Clover Health Investments, Corp.

everyone. Joining me on our call today is our CEO, Vivek Garipalli, our president and CTO, Andrew Toy, and our interim CFO, Mark Herbers. We will discuss fourth quarter and full year results, recent trends, and answer your questions. This call is being recorded. Before we get started, I would like to remind you that our fourth quarter and full year earnings materials, including the release, are available on our website at cloverhealth.com. 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, including expectations about future performance. Factors that may cause actual results to differ materially from our expectations are detailed in our SEC filings, including in the risk factors section of our latest annual report on Form 10-K and in our other periodic SEC filings. The forward-looking statements are made as of the date hereof. We assume no obligation and do not intend to update these forward-looking statements as a result of future events or developments. Information about non-GAAP financial measures referenced, including definitions and a reconciliation of those measures to GAAP measures, can also be found in earnings materials available on our website. With that, let me now turn over the call to Vivek. Vivek?

Thanks, Derek, and thanks, everyone, for joining us today. We are really excited about where Clover sits today, the progress we expect to make in 2022, and our goals for the future. Not just enabling physicians to provide great healthcare to all, especially those in underserved communities, but to do this with a growing, sustainable, and ultimately profitable model. Let me now reflect quickly on the past year and some recent accomplishments and events. 2021 was an eventful year for us. We went public, dealt with COVID challenges, and we accomplished a lot. We more than doubled our revenue to $1.47 billion. Lives under Clover management increased by 124% to approximately 130,000. We launched our first non-insurance line of business, direct contracting, underpinned by the Clover Assistant. The Clover Assistant can be a differentiator with an MA-MCR differential of over 1,000 basis points for returning members whose PCPs use the Clover Assistant versus those who don't. And we did this while operating on a wide network and driving a positive impact on health equity with more minority and underserved beneficiaries than typical for Medicare Advantage plans of scale. We also had a strong AEP in Medicare Advantage, growing well above industry levels at 28% year-over-year. In Georgia, we nearly tripled our lives and believe we're on a trajectory there similar to New Jersey, where we are a market leader. We believe our increasing scale, attractive benefit plans, and the Clover Assistant will enable us to keep gaining share in core markets while at the same time driving improved MCRs. In direct contracting, we started 2022 with over 100,000 more lives than we ended 2021, and with providers in over 20 states. Largely due to this growth, our lives under Clover Assistant Management increased to approximately 200,000, and our non-insurance lives now represent about two-thirds of our total lives. We believe the more lives under Clover Assistant Management, the more opportunities we'll have to drive clinical and financial improvements for Clover and our participating providers. Finally, I wanted to touch upon the recent CMS calendar year 2023 advance notice for MA. Obviously, many in the industry are pleased with the rate increase. We are as well. But we are even more excited about the increasing focus on health equity, specifically CMS's commitment to continue to explore ways to revise risk adjustment model in order to more appropriately pay for subgroups of Medicare beneficiaries. This is something that will get much more focus over the next year or so, but we believe Clover's well-positioned given that almost half of our MA beneficiaries are in underserved communities compared to 34% for the average MA plan. We encourage you to read our Health Equity White Paper for more specifics. With that, let me hand over the call to Andrew to talk about the Clover Assistant and specifics around how it is driving a material impact.

Thanks, Vivek. 2021 was a great year for the Clover Assistant. Along with unlocking an entire new business line with our entrance into Medicare fee-for-service through direct contracting, we continued to invest in its evolution at the preeminent physician enablement platform and increased our annualized MedEx under Clover Assistant management to over $1 billion. The Clover Assistant was built on open FHIR standards in an effort to break down data silos and improve interoperability across the healthcare system. This enabled us to deliver our first major integration of Clever Assistant within Athena Health's market-leading EHR, with more integrations coming soon. We also launched clinical programs and data models specifically targeting some of our most vulnerable members suffering from cancer and chronic kidney disease. These successes are validation of our differentiated software-first approach. The Clover Assistant allows us to iterate quickly, and we can adapt it to fit the needs of different facets of Medicare, as demonstrated by our rapid scaling of both our MA and fee-for-service businesses. To summarize our opportunity, we believe we can fundamentally change healthcare by providing an easy-to-access, on-ramp to value-based care for every single provider in the country. In 2021, the Clover Assistant platform surfaced nearly 1 million clinical recommendations to clinicians and flagged more than 200,000 potential care gaps for action. Clinicians that used the Clover Assistant grew 43% year-over-year to approximately 3,000 in the fourth quarter, and on average, the platform aided physicians in managing more than 35,000 care plans per month. By leveraging the Clover Assistant platform, we believe we can raise the level of care given by every provider and rapidly and broadly scale in ways that traditional managed care plans and risk-bearing provider groups cannot. This engagement translates to improved MCR. Not only is there a difference in MCR between members whose providers use the Clover Assistant and those who don't, but there is also a benefit from the length of Clover Assistant use. We measure this in terms of cohorts of when the physician went live on CA. For example, in service year 2021, our MA members with PCPs who went live on Clover Assistant in 2019 had a 2.7% lower incurred MCR than members with PCPs who went live on Clover Assistant in 2020. Similarly, members with PCPs who went live on Clover Assistant in 2018 had a 4.9% lower incurred MCR than members whose PCPs went live on Clover Assistant in 2019. Further, the Clover Assistant is a key to unlocking non-insurance business lines. For example, in direct contracting, we principally scale our model of care by deploying physician enablement software to providers versus acting as an insurer. In these scenarios, we provide care coordination primarily through our software, the Clover Assistant. This year, we expect to have approximately 250,000 lives under management with about two-thirds of these lives and two-thirds of our revenue to come from these non-insurance scenarios. We'll be talking more about expanding this non-insurance opportunity in the future. Ultimately, we believe our success in fee-for-service is not indicative of anything program-specific regarding direct contracting, but rather proof of our ability to provide software that allows any physician to be successful in value-based care. This has been demonstrated by our leading growth in fee-for-service, and we fully believe our software platform will be successful in other Medicare value-based models as well. We are highly supportive of innovation in the healthcare space, whether it be through new programs like direct contracting, Medicare for All, or Medicare Advantage as it evolves. In all these cases, the one constant, one that we feel we are well poised to address, is how do we quickly bring more physicians into these programs and make them successful? We believe the Clover system is proving to be this digital on-ramp onto value-based care, and we feel very confident about our ability to be successful as new programs launch and old programs are changed.

