Option Care Health, Inc.

Good day, and thank you for standing by. Welcome to the Option Care Health third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker, Mike Shapiro. Please go ahead.

Good morning. Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to future financial performance and industry and market conditions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release, as well as in our Form 10-K filed with the SEC regarding the specific risks and uncertainties. We do not undertake any duty to update any forward-looking statements except as required by law. During the call, we will use non-GAAP financial measures when talking about the company's performance and financial condition. You can find additional information on these non-GAAP measures in this morning's press release posted on the investor relations portion of our website. With that, I'll turn the call over to John Rademacher, Chief Executive Officer.

Thanks, Mike, and good morning, everyone. The third quarter results reflect our continued strong execution in a very challenging operating environment. Overall, we are quite pleased with the progress we made in the third quarter while delivering solid growth in revenue and earnings. Growing EBITDA earnings by nearly 10% year-over-year during a period of significant disruption demonstrates the strength of our team and the resilience of the platform. The team responded to dynamic market conditions, including repositioning by some market participants, a significant natural disaster, and escalating inflationary pressures to help ensure we are providing real solutions to our referral partners and setting the standard for patient care across the industry. In the third quarter, revenue growth of more than 14% is a result of mid-single-digit growth in key acute therapies, and mid-teens growth in the chronic portfolio. We continue to focus on streamlining the onboarding process with referral sources, and we have made progress across a number of key therapeutic areas. Our collaborations with health systems across the country enable us to accelerate growth in the quarter for key acute therapies given favorable market dynamics, and the option care health team responded to acute opportunities in specific markets to ensure our referral sources could rely on us for efficient transitions of care. Although this caused strains on our operations at a market level in the near term, we believe the strength and resilience of our technology-enabled national network was a significant asset. Our ability to dynamically shift workload to utilize our capacity and respond to the needs of our hospital partners in the local markets helped to reaffirm our position as partner of choice. I would also like to recognize the incredible work of our team in Florida and across our enterprise as they supported our patients and referral sources in the path of Hurricane Ian. The devastation the storm brought to the Southwest Florida and across the state was unimaginable and heart wrenching. And our team rose to the challenge to help ensure all of our patients were prepared and had access to their medicines and supplies throughout the emergency. We continue to work in partnership with our referral sources and patients in the communities most affected to help with the recovery efforts through our facility in Fort Myers and across the state. As always, Mike will unpack the financial results in a few minutes, but we continue to face inflationary pressures across a variety of categories, including clinical labor, transportation, medical supplies, and several key business services. We do not see cost pressures subsiding in the near term. And in fact, we have seen heightened pressure in several areas. As always, we continue to relentlessly focus on operational efficiencies to offset the pressure. And in some instances, we have negotiated improved reimbursement for therapies and services most impacted by the inflationary environment with payers. We continue to work closely with our health plan partners through our dedicated market access team to highlight these cost pressures and discuss ways we can work together to help ensure we are being reimbursed fairly and appropriately for the value we bring to their members. On the M&A front, late in the third quarter, we acquired Rochester Home Infusion, a regional leader in home infusion based in Rochester, Minnesota. As we have consistently mentioned, we will actively seek complementary infusion assets that we believe are well positioned strategically and represents sustainable financial returns. Rochester has emerged as a rapidly growing leader in the Upper Midwest with key relationships with leading health systems, and we are thrilled to welcome them to the AuctionCare Health family. We also continue to evaluate our portfolio of assets to ensure we are optimizing the capital base. And in October, we entered into an agreement to divest a respiratory therapy service line we operated in the Northeast. This operation was part of Bioscript organization, and it is both a capital-intensive and strategically different business than our core enterprise with different call points. We believe it is more logical that the operation resides within an organization oriented to and focused on the respiratory therapy market. We continue to invest in our organic growth strategy. Our technology enablement and digital strategy took a significant step forward as we began to pilot Touchpoint, our mobile app that improves patient engagement through self-service functions and secure two-way communication, as well as increasing the data capture and analytics we can provide. This has been part of our overarching multi-year technology investment, and it is great to see the fruits of our labor beginning to ripen. This is part of a multi-faceted approach we are taking to enhance care and improve clinical outcomes through capturing the care plan digitally, identifying trends through analysis, and exchanging insights with the prescriber and other members of a patient's care team through interoperability. Also, through Q3, we have opened 16 new ambulatory infusion centers across the country this year. and have expanded our total chair count to over 570 infusion chairs across the country. We are on track to open a total of 25 new facilities this year and further expand our capacity to serve patients conveniently and effectively close to where they live and work. Again, increasing utilization of our infusion centers is a key growth strategy as it enables us to more effectively treat patients and better utilize our clinical resources. Currently, approximately 23% of our nursing events occur in one of our centers, and we are focused on further increasing center penetration. Finally, as Mike will outline, we are tightening our guidance heading into the fourth quarter by slightly increasing the midpoint of our expected adjusted EBITDA results for the year. Overall, 2022 is shaping up to be an extremely productive year for option care health across a variety of measures, and we remain focused on finishing the year strong while continuing to invest for the future. Before turning over the call, I would like to bring to your attention that we have enhanced our investor relations website to include a dedicated page that highlights our current ESG initiatives and outlines other ESG efforts underway. And with that, I'll turn the call over to Mike to review the results in a bit more detail. Mike?

