Clover Health Investments, Corp.

Good day and thank you for standing by. Welcome to the Clover Health Third Quarter 2021 Earnings Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during that session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your first speaker today, Derek Newman, Vice President of Investor Relations. Thank you. Please go ahead.

Good afternoon, everyone. Joining me on the call today is our CEO, Vivek Garapalli, our President and CTO, Andrew Tolley, and our Interim CFO, Mark Herbers. We will discuss third quarter results, recent trends, and answer your questions. The call today is being recorded. Before we get started, I would like to remind you that our third quarter earnings materials, including the release, are available on our website, cloverhealth.com. I'd also like to caution you that we may make forward-looking statements during today's calls that are subject to risk and uncertainty. Factors that may cause these actual results to differ materially from expectations are detailed in our SEC filings, including in the risk factors section of our annual report on Form 10-K. for the year ended December 31st, 2020, and in our periodic SEC filings, including our quarterly report on Form 10-Q for the quarter ended September 30th, 2021. Information about non-GAAP financial measures referenced, including a reconciliation of those measurements to GAAP measures, can also be found in earnings materials available on our website. With that, I will now turn over the call to Vivek.

Thanks, Derek, and thanks, everyone, for joining us today. Clover's wide network and the Clover Assistant platform helped drive record growth in the third quarter and was complemented by a significant decrease in MCR. We believe our technology enables us to deliver lower-cost plans without compromising access or quality, while also addressing head-on one of the most important public policy issues, health equity. Our mission to improve every life is firmly on track, as is our objective to create a healthcare company that is sustainable for all of our stakeholders. We serve a broader variety of communities than is typical in MA. Approximately 66% of our members live in communities in the top half of the Area Deprivation Index, and approximately 49% of our members who self-identify are minorities. And we are proud that we have been identified as a high-performing MA plan based on a prototype of the Health Equity Summary Score. We published an extensive white paper on Friday that details how our approach works to create a more equitable healthcare system, and I strongly recommend you all read it. Getting into the key highlights from the quarter, our revenue was $427 million, up 153% year-over-year. Lives under Clover Management more than doubled year-over-year due to the launch of direct contracting, and our MA business continued to grow well above industry averages. Our gap MA-MCR improved by 850 basis points compared to the second quarter, and we saw a similar improvement in direct contracting, where we are nearing break-even margins. The Clover system continues to be a differentiator with a MA-MCR differential of over 1,000 basis points for returning members who see a CAPCP versus those who don't. And we are doing this while operating on a wide network and driving a positive impact on health equity. with more minority or underserved beneficiaries than typical for Medicare providers of scale. Clover is building a next-generation healthcare company centered around technology and physician enablement, which we believe gives us access to a much larger serviceable addressable market in Medicare than our competitors have. This has helped us drive significant year-over-year growth in revenue and lives under management via both Medicare Advantage and original Medicare fee-for-service. We believe we can pursue the full potential of the trillion dollar Medicare market as evidenced by our ability to use the Clover system in both the Medicare managed market and the fee for service market via direct contracting. Our wide open network provides us with the ability to grow in geographic areas most traditional incumbents and new upstarts have historically avoided. This is important as we think about sustainable growth, not just in the next year or two, but also over the next five to 10 years as we continue to increase physician access while driving more affordability and improved clinical decision making. A recent proof point that our approach is working is the recent upgrade of our MA PPO plan to 3.5 stars. We were able to accomplish this in spite of operating on a wide network and with a minority member population that is significantly higher than the MA average. Not only does the STARS upgrade highlight our approach and operational execution, but it will also have a significant financial benefit in 2023. Our focus is now towards achieving 4.0 STARS, something which we are striving to accomplish in measurement year 2022. While I'm proud of our recent results and the STARS upgrade, I am equally excited about how Medicare policy is evolving to support our approach. First, COVID-19 has focused policymakers on improving health equity for the Medicare population. Clover is a leader in health equity. Nearly 50% of our members who self-identify are minorities, and we were identified as a high-performing MA plan based on a prototype of the Medicare Advantage Health Equity Summary Score. Second, we expect there will be increased scrutiny on practices that increase incentives towards the risk adjustment factor directly or indirectly, ranging from full capitation to employment-based models and also narrow network models. Clover's model is designed to ensure that our payment model focuses on clinical value with zero incentives for increased coding. We vigorously support any policy proposals that create dramatically heightened rigor around risk adjustment, especially when it comes to perverse incentives. Finally, we believe there will be growth challenges for narrow network plans, as we discussed earlier. Clover Assistant's ability to support care management on a wide-open network is a true differentiator which unlocks populations that are not financially attractive for competitors. Another validation of our approach is demonstrated by the growth of the PPO market, which in MA has grown at a roughly double the CAGR compared to the HMO market since 2016. This is important as it highlights we are competing in the right part of MA. In short, we believe Clover's ability to improve healthcare for a broader swath of Medicare eligibles reaffirms our approach and our massive long-term potential. With that, let me hand over the call to Andrew to talk about Clover Assistant and specifics around how it is driving a difference. Thanks, Vivek.