With that, I will now hand it to Mark for the financial update.

Thanks, Andrew. I'm going to quickly cover the important items from the fourth quarter before handing it over to Vivek to wrap up the call. We delivered $432 million in revenue in the fourth quarter, up 160% year over year. This growth was driven by the launch of direct contracting and growth in our MA membership. As of year end, we had approximately 129,900 lives under global management, and this was comprised of MA membership and direct contracting lives of 68,120 and 61,876, respectively. Moving to medical expenses, our net medical claims incurred for the quarter were $442 million. Our GAAP MA MCR was 102.8%, up only 30 basis points compared to the third quarter, despite increased direct COVID costs of approximately 200 basis points, typical seasonal trends, and higher outpatient utilization, which has carried over into January and is something we'll be keeping an eye on. Also, our non-GAAP normalized MA MCR, was 96.7% compared to 98.0% in the year-ago quarter. We recognized a net premium deficiency reserve expense in the quarter equating to a non-cash net expense of $62 million. This was primarily driven by a $110 million reserve recorded for the 2022 financial year to reflect an estimate of the sum of future medical costs, claim adjustment expenses, and administrative costs exceeding related future premiums in 2022. This was partially offset by the amortization of the remaining 2021 premium deficiency reserve of $48 million. Direct contracting net medical claims incurred on a gap basis were $235.4 million, and our direct contracting margin was 103.0%, up only slightly compared to the third quarter due to seasonality and increased COVID costs relating to the Omicron spike in New Jersey and New York, both of which ranked at the top in terms of hospitalizations by state in early January. Excluding direct COVID costs and prior period development, non-GAAP adjusted direct contracting margin was 102.1%. Fourth quarter, non-GAAP adjusted operating expenses which excludes non-cash stock-based compensation, SEEK, and Clover Therapeutics from salaries and benefits plus general and administrative expenses were $77.5 million, representing representing 18% of total revenues compared to 46.8 million and 28% of total revenues in the fourth quarter of 2020. We expected adjusted operating expenses to grow at a more moderate rate and become a smaller portion of revenues as we scale and drive efficiencies, which is a key focus in our 2022 operating strategy. Our GAAP net loss for the quarter was 187.2 million. Our adjusted EBITDA loss for the fourth quarter was 154.8 million. After excluding gross loss from direct contracting, PDR, SEEK, and Clover Therapeutics, and normalizing our MA business for the MCR impact of COVID, our normalized adjusted EBITDA loss for the quarter was 68.5 million. Clover had approximately 471 million total shares outstanding at the end of the fourth quarter, which includes the 52 million shares we issued in November as part of our capital raise. Our cash, cash equivalents, and investments totaled $791 million as of December 31, 2021, and included $285 million in net proceeds from our capital raise. Now, let me turn over to Vivek for some closing comments.

Thank you, Mark. Just to wrap up, we are excited about our expected improvements for 2022 MAMCR. In addition, we believe we will see another stepwise improvement in MAMCR in 2023. As it relates to operating expenses, we expect there will be only a moderate increase this year versus our Q4 2021 run rate driven by operating leverage and efficiency efforts. There is much more work being done this year to drive further cost efficiencies, and because of that work, if a number of things fall into place, it is even possible we may be profitable next year on a non-GAAP basis, excluding non-cash expenses and non-recurring expenses. Our mission is to improve every life. As part of that, I want to reiterate that we are very pleased with the CMS proposal that is now out for comment that lays out a path to narrowing the health equity gap around risk adjustment and STARS. With that, let's take questions.

At this time, if you would like to ask a question, please press star 1 now on your telephone keypad. To withdraw yourself from the queue, you may press the pound key. Once again, that is star 1 on your telephone keypad. We'll take a question from Richard Close of Canaccord Genuity.

Yeah, thanks for the question. Andrew, I was wondering if you could go over that 250,000 lives again in more detail. You said something about non-insurance, and I just want to make sure I understand that.