Thanks, John. Revenue growth in the quarter of 14.5% was well-balanced, as John mentioned, as we saw solid mid-single-digit growth in the acute portfolio and continued mid-teens growth in the chronic portfolio. Our quarterly net revenue exceeded $1 billion the first time as the team has driven double-digit revenue growth on a sustained basis. Gross margin of 21.4% declined 140 basis points year over year as a result of continued mixed impact towards chronic therapies and unprecedented cost pressures that continue to affect our margins. I had previously estimated quarterly inflationary impact of $10 to $12 million, and in fact, we continue to see emerging cost pressures across a number of categories. While that range was an estimate, we are currently seeing inflationary impacts above $10 to $12 million a quarter, impacting primarily our gross margin, but also to a lesser extent in SG&A. With respect to spending, SG&A grew a little over 5% and declined as a percent of revenue to 13.9% despite the inflationary pressures I just discussed. We remain vigilant on cost management. and efforts to drive additional efficiencies, which is enabled to a great extent by our investments in technology. This has also enabled a more proactive staffing strategy given the labor market backdrop and has resulted in a more efficient labor model in many markets and functions. Adjusted EBITDA of $85.6 million grew 9.8% over the prior year, and adjusted EBITDA margins came in at 8.4%. Again, at a high level, the cost pressures we absorbed in the quarter impacted EBITDA margins by over a full point. Despite the near-term challenges, our conviction around the scalability of the platform and ability to expand adjusted EBITDA margins over time remains intact. As all you know, our mantra is that revenue only counts if it hits the bank account, and cash flow in the quarter was very strong. Cash flow from operations of $87 million drove an increase in our cash balances to more than a quarter billion dollars for the first time, despite investing in Rochester Home Infusion in the quarter. We exited the quarter at a net debt to adjusted EBITDA ratio of 2.5 times, and our capital structure has never been stronger. I wanted to add on to John's remarks regarding the strategic moves announced this morning. We're very excited to share the news regarding the acquisition of Rochester Home Infusion, which we believe is incredibly well positioned in the Upper Midwest and complements our operations quite well. As disclosed, we paid $27.4 million in the quarter at roughly a low double-digit adjusted EBITDA multiple. And while we're not disclosing specifics on the respiratory therapy divestiture, We anticipate closing on that transaction in Q4, and the ongoing adjusted EBITDA impact from those two transactions will effectively be a wash in the near term. But I do think it's important to reiterate John's comment that we remain focused on our entire portfolio of assets to ensure we have the right invested capital for this platform. Finally, based on the third quarter results, we are tightening our expected financial results for the full year and slightly raising the midpoint of our expectations for adjusted EBITDA. For the year, we now expect to generate revenue of $3.9 billion to $3.95 billion and adjusted EBITDA of $336 million to $341 million. We continue to expect that we will generate at least a quarter billion dollars of cash flow from operations for the year. Reflecting on our revised earning expectations, I think it's worth highlighting that despite unforeseen and continued inflationary pressures, we've raised the midpoint of our guidance range by more than $18 million relative to our initial range of $310 million to $330 million entering the year. So overall, we anticipate finishing the year strong and delivering another productive year from the option care health team. And with that, we'll open the call for Q&A. Operator?

