thank you for that question, whoever asked it. And, Operator, we can go ahead and take the next analyst question.
spk02: Thank you. Our next question comes from Jalindra Singh with Credit Suisse. Your line is open.
spk03: Yeah, thanks. I almost thought I didn't make the cut, but thanks for taking questions. Just quickly on direct contracting, thanks for all the color on your updated expectations there. I was wondering if you could flesh out a little bit more on your confidence in voluntary assignments, mostly coming in full queue. Have you seen any indicators, data points that gives you some visibility there? And how much revenue is assumed in your outlook from these voluntary beneficiaries?
spk08: Thanks, Jolinda. I'll pass that to Joe.
spk07: Sure. Thanks, Jolinda. Thanks for the question. Thanks for calling in this morning. Appreciate it. Yeah, so on voluntary alignment, I mean, again, it's early in the process. I think, you know, one of the things that we wanted to make sure we did this time is just kind of reset expectations based a little bit upon the unknown. I can say initial kind of results from our voluntary alignment outreach has been positive. We've been seeing some good traction there. I think just one of the things we have to keep in mind is just kind of the CMS timing for voluntary alignment for this year. And so in order to get a member effective for July 1, they need to be voluntary aligned by the end of this month. And then similarly for fourth quarter, they need to be voluntary aligned from a form, from a documentation perspective by August 31st. And so for us, that's why we kind of came out with a more conservative range, just given some of the timing there as we learn more about the program. But again, we've got a few different methods for voluntary alignment that we are using and we're seeing really good traction early on. And so just in terms of revenue there and benchmark, you know, obviously, you know, the range that we're giving the 70 to 100,000 full year, that's based on a base right now of, you know, of roughly, you know, 65, 66, which is where we started. And so I think for us, both the revenue and benchmark for voluntary alignment There's, I say, a relatively small piece for voluntary alignment. We have not assumed a ton in our guidance for either revenue or benchmark. And, again, just to keep in mind, you know, right now we are only assuming from a revenue recognition standpoint that we have, you know, roughly 45% of benchmark as technical revenue recorded. So if you're comparing us to others that have come out with different accounting treatment, the benchmark coming to that 700 to 800 million range that we're giving is probably more appropriate from a comparison standpoint.
spk03: Okay, that makes sense. And then following up on Kevin's question earlier about expectations for next year, I know you're not willing to give any guidance there for lives coming from the contracting program for 2022. But just wondering if you can share some thoughts around CMMI's decision to close the direct contracting program for new applicants. Just wondering how that affects the opportunity for you guys, as you guys have been already approved for the program.
spk08: Yep. I'll take that, Jim and Drew. So I think it's hard to tell exactly where CMMI will land on kind of opening up more applicants in the program, but I think, you know, they're most likely reviewing the program to make sure that rules and regulations are set up appropriately to not have, you know, an excess number of applicants come in and make the program difficult to manage. At least that's our current view. But, you know, at the same time, we don't think it's going to, we don't really view it affecting too much in our thinking. At the end of the day, you know, any practice joining the program is going to make that decision based on whether value can be driven out of it, irrespective of whether it's 52 applicants now or hundreds. Clover is really the only direct contracting participant we're aware of that's actually software-enabled and enables practices to succeed in direct contracting, whereas a significant amount of the applicants are actually provider-centric.
spk03: Okay, just one last one. On your partnership with Walgreens, Can you remind us how economics work there? And one thing I'm trying to understand, like, aren't your members better off seen by a PCP who is using clover-resistant platform as that's what essentially leads to much better outcomes and carry improvement? Trying to understand, like, how you have that between, you know, getting them to some other channels of platform versus, like, going through your PCP who is using clover-resistant platform.
