Astrana Health Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 7, 2023

Key Takeaways

  • Strong Q3 performance: $348 M revenue (+10% YoY), $306 M capitated revenue (+34%), and $52 M adjusted EBITDA at a 15% margin.
  • Acquisition of Community Family Care: Intent to buy assets managing 200,000 members with $190 M revenue and $25 M EBITDA, including an RKK license to fast-track Medicaid full-risk operations in LA.
  • Network expansion: Partnered with Associated Hispanic Physicians (150 PCPs, 450 specialists, 25k members) and Advantage Health Network (5 clinic acquisitions, 4.5k members) to deepen LA market presence.
  • Balance sheet bolstered: Closed a $300 M Term Loan A to lift credit capacity to $700 M, fund a $100 M share buyback, and fuel future M&A.
  • Revenue guidance trimmed: Full-year revenue range narrowed to $1.34 B–$1.39 B (from $1.3 B–$1.5 B) amid Medicaid redeterminations and contract roll-offs, though EBITDA target remains $135 M–$150 M.
AI Generated. May Contain Errors.
Earnings Conference Call
Astrana Health Q3 2023
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good day, everyone, and welcome to today's Apollo Medical Holdings Third Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session Today's speakers will be Brandon Sim, Co Chief Executive Officer of Apollo Medical Holdings and Sean Boscho, Chief Strategy and Financial Officer. The press release announcing Apollo Medical Holdings, Inc. Results for the Q3 ended September 30, 2023 is available at the Investors section of the company's website at www.apollomid.net.

Operator

To provide some additional background on its results, the company has made a supplemental deck available on its website. A replay of this broadcast will also be made available at Apollo Med's website after the conclusion of this call. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain Forward looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These forward looking statements can be identified by terms such as anticipate, believe, expect, future, plan, outlook and will and include, among other things, statements regarding the company's guidance For the year ending December 31, 2023, continued growth, acquisition strategy, ability to deliver sustainable long term value, ability to respond to the changing environment, operational focus, strategic growth plans and merger integration efforts. Although the company believes that the expectations reflected in its forward looking These statements are reasonable as of today.

Operator

Those statements are subject to risks and uncertainties that could cause the actual results to differ dramatically from those projected. There can be no assurance that those expectations will prove to be correct. Information about the risks associated with Investing in ApolloMed is included in its filings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision. The company does not assume any obligation to update any forward looking statements as a result of new information, future events, changes in market conditions or otherwise, except as required by law. Regarding the disclaimer language, I would also like to refer you to Slide 2 of the conference call presentation for further information.

Operator

With that, I'll turn the call over to Alomed's Co Chief Executive Officer, Brandon Sim. Please go ahead, Brandon.

Speaker 1

Thank you, operator. Good evening and thank you all for joining us to discuss Apollo Med's 3rd quarter performance. We are pleased to deliver another strong quarter at Apollo One in which we not only continue to deliver strong operational, clinical and financial results, but also continue to grow The momentum we've had in transforming healthcare for local communities across the country. The infrastructure that we have built and the alignment we have with our partners Continues to accelerate the country towards our vision, one in which everyone has access to high quality, accessible and high value care. Starting with financial highlights for the quarter.

Speaker 1

Revenue of $348,000,000 grew 10% compared to the prior year period As we experienced growth in all three of our segments Care Partners, Care Delivery and Care Enablement, Capitated revenue grew almost 34% to around $306,000,000 in the quarter compared to the prior year period. Adjusted EBITDA of $52,000,000 benefited from the aforementioned strong growth in capitated revenues in the Care Partners business and our continuing successful efforts in managing total cost of care for these members in value based risk bearing arrangements. Adjusted EBITDA margin was around 15% as we continue to grow while building a sustainable business. Before getting into strategic and operational developments from the quarter, I wanted to comment on our announcement today of our intent to acquire assets related to Community Family Care Medical Group or CFC, including their Independent Physician Association, Restricted Knox Keene licensed health plan and managed service organization entities. Community Family Care Is a scaled full risk bearing provider group made up of more than 350 primary care providers and more than 500 specialists Managing care for over 200,000 Medicaid, Medicare and commercial members in Los Angeles County.