Certainly. As a reminder, to ask a question, you will need to press star 11 on your telephone. Please stand by while we compile the Q&A roster.

One moment.

Our first question will come from Matt LaRue of William Blair. Matt, your line is open.

Hey, good morning. Mike, I just want to start on the inflation comments. Could you maybe give a sense for where you might be seeing things a bit worse than expected. Maybe that's across the board, but if there are any particular pockets of challenge or areas you're getting better, and then how to maybe think about the duration of those impacts and perhaps how we should think about them as we roll into 2023.

Thanks, Matt, and good morning. Great to hear from you. Yeah, look, as we've mentioned repeatedly over the course of the last couple of quarters, it is a multifaceted battle on the inflationary front. I think we've been candid that some of the larger categories are around, obviously, the clinical labor across our nursing and pharmacy organizations. As we've tried to articulate, crude oil has a multifaceted impact on our operations. both from shipping and logistics on therapies leaving our compounding pharmacies, as well as the thousands of miles that we're driving and reimbursing our clinical teams for on a daily basis to the medical plastics and supplies that we're procuring. So I don't think there's any one category that has disproportionately deteriorated. We've seen building utilities, electrical and natural gas, they're up double digits now versus you know, Q4 of last year, as well as, you know, a lot of, you know, broad business services, whether it's facility management, you know, maintaining our fleet of more than 40,000 infusion pumps, et cetera. So I would say there's nothing, you know, where there's been an epiphany. It's just, you know, pardon the analogy, you know, death by a thousand cuts. In terms of where we see this heading, frankly, and again, obviously we're not in a position to provide any thoughts on on next year at this point. But as John mentioned, and I wholeheartedly agree, we don't see these costs subsiding anytime soon. We don't see them as transitory. And frankly, that's our rally cry internally to become more efficient to drive more productivity.

Okay. Got it. It's helpful. And then the top line obviously was strong again, and that a little bit bucks the trend from other providers in the space where maybe there's been lower referral volumes or lower hospital volumes cited. So, you know, maybe just give us a sense if you're sensing some share taking that may be benefiting from competitors leaving the market in some acute markets, just maybe help us to understand the top line strength a little bit better.

Yeah, Matt, it's John. Good morning. Look, I think overall we feel like we are really well positioned to be that partner of choice for those health systems, and especially in some of those markets where there was disruption and a little bit of shift in the competitive dynamics. You know, I think as we went through the quarter, we found a better rhythm on that. Needless to say, there were some capacity constraints as we're building up our ability to take on additional patients. We always try to operate pretty efficiently and effectively, and, you know, that's part of it. The operational and business, you know, acumen of our team is adjusting around that and using the capacity where we could. So, look, we saw, you know, I'd say better referral volumes in some of those markets. And I think we're able to convert that over, which added to the strength. But as I said in my prepared remarks, you know, it did put some strain on the system as we were adjusting to some of that market dynamic. And I think also contributed to some of the cost structure just as we had to move things around as part of the workload balancing that we can do across our network based on the technology. So, you know, all in all, pleased about it. We think there is some share shift, you know, that we recognized in the third quarter. And, you know, the focus of the team is always, from a commercial standpoint, is around reach and frequency and make certain that we have those relationships to help support that. our health system and our prescriber partners as they're looking for transitioning patients on the service. And I think we executed well, even though there were some strains that were caused by some of the workload that got shifted because of market dynamics.

All right. Thank you.

Thanks, Matt. Thanks, Matt. And one moment. Our next question will come from Lisa Gill of JP Morgan.

One moment, Lisa.

Good morning. Okay, great. Thanks very much. Good morning. I just want to go back. John, you made a comment around three areas. You said repositioning the hurricane and inflationary pressures. We've talked about the inflationary pressures. Is there a way to quantify the impact from the hurricane in the quarter, whether it's to revenue or operating profit?

Yeah, Lisa, I don't think there is. And, you know, certainly there was disruption during the period. You know, I do, again, just want to call out the great work of our team. You know, a lot of that what happens is, you know, we have to prepare in advance. We have to make certain that our patients have medicines prepared. and supplies that will get them through, you know, the emergency. Many of them moved away from, you know, the coast and, you know, so we really scrambled to make certain that we were well positioned and that we were able to serve our patients through that. you know, the long-lasting impacts in Southwest Florida, as we've all seen in videos and on the television, you know, it's going to have some modest impacts around, you know, just the care delivery model within that area. But I'd say in general, you know, it's too hard for us to really quantify. I don't know, Mike, if you've got any additional color that you'd like to add.

