CareMax, Inc.

Q1 2023 Earnings Conference Call


spk08: Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the CareMax, Inc. first quarter 2023 financial results and earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Samantha Swerdlin, Vice President of Investor Relations. Please go ahead.
spk07: Thank you, and good morning, everyone. Welcome to CareMax's first quarter 2023 earnings call. I'm Samantha Swerdlin, Vice President of Investor Relations, and I'm joined this morning by Carlos DeSolo, our Chief Executive Officer, and Kevin Worges, our Chief Financial Officer. During the call, we will be discussing certain forward-looking information. These forward-looking statements are based on assumptions and assessments made by CareMax's management in light of their experience and assessments of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate. Any forward-looking statements made during this call are made as of today, and CareMax undertakes no duty to update or revise such statements, whether as a result of new information, future events, or otherwise. Important factors that could cause actual results, developments, and business decisions to differ materially from the forward-looking statements are described in the company's filing for the SEC, including the section entitled Risk Factors. In today's remarks by management, we will be discussing certain non-GAAP financial metrics. A reconciliation of these non-GAAP financial metrics to the most comparable GAAP measures can be found in this morning's earnings press release. With that, I'd now like to turn the call over to Carlos.
spk02: Thank you, Samantha. Good morning, everyone, and thank you for joining our call. There are three things I plan to review today. An overview of our first quarter performance, the progress we have made expanding our MSO, and our general outlook. Starting with our Q1 financial performance, we had developments that had an unfavorable impact on our revenue and adjusted EBITDA. Specifically, we recognized two prior period developments that together lowered Q1 revenue by $26.6 million and adjusted EBITDA by $14.6 million. The first development was related to MSO membership with one of our health plans, and the second was related to higher acuity admissions in Q4, which Kevin will discuss in more detail. While some prior period development is common for risk-based providers like CareMax, we believe the MSO membership PPD was an anomaly in terms of its nature and impact, and the Q4 acuity was isolated to a period related to an earlier-than-normal flu season coupled with RSV, even though overall admissions remained flat during the period. Despite these headwinds, underlying results for the quarter came in ahead of our expectations, reflecting a disciplined execution of our strategy. We are encouraged by our Q1 run rate performance and expect to achieve our 2023 guidance despite the prior period developments. As of the quarter end, we had approximately $44 million in cash. and $95 million of undrawn capacity on our delayed draw term loans. We believe that this provides us with sufficient capital to bridge us to reach sustainable free cash flow by Q4 of 2024. Now turning to some highlights from the quarter. We are pleased to report that our Medicare Advantage platform continues to grow, with 95,500 lives on our platform as of quarter end, representing approximately $1.3 billion of revenue under management. Of these, 62% are currently in partial risk arrangements and 36% are in full risk. By 2026, we expect nearly all of our current MA membership to be in full risk arrangements. Medical expense ratio for the quarter was 75.2% compared to 72.6% for Q1 last year, due primarily to the impact from prior period development. As we discussed during our recent investor day, we take a prudent approach to taking full risk in new markets, typically with an 18 to 24 month glide path to risk. This approach allows us to take limited downside risk, while our physicians implement medical management practices and we gain profitable scale in the new markets we enter. It's also worth noting that during the year, we may opportunistically shift contracts to full risk early in our MSO network. If you recall, when we shift contracts to full risk, they drive higher revenue and incremental adjusted EBITDA dollars, but may not yet be mature and could generate MERs above our historical MSO average of 85%. While the negative MER impact of electing full risk early is not contemplated in our guidance, we may do so when it's accretive to adjusted EBITDA and cash flow. During the quarter, we continue to deliver solid operational performance at our centers and remain focused on ensuring our members have access to consistent, high-quality care. Our quality initiatives have already resulted in 50% of quality gaps closed in Q1, putting us on track for a sustained five-star rating in 2023. Moreover, our investments in patient experience continue to deliver CAHPS survey measures at the 90th percentile among peer groups as of Q1. Ensuring timely access to care is key to our operating success, and we are proud to report that our primary care providers have seen over 75% of our members at our centers as of Q1. Furthermore, our specialty care services are readily accessible both in-house and through our preferred network. and we have now expanded our network to offer over 50 different specialties