Yeah, so basically the way that we're looking at this is that we have the insurance line of business, which is obviously Medicare Advantage, where we act as the insurer and that you understand that business obviously. In other areas, which started with direct contracting in the fee-for-service space, we consider that to be non-insurance because we are not acting in an insurance capacity. We're not an insurance company. That's not how we're covered underneath sort of like HIPAA and regulations. We are actually signing business associate agreements with practices and physicians, providing them with clever assistance, and then helping them go at risk within fee-for-service with the government in a value-based program. So where we're assisting physician groups and enabling them to go into value-based arrangements but are not acting as an insurance company, That's what we meant by that. And the bulk of those are right now in the obviously in fee-for-service and direct contracting, but we intend to look at expanding that business too by enabling physicians to go at risk in other programs as well.

Okay. And do you think you'll have lives in other programs during, you know, 2022?

Yes, so we're looking at this very seriously. It's something that we're looking at right now. If you want to think about it, it's quite straightforward for a physician who's already using Clover Assistant to have started with either fee-for-service and direct contracting or what RMA plan and then bring that into other areas of that panel. We do want them to use Clover Assistant for as much of the panel coverage as possible. So while we don't have any guidance around that, it is something we're looking at very seriously this year.

And, Richard, just to be clear, the breakdown of that almost 250 is 160 to 165 direct contracting lives and 84 to 85 MA lives. Sorry, 84 to 85,000. Okay, thanks.

And, Andrew, I was wondering if you could talk a little bit about, you know, now that you have some scale with expected 160 to 165,000 lives on direct contracting, Have you guys been successful in getting MA physicians essentially more interested in utilizing Clover Assistant? How has that worked since you're entering the third quarter of this?

Yeah, absolutely. So what we're seeing here is that there are definitely synergies to more as I referenced just now, the more lives that a physician can use to manage their panel using Clover assistant, the better it results in more of that development of software muscle memory and engagement with the platform. So we definitely are seeing that. We track physicians who are using it for both fee-for-service and MA, and we're encouraged by what we see there. In addition, we definitely are going out and bringing in folks who are not Basically, in a region that's served by our MA plan, I just want to also emphasize that that's something that we think is very successful as well, is to be able to approach people on just the fee-for-service side and not necessarily on the MA side at all. We actually do believe that that non-insurance segment could be a very fast-growing segment for us, as shown by our initial success in fee-for-service. And there are certainly folks that once they start looking at our actual sort of success of career assistance that is easy to integrate into their practice, we see that it's very quick to bootstrap them on that direct contract fee-for-service side. And then we can talk to them about moving at risk with either our own MA plan or with others.

Okay. I'll jump back in the queue. Thanks. We'll take our next question. From Kevin Fishbeck of Bank of America.

Hey, this is Adam for Kevin Fishbeck. A couple questions. I think based on the MA-MLR disclosure and commentary, you're kind of saying that you baked in a little less COVID costs and probably most of the risk adjustment benefit. So are you basically saying that this 600-ish basis points of COVID that you're building into MA, MLR, like if things are going to come in better than that, that's all upside?

Are you asking it specifically around the guidance side, the 95 to 99%?

Yeah, you've got it to the GAAP, MA, MLR, and you said you built in slightly less COVID costs. So I'm just wondering if the rest would be upside if it came in better than the 600 basis points-ish that you're implying.

Yes, I can't remember the exact specific amount and if we guided specifically to the amount of COVID costs baked in, but in our last earnings call, we did talk about baking in a few hundred basis points of COVID impact this year. Again, we're not delineating specifically between kind of the risk adjustment portion or pent-up demand or just increased utilization driven by COVID impact. But, you know, to your point, if COVID subsides and there was an impact over this year, that technically would be upside.

All right. Thanks. And then I guess not sure how much you have to say about this, but there have just been of controversy around direct contracting in the headlines. I'm wondering if you have any thoughts. And also, you guided to slight improvement in MLR year-over-year, so it's fair to say, you know, any adjustments are unlikely to actually be impactful to earnings, given that it's largely break-even in the near term.

Yeah, great question.

Andrew, if you just want to hit maybe kind of our perspective on core versus direct contract, and I can add some

Yeah, absolutely. So, obviously, direct contracting is something that's always being reviewed. As a CMMI program, the government is entitled to review this. But what we believe is there's definitely a focus on bringing more physicians into value-based care, and this is something that's just as applicable on the traditional original Medicare side as well as in Medicare Advantage. We definitely believe as a company that it's a consumer choice, a legitimate consumer choice for someone to pick Original Medicare, and that may be with or without MedSupp, or they might pick Medicare Advantage. And our goal is to provide Clover assistance in either of those scenarios. Right now, we access the Original Medicare market through the direct contracting program, but there have been other forms of value-based contracting between providers. and the government before, whether it be like MSSPs or similar ACOs and similar structures. So we believe that's going to stick around a while. Value-based care is around for a while. What's really necessary is so many physicians have been unsuccessful, have not been able to move into value-based constructs, which are better ways to create better outcomes at lower cost. And Clover Assistant is a way for them to do that. So we feel good about about the success we've had. We believe that we're accessing a part of the market by helping physicians with our software platform who need the help and who are not getting that help from others. And we believe that's a durable value that we are providing.