Speaker 1

They have been a care enablement client since January of 2020 and will continue to utilize those solutions with no further onboarding period necessary as a care partner going forward. In addition to its unique network and robust clinical capabilities, CFC will also bring pending regulatory approval, its existing restricted Noxkein or RKK license for Medicaid members, which will accelerate our path to scale and full risk for this important population. Furthermore, we expect to harness synergies in shifting our Existing Medicaid population to full risk arrangements, while also moving CFC's Medicare members into full risk arrangements utilizing our senior focused RKK. We anticipate that this will allow us to more effectively manage total cost of care across our Medicaid book of business, while expanding access to high quality care to even more patients across the Los Angeles metropolitan area. Importantly, the acquisition of an existing client shows the value and synergy of leveraging both our Care Enablement and Care Partners business segments.

Speaker 1

Transitioning from a vendor client relationship into 1 in which we are responsible for the total cost of care of their skilled membership base in a derisked and accretive fashion. We are excited to not only recognize several cost and revenue related synergies in partnering with CFC and its But far more importantly, continuing to deepen our commitment to local communities across Los Angeles and continuing to drive access, quality and value in these communities. Han will dive more deeply into the financial details of this acquisition later in this call. Turning now to business updates from the Q3. We continue to build on our momentum this year with 2 new provider partnerships since our last earnings call.

Speaker 1

First, we have partnered with associated Hispanic physicians, A group of over 150 primary care providers and over 450 specialists in Los Angeles with around 25,000 Medicaid, Medicare and Commercial Members and Value Based Care arrangements. In order to support that group with our care enablement offering, We expect associated Hispanic physicians providers to be onboarded onto our care enablement platform by March of 2024. Next, we expanded our relationship with Advantage Health Network, a group of approximately 15 primary care providers And several 100 specialists in Los Angeles, which supports around 4,500 Medicaid, Medicare and commercial members in value based care arrangements. As part of the partnership, Advantage's providers are slated to join our care partners business. We also acquired 5 primary care clinics in the Advantage Health Network, which will be integrated into our care delivery business.

Speaker 1

Of note, Advantage Health Network has been a long time care enablement client of and will continue to benefit from the care enablement offering. As in the case of CFC, Vantage Health Networks providers are already onboarded Onto the Polymed platform. This is another example of our ability to support our care enablement clients seamlessly and more deeply In our Care Partners business, where we manage the member's total cost of care on a capitated basis. We believe this tuck in acquisition and partnership will be immediately accretive and will further expand our Care Delivery and Care Partners geographic footprint in the Los Angeles area. In totality, the partnerships with Community Family Care, Associated Hispanic Physicians and Advantage Health Network will strengthen our ability to provide high quality, accessible and coordinated care for local communities throughout Los Angeles.

Speaker 1

Finally, we are excited to share that we have entered a strategic partnership with Wider Circle, a peer based community health organization working with payers and providers to connect neighbors for better health. Under this partnership, Our 2 organizations will provide comprehensive patient centered care and enhanced care management for Medicaid members with complex needs. An integral component of the California Advancing and Innovating Medi Cal or CalAIM initiative. By pairing Wider Circle's community based engagement model and our core clinical offerings and proprietary care management platform, We will strive to bring community based interdisciplinary and person centered care to all who need especially those most underserved. We believe that this joint venture will be an especially valuable Given our definitive agreement to acquire Community Family Care, a full risk bearing Medicaid organization, as well as the managed Medicaid scale that already exists in our existing and new provider group partners.

Speaker 1

This brings our total number of provider group signed for the year so far to 5 with 2 of those in Texas and 3 of those in California, not including our joint venture with wider circle and our planned acquisition of Community Family Care and our outlook for additional provider group partnerships for the remainder of this year in both California and beyond is very strong. Overall, we continue to be a leader in value based care with a focus on all populations, including members in Managed Medicaid, Medicare Advantage and Medicare Fee For Service and Commercial lines of business. We believe that our scaled and highly diversified business with over 10,000 providers on platform serving approximately 900,000 members Value based care arrangements alongside over 20 payer partners positions us very strongly to accomplish our mission to provide high quality, accessible and high value care to all in communities across the country. And with over 90% of our revenue related to value based care, our incentives are truly aligned with those of the patient and whether in our core markets in Southern California or in our newer markets in Northern California, Nevada, Texas and beyond. Our scaled value based care infrastructure and long proven ability to effectively manage total cost of care and patient outcomes allows us to have confidence in sustained profitability as we invest to grow our model into local communities across the country.

