Bright Health Group, Inc.

Hello and welcome to Bright Health Group's third quarter 2021 earnings conference call. My name is Lauren and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by dialing into the conference call and pressing star followed by one on your telephone keypad. I will now turn the call over to the Bright Health Group.

Good morning and welcome to Bright Health Group's third quarter 2021 earnings conference call. A question-and-answer session will follow Bright Health Group's prepared remarks. As a reminder, this call is being recorded. Leading the call today are Bright Health Group's President and CEO, Mike Mykin, and CFO and Chief Administrative Officer, Kathy Smith. Before we begin, we want to remind you that this call may contain forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experiences or present expectations. The description of some of the risks and uncertainties can be found in the reports that we file with the Securities and Exchange Commission, including the risk factors in our current and periodic reports we file with the FCC. Except as required by law, we undertake no obligation to revise or update any forward-looking statements or information. This call will also reference non-GAAP amounts and measures. The reconciliation of the non-GAAP to GAAP measures is available in the company's third quarter press release, available on the company's investor relations page at investors.brighthealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8K to be filed November 12, 2021, which may be accessed from the investor relations page of the company's websites. I will now turn the conference call over to Bright Health Group Chief Executive Officer Mike Mykin.

Good morning, and thank you for joining Bright Health Group's third quarter earnings call. We're pleased to update you on our performance as well as the continued momentum around our aligned and integrated model. Before I turn it over to Kathy Smith to cover our Q3 results, year-to-date performance, and refined outlook for the year, I will provide brief remarks on our business strategy, including proof points and progress toward building the first fully aligned national integrated systems of care. Notable headwinds and tailwinds impacting our business and our positioning for 2022. We will then open it up for questions from the audience. We always start with our mission, which is central to what we do at Bright Health Group, making healthcare right together. is on the belief that by connecting and aligning the best local resources in healthcare delivery with the financing of care, we can deliver better outcomes at a lower cost for all consumers. Braid Health Group is building a truly unique model that we believe will transform how healthcare is delivered. We believe when healthcare is delivered in a fully aligned and integrated model, We can bend the cost curve and, most importantly, enhance value for both consumers and providers. We're encouraged and humbled by the significant growth our business continues to generate. We continue to exceed our internal expectations, driven by strong, bright healthcare membership as consumers to entrust us with their health and well-being. We now expect enterprise revenue between $4.1 and $4.2 billion in fiscal year 2021, a meaningful base to continue building our business into the future. We're still building the scale. We expect to see some quarterly variation, but we maintain a long-term outlook that we believe will deliver more consistent results and shareholder value over time. The third quarter was challenging due to a confluence of factors that disproportionately impacted us. First, on top of our significant 2021 ACA open enrollment growth, effective on 1-1-21, we grew in year an average of 30 gross new members every month from March to August as a result of the extended 2021 special enrollment period. with a heavy concentration in Florida and North Carolina. This resulted in a significant influx of new members with a shorter duration during the year. Second, the Southeast where we have the largest membership concentration was hardest hit by the COVID-19 Delta variant. In the third quarter, Centers for Disease Control and Prevention data indicated COVID related hospitalizations in the region more than tripled compared to the second quarter. This had a meaningful impact on our medical utilization in the quarter and meant that healthcare capacity was largely prioritized to treat COVID related needs. Due to these factors, We were challenged to engage with members during this period as we typically would consistently throughout the year, which is critical to performance. This hampered our ability to accurately capture the risk of our members and therefore our estimated 2021 risk score is lower than we had originally anticipated. This resulted in an increase in our risk adjustment payable and a corresponding decrease in our reported premium revenue. While we experienced a modest reduction in utilization from certain non-COVID-related procedures, the impact of direct COVID utilization and the change in the estimated risk score for our population resulted in an increase in our overall medical cost ratio for the third quarter. Kathy will discuss this in greater detail later on. We believe matching payment to population health status is needed to align incentives and drive performance in the direct-to-consumer market. However, with a predominantly new and rapidly growing business, population health risk is difficult to estimate in the near term, but improved as our markets and populations mature. Late September and early fourth quarter indications show COVID-19 greatly subsiding. especially in the southeast, and we've been able to engage more significantly with our members, especially in our owned and managed clinics. This is particularly positive as we build long term relationships with our consumers. Most importantly, despite these challenges, we see strong evidence that when we deploy our fully aligned model, we delivered demonstrably better results. Looking at your today performance, Our business has driven exceptional growth with solid operating results. The differentiation we are driving through our fully aligned model gives us additional conviction in our approach and strategy. Over the past five years, we have built Bright Health Group into a tremendous platform for growth. We are raising guidance on our end-of-year fiscal year 2021 Bright Healthcare Membership from $650,000 to $700,000, an increase of nearly 8%, which gives us confidence in the upper end of our prior revenue range. As I mentioned earlier, we now expect fiscal year 2021 revenue of $4.2 billion net of risk adjustment. As of September 30th, Bright Healthcare serves over 720,000 members across our commercial and Medicare Advantage lines of business, up 8.7% from the end of the second quarter and 247% compared to the third quarter of 2020. New Health also continues to demonstrate strong growth and performance year to date. With a total of 131 owned and affiliated primary care clinics, serving over 170,000 patients under value-based arrangements. As we announced shortly after our last earnings call, we are continuing to bring our differentiated model of aligned and integrated care across the country. In 2022, our geographic footprint will span 17 states and 131 markets. including the expansion of New Health's owned and affiliated care delivery assets into Texas and North Carolina. We continue to