And just to kind of add to that, when we go back to kind of the original founding vision of Clover, it really was always about how do we enable clinicians to make great decisions at scale, and that's the Clover Assistant or software platform. We made a very intentional decision that we thought we could build the best software inside of a wholly owned insurer, in this case, an MA plan. We don't think the debate around payment models is going to slow down. I think it's only going to accelerate, whether it's Medicare for all, Medicare Advantage, direct contracting. We're generally agnostic Long term to payment models, mainly because the vast majority of our R and D effort. Doesn't go to the payment model side very much around clinical decision support and how do we help physicians make great clinical decisions on a day to day basis and that demand? I think we're at the very early part of that demand curve. Over the, as we kind of look at it in the next five to ten years, that's really where the big business opportunity, clinical opportunity, consumer opportunity is, is really developing that platform and making that much more powerful.

Yeah, that's a fair point. And then my last question would be around the commentary around MLR improvement into 2023. Was that mostly in reference to stars coming into your P&L, the benefit from 3.5 stars? And then given some of the latency that CMS gave for those planned rated years in 2023, I was wondering if you can remind us about the confidence levels in maintaining at least 3.5 stars into 2024. Thanks.

Yeah, so we've, from a guidance perspective, our original guidance was to have three stars for payment year 2020. We ended up with three and a half. Our guidance for 2021 was three and a half stars. Nothing has caused us to change that guidance. That would affect the payment year 2024. As it relates to looking out past this year and into 2023, I think one of the things that is unique to Clover is Clover Assistant is constantly improving. So there's actual feature durations happening every three weeks or so. That, by definition, we feel good is going to cycle into impact throughout the course of this year and definitely the next year. Beyond that, in terms of actual clinical programs, one program that we stood up at the very beginning of this year as part of our in-home primary care program is a palliative care program. That this is the 1st time we've launched that primary care program. Couple that with what we started to execute on towards the back half of last year on our partnerships with time care and cricket health and oncology and chronic disease respectively. We expect to start having an impact going into next year as well. And there's multiple other programs that may have more of a modest impact. you know, beyond getting to kind of the STARS improvement impact to next year.

All right. Thank you. We'll take our next question from Jonathan Young of Credit Suisse.

Hi. Thanks for taking the question. I appreciate the commentary on MA and then the the advance notice. I guess when you think about 2023, how do you think about benefit design kind of moving forward? You obviously have rich benefits already, so I guess given some of your larger peers are thinking about going back into the market a little bit more heavily, you know, how do you think about that competitive landscape and, you know, if you have to redesign your benefits a little bit more in 2023? Yeah, so I think...

I think if you just take a step back and if you look at where the growth has been in Medicare Advantage over the last, particularly the last five years, it's really been on the PPO side. I don't have the numbers in front of me, but I think the growth rate for PPO versus HMO plan segments has probably been double, maybe even more than double. So when you look at kind of the incumbent plans that you're probably referring to, Their HMO book of business is twice that of their PPO book of business, but it's growing at a much lower level. When they think about driving gross margin, it's really on their HMO side. They don't really have the capabilities to drive attractive gross margin at scale on their PPO plans for a multitude of reasons. Their models are very much generally tied to having strict control around the network and really using kind of that stick approach The vast majority of our business on the MA side, 90% plus, is on the PPO end. So irrespective of what competitors do in terms of pouring dollars additionally into benefits, they still have to go up against the option of flexibility. So you can make an HMO plan more attractive, but you're still competing against, at least in the markets we're in, an attractive PPO model or that's actually our core business. So if we kind of fast forward to next year, the year after, and so forth, the incumbents are getting into a business model that they're not actually well-equipped to execute well on, which is a world of choice and network flexibility and technology. And so we feel very good about continuing to invest in building a great PPO plan model, but again, powered by the Clover Assistant. I think taking a step further, I think you're absolutely right. There is definitely in terms of your initial point, a huge gap between our plan design attractiveness versus the competitors. You know, we're still in the very kind of early stages in terms of thinking through bid design, how we want to adjust that and which markets we may adjust that in. So I think a lot of work to do there between now and bid submission in the May timeframe. But, you know, in terms of thinking about balancing growth versus MAMCR, it's very much top of mind. It's something we're super focused on. And, you know, we made reference in kind of our earlier comments around, you know, if something's falling into place, there's definitely that potential on a non-GAAP basis to get to profitability. And next year in MAMCR is definitely going to be a huge lever towards that.

Okay, great. And then just going back to DC again, kind of on around the program, I guess. I guess, are there any steps you're taking in case there are significant changes to the program? I understand that you're obviously going to continue to build out the software and develop it as needed, but I guess, is there any contingencies in case there are major changes to the DC program? Are you looking to go into the other ACO programs, perhaps? Anything of that nature?