Speaker 1

We are excited by the continued momentum we are seeing in the business and will continue to work to improve our members' health, empower physicians and effectively manage total cost To close my prepared remarks, I would like to thank our teammates and partners for believing in our vision to transform healthcare in local communities across the country. The accelerating growth and outcomes of our business would not be possible without your passion, dedication and support. With that, I'll turn it over to Tom to review our financial results.

Speaker 2

Thank you, Brandon. Before I review the 3rd quarter results, I wanted to discuss our recent acquisition of Community Family Care Medical including their Independent Physician Association, restricted nonkexene licensed health plan and managed service organization entities or in aggregate CFC, as well as our recently announced Term Loan A and the financial flexibility that it provides. As Brandon already highlighted the strategic benefits of the CFC transaction, I'm going to provide an overview of the financials. CFC is expected to generate approximately $190,000,000 of revenue this year and approximately $25,000,000 of adjusted EBITDA. Once the transaction is closed, which we expect to happen in Q1 2024, We will transition their approximately 200,000 members to our Care Partners platform.

Speaker 2

This will be meaningfully additive to our Care Partners revenue. It will also slightly increase Our intersegment eliminations since this population will continue to utilize our care enablement solution. The transaction price of $202,000,000 is a combination of $152,000,000 of cash from our balance sheet, $20,000,000 of equity and up to $30,000,000 of performance based earn outs. Today, we also announced an oversubscribed term loan of $300,000,000 which increases the company's facility to $700,000,000 with our existing $400,000,000 revolver. We intend to use these funds to position us for future M and A transactions, which allow us to continue to expand our geographic footprint and grow our membership base.

Speaker 2

Through this process, we were able to negotiate expanded baskets within our overall facility, including increasing the maximum levels of certain forms of permitted indebtedness, increasing the maximum levels of restricted payments, including share repurchases and increasing the maximum levels of certain investments. The term loan is also being used to fund our recent $100,000,000 share buyback from APC Excluded Assets. We have confidence in the future growth and profitability of our business and with this buyback, we're optimistic about our ability to generate Now turning to our 3rd quarter results. Our 3rd quarter revenue of 348,200,000 increased 10% compared to a year ago and was driven by growth in all three of our core segments. Our capitated revenue grew by 34% annually during the same period from 227.6 $1,000,000 to $305,700,000 We ended the 3rd quarter with 900,000 members, which is the total number of unique members we support in our Care Partners, Care Delivery and Care Enablement segments.

Speaker 2

As a reminder, we take some level of medical risk in each of our care partner members and receive the appropriate level of reimbursement. In Care Enablement, we received a smaller fee to utilize our technology platform to support 3rd party providers in their value based care Because of the different financial profiles of each member, I want to take a moment to share how our membership has changed and will be changing within our segments. Our care enablement membership decreased to approximately 900,000 members this quarter as a result of our previously reported care enablement client ending their contract. Additionally, when CFC closes, we expect to see the growth of approximately 200,000 members in our Care Partners business as we begin to take risk for those members' total cost of care. Adjusted EBITDA was $52,000,000 compared to $57,100,000 a year ago.

Speaker 2

Sequentially, adjusted EBITDA benefited from our continued care management efforts. On a year over year basis, the decline was a result of our one time 2021 NG ACO payment in Q3 2022. As a reminder, the impact of that program was recognized in 1 quarter in 2022 and going forward. We have been and will continue to accrue the profitability of the ACO program throughout the year. Our effective tax rate of 26% in the 3rd quarter was lower than our historical levels due to the release of valuation allowances.

Speaker 2

As previously mentioned last quarter, our effective tax rate has been historically high due to the income tax associated with certain intercompany dividends. The release of valuation allowances offset our high historical tax rates as we continue to work to implement measures to bring down our effective tax rate, which we anticipate being in the mid-30s by the Q1 of 2024. Net income attributable to ApolloMed in the 3rd quarter was $22,100,000 compared to $23,200,000 in the prior year period. Earnings per diluted share were $0.47 compared to $0.50 a year ago. Now turning to our balance sheet.

Speaker 2

We ended the quarter with $273,900,000 in cash and total debt of $209,200,000 As this relates to our long term view on our leverage ratio, we aim to have a net leverage in the range of 2.25 times to 2.75 times, but may experience short term variation. The last topic I want to cover on today's call is our guidance. Given where we are in the year, we are narrowing our range for the full year and now expect the following. In regards to revenue, we expect to be between $1,340,000,000 $1,390,000,000 compared to our previous range of $1,300,000,000 to 1,500,000,000 We anticipate coming in slightly below the midpoint of our previously disclosed guidance range, primarily due to small Headwinds around Medicaid redetermination and the rolling off of our previously mentioned client. We still remain very confident in our ability to continue to grow the 20% to 30% range.