through our multi-specialty network. Last year, we expanded our reach beyond our core Florida markets, and the results have been very encouraging. During the new quarter, new member growth was strong, and now we have over 3,000 members in our 2022 de novos. Additionally, we have expanded our dental services across New York and recently signed agreements to add in-house cardiology, nutritionist, and podiatry services. By offering these services in-house, we're able to provide our members with comprehensive care that is designed to lead to best-in-class outcomes, lower costs, and ultimately healthier members. Now I'd like to provide an update on our MSO expansion. The integration of our steward VBC acquisition is on track, and we are confident that we will achieve our membership growth targets that we announced in March. We are working closely with our affiliate groups and they are excited about the opportunity. Each market in the MSO network is participating in monthly joint operating committee meetings where we combine the operational and clinical teams to review performance best practices from our centers that can be implemented into the MSO and what resources they need to effectively practice value-based care. As we discussed in detail at our investor day, we're also making significant progress on the payer side. as we transition Steward contracts into CareMax VBC contracts. We've completed the ingestion of almost all payer data from Steward into our care optimized technology platform and have built an internal infrastructure to accelerate the ingestion of new payer contracts and claims data so that we can provide accurate and timely insights to our clinical and operations teams. Furthermore, we're continually expanding our EMR connector portfolio and are pleased to report that we now have access to data for over 30 EMRs, connecting the majority of our provider network to Care Optimize. As the year progresses, we expect to see further implementation of our technology platform, enabling us to better serve our members and deliver high-quality care through efficient and effective data management. In addition, we are improving our capabilities to incorporate recent technology developments. This quarter, we launched a new machine learning module for risk stratification, which is designed to enable us to better manage chronic condition acuity and provide even more personalized and efficient care to our members. Moving forward, we intend to continue enhancing and developing our care optimized technology to drive operational efficiencies and reduce the administrative burden for our care teams. Although this quarter didn't turn out as expected due to the prior period developments, our Q1 run rate gives us confidence in our ability to achieve both our short-term and long-term objectives. Since founding CareMax and growing it to where we are today, we have remained dedicated to revolutionizing healthcare delivery through disciplined growth in a capital-efficient manner. We believe this approach will ultimately deliver the best returns for our shareholders. We look forward to updating you on our progress over the coming months. With that, I'll now turn things over to Kevin to provide more details on our financial performance in the quarter.
spk04: Thanks, Carlos, and good morning. We're proud to report meaningful progress in the integration of our acquired MSO business and are well on our way to unlocking the value we envisioned at our March Investor Day. Non-current developments in membership, revenues, and medical expenses are a normal part of VBC, which is why we manage our business and liquidity conservatively. As of quarter end, we had approximately 44 million in cash and 95 million of undrawn delayed draw term loans, which we continue to believe is sufficient to bridge us to sustainable free cash flow by Q4 2024. Additionally, we have the ability to raise up to 45 million and super priority revolving facilities. And we believe we have further upside levers from transitioning profitable contracts to full risk earlier than planned. In short, we are comfortable with our current capital position and we remain bullish on the MSO opportunity ahead of us. Now I'll walk you through the puts and takes of our first quarter results and explain why we believe our full year 2023 guidance is still achievable. As a reminder, a reconciliation of GAAP to non-GAAP metrics, like adjusted EBITDA, can be found in our earnings release and presentation. As we began doing last quarter, we are no longer adding back de novo pre-opening costs or de novo post-opening losses to adjusted EBITDA, and all references I made to adjusted EBITDA pertain to our current definition. We reported first quarter total revenue of $173 million, up 26% year over year. Medicare risk revenue was $122 million, up 13% year over year, and Medicaid risk revenue was $26 million, up 27% year over year. We've introduced a new line item, government value-based care revenue, which is $10 million, representing our acquired MSSP and ACO REACH businesses. Finally, other revenue was $16 million, up 75% year over year, driven by MSO capitation, as well as growth in our in-house pharmacy. Platform contribution was $25 million, up 43% year-over-year, despite being fully burdened by the NOVO pre-opening cost and post-opening losses, which together totaled $6 million in Q1. Net loss was $82.1 