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spk10: considering that timing between quarters. Large fluctuation, but really no net impact for the year. And then the third bucket of change impact is cost. And as you heard in the prepared remarks, about $2 million of costs, incremental costs, expected in the balance of the year per quarter. And that's really driven by incremental labor, either in the form of incremental people and or contractors and overtime, associated with manual efforts. So as Lee just mentioned, we have a lot of automations and rules built into some of that front end change healthcare software. And as we've transitioned to other vendors, we've got to rebuild those automations. And we've been building those rules in over years and years. So it will take some time to get back up to the efficiency level that we expect. And in the short term, we've got a backlog of claims that we've got to work through.
spk14: Got it, I appreciate the call, thank you.
spk15: And before we continue on to the next question, a reminder to please limit to one question per person. And your next question comes from the line of Craig Heddenback from Morgan Stanley, please go ahead.
spk12: Great, thank you. Lee, question on Providence, really around visibility into the ramp of that contract and just, the investments you're making first half of this year, how you feel it's going so far, and then again, visibility into second half and in the ramp into 2025.
spk03: Thanks, Craig. I'll start and if Jennifer, if you have any other color, please feel free to add. Stepping back, this is obviously an important customer, a flagship win for our business. We're very proud of having been selected as their partner, both on the Eclera and on the Providence side. All is positive, Craig. There's a very supportive, a very strong executive team on their side, a very aligned set of goals and incentives. Regarding execution of onboarding, we're following a playbook that has worked for other large acute physician and physician customers. We have a very experienced R1 onboarding team. There's lots of moving parts, bringing on that many people, getting onto their technologies, transitioning to our teams, but all is on track. We feel very good about timing of onboarding and integration. Jennifer, anything to add?
spk10: Now, just as we mentioned in our prepared remarks, from a guidance perspective, we're materially in line with the guidance that we gave for the Providence contract and we're confident in our ability to achieve those results.
spk15: Your next question comes from the line of Elizabeth Anderson from Evacol, please go ahead.
spk08: Hi guys, thanks so much for the question. I appreciate the sensitivity around this. I was wondering if there's anything that you guys can comment on publicly about the update in the May 6th waiver. And if not, I was wondering if you could comment a little bit more on sort of the increased harmonization with ECLERA. I was interested in understanding like what more that is and then how does that sort of set you up better for 2025, as you mentioned.
spk03: Yeah, thanks Elizabeth. Look, no update other than what's publicly available on your first question. We're very focused on operating on behalf of our customers and not letting this distract our team. With regard to ECLERA, look, I'm very positive on what we've seen a few months in. A very solid set of customers, including several reasonably sized academic medical centers and these are sophisticated buyers. So we've gotten deep, had a good set of meetings with those customers and they are very pleased with the work that ECLERA has done on their behalf over the last several years. The second thing I'd point out is that team has very deep revenue cycle expertise. I've got to know the leaders on that team and there's a healthy amount of respect between the R1 and ECLERA teams on level of expertise, ability to deploy technology, customer focus and just relationships they have with their customers. We are taking a very similar approach to integration that we took with CloudMed, a very structured approach commercially, operationally, with regard to people and all the backend processes. All of that is on track. So we feel very good about the process we followed with integration and no concerns. I'm just very positive on the business so far in terms of how complimentary they are to what we've already deployed with customers.
spk10: The only thing I would add on the harmonization Elizabeth is two things. One, at the time we announced the transaction with ECLERA, as you may recall, the margins are obviously below what our margins are in the business. And so as we're starting to think about integration and looking at those businesses, we're taking a hard look at businesses and certain solutions that aren't profitable and taking the opportunity to think about harmonization and that will really set us up well as we move into 2025. But it will have a revenue impact, but really no impact on EBITDA as there were areas or contracts where we didn't have any profitability in some cases, negative margins. So that's one area. The second is particularly around some of the opportunities that ECLERA had with Providence as we're sorting out the -to-end contract and where the revenue will end up. There will be some revenue impacts on ECLERA on the top line, but they were already contemplated in the base fee for Providence. And so there's no margin impact because it's already part of the baseline spend with Providence that they're spending either with other vendors or ECLERA had contemplated taking on some of that business. So just sorting out how the revenue aligns across the different businesses, but really no impact margin.
spk15: Your next question comes from the line of Jay Lindrassing from Chur Securities. Please go ahead.