Speaker 2

We expect adjusted EBITDA to be between $135,000,000 $150,000,000 Compared to our previous range of $120,000,000 to $160,000,000 we continue to see utilization trends Being stable across our at risk book of business because of the unique capabilities of our clinical model and some initial conservatism. We expect to come in on the upper half of our previously disclosed guidance range, as well as within our target at scale EBITDA margins, even as we expand into new regions and grow value based care membership. In regards to earnings per diluted share, we expect to be between $1.10 $1.20 compared to our previous range of $0.95 to 1.20 In conclusion, we're pleased with our financial performance, growth partnerships and capital deployment during the Q3, further demonstrating our platform's ability to continue to execute on 3 key operational goals: Growing our membership in core and new geographies, empowering our care delivery and care partners providers to The CSD transaction further diversifies our membership mix and provides us a pathway to expand Our value based care exposure. The Palomed platform provides a highly differentiated pure play value based care company that is profitable, growing rapidly and yields profitable and sustainable growth. We made meaningful progress in all three areas and will continue to use this roadmap as we close out the year, having established a solid foundation for continued growth in 2024.

Speaker 2

Brandon and I want to thank you all for your time today. We're always open to a dialogue with investors And welcome visitors to our offices in Alhambra, should any of you

Speaker 1

be in the LA area.

Speaker 2

With that, operator, let's open it up

Operator

Please hold as we pull for questions. And we'll take our first question from Ryan Daniel from William Blair. Please go ahead, Ryan.

Speaker 3

Yes, guys. Congrats on all the momentum and thank you for taking the questions. Brandon, maybe one for you strategically. It just seems like a bevy of partnerships and the acquisition are all coming together here towards year end. And I'm curious To hear your view on what's driving that, obviously, some of these are prior partnerships moving to more integrated relationships, but what's really driving such

Speaker 1

Hey, Ryan. Thank you so much for joining the call today, and thanks for the kind words. I think we've We're really seeing a lot of momentum across all aspects of the business organically in terms of kind of same provider Member panel growth organically in terms of number of partnerships we're signing with provider groups and other entities such as the wider circle partnership, Of course, the larger acquisition that was announced today. I think the way I would characterize it is that these are partnerships we've been working on throughout the year. I think it happened to land in this quarter and we decided to announce them all at the same time here.

Speaker 1

As I mentioned earlier In my prepared remarks, I think we have a very strong pipeline for even further partnerships Potentially even for the class of 2024. So I don't think there's anything necessarily special about this quarter. These are longer term Things that we've been working on and we're glad to be able to announce them today.

Speaker 3

Okay. That's great. And then with the pending Transaction, you mentioned you'll have RKK for Medicaid. I know you already had one with the FYB deal before. Are those different licenses, meaning do you need separate ones to run Medicaid and commercial and Medicare in the state, so that this actually does And your risk bearing capabilities?

Speaker 1

Yes. So in terms of the restricted oxycodone licenses, which All my comments here are going to be pending regulatory approval of the transaction, of course. There are actually separate licenses Jerry, or at least separate approvals necessary for each line of business and each health plan in each county. And so, while the plan was always to Expand our existing license into new counties and into new payer relationships. This will drastically accelerate the process we believe, Again, pending regulatory approval to take on full risk for Medicaid populations across California.

Speaker 3

Okay. That's helpful. And then Maybe one financial one and I'll hop off and save the rest for later. But just in regards to the expanded credit line, I know it's up to $700,000,000 You have just over $200,000,000 in long term debt, is that all part of that revolver, meaning effectively you have $500,000,000 available or is there a different Structure to that $200,000,000 plus debt that's already outstanding. Thanks.

Speaker 2

Hey, Brian. Yes, you're correct. The $180,000,000 is today is part of the $400,000,000 facility,

Speaker 1

Thank you.

Operator

Thank you. And we'll take our next question from Brooks O'Neil from Lake Street Capital, please go ahead, Brooks.