Yeah, John. Hey, Lisa. The only thing I would say is, look, Ian hit later in the third quarter, but as John mentioned, we're maniacal about making sure we know where our patients are. Do they have the supplies and the therapies? And so there was some inefficiency and some spike later in September, I'd say in the third and fourth week as we tried to compound ahead. We have compounding pharmacies in Fort Myers and Tampa, and we wanted to make sure that we were you know, shifting production. I think that speaks to the resiliency of our model, but, you know, there was some disruption in referrals and costs, which we're always going to put patient care above everything else.

Great. And then just a quick follow-up. You talked about Rochester Home Infusion. You talked about low double-digit EBITDA multiple that you paid for it, but can you help us to maybe understand, you know, what types of services this business provides? Is there any way to break down between acute and chronic You know, is there new functionality you're going to get? Any other incremental details that you think would be important for us to understand around that acquisition?

Yeah, we're really excited about it. You know, as we've mentioned it from an M&A perspective, we're going to be very thoughtful as we look at other infusion assets to make sure that strategically they fit as well as economically it's sustained. It's not just you know, looking at folks that were competing against within a metropolitan area. Rochester is quite unique. They have a very strong presence in Rochester, Minnesota. As you know, there's one or two notable health systems in that area where they've really focused on you know, in that area, as well as they're casting a pretty broad shadow across, you know, the upper Midwest, Wisconsin, Minnesota, Iowa, combining their health system-centric relationship management with our infrastructure technology and, you know, procurement. We see that as an exceptional way for us to extend our operational footprint with what we see is a very strategically well-positioned operator within an admittedly relatively finite geographic area. But, you know, they have relationships in that area which are highly complementary to our commercial efforts.

Yeah, the only other thing I'd add to that, Lisa, is look, when you have that depth of a relationship, and certainly with some of the healthcare providers in that marketplace, you know, there is a traveling aspect to many of their patients, and the ability for us to service with our national network as their discharge provider. back home to their local communities, the OptumCare Health Network just fits really well within that service model as well. The mix of business, I think, is in alignment with our standard book between acute and chronic, but it was really the depth of the relationship and the presence that they had in the market that I think was really intriguing. As well as, I think, a really strong cultural fit, putting the patient at the center of everything that they do and developing those deep relationships with the referral sources in their community.

Great. Thanks for the comments and congratulations on another solid quarter.

Thanks, Lisa.

One moment. And our next question will come from David McDonald of Truist. Your line is open, David.

Yeah, good morning, guys. A couple questions. You guys mentioned 23% of the nursing visits being through the ambulatory infusion suite. Can you give us a sense of what is that percentage amongst new patients that are coming on? And then can you also talk about just the importance of that setting as new products come to market? I mean, I'm thinking about potentially eventually something around the Alzheimer's area. if something on the reimbursement side will work out. Just how you guys think about the importance of that and how leverageable that is with payers and manufacturers of new products come to market.

Hey, good morning, Dave. It's Mike. I'll take the easy one, then I'll let John answer your second question. Look, we're really energized about our expanded footprint. We're opening these. We opened an additional four and a quarter. As John mentioned, we're on track to you know, open 25 new centers. You know, we talked earlier in the year about our nursing visits being around 20 to 21% in the center. You know, in the third quarter, we saw some traction on that front. Admittedly, that's skewed more towards, you know, our patients who are more ambulatory Typically, we penetrate the chronic conditions to a greater extent. And as you can imagine, part of it is as we engage with patients up front, ensuring that we have convenient and aesthetically pleasing facilities that are convenient to them and their lifestyles is key. Obviously, we can have those conversations more and more as we're opening more of these centers. So the short answer is We're seeing considerably more traction, especially with some of our newer chronic patients that are coming on to service. Again, especially if we can offer them an alternative that's convenient. As we've mentioned, our patient satisfaction is as high, if not higher, in our centers as opposed to the home. So really excited, but we're seeing traction, and we would expect that to continue going forward.