I am similarly proud of the results we reported this quarter. As a reminder, our vision is to transform healthcare through personalized, data-driven primary care powered by the Clover Assistant. And unlike most other approaches, CA allows us to manage that care over a wide open network of physicians that gives broad flexibility and choice to our Clover members. As the Clover Assistant evolves, we believe it will continue to help drive better outcomes for all constituents, physicians, patients, and the government. We are absolutely focused on developing and shipping CA features to improve physician enablement throughout our wide network, driving things like care gap closure, personalized evidence-based medication recommendations, earlier novel diagnoses, and care planning, all of which we believe lead to better outcomes for Clover members at lower cost to society. This is best highlighted by the fact that MA members with Clover Assistant primary care providers had an MCR that was over 1,000 basis points lower than those with a non-CA primary care provider. Further, we believe the impact of the Clover Assistant compounds over time. During 2021, members with PCPs that went live on Clover Assistant in 2019 have had a lower MCR than members with PCPs who went live on Clover Assistant in 2020. And the corresponding 2018 cohort had a lower MCR than the 2019 cohort. Additionally, the differential between the 2018 cohort and the non-CA PCP cohort was significant at over 1,500 basis points. highlighting the value of the Clover Assistant. In short, our data suggests that the longer a PCP uses the Clover Assistant for care management, the lower the MCR of their patient. The important point is that we will continue to focus on executing on our strategy, deploying Clover Assistant, continuing to roll out features to make it easier for PCPs to make data-driven care decisions, and driving other operational milestones, such as around STARTS. Another key statistic lies under Clover Assistant Management grew 223% year over year to approximately 94,000. This was driven by an increase in the number of clinicians that use the Clover Assistant to approximately 2,900 in the third quarter, up approximately 45% from a year ago. And we expect this to increase as many new direct contracting providers come onto our platform on January 1st. We are also increasing engagement The Clover Assistant has surfaced approximately 1.3 million production recommendations since its launch, and Clover Assistant visits grew 73% year-over-year in the third quarter. This is important as these visits and physician interactions provide us with a feedback loop to help us constantly improve the platform. Over the past quarter, we also began the rollout of a significant update of the Clover Assistants. aimed at improving primary care physician workflows and adding interoperability features, enabling the Clover Assistant to integrate with electronic health record systems. We intend to further develop these features, including key capabilities around single sign-on, chart integration, and other features that we believe will drive up engagement even further by improving physician quality of life. We've also launched an exciting new feature to enable PCPs to have easy access to care management support services around oncology. We believe this is a really powerful capability of the Clover Assistant where we can leverage our high engagement with PCPs and put advanced care management capabilities provided by experts at their fingertips. Oncology is the first area we are supporting, and we plan to continue to launch similar capabilities to cover additional conditions. To close, I believe the Clover Assistant is working as envisioned on our wide network. The rollout and upgrade to our latest major release of CA is almost complete, and this new framework will allow us to roll out clinical features even more quickly. Our software-based scaling model allows us to target underserved segments in Medicare Advantage, expand our direct contracting entity faster than most, and achieve synergies with physicians who benefit by rolling Clover Assistant out to both MA and VC, often simultaneously. With that, I will now hand it to Mark for the financial update.