Speaker 4

Thank you. Good afternoon, everyone. I guess I'll follow on with Ryan. As you guys, I think, know I'm particularly excited about the opportunity you have to take on the global risk through the RKKs. And I'm just curious, obviously, Brandon just said the opportunity exists now to go after Medicaid full risk, but can you give us any update on what's going on with regard to the Medicare License that I think you acquired up in San Francisco and whether you've had any success beginning to

Speaker 1

Hey, Brooks. Thank you for joining the call. It's great to hear your voice again. And thank you, Ryan, for the questions earlier. So, Brooks, I ran your question on the existing We've continued to expand the geographies, the counties in California where it's Able to take on full risk for Medicare populations.

Speaker 1

There have been several new contracts With payers that we've signed since the last time we've conversed here on a quarterly call, and we continue to see good momentum in terms of getting Our Medicare Advantage book of business into full risk arrangements by next year.

Speaker 4

Yes, that's great. And then, I think it was John who said that utilization has been stable. One of the big Themes we've been hearing from people around the United States has been sort of strong procedure activity and growth. No one's quite sure exactly what it's all about, a rebound from the pandemic lockdowns and whatnot or some other phenomenon. But Would you say that your stable utilization is Station of the success of your business model and your approach to value based care or can you just talk about what you're seeing out there in your markets And how you responded to it?

Speaker 1

Sure thing. We've seen fairly stable Utilization and MCR trends across the business in totality, of course, there are slight Movements up and down based on line of business, because we are a diversified business across government and commercial programs. But overall, On both the inpatient and outpatient side of utilization, we believe that our unique care model has always been focused on providing access and we aren't seeing a large Rebound, so to speak, in terms of utilization in this quarter. And that kind of showed in terms of our Ability to continue delivering the financial results that we expected.

Speaker 4

Yes, that's great. Thank you for taking my questions And congratulations on continued success.

Speaker 1

Thank you, Brooks.

Operator

And next we'll go to Adam Rahn from Bank of America. Please go ahead, Adam.

Speaker 5

Hey, thanks for taking my questions. Going on what Brooks was saying, I know you don't guide quarterly, but it seems like versus the consensus estimates, EBITDA outperformed significantly and even if you just look seasonally, the cost of care line was down Sequentially more than it usually is, usually sometimes even up. And so I'm taking that to mean that there was actually MLR outperformance or at least like You're accruing something more positively, it seems, relative to like 2022 or 2023 expectations. Is that right? Or is there not anything really to call out on

Speaker 2

Hey, Adam. How are you? The main item I'd highlight is In Q1 and Q2, with the limited data that we have around ACO, it's really breakeven. And so in Q3, we had a slight ACO true up and that's number 1. Number 2, our managed care business MCR was Stable and those two things together have led to this quarter.

Speaker 5

Okay. Yes, because there was just a significant outperformance versus consensus and then the guidance Increase was pretty minimal. And so I guess, is there anything in Q4 that you're kind of worried about or Assuming some big step up in utilization or is it really just the Street was mismodeling?

Speaker 2

As you'll see historically, Q4s for us are usually relatively quiet. It is We don't necessarily have the same level of quality bonuses or any type of Shared risk true ups. And so as you can see for our guidance, We do expect Q4 to be in line with what you've seen in historical years.

Speaker 5

No problem. And on the revenue guidance cut due to Medicaid redeterminations, Is there any margin implications of losing enough membership that it would actually impact Your revenue guidance and would you continue that pressure to extend into 2024 both on the revenue side and are you building anything in on margins?

Speaker 2

So for every 3 Medicaid members that through redetermination are leaving the organization. 1 is reenrolling is what we're seeing in exchange product. And so in terms of margin, the net margin impact is Quite minimal. I'd say it's on an annualized basis probably $1,000,000 to $1,500,000 In terms of revenue, as you saw from our Decrease in guidance, that is probably more of an impact where on an annualized basis, It's in the $5,000,000 to $10,000,000 range for 2024.

Speaker 5

That's helpful. And then the APC share buyback, was that You're really motivated by the tax implications that you mentioned or did they want to sell or did you go to them? I'm just like curious what drove that and if the plan

Speaker 1

Hey, Adam. Thanks for dialing in. I'll take this question around the APC share buyback, Just approximately $100,000,000 of value. There are a couple of reasons. The first is that, as you know, from the last quarter, We were experiencing elevated levels of taxation due to essentially filing separately And not being a consolidated tax entity.

Speaker 1

Part of the reason is to, as John mentioned earlier, to solve for that. But I think regardless of that, We are very optimistic and think that there is a great amount of potential ahead in terms Pipeline opportunities we've been signing, the way we've been deploying our capital and the continued strength that we're seeing in our clinical models, and we felt that this was a good time To exercise the $100,000,000 buyback.