spk04: Yeah, absolutely. So we're not sharing any of the details on the actual deal or the partnership to that part of the question, but I can elaborate more on the care journey here. So the idea with the Walgreens Health Corners is that they are providing supplemental services to support the PCPs. So this is as an alternative to a model where they are sort of becoming the PCP. So you see that in other models that are out there that you actually put the PCP in the store. That is not what's happening with the health corner. The health corner is not replacing the PCP, but instead the same care gaps or things that the PCP might be looking to order for the patient, for example, fit kits, et cetera, are actually fulfilled there. the health corner to make it easier for our seniors and for the patient of the PCP to get this supplemental care. So like the flu shots, additional sort of data readings like BMI, like I said, like a fit kit could be deployed there. So think of it as it's all part of one care journey with caregiver assistant backing up the coordination and sharing data. The PCP is still in sort of in the quarterback position. And then the health corner is supplementing that by making it easier for them to access this extra care. Okay. Thank you. All right. Thank you for that. So much for those questions. Appreciate it. For our next question that came to Reddit, what is the latest with the SEC? I would also particularly like to know your strategy around the stock price. Vivek, do you want to go ahead and take this one?
spk08: Yep. Thanks, Andrew. It's our policy generally not to comment on pending inquiries, but we'll, of course, always make any disclosures required by law. I note that we always welcome the opportunity to introduce our company and disruptive model to government agencies and regulators. Just in terms as we think about stock price, we take a very long-term orientation around stock price. One of the advantages we think we have versus other incumbent insurers, myself and Andrew obviously, heavily invested in Clover for the long term on a personal basis, but even from a mission orientation, being a clinical organization, it's definitely a different approach than we think about our competition. And so what we think will happen over the next couple years is it will become more well understood how Clover's system is driving value at scale with software really enabling that. if we think about kind of our model really enabling a wide network of physicians to be successful versus the traditional narrow network, that's going to become more and more well understood as well. And we also think it will become more and more well understood over time that our plan designs are meaningfully more attractive and value to consumers versus the competition. And stock price has a way of taking care of itself over the long term as long as we're able to execute over the long term towards our goals.
spk04: All right. Operator, we can take the next analyst question.
spk02: Our next question comes from Lisa Gill with JPMorgan. Your line is open.
spk01: Good morning, and thank you for taking my question. I just want to go back to your comments around Walgreens, and I understand you're not talking about the economic impact, but I just really want to understand a couple of things. Is it the pharmacist that's actually providing these services? Two, do they have access to Clover Assist so that they can feed that information back into the PCP? And three, are you doing anything to then encourage the member to have their prescription filled at Walgreens in any way so that you kind of close that gap in care potentially?
spk06: Yeah. Oh, yeah. Okay.
spk04: Thank you, Lisa. Great question. So you had a couple there. So first of all, it's in a Walgreens. The health corners are actually a built-out, separate, dedicated part of the Walgreens, and you can see this on Walgreens' website as well. And so sometimes they're certainly staffed with the capability to be able to act as a pharmacist, but it's not the actual pharmacy counter, if that's your question. Like where you go to get your fills, it's a different part of the store. But obviously pharmacy is something that they can help with if the member has questions. The next thing is on Clover Assistant. Yes, so part of this is all is that we have a certain view of the Clover Assistant data, so they're not using the PCP view as per the other conversation. The PCP has that view, but they have an access to the same platform and the same care gaps. that are available to the PCP and any open things that need to be filled so that when the member shows up, it's part of a more seamless care journey, right? So they could say, ah, yes, you know, I can help you with this, et cetera, in that particular site of care. So we are providing that data from the Clover Assistant platform to be used in those health corners. In that last question, this is not unified with any part of the Part D pharmacy benefit right now. Obviously, there's things in the future we could look at there, but we separated out, you know, having care being given at a health corner at Walgreens. from whether or not a given individual wants to use Walgreens as their pharmacy. You know, we believe in choice at Clover, so our members can continue to choose whatever pharmacy they like, but they also have, you know, on whether they want to get care at a health corner, the ability to go into that and get additional supplemental care as well. So hopefully that helps with your question.