Thanks, Andrew. We delivered $427 million in revenue in the third quarter, up 153% year-over-year. This growth was driven by the launch of direct contracting and growth in our MA membership. As of quarter end, we now have approximately 129,100 lives under clover management, roughly doubled third quarter of 2020. This is comprised of MA membership and direct contracting lives of 67,281 and 61,818, respectively. Moving to MCR, our net medical claims incurred for the quarter were 436 million, down from last quarter and up year over year, primarily due to the inclusion of direct contracting. Our MA gap MCR was 102.5%, down 850 basis points from the second quarter. The sequential decrease was driven largely by operational efficiencies, a decline in direct COVID costs and seasonal trends. Also, our non-gap normalized MA MCR was 94.8%, down 150 basis points as compared to the second quarter. We also recognized a premium deficiency reserve in the quarter equating to an expense of 20.8 million. Direct contracting net medical claims incurred on a gap basis were 228 million and our margin improved significantly in our second quarter of operation to 102.4%. Excluding direct COVID costs and prior period development, non-GAAP adjusted direct contracting margin was 101.4%, which puts us near breakeven and represents a significant improvement over last quarter. Third quarter non-GAAP adjusted operating expenses, which excludes non-cash stock-based compensation from salaries and benefits plus general and administrative expenses were $72.3 million, representing 17 percent of total revenues, compared to $45 million and 27 percent of total revenues in the third quarter of 2020. We expect adjusted operating expenses to become a smaller portion of revenue as we grow and drive efficiencies, which is a key focus in our 2022 operating strategy. Our adjusted EBITDA loss for the third quarter was $102.3 million, compared to $138.7 million in the second quarter and $20 million in the year-ago quarter. After excluding gross loss from direct contracting and normalizing our MA business for the MCR impact of COVID, our normalized adjusted EBITDA loss for the quarter was $61.1 million. Our GAAP net loss for the quarter of $34.5 million compared to net income of $12.8 million for the third quarter of 2020. This included a non-cash benefit of $134.5 million relating to a change in the fair value of the warrant liability. Clover had approximately 414.6 million shares outstanding at the end of the third quarter, including 9.4 additional million shares related to our warrant redemption. Our cash, cash equivalents, and investments totaled $588.6 million as of September 30, 2021. Now, moving to guidance. For the full year 2021, total revenues are expected to be in the range of $1.42 billion to $1.47 billion. This reflects MA revenue of $780 million to $790 million and Medicare direct contracting revenue of $640 million to $680 million. Medicare Advantage membership is expected to be in the range of $67,300 to $68,000 by December 31, 2021. Direct contracting beneficiaries are expected to remain roughly flat for the remainder of the year. Normalized non-GAAP MCR for Medicare Advantage which again adjusts for the impacts of COVID-19, is expected to be in the range of 94 percent to 96 percent for a full year 2021. We estimate full-year non-GAAP adjusted operating expenses, which excludes stock-based compensation expense, will be between $270 and $280 million. Non-GAAP normalized adjusted EBITDA loss is expected to be in the range of $250 to $230 million. Wrapping up, we had a good quarter with strong revenue growth, lower medical expenses, and significant operational execution and planning, which will benefit us in future quarters. I'm going to pass the call back to Vivek in a minute, but first I just want to quickly clarify something I said in my prepared remarks and make one final comment. I misspoke earlier, the non-cash benefit relating to a change in fair value of the warrant liability was actually $115.2 million, not the $134.5 million previously mentioned. And we had approximately 420.6 million shares outstanding at the end of the third quarter, which, as I mentioned before, includes the additional 9.4 million shares related to our warrant redemption. Finally, I just want to reiterate that we improved our GAAP MA MCR by 850 basis points in Q3 compared to Q2 as our MCR is reverting to the mean. In contrast, Other public companies who have reported as of today have reported plus or minus approximately 100 basis points change quarter over quarter, with an overall average up 31 basis points. We believe this highlights that our MCR is reverting to the mean and that our core New Jersey market has had more variability than most other markets. Vivek will now provide some details on 2022 around MA and overall expected operating efficiencies.

Thank you, Mark. Before taking questions, I just wanted to provide some high-level thoughts on 2022, mostly focused around our MA business. We expect another strong year of above-market growth driven by continued MA success and our second year of direct contracting. For Medicare Advantage, we preliminarily expect our membership to average 82,000 for the full year, next year, representing an acceleration in year-over-year growth to more than 20%. This is being driven by continued market share gains in New Jersey and strong growth in Georgia, where we expect to double members to a projected 2022 average of 8,500. In direct contracting, we expect significant growth in 2022 up from current levels and plan to provide more details as expected lives are finalized. Similar to this year, almost all growth will come through claims alignments. At the same time, we expect meaningful reductions in MCR as we drive continued clinical program enhancements, improved risk scores, and as COVID-19 becomes less of a direct and indirect impact. We expect this to lead to MA gap MCR in the range of 95% to 99%, and an improved direct contracting margin, both of which are well below where we've been throughout 2021. Further, as we look beyond 2022, we expect 3.5 stars to have a meaningful impact on 2023 MAMCR, and we currently expect that impact to be in the range of 300 basis points to 500 basis points. Importantly, the potential achievement of 3.5 to 4.0 stars would have an even higher future benefit to MAMCR than the movement from 3.0 to 3.5 stars. Finally, despite the COVID impact this year, Clover has made significant strides in its planning towards achieving profitability. As we head into the new year, we are excited about our planning process focused on the following three phases. Number one, leverage our physician-centric model, which will create unique operating cost synergies across multiple lines of business, MA and DCE start. Number two, continued favorable negotiations with vendors who see the business value of having Clover as a partner. And number three, leverage human-assisted automation technology to achieve efficiencies that are unique to Clover's organic growth. We believe we'll make significant progress over the next 18 months that will also show in our operating margin over time. We believe we are executing on our mission to improve every life and that our results this past quarter are early proof points of that execution. Before we get to questions, a re-reminder that we publish an extensive white paper on Friday that details how our approach works to create a more equitable healthcare system I strongly recommend that you all read it. With that, let's take questions.