Yeah, so we're not being too specific because obviously we just want to see what the decide to do here before we react too much for obvious reasons. Yes, we believe that we want to serve as large a portion of a patient of a provider's Medicare panel as possible. That includes fee for service and original Medicare that can be through direct contracting program. But there will be programs in this area. that we can move into, as well as being able to serve across the Medicare Advantage gamut, whether or not we're the risk-taking entity or not. That's why we're thinking of it as our non-insurance businesses, where we're not playing the role of the insurer. So I think when you look at our success in direct contracting and our rapid, rapid growth there, that's just a sign of the demand and the fact that we're in that blue-water market and have access to this very large TAM Where everyone else is sort of competing for a very small number of sophisticated providers who know how to go into value based programs. And that's fine. That's sort of like, you know, people can compete over those providers. We're able to access the majority of providers who need help going into these programs haven't been successful in the past. but with Clover Assistant can be successful. And that model, we are sure, is going to continue to exist, and the need for that will remain in the fee-for-service world as well. So we don't think we need a direct backup plan here, but we intend to stay in the fee-for-service market.

Okay, great. And just last one. You broke out the cohorts for your MA MLRs. I guess... If we think about that from the DC side, should we expect kind of similar improvements in terms of cohorts? You're obviously adding a lot this year for 2022. So I guess, you know, should we expect, you know, 100 BIP improvement on the 2021 cohort? You know, how should we think about the 2022 cohort coming on? Just any color around that.

Yeah, very fair question.

Sorry, go ahead.

Yeah, I was going to say, I think it's a little too early for us to actually look at this right now. Very fair question to ask. But we need more data to obviously do that cohorting. And DC and MA are obviously different programs, similar and almost identical in terms of clinical care, as Vivek pointed out. but one's a benchmark-based program, one is a cavitated program, right? So, we wouldn't expect identical just because the dollars flow through slightly differently. So, we'll share more as we actually are able to track and create those cohorts.

Great. Thanks. Thank you. We'll take our next question from Gary Taylor of Cowen.

Hi, good evening. Just a couple questions, if I could. I wanted to go back to Vivek's comment that could actually be non-GAAP profitable in 22. I just want to make sure I'm understanding the point there. If we take the midpoint of your MLR and revenue guidance and your G&A number, I think it implies an EBITDA loss of roughly $220. $40 million. So to flip that even to break even, you'd have to outperform your MLR by 750 basis points or so. So am I kind of in the ballpark on those numbers? And is that MLR piece what you're describing as sort of the key way that profitability could be plausible? And when you meant next year, you meant 23 versus maybe I'm off a year and it's 23 versus 22, but just to clarify that.

No, MET 23. And just to your point around MLR, so obviously there's two parts of a P&L. There's the revenue line, and then you have the expense line. So I think, you know, as you've seen, there's been a top-line growth component this year versus last year. And if we kind of look at next year, we expect growth again. You know, one of the things, you know, Gary, given that you've spent kind of the vast majority of your career with managed care organizations in terms of researching them, I think you're pretty familiar that kind of a typical OpEx as a percentage of aggregate MA premiums is anywhere from kind of 8 to 12% depending upon the size of the plan. And so you obviously see we're well above that. So from, and it's not rocket science, you know, past a certain size organization to be able to right size leveraging growth in terms of operating synergies to get there. So that's a big prong, and there's a ton of efficiencies we have ahead of us to be able to achieve, particularly on the technology side and the synergies across different lines of this MA and beyond, as Andrew referenced. And then on the MLR side, again, kind of a few parts of the equation, there's definitely the MCR side on MA, But, you know, I'm going to, you know, resist on giving you any specific guidance around that, given there's lots of different paths to that. And, again, you know, we described it as go around the possibility, and we do think it is possible, but we're not necessarily guiding to that.

Got it. And do you have a parent cash figure for us at the end of the calendar year?

I think total cash, I want to say, was around $800 million, but Mark can correct me.

For the end of the year, I don't have a number I can share at the moment.

Gary, we'll get back to you on that.

We'll look for it in the K then. Last one for me. Can you just describe a little bit about how – you've grown the direct contracting, so you've raised guidance, you know, twice in terms of your enrollment there for 22. Could you just break out how much of that enrollment's coming in through claims alignment versus voluntary? And then really, is your strategy around, you know, is there a per-visit financial incentive for the physicians? Is there a profit split? Is it really the attractiveness of getting to use, you know, Clover Assistant? Can you just... One, I'd like to see sort of the breakout of claims versus attribution, but just sort of how are you finding the success of signing up these physicians as participants under your DCE?

Yeah. Thanks, Ari. So, basically, I don't have the exact number, but the heavy majority are coming through claims alignment. And that's part of our strategy here. The reason is that the success we're coming from is we go to existing physician groups, like I said, who want to move into largely they've been on fee-for-service. Maybe they've tried to put their toe in the water with value-based contracting. And we say to them, we can help you move into a value-based contract. and be successful in that. And so we are actually having a B2B, a business-to-business motion there where we contract with an existing physician, and then their lives move into the DCE as claims-aligned lives, the normal methodology. This is as opposed to other models, which are heavily relying on voluntary alignment, which means that they're trying to switch folks oftentimes, because by definition, if they were claims aligned, they would be claims aligned. If you need to use voluntary alignment, that means that you actually didn't have the plurality of claims from last year, and you're trying to switch them into your practice. There's no switching required for us. We just get the people who are already seeing these PCPs, and that's how we're able to grow so rapidly, basically. And then, yes, we have a similar model to MA where we have an economic structure where they are able to predict and say, you know, this is how much we were earning before. We give them extra compensation around, like, whoever assistance, just like we do on the MA for the time and the effort they're using to provide value-based care, and then we move onwards from there.