Yeah, Dave, and as part of just the overarching strategy, to your point, we really look at this as being a platform that allows us to expand our ability to serve biopharma as well as patients more broadly in the marketplace. And we're always looking for ways to expand the product portfolio, whether it's through some of the limited distribution drugs that we have access to and certainly in the conversations that we have as being a channel partner for biopharma as they're looking to introduce new products or to focus around additional work and marketing on existing products. So this platform really allows that. As Mike said, the expansion has been one in which we're going deep in markets so that we have that convenience factor for many of the patients, and especially those with chronic conditions that are out doing activities of daily living. They're going to work. They're out in their communities. And to have a very convenient and efficient place to move, to receive their care, we think is extremely important. We also, look, there are some interesting new products that are on the horizon, whether it's for Alzheimer's or other disease states, and the infrastructure that we're building and the facilities that we're operating will really position us well to be able to take on some of that patient cohort it gets approved, if there is a path to payment, if, you know, there's a lot of ifs on that journey, Dave, but we feel like the investments that we're making will continue to make us well positioned as a partner of choice for those biopharma manufacturers and for those prescribers who are looking for a solution to help support their patient base.

Okay, and guys, just two other quick questions. I don't know if you want to get into this level of detail, but just on the acute side, can you give us a sense in terms of just the impact of some of the competitor move in markets if you think about kind of a mid-signal digit growth? I mean, was this enough that it contributed a point or two, or is it more around the edges? And would you expect to kind of continue to see opportunities to pick up share in some of these markets as potentially some competitors exit?

Yeah, look, I mean, I would characterize it as, you know, on the margin benefit. Look, I mean, we've been clear that our strategy is to focus on the breadth of both acute and chronic portfolios. We see that as a winning strategy for us going forward. But we've also been very clear that the acute business is not easy. It's, you know, to be as responsive as our health system partners expect us to be. you know, hundreds, if not thousands of times a day to turn that, it takes investment. And, you know, as we've been very open, we've been investing over the course of several years to make sure we have that resilient and dependable platform. And so, look, there's no metropolitan area where it's just us and one or two others. Every market is competitive and You know, we feel it's a challenging environment out there from the inflation, from a labor availability perspective. And, you know, we're not really tracking our performance relative to one or two others. But I just think, you know, we feel really good about our dependability across the market. But, again, every market is competitive. And, you know, I think going forward, that gives us wind in our sails. I would characterize it how you did, which is, look, it was a solid quarter. It was mid-single digits. And we've been open that we see this as a low single-digit portfolio over the medium term. So really encouraged by the near-term execution.

And then just, guys, one last question. Just on Touchpoint, can you talk about the potential benefit in terms of just data capture and, you know, what that – How that may be helpful, not only for you guys, but in terms of relationships with your payers and sharing that with the payers?

Yeah, Dave. Look, we're really excited about the progress and the fact that we've gotten to this point in our development plan and roadmap that we had laid out. Look, we have always focused around data as an organization. And when you think about what we're capturing on the patients that we have the privilege to serve, it is of... really important value as we see it. The touchpoint tool is just going to enable that even more and is part of our overall digital strategy of digitizing the care plan and every interaction that we have and then being able to, you know, put that into structured data that we can utilize to interrogate and to identify opportunities for us to improve clinical protocols for us to make certain that we're driving superior clinical outcomes and then be able to share it with partners, whether in biopharma with de-identified data sets or with prescribers or with payers as we move that forward. And so this allows us to have a much greater opportunity to collect data on a longitudinal basis. It allows us to have a much more direct and intimate relationship with the patient base. It allows us to have secure two-way communication between our clinicians and our patients that we're serving through that process. So we're really excited about it. Look, it's early stage, but when you think about capturing social determinants of health, you think about all of the other components that we have a privileged insight, given the fact that we have a depth of relationship, whether in the home or one of our infusion suites, given the amount of time that we spend with the patients. We are really excited about this next phase and the potential that this platform will bring for us to enhance the already rich data set that we're collecting today.

Okay. Thanks very much, guys.

Thanks, Dave.

One moment. And our next question will come from Kyron Ryan of Deutsche Bank. And Kyron, your line is open.

This is Kyron for PDO. How's it going? First, I just wanted to get your thoughts on the implied 4Q revenues. On a sequential basis, it seems a little light versus kind of what you've done over the last couple years as far as the step up from 3Q to 4Q. So I was wondering if you could kind of just talk about what would drive revenues to be, you know, flattish sequentially.