Thank you, sir. As a reminder, we will now begin the question and answer session. As we've done in the past, we will be taking questions first from analysts, followed by reading and answering questions received from Reddits. To all participants, if you have a question, please press star 1 on your telephone keypad. Again, that's star 1 on your telephone keypad. However, if your question has been answered and you wish to remove yourself from the queue, please press the pound key. Stand by while we compile the Q&A roster. Your first question is from Kevin Fishbeck with Bank of America. Your line is open.

Okay, great. Thanks. I guess... Looking at the 2022 guidance, I guess when I think about the normalized MA-MCR that you're guidance for this year, I kind of think that the GAAP MA-MCR for next year should be comparable, but you're looking for MLR to be up next year on that basis. You know, is there something we should be thinking about as far as next year's GAAP MLR, or is there a reason why MLR would be higher than the normalized MLR this year?

So we we've embedded next year a few hundred basis points of, of potential COVID costs next year.

Okay. That's helpful. Is that kind of just pro rata or do you, you building more than the first half year or on that?

Yeah, I think we, we didn't attempt to make assumptions as to how COVID costs would trend next year. so we did a reasonable estimate kind of throughout next year, and we think we're pretty modest in terms of how we've assumed impact of clinical program enhancements, risk adjustment. The goal was to really put forward what we felt really comfortable as an estimate, and we feel really good about it, and at the same time, as we mentioned, Kevin, none of us really know what is going to be an impact of COVID next year. At the same time, we thought it was appropriate to embed some reasonable assumption based into next year's numbers. So I wouldn't view next year's gap estimates as normalized. So we're still assuming there would be a meaningful spread between MA gap MCR next year and normalized MA MCR next year. And so that's why we've focused just on gap projection for next year.

Okay. But is there a way to think about that? It sounds like, you know, in the commentary was that you expect improvement. I wasn't clear if you were just saying improvement versus this year's gap, MAM, NCR, or do you expect that gap versus last 2021 normalized is relatively flattish, or do you think it will actually show improvement off of the normalized to normalized in 2022? Okay.

Yeah, so we purposefully showed GAAP for next year as part of our guidance, and so we're comparing GAAP to GAAP. So just from an expectations perspective, we think it makes sense to stick to GAAP as it relates to projected guidance. But our goal would be to surface normalized MCR numbers as we report next year. But, you know, to be clear, we did bake in a few hundred basis points of COVID impact next year.

Okay. Um, that's helpful. And then I guess as we think about the, um, the DC performance, um, you know, why, uh, you think that it is that it's the, the membership growth is still going to be driven largely by, you know, direct attribution. Um, are there structural reasons why, or is it delaying getting the other kind or, you know, how should we think about that?

Yeah, I think also, um, I know there's a lot of talk about kind of voluntary alignment models. The actual public policy intent of direct contracting was not meant to focus on voluntary alignment. Claims alignment really should be the driver of alignment for direct contracting. We do think folks are going to look closely at that from a policy perspective. The purpose of voluntary alignment is really to take into account those who are switching from practice A to practice B during the year or those who aging in into Medicare into a practice. So, again, can't comment on kind of other organizations' models. But, you know, put simply, claims alignment should be the bulk of enrollment. And then voluntary alignment, you know, over the course of the year tends to even out as it relates to at least what we've seen, those who churn out of a practice or mortality. Okay. But as we talked about and kind of from a guidance perspective, you know, as the lives numbers get finalized, we will expect to share that guidance, and we feel really good about the DCE growth from this year going into Jan 1 next year. Okay.

And I guess, you know, the membership numbers for next year, which you're looking for, are largely in line with what we were expecting. But I guess maybe it's any color. I know last year you talked about how – COVID disrupted some of the in-person marketing and just maybe give some commentary about how you are feeling about the in-person marketing versus the more online and telephonic broker engagement.