Thank you. We'll take our next question from

Whit Mayo of SVB Lyric. Your line is open.

Hey, thanks. Good afternoon. I wanted to go back to sort of an industry development that's occurred in the last year with CMS enhancing a lot of the compliance around third-party marketing organizations. And there was a notice that was issued, I want to say October 8th, that I think created a little bit of – I don't know, some anxiety and some concern among certain carriers as to how they were supposed to comply with some of the mandates that CMS had. I guess, Vivek, I was hoping to get just your overall perspective and view on what happened and how Clover responded. And maybe I'll just stop there to get your response.

Yeah, that's a great question. We're very, very supportive of particularly the recent efforts by CMS to create a much higher bar and compliance requirements around third-party marketing. I think we've seen a lot of third-party organizations sort of pop out of nowhere over the last many years, really just trying to generate leads and selling leads to various organizations. And we do think it creates a lot of confusion in the marketplace. Consumers don't generally know always what they're signing up for. It's no secret that churn is meaningfully higher with those strategies than kind of the normal word of mouth or independent field agent type approach. And that churn is higher because there's confusion in the sales process. So, you know, we're definitely bearish on kind of all those models that aren't taking a very sophisticated approach and really trying to explain plan options. But, you know, I think suffice to say, you know, I think we would expect to see continued rules and regulations on gearing MA to make sure it's serving its kind of intended purpose and following kind of the policy intent. I think this just is another example that we referenced in our opening remarks, some of the meaningful proposals that CMS is making around health equity that can impact risk adjustment in a way dramatically to help those that are most in need. I think that's just another example of that. So I expect those types of changes and proposals to only accelerate. Andrew, I don't know if you have any other comments on that.

Yeah, real quick, just go quick on that. I think Vivek covered the main points. A couple of different things is, you know, we talked about this in the past, but we've had less exposure to some of the online brokerages. And then as well, as Vivek said, to the field marketing organizations where there's been a bit of a game we think that's been built up to use marketing dollars routed from managed care plans into these organizations. to sort of bypass the caps that are provided on broker commissions, which is obviously not in the spirit of the regulation. So, very pleased to see that closing down. And on the electronic side, have definitely seen, again, as Vivek alluded to, high churn coming from those particular lead sources, as well as a very rapid race to the top in terms of cost per lead. Again, we are sold by those electronic brokerages, too. But our exposure to them has been significantly more limited than other managed care plans. I think that's probably why you saw our – we're pleased with our success in this prior AEP.

Got it. One follow-up question is just, as you sort of reflect back on the 2022 open enrollment cycle and looking at some of the growth that you've had in some newer markets. And I guess I should say not newer, but not your legacy core New Jersey markets. But what lessons were learned in terms of the receptivity, the benefits, what the plan design looked like? I mean, when you look at some of the success stories that you guys have What do you think was resonating, you know, out in the field with brokers, with consumers, just anything that would be helpful for us? Thanks.

Yeah, great question.

So I think – I know Andrew has some thoughts on this as well. I'll throw in a few. You know, I think from our initial sort of readout from a lot of the conversations we've had is – Clover, from day zero, it has just been a very transparent organization to individuals who are selling MA plans in terms of consistency around benefit design, being easy to engage with. And I think importantly, driving, you know, when we think about the plan design feature, driving true flexibility in network choice. And we're a broken record on that point. And I think to kind of the Andrew's point, you know, all this AEP really showed is that we've been able to maintain an attractive growth rate by sticking with our core principles of making sure it's a very pure sale process, individuals selling Clover know what they're selling, making sure consumers are picking the right plan for them, irrespective of whether it's Clover or another plan design, and leading with choice, leading with PPO. And I think, you know, it's going to be a bigger and bigger and bigger struggle with any organizations that lead with HMO, where the majority of their margin or business value is driven by HMO. They're going to struggle. Nothing's going to change that trajectory on a go-forward basis. And so that theme is just only accelerating. I think we're seeing kind of we're now getting to that point where it's surfacing into some of the results that investors are seeing, public market investors, But, you know, kind of Occam's razor, you know, sometimes the kind of most simple answer is basically what's happening, which is HMO is just not what people want.

Yeah. Really, the corollary that I have to this question, and I'll stop, is just any way to frame or size HMOs? the coverage that you have within these newer markets with Clover Assistant. And I guess, you know, the key is to deploy the technology, get it in the hands of your physician partners. But where do you stand today in terms of the adoption levels and that physician engagement things?