million, and adjusted EBITDA was approximately break-even, largely due to top-line headwinds I will explain shortly. Lastly, we recognized a goodwill impairment charge of $98 million, driven by the decline in our stock price during the quarter. partially offset by $36 million from revaluation of earn-out liabilities. These have no impact to cash or fundamentals of our business. Regularly, we receive from our health plan partners updated data on membership revenues and medical expenses, which often contain true-ups to previously reported figures. In Q1, Medicare risk revenue was impacted by $26.6 million of unfavorable prior period development related to full risk membership at one of our Florida MSO health plans with a corresponding impact of $6.4 million to medical margin. We believe this to be an anomaly both in size and nature of the true-ups and isolated to the onboarding of a single MSO contract with limited risk of this sort for other plans. During the quarter, we saw a medical expense ratio of 75.2%. which represents an increase from 72.6% in Q1 2022. It's worth noting that our Q1 MER was impacted by 8.1 million of unfavorable prior period development and medical expenses. We believe the unfavorable medical expense PPD can be attributed to an earlier than normal flu season in South Florida, as well as elevated cases of RSV. This drove unseasonably high cost per admission in Q4. even as rates of admissions remained relatively stable during the quarter when compared to Q3. It's important to mention that our MER was not materially impacted by the MSO membership PPD we discussed earlier. As you can see in our earnings presentation, the combined PPD impact was a $27 million revenue headwind and a $15 million medical margin and adjusted EBITDA headwind in the quarter that we believe are not reflective of our run rate profitability. Even with the PPD, we believe several factors enable us to still achieve our 2023 guidance of 700 to 750 million revenue and 25 to 35 million in adjusted EBITDA. First, our medical margin run rate, excluding the PPD, is off to a favorable start to the year compared to our budget. Second, to the extent that we are able to identify profitable MSO contracts to transition to full risk, we believe doing so may pull forward full risk revenue and positive medical margin earlier than planned. As a reminder, when we transition to full risk sooner, there may be an unfavorable impact to MER in the near term, despite the favorable impact to adjusted EBITDA and cash flow. Moving on, cash used in operating activities was $22 million in Q1, including $7 million of cash interest and other debt service costs. Cash add-backs to adjusted EBITDA decreased significantly in Q1 as non-recurring restructuring and acquisition-related adjustments roll off from prior quarters. We continue to believe our adjustments are useful to illustrate the underlying earnings power of our business. To the extent we have more limited M&A activity, like in Q1, we expect to see smaller add-backs than experienced in the past. We expect CapEx, however, to continue to increase as we continue build-outs of our 2023 pipeline of de novos. It's important to understand the working capital dynamics around the VBC business, particularly related to accounts receivable. Absolute AR dollars will continue to grow as we accrue MSSP and ACO REIT shared savings, which are recognized in the current performance year, but not paid until almost a year in arrears. We will also see AR related to MSO Medicare Advantage contracts increase as newer health plan partners require time to set up the processes to produce and make payments out of our service funds. Finally, as our legacy CareMax business continues to grow, we expect to accrue higher amounts of AR for the mid-year adjustment and final settlement. Remember that AR represents an accrual of net medical margin, so the appropriate denominator for DSO calculations is full risk revenue, less external provider costs. For appropriate comparisons, Q1AR should also exclude approximately $60 million related to MSSP receivables and normalize for prior period developments, which may otherwise cause volatility in DSO. In doing so, we find the DSO in the first quarter was materially in line with historical levels. In terms of AR seasonality, we expect cash flows in the second half of the year to be favorable to those in the first half, driven by the midyear and final sweeps. Additionally, this fall, we expect to receive the MSSP payment for the 2022 performance year, of which a portion will go toward repayment of the accounts receivable facility entered into as part of the Stuart transaction. Beginning next year, we will be able to keep MSSP shared savings payments. To reiterate, we remain comfortable with our leveraged outlook, our capacity to service our debt, and our ability to access our undrawn DDTL. We ended Q1 with $44 million in cash and $95 million of undraw delayed draw turn loan capacity. Since the end of Q1, we have drawn another $35 million from the DDTL and have $60 million remaining. We believe we are sufficiently funded to reach cash flow profitability by Q4 of 2024 when we expect to receive our MSSP shared savings payment for performance year 2023. In the meantime, Our commitment toward investing prudently in our de novo expansion and MSO capabilities remains unchanged. Operator, we are ready for questions.