Yes, so we frame it in kind of two different ways where we believe that in terms of paying for digital leads, it's not an area that we focus on. We know many or most competitors pay a lot of money for digital leads. Our reluctance with that is there's been a very high growth rate, 20%, 30% compounded growth rate in digital lead costs over the last three, four years. We have not rolled back on that. So all of our growth is what we would call pure MA growth, so driven by field sales, which obviously was impacted last year, a bit this year. Um, uh, in terms of what we'll see, I think, but definitely a meaningful recovery from last year and then just inbound calls from, uh, Clover marketing. Uh, and that's been effective as well. I think part parcel to that, um, you know, as we, as we described in, uh, in the guidance part, New Jersey has been our, um, main market for many years. Um, we're very unusual in the sense of there's very few ma plans across the country. that have gotten to as large market share in a significant market like Clover. So we're now, depending upon what metrics you look at, we're number two in individual MA non-decent market share in New Jersey, up from zero seven, eight years ago. As you'll see in Georgia, and we'll share more numbers as the year goes on early next year, we believe we'll double going into next year. And Georgia membership now uh looks very familiar to me in the sense of how new jersey was tracking in the first four to five years so it's really exciting for clover to fully establish now not just a flag in a new market but in a state that we think is going to have a similar trajectory to to new jersey over the next many years okay and then maybe last question you know that slide with the bridge to kind of longer term mlr improvements um helpful

Should we think about STARS improvement leading to MLR improvement that way, or is there some balance of reinvestment back into benefits, you know, over time as you get to four STARS?

I... I think it's fair to to if we share the graph of the year referencing the year to date through September 30, 2021, the long term pro forma and then see our graph and the earnings release. So the way I would view it just from a modeling perspective is to assume that that goes straight to gross margin for a couple of reasons. So we shared kind of a 300 to 500 basis point estimate for three and a half stars. Given where we bid well below the benchmark, we think 500 basis point plus going from three and a half to four stars is fairly logical and straightforward and easy math to run. The reason we believe a lot of that's going to go straight to gross margin is we have an embedded – in that long-term pro forma illustrative example, any assumptions around improved Clover Assistant coverage or improved and new features to Clover Assistant, which we're super excited about in terms of what we're going to be rolling out over the next 18 months or so. We would expect value that's driven from there. A goal would be to take some of that and give it back to consumers and perform a better benefit design. So that's where we think that will come from in terms of improved value to consumers. All right, excellent. Thank you.

Your next question is from the line of Ralph Jacoby with Citi. Your line is open.

Thanks. Good afternoon. Just wanted to follow up on the 2022 MLR and just make sure I'm following. So gap MLR next year, you're saying, is 95% to 99%. you said a few hundred basis points sort of from COVID next year. So, again, not necessarily for a spot estimate, but if we take 300 basis points off that, it would be sort of a 92 to 96 range. Would that be comparable to the 94 to 96 normalized MLR from this year? Is that a way to look at it or no?

No, I don't think that's a wrong way to look at it. I think that's a fair summary.

Okay. All right, great. And then I guess – from a non-COVID utilization standpoint? Can you just give us, you know, where we are relative to 2019 baseline and maybe how you see that playing out in 22 or what your assumptions include for, you know, sort of non-COVID related utilization?

Yeah. Yeah. So, Mark had referenced this in his summary. We definitely see a very large reversion to the mean happening. Just to reiterate what Mark had said earlier, we had an 850 basis point drop in MCR from Q2 to Q3. That is unheard of in Medicare Advantage. Clearly, it's driven by a reversion to the mean, and that's something we've been talking about throughout this year is the uniqueness of the New Jersey market. You look at all the players that are publicly traded MA, None of them had anywhere close to that drop. In fact, most of them were actually up a little bit in terms of MCR. We've done some more just basic analysis on our side. We'll probably share some of this in terms of the graphs, but when we look at just our PM-PM Med-X by quarter, we actually had a, when we compare back half of 19 compared to back half of 18, we actually had a PM-PM allowed cost drop in Med-X in and then 2020 and 2021 happened and created wild gyrations, you know, we're reasonably confident that the reversion of the mean is going to continue. And I think Q2 to Q3 is a perfect example of that. And we expect that to continue going to Q4 and throughout next year. Now, again, again, you know, there's no way to kind of estimate COVID impact next year, but we've done our best to do that in terms of the gap in CR guidance for next year.

And just wanted to clarify, I mean, I appreciate the comparison to some of the publicly traded managed care companies. Are you talking directly sort of Medicare-related MLR? Because I think the commentary for most of the publicly traded was that, you know, commercial was up and Medicare actually still remained, you know, fairly well below baseline. So I just want to make sure I'm We're comparing sort of apples to apples in that comment.

Yeah, so if you look at Humana, for example, they went from 85.8% MCR. They ticked up to 87.1% MCR in third quarter. That's about 130 basis point move to the wrong side, Q2 to Q3. I know they're not a pure play MA plan, but they're probably closest to a pure play MA plan that's national. So I think that's a good comparable to see that they went worse by 130 basis points and we went better by 850 basis points. I'm only saying that to demonstrate the impact of being New Jersey specifically and the reversion to the mean that we're now experiencing. Yep.