Speaker 5

I appreciate the questions. My last one would be, when you guided for this year, You gave basically flat EBITDA guidance at the midpoint with the rationale being that there was like Medicaid redetermination headwinds and reinvestments into growth. And so for Are there any major moving pieces that we should consider? I guess Medicaid redeterminations will continue. The RKK license Should be somewhat lifting revenue.

Speaker 5

It sounds like on the MA side at least there are some deals Closing. And so other than those, are there any moving pieces we should be considering? Thanks.

Speaker 1

Yes, of course. So I think business continues to be quite strong. We don't anticipate Huge variations in medical cost ratio next year either. Of course, we haven't put out official 2024 guidance. So we will certainly update the market when that happens.

Speaker 1

But given the amount of new partnerships that we've already signed, 5 for the year, A few in the pipeline and the acquisition of CFC and continued same provider growth. We're quite optimistic that EBITDA will continue to grow at a healthy clip and perhaps even more at a higher rate than it did this year relative to less. As you remember, you may remember, Adam, this year, there was a bit of a harsh comp in terms of the one time next gen ACO payment In Q3 of last year, and the rest of the business has grown tremendously, which will continue to happen and that comp is not Expected to be there for the next year, same for the next year.

Speaker 5

Fair enough. Thank you so much.

Speaker 1

Thank you so much, Jim.

Operator

Thank you. And we'll take our next question from David Larsen from BTIG. Please go ahead, David.

Speaker 6

Hi. Relative to our model, the gross profit really beat our estimate. Can you maybe just talk a little bit more about your the utilization you're seeing, the cost of services? It sounds like there was And ACO true up, what does that mean? Does that mean that the actual claims cost came in lower than expected?

Speaker 6

Or did you get some sort of an incentive Payment from CMS in the quarter, just any more color there would be very helpful. And more importantly, do you expect that trend to continue into next year? Thank you.

Speaker 2

Hi, David. Great to hear from you. Yes, thanks so much for the question. So in terms of our MCR, I'll start with ACO. What we're seeing on ACO is that we have more data really to evaluate the performance of the program in 2023.

Speaker 2

And we were able to true up where we were coming in, in costs for the 1st 3 months of the year relative To where we were in Q1 and Q2, which was really breakeven. In terms of our overall Managed Care business, as we've mentioned before, we Due to our unique clinical model as well that really provides access and quality and We're continuing to see stable institutional metrics. Both of those put together have really led to that Strong performance. Lastly, also would want to mention, we saw strong sweeps payments In Q3 associated with our Medicare Advantage members.

Speaker 6

Okay, great. That's very helpful. Thank you. And then As some of these acquisitions and partnerships roll into the Care Partners division of the business, I'm assuming that since they were already Care Enablement Clients, you have very good visibility into the membership, their utilization trends, the premium Dollars to margins on each member. So it's not like there's going to be an increase in cost as you try to stabilize these newer members like we see on some other Business models, they're already sort of well known and well managed to you.

Speaker 6

Is that correct?

Speaker 1

Hey, David, Brandon here. Thanks for the question. You're absolutely correct. For the clinics, for example, that we acquired the 5 clinics that are moving into our Care Delivery There will be some minor implementation integration costs, but very, very minor, but we expect those to be accretive day 1 because of The length of the relationship that we've developed over time in the Care Enablement segment. For the larger groups, CFC, for example, and Advantage Health Network who are already care enablement clients.

Speaker 1

We absolutely expect to also see that synergy. Those providers are all already onboarded onto the technology platform. There will not be additional incremental cost or time Associated with getting them onto the platform and we have a very good line of sight into all those metrics that you mentioned and how we can best take care or assist them and empower them to take care of their patient panels. And so, we view that as a very We view that as part of the synergy of having all three business segments, and it gives us kind of a much more shallow J curve, so to speak.

Speaker 6

Okay. Great. That's very helpful. Thank you. And then do you have any initial thoughts on 2024, call it like Medicare Premiums or reimbursement that you expect to see from your docs from CMS, there's been a lot of noise around Radvi audits, lower premium increases in 2024 relative to the increase that was seen in 2023.

Speaker 6

There's a lot of adjustments that are going on in terms of like risk stratification. Just any thoughts or color there? Do you expect an increase in dollars coming From CMS on a per member basis in 'twenty four relative to 'twenty three. Thank you.