spk08: Thank you. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll take our first question from Andrew Mock at UBS.
spk01: Hi, good morning. Appreciate all the comments around development, but wanted to better understand the two dynamics better. First, what were the underlying drivers of the negative development on the MSO side? And can you help us understand how IBNR estimates are conducted for affiliate members? Thanks.
spk04: Hey, Andrew. It's Kevin. Yeah, so occasionally, you know, periodically we receive updated information from our health plan, normal course of business for us. We received information, as we typically do, that had a decrease in membership. And so, you know, with that information, we pushed that decrease in membership through retrospectively, which obviously, you know, created this prior period development. From an IBNR standpoint, you know, the contracts that we use are aggregated together. So when we look at IBNR and setting reserves, we actually look at it on the health plan level. And so, you know, in doing so for the MSO, it's the same process for our wholly-owned centers. There's no difference between those two. The health plan processes those claims simultaneously. And it's within the same payment patterns that you would typically see. And so, you know, we're comfortable using aggregating the health plan data together when estimating our completion factors.
spk01: Got it. Okay. And secondly, you noted that 4Q admissions trended a bit higher. due to an earlier and elevated flu and RSV. I understand that experience, but wasn't there also an offsetting benefit from fewer COVID admissions in the quarter that you would have reserved for? So why is the total respiratory costs coming in so much higher?
spk04: Yeah, so total emissions were actually flat to Q3 when we looked at the data. So it's not that there was an elevated number of cases. What we're seeing is that the cost per admission was higher. We are seeing that, you know, COVID was relatively consistent among quarters, but it looks like, you know, flu season was just a little sooner than we anticipated, i.e. Q4 instead of Q1. And so, you know, we needed to make that adjustment and flow it through the financials this quarter.
spk02: Yeah, I would say when we look at that data, the respiratory illness, right, the RSV along with the flu led to just... you know, higher acuity of those admissions and further complications as we kind of look at the data on a per admission basis. So generally, when we think about flu season, and especially in our core market in South Florida, we've typically experienced that in Q1. And what happened this year is we saw that start earlier. And as we look at the data, that led to further complications with those admissions, you know, hitting us towards the end of Q4.
spk01: Got it. So you think the flu season pulled forward from Q1?
spk02: That's right.
spk01: Okay. And then finally, it looks like corporate GNA increased about $4 million quarter over quarter and $12 million year over year. What are the drivers of that increase and how should we expect that to trend throughout the year? Thanks.
spk04: Yeah, that's solely attributable to the acquisition of the Steward BBC business. If you remember, we onboarded, you know, 65 to 70 FTEs. We have additional operating costs to operate that business. We only had basically a couple of months, one and a half months or so in Q4. We have the full period. And I would also say that in Q1, you typically have this seasonality from a payroll standpoint, right? You pay higher payroll taxes or folks max out. So you have a little bit of seasonality in there. I think from that standpoint, we would assume minor bumps from an SG&A standpoint. I think we've onboarded and we brought on most of the costs that we need to manage that book of business. The additional cost is going to be incremental to managing the growth at this point.
spk01: Got it. Thanks for all the calling.
spk08: We'll take our next question from Brian Tanquillette at Jefferies.
spk10: Hi, good morning. You've got Tajian for Brian. Thanks for taking my question. So going back to the PPD conversation, if you look at the adjusted numbers, you would have done like 14.5 million EBITDA, which puts you on track to do roughly half of your EBITDA guidance in Q1 if you're using a midpoint. So my question is, how much of PPD headwinds did you have baked into the guidance? From what I understand, this is, you know, and from your commentary, this is clearly something that It's not a surprise, but it seems like the magnitude of it was larger than you expected. And then as a follow-up, how should we be thinking about the seasonality of EVA degeneration throughout the year?