Yeah, I think, look, we provided a range, Karen, that we think is reasonable and prudent, you know, obviously recognizing some of the challenges. I think, you know, the implications of our guidance would still imply a Q3 to Q4 step up, which you historically see in this business. You know, again, I think this year with, you know, solid performance in the third quarter, I don't think there's any underlying message we're trying to say around a deceleration of the business. So, I think our expectations will continue to see, you know, productive top line traction going into the third quarter or into the fourth quarter. If anything, you know, it might look a little more modest just given some of the performance in the third quarter.

Okay. Okay. Got it. And then, so, so I guess if, if you were seeing revenues, you know, flat, maybe slightly up then, and you know, you talked about a few of these inflation and other cost pressures, um, It sounds like they're not necessarily supposed to get worse from 3Q to 4Q, but since the revenue growth isn't huge, can you talk about what would be driving the 50 bits of margin expansion from 3Q to 4Q then? Is there anything rolling off there sequentially?

There's no real items in Q3 in terms of comparability, you know, as you imply, you know, we're obviously based on our implied ranges. We are anticipating a modest EBITDA margin expansion from Q3 to Q4. And I think it just really comes back to the fact that, look, with some additional revenue and given our focus on productivity and cost containment, again, I don't think that we are expecting the inflationary pressures to subside. I would, you know, I'd correlate that to our focus on just continuing to drive productivity and profitability going into the fourth quarter. Great. Thank you so much.

Have a good one. Thanks, Kieran. One moment. And our next question will come from Joanna Kajus of Bank of America. Your line is open. Joanna, you're live. Yes, hi, good morning.

Thanks, Joanna. Hi, how are you? It's a little bit of a pause. I wasn't quite sure if it's me. I couldn't hear my name, but I'm glad it worked. Okay, so great. So, yeah, thanks for taking the question. So, I guess a couple of items here outstanding. So, just first, I guess, following up on the commentary around staffing and labor, So are you seeing any improvement there? I mean, it sounds like you're talking about kind of lumping everything together as in like the inflationary pressures, you know, a little bit higher than what you were expecting before. But, you know, can we talk about labor in particular? So any easing or anything, you know, acceleration in difficulties there? And I guess in particular, you know, any problems in getting stuff in place to take the patients on, because I guess so far you have not mentioned that. So I just want to hear a commentary on that. Thank you.

Yeah, Joanna, it's John. Look, it's a tough market out there for labor across all of the different job categories that we have as part of our team. I would say that the pressures remain there. I think the team has done a really good job in recruiting. We continue to see really strong, you know, results in our recruiting efforts, you know, through that process. You know, the areas that are a little bit more constrained is certainly in the nursing and the pharmacy technician area. And we've got a lot of work underway to make certain that, you know, time to fill is in an adequate range as we go through that. You know, to your question, look, we like the model that we operate, especially in the nursing, that gives us some flexibility with our full-time, part-time, and per diem structure and utilizing our nursing network with the Infinity and Spin acquisitions that we did. So, you know, we are able to flex really well to meet the demand in the marketplace and Given some of the market disruption, there were some near-term challenges that we felt just because, look, we don't run heavy as an organization. We operate pretty efficiently around our staffing models and making certain that we're matching capacity to where demand was. When there was some market disruption, you know, the ability for us to ramp up takes a bit of time, especially in the operations perspective when you bring in people and you've got to onboard them, train them to your policies and procedures, and make certain that they are certified, you know, to be able to operate within our environment. So, you know, there's a little bit of lag there. And so, you know, I think the team has done a fantastic job of responding to that. And I don't see anything that is over the midterm you know, an overall concern other than just, look, their wages and labor pressures we think are going to be persistent. And we're doing everything we can to focus around making certain that we have the right team members in place, but also focused around productivity and efficiency of the resources that we have.

Great. Thank you. And I guess the other follow-up, you also mentioned you're getting traction with your payers, right? So any questions way to kind of frame for us any acceleration you see in the pricing going forward?