Okay. All right. Makes sense. That's helpful. And then last one for me, just in terms of, I mean, you know, membership now that you expanded into a number of counties for next year, I think above original expectations, but when I, I looked at your sort of expected MA lives of 82,000. You know, it's below the original target, which I don't know how much we should be sort of, you know, looking at benchmarking against that original target. But I guess is there anything you sort of attribute to maybe lower capture initially than what you originally thought or how you can build that sort of presence and scale as you think about things going forward? Thanks. Thanks.

Yeah, no, it's a great question. We feel really good about our growth, I think, for two reasons. There are almost no MA plans in the United States that are as high market share in a region like us in New Jersey, for example, that are maintaining the growth rate that we're maintaining. So typically, your growth rate's pretty high when you're at the bottom of market share, so you're growing over a small base. So to see us still have a really strong growth in a market like New Jersey where we keep it up and we think we can get to number one share over time in New Jersey when you take into account the synergy of our business. So when we think about Medicare Advantage, we think about it really in terms of physicians that we get on Clover Assistant and then lives being actually managed by Clover Assistant. So we're not too far off in New Jersey where Clover will have the most Medicare lives in the state being managed when you include deeper service and MA, and that's a pretty impressive accomplishment. And then when we look at Georgia, that's a market now where we're growing off of a fairly large base where we think we're going to double or more going into January 1. And that trajectory, we think, is going to set us up pretty well to replicate what we've done in New Jersey. And that, as we think, is unique and very hard to build, is to get to really high shares in large markets. And that's our goal. versus just spreading everywhere and getting minimal share across a bunch of markets. At the same time, just referencing kind of a point I made earlier, I do really believe a lot of the growth that's happening in MA outside of Clover is not of high quality. There's a lot of dollars being poured into purchasing digital leads. It is not a game we're going to play because we don't view it as sustainable. We don't view the CACs as sustainable. And so we view all of our MA growth as truly pure growth. versus buying leads that ever increase in cost. And we just view that that game is going to end over the next two to three years.

Okay, got it. All right, helpful. Thank you. Sure.

Your next question is from Jonathan Young with Credit Suisse. Your line is open.

Thanks. Appreciate the question. Sorry to go back to this. Just back on the 2022 MLR, appreciate the comments about the few hundred bits of COVID costs. But I guess you've broken out kind of excess utilization. Are you assuming any excess utilization in 2022? And then similarly, are you expecting the MRA headwind from this year to effectively reverse all of next year? Or is there still some lingering component out there for 2022?

We do expect it to reverse to what we think would have been normal for this year. We think we've been pretty reasonable in our projection there. And then when we Describe COVID impact. It's meant to be a catch-all, the same way we kind of view it this year, so direct and indirect COVID costs, and then also pent-up demand that could continue into next year. Again, it's hard to be precise on that, and we didn't want to get overly precise on the guidance, and it's kind of the gap. estimate versus trying to give a normalized NCR estimate, but that's our thought process. But we do feel really good about the range that we gave.

Okay, great. And then just kind of on the membership growth for next year, since you called out Georgia, is most of the growth that you're kind of expecting to come through, is that more kind of on the existing footprint, or is that through the county expansion component? Obviously, you expanded to a lot of counties for 2022, so just curious on that.

Yeah, it's continued share in in the counties that we're in, but also growth in the new counties. We will definitely share more once open enrollment is completed, but we just wanted to give folks a sense as to where we felt pretty good for next year in terms of overall numbers.

Okay. And then I guess just turning to the tech side, Andrew, you mentioned some care management capabilities and integration with EMRs kind of What else is coming down the pipe and just on that care management, is that all in-house built or is that third-party work that you're, are you hiring a third-party administrator for that and facilitating that through them? Thanks.

Yeah, so everything we're doing around there is steered and architected by us as part of the Clear Persistent platform. We do have some partners who are able to provide specific areas like integrations or like commodity sort of fire API integrations where we can use those partners to actually pull in data faster, but we all consider that to be part of our Clover Assistant platform. So that goes for back-end data interrupt. That also goes for EHR integrations that we talked about. You'll see us launch more and more of those EHR integrations to make sure that we are constantly focusing on physician workflow experience and engagement and driving those numbers up and to the right. But in addition, in terms of the clinical feature load, we have a full map in terms of what we're looking to do there. We'll announce those as those features come out. But what you'll see us do is always be oriented towards individual conditions, therapeutics and drugs, around where we see that we can do better in terms of personalized data-driven care management. I will launch those. I mentioned Onco in the call. We have more of those coming soon. where we can pick large swaths of our population and give them a better, more personalized care management and care planning experience. And those will all launch within the clover-resistant surface.