Yeah, absolutely. So a great point. I think we can share some stats. I don't think we've publicly shared them yet, so we'll think about doing that. So great feedback there. Qualitatively, the way we think about this is obviously having access to Clover Assistant Physicians is core to our model at some that we think every single one of our members, whether it be on the fee-for-service side or the MA side, is entitled and deserves great data-driven primary care. So we always make sure that folks have CA doctors they can go to. It takes a little bit of time sometimes for us to see where our new membership is going and where we're going very rapidly, like in our newer markets. We obviously have a majority of newer members and so it takes a little bit more of a time for us to find out where those doctors are and go and talk to them about working with Clover, getting on, et cetera. So, we tend to have a coverage upfront when we build our networks for adequacy. And then we build out the networks throughout the year as we see the doctors that our members are seeing as we see it in our data, where our members are going. So, more to share on that in the newer markets, but that's certainly the trend we've seen in the core markets of New Jersey and what we're replicating in places like Georgia as well.

Thanks, Andrew. We'll take our next question from Jason Cazorla of Citi.

Great. Thanks. Good evening, guys. Great. Thanks for taking my questions. Just really quickly, around the incremental 10 states that you're entering in for the DC program in 22, will those new states help inform you in terms of how you think about MA state and county expansion for 2023 and beyond? Or is there any way you can kind of like help frame that at all?

Thanks.

And you said the DC states framing MA expansion? Is that what the question? Just make sure I heard it right.

Yeah. Yeah, you had an extra 10 states. You're going into 10 states. You're in 10 states in 21. You're going to 10 states in 22. Just thinking about if those new states will help frame the way you're thinking about the extension. Yeah.

Yeah, the way I would think about this, which I think is a useful framing here, is that previously when we just had MA, in order for us to sort of like test out a new market or a new state, we had to build a network, do adequacy, do the bid, which was, you know, we were fine doing that. We've been shown that we're very good at that, actually, by our expansion rate. But there's material overhead in terms of resources, operational costs, like Vivek said, to do that. With something like direct contracting, we're able to much more easily work with physicians directly in any given state, and we don't have to necessarily have all that overhead of building the network, etc. So that does give us meaningful signal earlier. So I think, I'm not saying that we won't also sort of test out markets with MA. It just allows us to have higher conviction before we do that by testing the waters with some of our physician partners on the keeper service side first.

Got it. Okay, thanks. That's really helpful. Maybe just go on shipping over to MA. I mean, you're talking 26% to 27% MA growth year over year on average. Is there any way to help delineate the attribution of that growth between existing counties and call 101 new counties for 22? Just any consideration on that would be helpful. Thanks.

Yeah, so I can't remember what we publicly shared here, so we can make sure that we're consistent and get you more information. But what I'll say is that we're definitely very pleased with our growth in the core counties, as we've always been in New Jersey. And then we've also talked about how we've been quite happy, and we have some slides on this that we shared at the conferences and things like that, that Georgia is absolutely pacing along the historical growth path that we've seen New Jersey grow along. So we have markets sort of like where we're landing still, establishing our footholds. We definitely think that, you know, our core markets in New Jersey are, I wouldn't say they're mature yet, but we've always done well there. And then somewhere like Georgia, where we've shown that the New Jersey playbook is working well and is on, you know, obviously a couple of years back, but growing in a way that we saw with the Jersey markets. So we're pretty happy about that.

Just really quickly a follow-up on that comment around Georgia. I mean, that's definitely coming in. I think, you know, latest enrollment shows around 12,000 members in the state. I know you talked about replicating what you did in New Jersey and Georgia, but maybe just really quickly the thought process around jumping into Georgia specifically and then, you know, what's kind of helping to drive that outside growth relative to your expectations from before. That's it for me. Thanks.

Yeah, absolutely. And so, you know, we're very data oriented. So I think someone else alluded, we've been in, we tend to have a land and expand strategy with MA. With DC, we have more opportunities to do the land as well, a little bit more flexibly and cost efficiently. But as we look at signal on the market, we look at networks, there's not any one thing, certainly other plans. But I do think that it's a combination of the provider landscape locally, the benefits we can offer, but very centric on do we think we can offer a very, very strong PPO in this market and provide that network choice that Vivek was alluding to. It really is all about that. I think that, you know, we try to emphasize it because so few other MA plans will emphasize the wide network because narrow network is a priority. But certainly, you know, Most people coming out of commercial are understand that you pick the when you want to compromise and have a narrow network in exchange for some cost savings. But in general, if you can have it, you want the, I think that thinking carries over into Medicare as well. People are just been trained that you get these narrow network plans. but the PPO is the more desirable product. So as long as we have people thinking about that, that's really the core of what we've always believed, that choice is good. And then what we're also seeing to add to that is that resonates with physicians as well, right? Being able to work with Clover provides some deleveraging from working the large incumbents, helps them with their network negotiations a little bit.

So I think that also helps on the physician side. We'll move next to Calvin Sternick of JPMorgan. Yeah, thanks.

I had a question going back to the cohort analysis. I know it's not apples to apples exactly. It's the non-GAAP versus that 95% to 99% GAAP MCR range you gave. But if I just think about the year-over-year improvement across the cohorts, I mean, presumably a big chunk comes from, you know, the earlier, or I guess your more recent cohorts from risk scores improving. But, you know, as we think about the year over year improvement, how much, how does that get allocated really across the different cohorts? Is it more skewed towards more recent cohorts, or does it come really through some of the more mature vintages?