Yeah, look, I would characterize it as, you know, and I think we've said this before, no one's knocking on our door saying, hey, we want to give you more money, you know, on a reimbursement standpoint. But our market access team has, you know, very strong relationships with our payer community across, you know, the 800 payer relationships we have, the 1,400 contracts that we manage. There have been circumstances where we have been able to modernize some of the rates for nursing and per diem. given the pressures that we're feeling and making certain that we can provide access to their members and us being able to be reimbursed on a fair and equitable way for the value that we're delivering. So it's a focus of the organization. I don't want to say that it's something that's carte blanche and that we have an ability to just take price to the market on that. But we have been having constructive conversations. We have been working in partnership in different areas. And, you know, there is an opportunity, I think, that folks are starting to realize that in order to afford high-quality care, there are, you know, increasing costs and there's a little bit more willingness to at least have those conversations and help us modernize some of the rates that we need to be able to continue to support their members. With that, I think we've explained multiple times, look, we get reimbursed across three dimensions. That's the drug, a clinical per diem, and a nursing rate. And we look at those all in conjunction with each other. They're balanced in the way that we underwrite the business. And so, you know, we always try to take a very practical and pragmatic approach, looking at the overall economics of those contracts and finding the situations where we need to take rate, and we'll have those conversations in a very formal and a disciplined way.

And just, I guess, to close it off, so with our staffing and pricing, and I understand you're not providing guidance for next year. not this point, but any other consideration we should be thinking about, you know, as we think about the next year, you know, when it comes to headwinds and tailwinds?

Yeah, look, Joanna, as you mentioned, we're just not in a position to share any thoughts. We'll obviously do that in late February when we come back with the fourth quarter call. We're obviously assessing quite a few variables going into next year, so just not in a position to unpack anything at this point.

Okay, I understand. And I guess just one last one, I guess, in terms of the stake that Walgreens has, I don't know whether you can share any views around, you know, their plans around it and kind of how you view their essential investment in the company and going forward. Thank you.

Yeah, Joanna, look, as you can imagine, we're not in a position. That's their stake. I'd refer you to John and the team over there. You know, obviously, we're not in a position to share anything regarding their intentions on their remaining stake.

Thank you. One moment.

And our next question will come from Jamie Purse of Goldman Sachs. Jamie, your line is open.

Hey, good morning, guys. I wanted to follow up first on the acute side. I think some of the facility closings and operation closings were pretty late in the quarter. I'm sure there was a wind-down period, but just any comment on whether you saw the impact of share gains in acute across the quarter or just any timing? comments there or if the share gains might still be ahead of us.

Yeah, Jamie. Good morning. It's Mike. Look, I'd caution to directly link the mid-single digits solely to repositioning by others. Again, as I mentioned, every market is quite dynamic. We see repositioning every quarter. We see folks entering and consolidating. We see some folks, as we've seen around mid-year, where they've closed down some of the pharmacies. And so, again, there's no market where we're disproportionately benefiting because of a position, because there's multiple providers in every single market that we operate. And so, look, we saw a number of moves throughout the quarter. We saw some folks making moves as early as the late second quarter. And again, not to try to be a little bit elusive, but really, Our focus is just on being reliable and collaborative with the health systems, whether it's new patients coming on service or transitioning patients where they receive notice that a provider is no longer willing and able to support them. So I wouldn't link it directly just to a couple of moves from other participants or try to map it out in one month or another.

Okay, thank you. And we've just seen utilization across healthcare a little bit subdued in the third quarter. Some are calling out vacations or, you know, various challenges across healthcare. Can you comment on, you know, the seasonality you saw for chronic new patient referrals, if it was in line with historical trends or any more seasonality that you might have seen this year?

Yeah, Jimmy, it's John. Look, as you see the tea leaves as we do, I'll start with the acute side. You know, hospital admissions and utilization was lower. I do think, again, that kind of speaks a little bit to your last question around our team really focusing around reaching frequency and making certain that we are a partner of choice to be able to capture the demand that is in the marketplace on that. And, you know, so I think it was subdued, as you said. I'd say from the chronic standpoint, I'd say similar trends. We saw, I guess, new patients, let's call it naive patients, coming on service with us, probably in alignment with our expectations, but I'd say it's a little bit lower than where the historical trends had been on that. You know, I think everyone's trying to understand, you know, what's going on kind of across utilization across the board, you know, from the payers to the providers through that process. But, you know, I think we'll see the trend just continue as is. We're not seeing, you know, significant changes in either direction around the quantity of patients that we are seeing through the referral process.