Great, thanks.

Your next question is from Calvin Sternick with J.P. Morgan. Your line is open.

Yeah, hi, good afternoon. Just a couple of quick ones for me. First, on the DCE commentary in the press release, it says they're expecting a significant step up next year. Can you help give us any sense for just sort of the magnitude for how much enrollment you're sort of expecting to come through in terms of the voluntary claims line?

Yeah, we believe it will be a significant growth. I think from a guidance perspective, CMMI is finalizing their initial lives estimates for DCs over the next week or so. So we made the decision to just hold off on specific guidance until we get that first file.

Okay, understood.

Just a quick note, don't forget that, because you asked about volunteer alignment, just a quick reminder, Calvin, that we actually also grow by signing up new providers, and so even with the claims alignment, we will grow with claims alignment because we have new providers coming in. Just a quick note that that's how we also grow.

Okay. And the other thing I wanted to ask was, so you mentioned the big drop in MLR sequentially, and that came in a little bit better than what we were looking for, but And you still had the PDR in the quarter. Can you talk about what's driving that and whether the PDR is primarily driven by Medicare Advantage or direct contracting?

The PDR, I think, was MA. Mark, just correct me if I'm wrong on that.

Yes, it is MA, and it's essentially a timing issue between when we receive claims and what we expect the IVNR to run out to be.

All right, thanks very much.

Your next question is from the line of Gary Taylor with Cowan. Your line is open.

Gary, are you there?

So you might have your line on mute.

Oh, I'm sorry. Can you hear me now?

Yes, sir.

Yeah, we can hear you. Apologies. Just following up on the PDR question, so I do think it's the second quarter in a row there's been one. So when you think about your 22 MLR guidance, which you, you know, generally reporting MLR, excluding any PDR, there's none contemplated. in addition to that GAAP MLR guidance. Is that correct? That's correct. And another question is, and I apologize, I missed maybe the first five minutes of the call, but why did the direct contracting economic performance improve so much sequentially when I think we're still, you know, eight or nine months out from a CMS reconciliation? What allows you to book a closer to break-even result there?

Yeah, no, it's a great question. There's a large part of it, hard to estimate as much, again, as reversion to the mean in our markets on Med-X trend as possible. As we've guided throughout the year and indicated, there's been a unique impact in some of our markets where we're obviously in MA, which is Jersey, but also in direct contracting, we do have meaningful lives in New Jersey and New York area. So that's one area. Secondly, hard to estimate the exact impact, but we're now at about a 60% Clover assistant visit rate in direct contracting. We hope to kind of get to meaningfully above 70% by the end of the year. As we shared in our going public process and in our MCR cohort data with physicians, there's a pretty significant impact that Clover Assistant has on Med-X as well, which is the entire crux of the direct contracting model.

Got it. And then last question, did I miss parent cash for the quarter, or I presume that will be in the queue, which I might have seen that flash, so I might have a chance to look at it. Do you have parent cash for a quarter in? Unregulated?

I think we don't, but we can follow up with you on that. I don't think we put that in the numbers. It'll probably be in the finals.

Thank you. As there are no additional questions from the phone lines, we will now shift to take questions from Reddit. With that, I'll hand the call back to Derek, sir.

Thank you. So our first question comes from FlatDual88. I'd like to know the general market hesitancy seems to hinge on the previously reported MCR. Does the company have guidance on a path to lowering MCR through this new business model? What MCR would be deemed a success in leadership size? What adjustments have you made to reach this goal? Vivek?

Yep. Thanks, Eric. Great question. To answer it very specifically and go through some details, we'd love to get to, and we think very, very achievable, is mid-80s MCR, but paired with really phenomenal plan design, so even more improved from where we're at now. So when we think about our normalized MCR now, where we're in the low 90s, kind of 94 or so, 94%, when you pro forma that for three and a half stars, we're now kind of at the 90% number. When you pro forma that for 4.0 stars, or that in the low to mid 80s already, that doesn't take into account, again, any improvements coming from Clover Assistant or improved Clover Assistant coverage. I think there's two really interesting dynamics going on. One is there are clear, heavy, heavy public policy headwinds against all of the large MA players and all players that rely on narrow networks or capitation type of relationships. Those are going to be tailwinds for us as those come to fruition over time. Then on the star rating side, it's just a matter of time, and we can be patient about this, and we're happy to be, where a health equity summary score is going to drive impact on star ratings eventually is our belief. And even despite that, we feel really good about achieving these numbers without having those policy changes made, but inevitably those are going to happen at some point in time.