Uh, let me answer this way, and you can follow 1 of it doesn't make sense. So, I definitely, when people start using clever system, because we have the ML engine, the rules engine, because we look at total comprehensive body truth, there certainly are additional diagnoses. in the first year where we say, hey, have you thought about this? Have you thought about kidney disease? Have you thought about this? You know, the risk factors. But that results in risk adjustment credit through diagnoses. However, what we also see is that because we push for and insist on care planning for all those, which is appropriate from a prior care physician, That that doesn't really actually increase that much into later cohorts, like, as a position stays on clover system in later years. What we're seeing is that it's really the care planning over longer a duration of time. Because obviously, if you catch CKD earlier, and you weren't thinking about that, and you're able to catch it with a lab test and plan for it earlier. that does smooth the overall medics curve. It might actually increase medics in the short term, but it'll smooth the medics curve over a number of years. And so the increase from cohort to cohort within the same physician tends to be the effects, we believe, of the better care planning on medics and not from something like risk adjustment.

Okay. And then just one quick one on modeling.

A couple of other companies have you know, called out something, some stuff around, you know, MCR seasonality from COVID. I'm just wondering if there's anything that you guys have seen in your population so far that would be notable as we were thinking about modeling out 22. Thanks.

Yeah, I think one thing that I think will the data is publicly available now, but it's a look. We're set up a little bit different in the sentence, but we look on the MA side. So a significant percentage of our members are in New Jersey. And so when you look at publicly available data, so you look at 2021 and even into January of this year, and you go back to 2020 as well. The state of New Jersey ranked number two in the country just behind New York of highest per capita COVID Medicare costs divided by total per capita Medicare costs. I think it was a few hundred basis points above the median. I know we've gotten a lot of questions over prior kind of earnings calls around, you know, how is New Jersey different? Well, the data is now kind of pretty loud that it is pretty different in terms of experience. We don't exactly know kind of the entire derivation of that. So I think it's a little bit harder for us to sort of map to COVID seasonality given that, and we don't know what this year is going to hold versus last year. We obviously assume it's going to be a little bit of a lessened impact.

Got it. Thanks.

At this time, I would be happy to return the call to Derek Newman for the Reddit portion.

Great. We have time for a couple Reddit questions. The first question is, when will Clover announce a permanent CFO, Vivek?

So, we've got been meeting some great candidates. And I think, you know, a couple things as we're thinking about is we're obviously looking for someone to be with us for a long time. We're being pretty patient with our choice and we're creating a pretty high bar. At the same time, Mark has done a great job as interim and I think has given us the luxury of time of being able to be pretty patient with the choice. And at the same time, we've been able to bring on some great talent into the organization over the last few months outside of the CFO role as well. And we've created a really strong finance team over the last kind of six months to a year underneath Mark.

Great. Next question. What other possible business pivots, fee-for-service, licensing software, expanding to new healthcare markets are you looking at? Andrew?

Yeah, so I wouldn't call them a pivot. I think that Medicare is, we're very comfortable in the Medicare space right now, but there's a lot of room within that to get to that trillion-dollar TAM that we've always talked about, right? Our goal is to be the preeminent physician-enabled platform within Medicare for value-based care. We started in MA. We brought back to fee-for-service, where we've been very successful, I think, in using our software platform to be able to enable physicians to come to value-based care in fee-for-service. And then there are other places where it would make a lot of sense for us to enable them to do similar things, perhaps in their other MA plans, perhaps like Medicaid, for example, which are very adjacent to Medicare. So plenty of room for us to be able to explore new models while staying very consistent and building on top of our current success.

The final question from Reddit, given our time constraints, was what new enhancements are being added to Clover Assistant in the near future? And then we'll turn it over to you, Zach, for closing remarks.

Yeah. So, you know, there are big features and there are small features. But what we're always doing is, like, just top of mind for me is constantly iterating and doing tests to see, like, everything down to the smallest things. For example, I know we're looking at stuff right now where we're making it easier for physicians to see you know, data points that didn't come from their own practice. Maybe those are lab reports, or maybe those are from other physician practices, and they want to use that information to be able to, you know, aid in their own decision making. We're making more of that data available, but constantly building more integrations to pull that stuff in, and then making sure that's very easy to access in CA. That's core to what we do, but even just saying something as simple as that, there's, you know, dozens of different sub-features underneath that that we could build to serve that particular need. But really excited about that we're constantly iterating, trying new things, and then we'll launch, you know, major new features probably like two or three times a year.

Great. Vivek? Thanks, Fred.

So just to close, we appreciate everyone's time today. You know, in summary, we feel really, really good about where we are today, particularly our team, our growth, improvements to MCR, and in particular, lowering our OPEX percentage of revenues expected in 2022. And just reiterating what I said earlier, there's a ton of great work being done this year to drive further margin improvements. And because of that, if a number of things do fall into place, it is even possible we may be profitable next year on a non-GAAP basis. when excluding non-cash expenses, non-recurring expenses. But enabling this is Clover Assistant, and that's providing us a true and growing technology moat while we're making a meaningful and positive impact on health equity along our mission of improving every life. Thank you again, everyone.

This does conclude today's program.

You may now disconnect your lines. And everyone, have a great day.