spk11: Thank you and good morning. Thanks for taking my question. First, a quick clarification on Charles question. So you're saying that there is no change to your core 2024 EBITDA, what you kind of assumed two and a half months back, basically we're trying to understand, like it looks like all the items you're calling out are kind of one time in nature or shift of dollars within like intra-year. So basically how we think about the growth from 2024, 2025, there's no change compared to two and a half months back. I want to confirm that. My main question is like, with respect to change healthcare disruption, has it impacted your pipeline, RFP flow or conversations in general? And also like all these developments around strategic options, have you seen that impacting your, any ongoing contract rollout or any client conversations?
spk10: Jay Lindr, I'll start on the change impact. And then Lee, if you want to take the pipeline piece and the impact on that. As far as the KPIs, we do expect that we will have some of the KPI impact bleed into 2025, into the first half of 2025. And that's really driven by denials because we expect that denials will be elevated for a period of time as we continue to build in the automations on the front end of where we've built rules over a period of time that have to be rebuilt, if you will, in the new providers clearinghouse process. So we do expect that there will be an impact to KPIs in the first half of 2025. With that said, if you look at the change to the guidance, it really is net-net, the change impact, both cost and then the net KPI impact. There's no fundamental issue in the business on the core business outside of that net impact.
spk00: Yeah, I was recording your...
spk03: Just let me get to the second part of that. No long-term impact on the pipeline. We did see a three or four week delay, but the team is very much on track, both in the quarter and for full year on bookings. And I'm speaking specifically to modular bookings, Jalendra. If anything, there's an opportunity here as any customer who deals with the outage will have an increase in denials, we think, back after the year. So we are seeing increase in the pipeline around AR and denials.
spk15: Apologies for that interruption. And your next question comes from the line of Sean Dodge from RBC Capital Markets. Please go ahead.
spk07: Yeah, thanks. Jennifer, just staying on the change outage for a moment. I'm just trying to understand the cadence of the impact, the incentive fees for this year. So you said 25 million of total impact of the year, 10 million in Q1, and then 2 million of extra cost each quarter for the rest of the year. So I think that means there should be about another 9 million impact to incentive fees. Is that right? And then cadence-wise, it sounds like there might be a little bit of a step up in Q2 incentive fees relative to Q1, kind of flattish in Q3, and then a step down in Q4. Am I kind of aggregating all that right?
spk10: Yeah, that's right. There will be the other large negative impact expected on incentive fees is in Q4. And there's just a little bit of noise, but a step up in incentive fees, but still a little bit of noise in Q2 and Q3, but then another impact in Q4 that's really driven by that denial. So yes, that's correct.
spk15: Your next question comes from the line of George Hill from Deutsche Bank. Please go ahead.
spk14: Yeah, good morning, guys. I kind of have a follow-up on Jolinder's line of questioning, which is on the market macro backdrop. And with the onboarding of Providence and the acquisition of Eclera, has this kind of increased or decreased the size of the sales funnel looking forward? And how are you guys feeling about capacity as it relates to whether this is attracting more business interest or what, like are potential clients seeing this as like, as you guys is the safe place to go now, or are people worried that you guys have a lot on your plate? Just kind of be interested in the sales pipeline and the sales funnel.
spk03: Thanks. George, short answer is no impact. Short term in nature on the pipeline, modular pipeline, we're still seeing plenty of opportunities and increases in some areas like AR and denials, and same on the -to-end pipeline. We're feeling very good about what's happening there, seeing many or several medium, small and medium sized systems. We're very active in discussions across the board there. So no changes across, if anything, this just heightens the awareness of needing good partners that can deploy technology and services. And I also add George, on your Providence question, like these are separate teams, very focused teams, no impact to onboarding Providence or integrating at Clara.
spk15: Your next question comes from the line of Jack Wallace from Guggenheim Securities. Please go ahead.
spk06: Hey, thanks for taking my questions. Jennifer, I just wanna make sure that I've got the net impact if first quarter EBITDA correct, and then give me an opportunity to tell us just how much outperformance there looks like under the surface. So if I recall correctly, first quarter EBITDA was expected to be down about 20 million quarter per quarter related to some of the transactions we discussed. You're only down about 16 million, that also included what, nine or 10 million of change. So are we right to say that under the surface there's about 13 or 14 million of EBITDA beat in the quarter?