frame around the same five key themes we presented last quarter as we update you on our progress. One, we have demonstrated extraordinary growth. Great healthcare enrollment exceeded our internal expectations driven by the extended 2021 Special Enrollment Period for IFP and continued in-year growth in Medicare Advantage. Two, we have delivered consistent performance. Our management of underlying medical costs, excluding COVID, has performed according to our internal expectations. And our overall year-to-date performance is solid considering our growth rate and the impact that COVID-19 Delta variant disproportionately on our business in 2021. Three, we are driving differentiation through new health. We're seeing proof points that highlight the power of our fully aligned integrated systems of care. We are aggressively expanding this model in Florida, and we are also bringing it to Texas and North Carolina in 2022. We are on track to open 25 de novo clinics or more next year. We are also adding more affiliates into our fully aligned model where providers are clinically, financially, and technologically aligned with Bright Healthcare. In addition to the payers we serve today, we are seeing significant interest from new external payers and expect strong growth in non-affiliated revenue in 2022. Four. we are building one technology platform. Our technology platform is starting to demonstrate measurable results as we continue investing in the BIOS infrastructure and DocSquad consumer and provider-facing tools. We have also accelerated our timeline to integrate to one platform, which results in some near-term cost structure headwinds, but will provide the long-term benefits of better insights and better service at a lower cost. We are making progress on integrating the health plan assets we acquired, with integration for all corporate office and support functions expected to be completed in 2022. We now expect full operating platform unification to occur within our commercial business in 2023. And finally, five, we expect continued future growth. In 2022, we expect four primary avenues for growth. First, continued vertical integration of new health with bright healthcare. Second, solid growth throughout 2022 in our core Medicare Advantage markets with a focus on complex patient populations, specific ethnic communities requiring cultural competent care and service models, and states with large IFP age-in opportunities. Third, competitive positioning in IFP, both across existing markets and the expansion of our addressable market through entry into new states, including Texas, Georgia, and California. Three of the largest ACA markets in the nation. At the same time, we will remain disciplined in our growth, making appropriate rate adjustments based on our 2021 experience and competitive positioning. And fourth, diversification of new health revenue to include a more material contribution from external sources. With these themes in mind, I'll turn to a brief update on our business. We have strong conviction in our model that aligns the financing of care with the delivery of care. We are focused on serving the consumer in retail healthcare marketplaces, including the individual exchanges, Medicare Advantage, and other emerging direct-to-consumer models. Additionally, we expect the healthcare market to continue moving toward consumer-directed health solutions, including increasing Medicare Advantage penetration, employers shifting the models that enable employee choice. Our aligned and integrated care model, which is purpose-built around the needs of the consumer, not the broad PPO networks of the past, is well-positioned to address these market trends. As I mentioned earlier, I am perhaps most excited about the proof points that we are seeing in our new health business. Despite the confluence of challenges in Florida that I mentioned earlier, we are seeing differentiated results for the population of members attributed to fully aligned providers within our integrated systems of care when compared to other members in the broader care partner network. For example, our IFP members in our fully aligned model today, have a 22% lower relative medical cost ratio, 21% lower inpatient admissions, and 13% lower emergency department visits. Additionally, across our fully aligned providers, we are trending towards 70% engagement with our attributed population by year end. And we are seeing approximately 20% of our visits in a virtual setting. These results are proof points of our aligned and integrated model in action. In Florida, approximately 45% of our IFP membership is attributed to our fully aligned providers today. And we expect this to increase as we continue to add capacity and expand new health clinics and affiliates in South Florida and new markets. We are seeing these results extend beyond our IFP population as well. with similar strong performance with our fully aligned providers serving our Medicare populations in California and Central Florida. Our Central Florida risk bearing alignment model has consistently demonstrated low 70s medical cost ratios. This aligned model where we build a longitudinal relationship is core to our differentiated offering serving all consumers through the exchange marketplace and Medicare-related products. Overall, I'm pleased with our performance in the face of a uniquely challenging year. But more importantly, I'm optimistic about our prospects for the future. We view the headwinds as near-term and remain positive on the outlook for 2022. The strong membership growth to date demonstrates our ability to take share in competitive markets. and highlights the appeal of our aligned and integrated model in consumer driven markets like ifp and medicare advantage our growth has afforded us a terrific business to build off as we enter 2022. we have a strong medicare advantage book of business that we will continue to build on in our core markets next year additionally with historically competitive retention rates in the ifp market longer relationships with our members and more members engaged with our fully aligned care providers, we are positioned for better patient management and risk score capture in 2022. We believe we are welcome with our planned pricing in 2022 to gain members and continue to deliver affordable health care while improving margins. And finally, we expect to build on the strong performance of our new health model in 2022. with the expansion of our own clinics and affiliated providers, supporting our bright healthcare entry into tech and expansion in North Carolina. We see additional growth opportunities in contracting models that leverage the strength of our new health business. We're participating in the direct contracting program and expected to be a meaningful contributor to new health business in 2022 with significant runway for growth in the future. We also continue to see an opportunity to grow the new health business with external payers, which is a testament to the appeal of the fully aligned model and enables us to continue to diversifying revenue for new health during 2022 and beyond. We now expect new health 2022 revenue to be at least two and a half times our 2021 guidance for revenue, excluding investment income. which will be a meaningful contributor to our consolidated performance. With that, I'd like to thank our team, our care partners, and hand it over to Kathy Smith, our CFO and Chief Administrative Officer, to take us through the numbers.