Speaker 1

Of course, There has been a lot of noise, of course, lately around reimbursement rates, RADV, V-twenty 8 and other reimbursement Items, stars as well. I think overall, we are navigating through this in a couple of ways. 1, We continue to use our scaled platform to ensure that we have solid contracts with our payer partners. We're helping them manage their quality stars Risk adjustment better than others relatively speaking and we think there's a lot of value we're providing to payers such that we are more than paying off kind of the types of contracts that we have with payers. In addition, in terms of RADV, as we've spoken about before, we don't think we'll be Significantly, if at all, we've our average risk score is still fairly low, across our Medicare Advantage population, around 1.0, which is the national average.

Speaker 1

And we don't think we've been particularly aggressive, especially when doing analysis on the actual HCCs that we've been coding for in the past. So we don't expect a headwind from RadVie either. I think overall, we are Not foreseeing headwind in terms of Medicare premiums, PMPM, for our patients going into 2024.

Speaker 6

Okay. That's very helpful. And then just one last quick one. If we assume Medicaid is around 24% of revenue And let's say 15% of Medicaid lives are redetermined. In total, that seems like it's maybe around 4% of revenue for Apollo Medical spread over, say, 2 years, which would be maybe 1% or 2% of impact in revenue Annually, for Medicaid redetermination to you guys, does that sound reasonable or not?

Speaker 6

I mean, it doesn't really sound that material to me.

Speaker 2

Yes. I think your structure, David, It's spot on. I don't think we're seeing the level of redetermination in terms of the 15% range.

Speaker 6

Okay.

Speaker 2

Yes. I would probably assume maybe half of that.

Speaker 6

Okay. So the drag for Medicaid redetermination will be even far lower than what I had initially said. Okay. All right. Super.

Speaker 6

Congrats on a good quarter. Thank you.

Speaker 2

Thank you.

Operator

And we'll take our next question from Gary Taylor from TD Cowen. Please go ahead.

Speaker 7

Hi, good evening. I had two quick questions. 1, the midpoint of the EBITDA guidance of about $2,500,000 Is it fair to think that's roughly the magnitude of the ACO true up in the quarter? Or would you steer us Materially differently from that.

Speaker 2

I think it's more than just the ACO true up. We are experiencing Very strong overall sweeps payments. So I'd say That's number 1. Number 2, it is the MA RKKs and membership Moving to those MARKKs and number 3 is the ACO that you mentioned. And of course, We're seeing and we've mentioned this before, we're continuing to invest in new market development.

Speaker 2

I'd say our new market development overall, I think we'd said about $5,000,000 to $10,000,000 per market. Those Investments are coming in at the lower end of the range.

Speaker 7

Got it. And then my other question would be just a follow-up on redeterminations. The Medicaid MCOs are seeing Either you can either call it adverse selection or higher acuity and they claim that the states are giving them positive acuity adjustments in their rates to account For the remaining population, I was just wondering, do your contracts for the professional fee risk that you're taking from the Medicaid MCOs, do they just Automatically flow through any sort of rate increase like that, that the state is giving to the managed care plan upstream?

Speaker 2

Yes. We're definitely

Speaker 1

sorry, go ahead, Brendan. I'll start quickly. I was going to say, our contracts are rate adjusted. And depending on the contract, Increases in premiums could also pass through to us as a percentage of the premium that we're taking for either professional or full risk. In terms of our planned and announced acquisition of Community Family Care Medical Group and their RKK license in order to take on full risk in terms of Medicaid in California, we believe that allows us to move Our membership, as I mentioned earlier, across the entire Medicaid business into both kind of taking on both professional and institutional risk in a full risk setting, which will also help us blunt some of the impact of professional rates being kind of fixed Even as acuity potentially slides slightly upwards after re determination.

Speaker 7

Okay. I'll think about that. Thank

Operator

And there are no further questions at this time. I'll turn the call back to Brandon Tim for closing remarks.

Speaker 1

Thank you everyone for joining our earnings call for quarter 3 this afternoon or this evening. We're very Excited about the potential to work together with many new partners that we announced this quarter. We think these results are reflective Our ability to build relationships locally, but very shortly as well nationally, and we're very excited about Momentum that the business has going forward. Thank you again for joining the call. We'll speak to you all soon.

Speaker 1

Have a good evening.

Operator

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.

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