spk10: We did have a good quarter with our core business. We also, and I alluded to it in the prepared remarks, some of our first quarter favorability was driven by timing of the investments on the Providence onboarding. So there's some one-time costs that we incur on onboarding related to things like technology licenses and some other technology costs that we expect will come in Q2 and Q3. So some of that is timing, but we did have a great quarter.
spk15: Your next question comes from the line of Michael Cherny from LeeRink Partners, please go ahead.
spk13: Good morning, thanks for taking the question. And I apologize if I missed this, but did you give any update on Sutter either in the current ongoing onboarding process or how you think about the changes in management there, what it means for phase two?
spk03: Thanks Michael, I'll take that. I'd say this is a very important customer, another West Coast customer that we won several years ago, broadly performing well, like any customer, there's always opportunities for improvement as we manage an important part of their business. I would think of what we have called phase two as like with many of our -to-end customers and opportunity going forward.
spk15: Your next question comes from the line of Sarah James from Canter Fitzgerald, your line is open.
spk00: Sarah, your line is open.
spk09: Yep, sorry about that. Is there an opportunity to cover some of the switching costs with related to change of the system? To other vendors through business interruption insurance and are those changes of vendors permanent? And then if you could give us any color on the seasonality of impact of change to net operating revenues, thanks.
spk03: So Sarah, first part of your question, I don't wanna get any specifics, but clearly we like many other companies are pursuing different options regarding insurance. The second part of your question is an important one we going forward will never be single threaded through any one technology on a large use case, whether it's clearing house or otherwise. I would think of this as us diversifying our base of options regarding this area. Some of those will be more permanent than others, but for the most part, any of our customers will have multiple options and deploy not just one for this use case.
spk10: So. And then on your last question related to the timing of base fees, we really think it will be a large impact fluctuation and shift in timing between Q3 and Q4 base fee revenue, probably in the range of somewhere between 25, 30 million.
spk15: Your next question comes from the line of Daniel Grossleid from Citi, please go ahead.
spk04: Hey guys, thanks for taking the question. More of a macro question on my end and really about the managed care environment, particularly given some difficulties in Medicare Advantage. I'm wondering if some of those headwinds that Medicare Advantage faces in 2025 and possibly beyond, if that's going to cause, do you think an increase in utilization management tools and how may that impact collections on your end and incentives fees on your end? And then I guess longer term, how may that drive demand for some of your more modular solutions?
spk03: Yeah, so it's a great question. I'd say pretty balanced across the board on the macro outlook. So I love the last part of your question. It does drive demand as some of our customers deal with the nature of payment timelines with MA and some of the technologies they'll deploy on the reimbursement side. Some of our customers do have reasonably reasonable sizes of their population on MA. And look, if anything, this emphasizes the importance of having a technology partner that can be as proactive on driving revenue yield and reducing costs. So pretty balanced across the board. No major changes over the last year plus Jennifer and I've seen, but we're definitely watching that trend going forward. Anything to add, Jennifer?
spk15: Your next question comes from the line of Jeff Gower from Stevens, your line is open.
spk05: Yeah, good morning. Thanks for taking the question. Want to ask more on the demand environment and certainly recognize that the business model is evolving and you guys don't want to tie yourself into NPR targets and also appreciate all the discreet examples of booking success, but wanted to ask if there's any way you could quantify your booking success or the progression of opportunities through the pipeline or just otherwise support your confidence in the medium term revenue growth outlook.
spk03: Jeff, I'll just touch at a high level on the demand environment. So I'll go a bit deeper on what we've said, meeting providers where they are on the revenue cycle journey. We believe we have the most comprehensive set of capabilities of solutions, whether you want a fully managed deal or on the other spectrum, have us help you drive revenue that you would not otherwise be able to find based on miscoding errors, lack of availability of resources to deal with denials or analyze claims that may have been underpaid. And in the middle is what we're calling managed services or functional partnerships and we are seeing plenty of situations where it is better for us and better for the potential customer to go down the path of using our people, our technology, our IP offshore to accomplish a task while having the customer manage, still manage the revenue cycle. So we see good demand across the board on the -to-end side, as I said, a strong pipeline of medium sized systems that would look to do a fully managed deal. And on the other spectrum on the modular side, still see very strong demand where we're seeing it the most is still on the underpayments optimization area. We see plenty on the denials and AR side. We're seeing demand for physician advisory solutions and continued demand on the coding accuracy side. So we see strong demand across the industry in a time where we believe providers need it the most.