spk01: Yeah, that definitely helps. And then secondly, I just want to understand the Clover program. home care, is that actually a provider coming into the home? Is there a virtual care component to that? And, you know, how do I think about that on a go-forward basis? Are there other services you're going to add? I mean, just more broadly speaking when we think about in the home.
spk08: Thanks, Lisa. That's a great question. So the way to think about our Clover home care program is We built an in-house, you know, to simplify it, in-house Folk Street or in-house ChenMed four years ago, but via a home-based model. So the reason we did that and wanted to own that internally is we felt we would end up with a much higher engagement rate of those who are eligible because we could also, one, collaborate with existing primary care practices in the marketplace in terms of helping them roll their most at-risk lives, but also end up being able to service the homebound individuals as well. So as an example, last year we ended up with a little bit over 70% of the most at-risk members that are eligible actually enrolled in home-based primary care. And when we say collaboration with primary care physicians, it's Clover's actual employed staff, primary care physicians delivering cares physically in the home. Obviously last year we included virtual care as part of that, but it is a physically home-based model. And when we talk about in conjunction with existing primary care physicians, we routinely will share data back to the existing primary care provider to make sure they're included in that process. And then we obviously get to own the savings that we generate. And because it's internal home-based primary care physicians employed by Clover, We're not in an arm's length vendor relationship where sometimes there can be dispute over kind of who's in the eligible pools. And we have also ported this model over to direct contracting. So when we think about direct contracting, we're actually bringing this service to our primary care practice partners. So we think about a lot of these brick and mortar models that are proliferated. What sometimes gets lost is these models are actually taking patients from existing primary care practices. that creates a lot of friction in the marketplace and ends up with much lower enrollment rates of the eligibles versus Clover's Home Care Program. Clover's Home Care Program is popular because we're actually working with existing primary care physicians in a collaborative way, and particularly in direct contracting where practices are actually benefiting from the savings that we can generate. So it creates kind of the opposite reaction in the local marketplace. And it's all powered off of the Clover Assistant, as we mentioned in the earlier part.
spk01: Okay, great. That's very helpful. Thank you.
spk04: Thanks so much, Lisa. We'll do one more Reddit question, which happens to be on Clover Assistant, and then we'll wrap up. So we had a combination of questions asking about, will the assistant ever replace the physician for basic ailments, and also about our vision on telemedicine. So this is a future-looking state image, meaning I'm not making any commitments here, but looking at our technology for where we can go with something like telemedicine, looking at something like where CloverSystem could go with the physician. CloverSystem is not about replacing the physician, right? It's about helping the physician be the best version of themselves, arming them with information at their fingertips, personalized information, personalized suggestions, always using their clinical judgment. As part of that, you can sort of see where we think we might go with telemedicine is it's more than just simply a face-to-face visit over a video call. I do think, and this is me putting on my futurist hat, that we're in striking distance in the next few years of being able to combine Clover Assistant with something like VR and AR technologies to provide really detailed virtual visits where the patient and the physician might not be co-located in the same room, but provide the physician with more ability to be able to do an examination or to have a more impactful encounter. Now, I think that under CMS guidelines, that, you know, will be under the existing telemedicine regulation for a while, but from a technology perspective, this will help us move into things like rural health care, help us guard against future pandemics from an equipment perspective we already did something called video on wheels during the pandemic where we delivered equipment in a very safe way sterilized equipment to underserved seniors who did not have video capabilities so we do know that it's possible to sort of set up an environment within their home in a safe way so they can have these kinds of encounters and it makes a lot of sense that we would build much more upon that going forward So once again, the assistant is called the assistant because it's there not to replace the physician, but to make them the best version of themselves. And I think that you will see more and more capability in doing that with technology over remote distances. So thanks so much for the questions from the analysts. Thank you from all the questions on Reddit as well. I will now hand off to Vivek to close up.
spk08: Thanks, Andrew. I just want to thank everyone for the time today. We're incredibly excited about our future and the beginning of Fairbanks contracting. So we really appreciate it.
spk02: This concludes today's conference call. Thank you for participating. You may now disconnect.
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