Okay, great. And then last quick one, can you size Stellara within the portfolio? I know there's lots of exclusivity coming next year for that asset. Just any color on size and how to think about impact, probably not too much in 23, but potentially in 24.

Yeah, Jamie, it's Mike. As you know, we don't break out specific therapies. What we have said is that our largest therapy broad therapy category, which is, you know, immune globulin is around 20% of our revenue. Chronic inflammatory therapies is meaningful, but it's not even that big. And so, look, when you unpack that further, it's across a number of indications and a number of therapies, including things like Remicade, Intivio, Stellara, Inflectra, Renflexus. So, I would say, as we've talked about, we pride ourselves on, you know, the broad portfolio of therapies. We have a great relationship with Janssen for Stelara, but I wouldn't characterize it as a disproportionate risk to our revenue going forward.

Okay, thanks. Appreciate all the color.

Thanks, Jamie.

One moment. And our next question will come from Michael Patusky of Barrington Research. Your line is open, Mike.

Good morning. I guess a couple questions. Real quick, some forecasters are saying heavy flu winter, you know, possible COVID spikes possibly. I'm just wondering. My instinct is that that probably cuts for you guys in a positive way. even COVID with potential site of care shifts. I mean, can you just comment if we do see heavy flu or reemergence of COVID or COVID spikes in parts of the country, how you guys think that cuts for you? Thanks.

Yeah, I think the ability for us to service patients in the home or in a dedicated infusion suite certainly has some benefits for those that are immunocompromised and don't want to be in a community setting to receive their care given influenza or other contagious diseases on that. Look, I think we're well positioned with what we've done both in expansion of our dedicated infusion suites as well as our ability to reach into the home. And so, you know, we think, you know, there are some, you know, positive aspects of that that, again, we feel today. We felt, you know, through some of the changes in the healthcare delivery system with the impact of COVID through that standpoint. hard to quantify but i just say you know um we we normally see that that is uh something that uh you know supports uh care in the home or in an isolated setting uh as opposed to a community setting gotcha thanks and and just one other uh you know uh

federal government, you know, there have been stories out there expanding the standard tax deduction, social security benefits due to inflation. And you guys have talked about, you know, some positive conversations and renegotiations with commercial pairs. I'm just wondering, you know, Is there any chance that this persisting inflation, you know, possibly could result either in the near term or the longer term in maybe a more rational reimbursement structure from, you know, on the federal side, federal government side? Thanks.

Yeah, you know, unfortunately, it's kind of a common answer that I give quarter by quarter. Look, we're doing everything we can to be working both independently and with the National Home Infusion Association to get Congress to act around the Preserving Patient Access to Home Infusion Act. You know, there's a lot of work that is happening behind the scenes with bipartisan support to get that legislative fix. There's just a lot of priorities in Washington right now. And I think there's a lot of wait and see around what happens with the midterms. So, look, we're always going to continue to, I guess, sing the praises of home infusion from the highest mountaintop and try to get as many people to understand the disadvantage that exists right now for Medicare beneficiaries, given the current reimbursement structure. But it's really hard to hazard a guess, and one would hope that common sense will prevail, but it's Washington. And there's just a lot of different things that are pulling on, you know, the priorities from that perspective.

So just a quick follow-up. So you don't feel like this, you know, sort of persisting inflation in any way has sort of moved the needle any closer to, you know, some kind of rational reimbursement policy. I mean, is that fair?

I think that's fair. I mean, I think the merits of what we've been trying to do are the merits of what we've been trying to do. I don't think that the inflationary conversation does really anything to support that. There has to be a recognition of the deficit of access. first, and the fact that total cost of care would be reduced for Medicare beneficiaries if they utilize home or alternate site infusion therapy as opposed to where those patients are receiving care today. So, inflation is certainly an aspect of that, but there's just a fundamental misunderstanding within CMS around the value and virtues of the home as being a place of care for infusion services.

Thank you so much. Yep. You're welcome, Mike.

And I'm showing no further questions. I would now like to turn the conference to John Rademacher for closing remarks.

Yeah. Thank you for attending our third quarter call this morning and for your interest in OptiCare Health. As you heard, we had a very productive third quarter, and we are confident in the strategy we are executing and the strength of the platform and our team. Take care and be well.

This concludes today's conference. Thank you for participating. You may now disconnect.