spk04: Yeah, good question. So, look, I think we took a prudent approach. We ingested, you know, Stewart late last year. We wanted to make sure that we came out with guidance that was reasonable and achievable. And so, you know, did we bake in prior period development? We didn't. However, we wanted to make sure that we did have some levers that we could pull if we needed to. What I would say is, you know, this year, if you think about it, essentially we're recognizing the Q4 kind of flu and Q1. We would also expect, you know, Q4 of this year would probably look like Q4 of last year. So what you think about is you kind of have a double flu whammy in 2023. So from a, you know, and typically, I think we've talked about this before in the past, is typically medical expense ratio improves throughout the quarters. Folks exhaust benefits. You start hitting limitations on the pharmacy side. Stop loss starts kicking in. What we would expect to see is, I would say, a relatively consistent EBITDA number quarter on quarter. And the reason being is because later in the year, we are going to have you know, the de novos coming on, which will have additional expenses associated to them. And then in addition to that, we would expect to see maybe a little more flu in Q4 of 23 than we had normally anticipated.
spk02: Yeah, and I just think we've always said, right, we've ingested a tremendous amount of membership with this acquisition. We wanted to make sure that we were being conservative in our guidance and our numbers. You know, having said that, There is, you know, potential upside in what we've ingested, right? And we've discussed that with respect to being able to trigger risk earlier than expected in several contracts and serving in certain key markets. So I think, you know, that's encouraging for us as we kind of think about, you know, the next year and our long-term guidance as well. So while this PPD is typically, you know, normal and True Ops with health plans is part of this business, Certainly the one that we experience now, we kind of think about, you know, as an anomaly as we ingested a lot of that MSO membership and that true up, you know, the size and magnitude, you know, we don't expect again. From that perspective, we think it was, you know, it's unusual.
spk10: Right. I appreciate the color there, Carlos and Kevin. Then my follow-up question is, if I look at your slide deck, you've got it really well laid out, just looking at full risk and, like, other value-based care. So, just curious, in the other value-based care bucket, can you break out the percentage of MA patients that are in partial risk versus gain share versus capitation and then provide some more details on, like, the different economics, right, relative to full risk, right? Like, I think you were very clear in your yesterday what the difference is between partial risk and what that looks like and how it flows through. But can you maybe talk about the delta between gain share and other capitation as well?
spk04: Yeah, it's market specific, I would say, on those. Each market is going to be unique from that standpoint. Early on, as we enter into new de novo markets, we're not expecting significant dollar amounts from a gain share standpoint. We're ingesting new members. We're educating our physicians on CareMax University and value-based care. And so unlocking that upside or partial risk component, we're not putting a lot of value in it as we look from a guidance standpoint. South Florida is obviously a little different, right? But what I would say is most of our contracts, 90-plus percent of our contracts in South Florida are already charged with full risk. I think the other important piece to note is in the government value-based care revenue, that's specifically MSSP and ACO REACH. Other revenue is where you would find the MSO capitation or HEDIS bonus accrual, any upside game share, as well as external revenues from pharmacy and any of the care optimized, the legacy care optimized clients.
spk10: Great. Thank you, Kevin. That's all my questions.
spk08: We'll move next to Joshua Raskin at Nefron Research.
spk06: Hi, thanks. Good morning. Could you just help us? What is the process around revenue verification from these plans? Do you just kind of book what they pay you, or is there some sort of verification? I'm just curious how there were members. Were these patients that you had actually seen, or were these patients that you were getting paid for but had never seen in terms of the prior period of adjustment?