Great. Our next question comes from Winky86. So we know that the Clover Assistant assists providers in getting a more comprehensive look at patients' health, but I would like to see some metrics or key performance indicators of how often it's being used, what it's asked to do, and maybe areas, things, medical issues were addressed that would not have been addressed if it wasn't for Clover Assistant being in place. Andrew?

Yeah, thanks, Winky. Appreciate that. So our product team and tech team are looking at metrics like these all the time. This is actually vital to us to keep building the platform, looking at how we iterate, looking at how we can provide better value in terms of care management. We shared some additional stats. You know, we said that today that we grew 222% year-over-year to Clover Assistant lives under management. We shared that before. About 2,900 MPIs are using the Clover Assistant, which is up around 45% year-over-year. And so there's a lot of impact that we see, really good engagement, really good growth in the Clover Assistant footprint. The number of Clover Assistant visits have also increased about 73% year over year in the third quarter. We've surfaced about 1.3 million recommendations to physicians since the inception of the Clover Assistant, something that we're really, really proud of. And all of this with high engagement on that wide network, right? We're constantly growing more CA users, growing that engagement within the CA user cohort, and we're launching clinical content into the actual business. consistent all the time, right along the lines of what was stated in the question. Like we show lab information, we make evidence-based suggestions to say, have you considered these personalized adjustments to the care plan, et cetera, et cetera. And so we have a roadmap of those things. We don't share engagement statistics around those. It's something I'll bring back to the tech team to see whether we can maybe put up some additional information for people who are interested about what we're seeing and share some more of that. We don't do that during earnings, but we'll think about it. going forward. We're really proud of what we've achieved so far, though, like Vivek said, and we continue to drive that up and to the right.

Great. Our next question comes from Booth Lover. How is the CFO search going, and do you foresee an announcement in 2021? Maybe I'll hand this to Mark.

Yeah, the search is actively underway. Each search carries its own life. So it's hard to predict when it will be concluded, but it is active. We are receiving candidates to evaluate, so it's well underway. In the meantime, I will remain in place until that transition begins.

Awesome. And just to add to that, in the mark of the team that we've assembled and participated And some additional folks Mark has brought on has given us a lot of bandwidth and runway to be patient and really bring on the next great candidate.

Great. We have another question from Low Brow High Standards. When you say your mission is to improve every life, does this mean you envision the future of Clover Assistant expanding its radius beyond Medicare Advantage individuals? Can one expect as Clover Health grows to eventually see the Clover Assistant deployed for the use of the general population? If so, what metrics are you waiting for to expand into the open market? Andrew, why don't you take this question?

Yeah, I'll jump in first and then talk to Vivek. Definitely from the clover system perspective, our goal here is to help as many people as possible. And it was built to help manage chronic disease, to help to manage, you know, big precision medicine to a large population on that wide network. And those concepts are applicable to pretty much all of health care. So while we do use Clover Assistant first within our Medicare Advantage plans, but then we launched it within direct contracting to the fee-for-service population as well. And I think you'll see that we're able to bring it in the future to many other places, including potentially third-party payers who can also use Clover Assistant or anyone who's bearing risk. Like, you know, there's ways that we can actually help have those folks be managed with CA as well. That's why we share the lives under clover assistance statistic. That's agnostic of any particular business line, and we're always looking for ways to increase the total number of lives under clover assistance management because that's what we built it to do. Vida, do you want to add anything?

Yes. Yeah, the only thing I would add is since the founding of the company many years ago, we've always been clear and very intentional about saying every life and not every Medicare life as our mission. And our mission is where we want to get to over the long term. And we feel while ambitious, it's something that we will achieve over time.

Great. Our last Reddit question comes from Choice Diet. Does Clover intend to expand into managed care plans for Medicaid in any of the 50 states, or to license Clover assistance companies that provide that such coverage? Vivek?

Great question. We've definitely, especially of late, been actively thinking about ways to drive massive positive impact into Medicaid. From a mission perspective and ability to drive unique impact there, we think we could be well-positioned, particularly around the Clover Assistant infrastructure. The goal, we will – I'll stop there, but we'll share more on that in the future.

Great. Vivek, you want to give any closing comments?

A big, big thank you to the team for a really tremendous quarter and a huge improvement versus Q2. And we're excited about what's happening on the growth side on MA and feed for service and a really, really big milestone for us to get to pretty massive traction in Georgia. And we think that's really exciting for the next many years.

This concludes today's conference call. Thank you for joining. You may now disconnect. Have a great day. Stay safe.