spk15: Yeah, next, Christian comes from the line of Richard Close from Canaccord Genuity, please go ahead.
spk01: Thanks for the questions and good job helping out all your clients in a hard time here. Jennifer, you mentioned the bankruptcy in your comments on the modular revenue in the quarter. I was wondering if you could provide a little bit more details there and appreciate the 45 million for the full year that you referenced. But I'm curious how you're thinking about the bankruptcy and the impact on your business going forward longer term.
spk03: Richard, if you don't mind, I'm gonna start just kind of give a little context and hand it over to Jennifer. This is an important customer for both Clara and CloudMed. Long standing customer on both sides. I'm personally familiar with and our Clara teams are very familiar with. Multiple solutions sold on both sides. This is a customer that has highly valued the combination of technology, global scale and the solutions we have. They have filed for bankruptcy, as you know, we are committed to helping them through this as we have helped others in similar situations. So we feel very good about the work we will do for them going forward. Jennifer?
spk10: Sure, so I mentioned in the remarks about $45 million is what the annual revenue is across both pieces of the business, Clara Solutions and CloudMed Solutions for this customer. With that said, in the first quarter, we did not recognize any revenue that was not collected. So we've received cash payments for all the revenue that we recognized in the first quarter. And any of the outstanding AR that we had on the books is fully reserved at the point that they filed for bankruptcy this week. So there's no exposure from a balance sheet perspective based on the outstanding receivables. This is the same customer, as you may recall, from prior earnings calls, where we took a reserve in the latter part of 2023, based on financial challenges we knew this customer had. And so we had taken a reserve to account for that. So this is the same customer. As far as looking forward, we have not removed the revenue from our guidance for the year. As I mentioned, they just filed earlier this week, but in the initial filings, they have designated revenue cycle vendors as being critical to the operations of the business. So we're working through the bankruptcy process, but we have not removed the revenue from our forecast as we do believe we'll still be doing work for them going forward.
spk15: Yeah, the next question comes from the line of Alan Lutz from Bank of America. Please go ahead.
spk02: Good morning and thanks for taking the questions. Lee, you talked a little bit about some of the benefits you're seeing in modular solutions from change. Thank you highlighted AR and denial recovery. Is there any way to quantify how material those are as modular solutions or what percent of your customers have adopted those to date? Thanks.
spk03: The way I think about this, at the highest level is we have more than 90 of the top 100 that we've previously said have at least one solution sold. A big part of the former CloudMed now modular strategy has been to cross sell into that customer base. So one metric is the number of solutions sold. And I mentioned in my previous remarks, we're increasing the number of solutions sold into that base. And that is historically and continues to be a big part of our growth strategy. Really think about that as 75% of more of our growth is coming from current customers, not just the top 100, but also when you go past the top 100. The next part of our strategy is attacking new markets. We haven't kind of gone after before. And that is for us going down market with bundled solutions. We're also seeing success there. The third part that we think about is cross selling some of the what we would know as historic kind of R1 modular solutions like physician advisory, our coding solutions, we call CBO into the base. So we very much track the rate of penetration of those new solutions into the base. And we're seeing really good success there with our commercial teams that already have relationships with every head of revenue cycle at these top 100 by NPR. Without giving you numbers where we have a bookings target, we articulate internally that translates to revenue over time and delivers the double digit growth rates we've conveyed to you. And we're very much on track in the quarter and expect to be on track in the year.
spk10: The only thing I would add is the denials is one of our larger solution lines within our modular business. But with that, as Lee mentioned, there's still a lot of opportunity for further penetration across our customer base.
spk15: And a reminder, if you would like to join the queue and ask a question, please press star one on your keypad now to raise your hand. And we'll pause for a moment for any final questions. And there are no final questions at this time. I would like to turn the call back over to Lee for closing remarks.
spk03: Thanks, Polly. A couple of things I'd say just to close us out. First and foremost, we remain focused on delivering operationally and innovating for our customers. That's by far our top priority. Second is a point that I've emphasized a few times is that market demand for solutions is very strong across the board. And third and last, we're very excited about the opportunity to transform the industry through technology and what we believe are the best people in the industry. Thank you for your time today,
spk15: everyone. This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.
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