spk04: Hey, Josh. It's Kevin. So as we ingested our MSO Florida business early on last year, we had conversations with the health plans, multiple health plans. Those health plans have provided us information showing that these patients You know, we're more profitable than what we've received from an MSO capitation standpoint. And so, you know, we did decide to go ahead and pull the trigger on the full risk component. What I would tell you is that it takes quite a bit of time for health plans to load information, especially when we're talking about, you know, the size of the network that we acquired from Stuart. And so, you know, loading those, you know, tax IDs and PIs under our tax ID and getting the contract set up so that reports can start being generated just takes time in the health plans. So, obviously, we have open communication with our health plans. We're in constant communication with them. We reach out to them and request information so that we can appropriately book revenue and medical expense as well as membership. And so, you know, from this standpoint, we received updated information in the quarter that, you know, we went back and said, okay, we needed to make some prior period adjustments based off of information that we received this quarter.
spk06: So are these members that are eventually going to be CareMax members now? Like, will this come back?
spk04: No, no. In that particular contract, no. We are working with the health plan, though. It's a national health plan, so we are working with them in other areas for potential opportunities to grow membership outside of Florida.
spk06: Okay. And then just second question, how are you working with MA plans for 2024? And specifically, are you expecting any benefit reductions in, you know, your service areas where you guys have the clinics? And do you think the plans are going to be willing to negotiate higher cap percentages, you know, where you find it necessary?
spk04: I would say – go ahead, Kevin, and then I'll – No, I was going to say, yeah, it's a little early right now, but what I would say is that based off of the headwinds that we're seeing from a star standpoint as well as – obviously, there was a win there with kind of phasing in the model over the three years. So I think at the end of the day, there will be slight revisions down from a benefit standpoint, but I think it's a little too early for us to comment on them.
spk02: Yep, that's what I was going to say. It's still a little bit early, but I think initial conversations are, especially as we have kind of this three-year phase in, is to potentially, especially in South Florida where benefits are really rich, is to potentially reduce some of those supplemental benefits, i.e. gift cards and things like that, in a way that probably wouldn't be that impactful or meaningful to kind of a member's overall health outcome, et cetera, and still fairly aggressive. But we do anticipate... some potential, you know, reduction over the next several years. But I think, you know, with CMS spreading this out over a three-year period, I think those adjustments are a lot easier to make.
spk06: Okay. Thanks.
spk08: We'll move next to Jessica Tassin at Piper Sandlin.
spk09: Thanks for taking the question. In that other government value-based care revenue line, I just want to make sure I understand, how is it possible that that includes ACO REACH and MSST? Just if I kind of like, if I look at the PMPMs, or if I assume all the revenue is attributable to ACO REACH, it still looks very low from a PMPM perspective. So just where is the MSST revenue and Yeah, I guess just why aren't the PMPNs where we would expect them to be for full cap and ACRH? Thanks.
spk04: Yeah, just as Kevin. So on this contract, we're not taking most of this, start with most of this is MSSP, right? So, you know, 92% of our patients in that line item are under the MSSP side. And the ACO REACH, we are not taking full risk on either, right? And so from both of those standpoints, we are booking revenue on a net basis. So this is essentially the shared savings dollars that we would expect to receive. Obviously, one quarter of shared savings that we would expect to receive next year.
spk09: Okay, got it. And then just in MSSC are 100% of those slides in the enhanced track. And can you remind us at does CareMax get to retain the shared savings generated or earned in 2023 so that all obligation to steward to return shared savings generated has kind of passed with 2022?
spk02: Yeah, the MSSP lives are all on the enhanced track. And I would say while the enhanced track offers more upside, it is still a not considered a full risk contract, but from an accounting perspective, which is why we don't book the full revenue and only book the shared savings. This year's MSSP payment, part of that payment will go to Stuart, and then the piece from when we ingested the membership right in November, kind of November, December, then kind of corresponds to us. But the payment corresponding to 2021 dates of service corresponds to Stewart.
spk09: Got it. Thanks.
spk08: We'll go to our next question from Jalindra Singh at Tourist Securities.
spk03: Hi, all. This is Eduardo Ron for Jalindra. Thanks for taking the question. You guys had 95,500 MA Lives at the end of the quarter. and your target for year-end is $110,000 to $120,000. Is there anything that's already contracted for? I guess, how should we expect those lots to roll on throughout the year?
spk02: Yeah, so part of that membership is from our core growth in our core markets, and the other part is from adding the additional contracts and loading you know, several other, you know, provider groups that are coming in from the stored acquisition coming in over the course of the remainder of the year. So it's a combination of both.
spk03: And you guys talked about potentially pulling forward some full risk revenue. I guess that wouldn't impact the live count there?
spk02: Well, the transition from Partial risk to full risk wouldn't impact lives. What it would impact is the EBITDA margins and the revenue recognition of that membership that we already have on our platform.
spk03: Right. And I think the prior outlook, you guys sort of put you at a 72% to 73% MLR. Is that still the expectation in the updated outlook? Or, again, is this like sort of pull forward of some full risk revenue potentially pointing you towards a higher MLR?
spk04: Yeah, I think from an MLR standpoint, you know, we're not going to manage the business to the MLR. I think what we're using the MLR for is just to understand where our legacy centers are performing and ensuring there's no deterioration in that performance. You know, we're going to be opportunistic if we identify contracts that can generate additional earnings. And, you know, we actually identified one or two this quarter where we were making a small dollar cap percentage. We received the information from the health plans, you know, a few thousand patients. We went ahead and pulled the trigger on that, and, you know, they're at a 93% medical loss ratio, but, you know, the incremental PMPM that we're earning off of it is substantial, you know, going from a, call it mid-teens to, you know, plus $50, $60 PMPM. So it's a pretty meaningful increase, even though the MER will deteriorate or pull down the overall company average MER. All right.
spk03: And just last one, I guess, on that. How did your own center MER compare to your affiliate MER in the quarter?
spk04: Our centers were trending where we expected them to be in that kind of 70s range. So, again, you know, a lot of the PPD, there's a portion of it specifically related to the MSO, but the portion that was not even as we account for that Our clinics were in, I would say, the low 70s, which is typically where we'd expect Q1 to end up.
spk03: All right. Thank you.
spk08: And we'll take our next question from Gary Taylor at Callen.
spk05: Hi. Good morning. Two questions. The first, I'm sorry, I just want to make sure I understand the MSO thing again. All of that revenue in EBITDA contribution was related to 22. Is that correct?
spk04: Yes, that's correct.
spk05: And was it – I saw it in one of your answers. I know you had said Florida, but I thought you had referenced Steward, but this is not related to the Steward Florida MSO. Is that correct?
spk04: Yeah, Gary, if you recall, early last year, we ran a pilot with Stuart specifically where we began managing their Space Coast lives. So it was part of that pilot.
spk05: Okay. So I thought Stuart only had maybe 6,000 lives in Florida, and this seems to be like almost like half of that. But if my math is wrong, I'm happy to take that offline.
spk04: Yeah, I think the number was north of that. Yeah, happy to have that discussion.
spk05: Okay. And then last one for me on this topic. Were there cash flow implications? In other words, like had this fully settled out and you actually had to give cash back and that impacted cash flow, or is this just sitting in your net AR accrual?
spk04: no yeah you're absolutely right it's sitting in the net ar cruel um you know unfortunately it just takes the plans a long time to get uh everything under one contract get reports generated and actually process payments so no cash generated i think the other thing i would say is we took a prudent approach when we looked at 2023 cash flows uh and we we didn't make any estimates uh on getting payments uh anytime in the future in the near future specifically for those contracts that flip to risk immediately just because we know it takes such a long time to get those loaded.
spk05: Last one for me. On the reiterated revenue and EBITDA guidance, just to confirm, you're going to reach those targets using the gap results, the 173 revenue and basically the zero EBITDA in the quarter and then still get to those targets. Is that right? That's correct, yes. Okay, perfect. Thank you.
spk08: And that does conclude the question and answer session. At this time, I would like to turn the conference back over to Carlos DeSolo for any closing remarks.
spk02: Thank you. So on behalf of the team, I'd just like to thank everybody for joining our call today. We look forward to updating you on our progress, and have a great day.
spk08: And that concludes today's conference call. Thank you for your participation.

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