in healthcare, and Thomas Freeman, the Chief Financial Officer. And just as like a bit of background, starting a little high level in Q&A, most managed care companies, I think, talk about, especially within Medicare Advantage, talk about the shift in capitation as a win-win for both the managed care company and the provider, particularly in California, where the model is much more highly penetrated and where a lot of your members are today. But it seems like you are less penetrated than average in that market, and that seems like an intentional strategic decision. So aren't you effectively saying that by not using value-based care as much as the market, it's more efficient? So yeah, just high level, what are your thoughts there, and why is that the right model? Yeah. Good morning, everybody. Thanks, Adam, for inviting us. Yeah, no, it's a structural and intentional decision we made that we want to ensure as much of that premium dollar flows to the beneficiary, okay? And so if you think about the global cap model, you have premium from an insurance company. They're getting the premium dollars. They're taking 85%-90% of that premium dollar and giving it to a global cap provider. So if you think about, you've basically got two insurance companies in that same supply chain, right? And so the plan needs their margin, so they're globally capping at 85% and get their SG&A down to 10%, they get a 5% margin, right? And so they're saying that's okay. And so in the 85%, the real cost of healthcare, the real delivery cost of healthcare from that global cap provider, probably 75%-ish, 80% maybe, on gross premiums, right? And so there's an inherent margin there for that global cap provider. The problem is, if the global cap provider is global capping Managed Care Company A at 85%, Managed Company B at 85%, and Managed Company C at 85%, there's no differentiation of the different managed care health plans. There's no cost advantage, right? And so what we chose to do was do what we called a shared risk model with providers. A shared risk model, where fundamentally, we partner with doctors, and we will do PCP cap to certain PCPs. In some situations, we will do shared risk and professional capitation, where they're taking risk for specialists also. But by and large, we'd like to manage the institutional risk, okay? And that's where the care model comes into play, where we identify the sickest people, we take care of them at the home, we drive down admissions into the hospital, we increase stars and member satisfaction, just have a better care delivery experience. But what it does is, that visibility and control that we have by deploying our tools and our care delivery model drives down overall trend for that cohort of members into the low 80 percentile, okay? And so if you have a long-term MLR in the low 80s% of your loyal cohort, it gives you a lot of flexibility to bid aggressively and still have good margins, right? Because the other plans, they're at 85% or 86% as their cost and their bids. And if our long-term cost MLR is in the low 80s%, that difference is really what we think are competitive advantages on the MLR side. So it's a structural and intentional decision that we've made. So that is interesting 'cause in California, and especially in Southern California, there's a lot of doctors who are in value-based care, potentially the vast majority. And so if you don't give them global cap, isn't there a potential that they're still sort of acting as if they're in a global cap arrangement, and you're just reaping more of the upside by not fully capitating them? And then my question is, like, if you go into a market where there isn't really the proliferation of these models, does your model still work? Because if, effectively what I'm worried about is, like, in California, if you just don't give them global cap, they're still kind of acting like they're in global cap, because for 90% of their panel, they're probably in global cap. Not sure I followed that one. But, but I would say 69% of our members in Southern California are shared risk. Yeah, like I'm saying, like, you go to a doctor who, like the vast majority of their panel, are full capitation, aside from you, potentially 'cause you're doing it less than your competitors, but they're still, because the vast majority of their patients are in capitation, treating your patients as if they were with all of the, you know, spending additional time with the patient, like whatever, you know, however value-based care is supposed to improve outcomes. Whereas like, if you go into another market where providers aren't used to that model, and you're not paying them in that way- Well, actually- You might not get the same benefit. Actually, the new markets should be easier because you don't have a prevalence of capitation in the newer markets. And the utilization metrics that we've been able to garner in all these new metrics and all these new markets is really good. And so it might make sense to take the time, to take a second and say: How are you engaging with the community doctors, as differentiated by the IPAs or the medical groups that are taking the global cap? So the individual doctors are either getting paid fee for service, or they're actually getting PCP cap from their global cap provider. And so a lot of the doctors that we contract with are in different IPAs and including global cap. But a lot of our contracts with those individual doctors, they like working with us because we're doing a lot of the work in terms of that 10%-20% of the chronic population. We're actually doing a lot of the work with them as an extension of their practice. Maybe just a point of clarification, too. So if you're a PCP who's a part of an IPA taking global cap, you typically, and Alignment would be working with that PCP on a global cap basis. So it's not that we're going to a PCP who is used to global cap and taking it, telling them we're gonna do something different. More often than not, we're building networks that are different from the global cap networks, that are either directly contracted to a PCP or through one of these shared risk contracts that John was talking about. And so we're really helping those PCPs who haven't gravitated to a global cap model over the last 10, 20, 30 years in California, and we're helping allow them to perform at a higher level through our value-based contract with them. To your point about cost structure, we hosted both Oscar and Cigna here yesterday, and they are both managed care companies that left Medicare Advantage, Oscar on a much smaller base, but Cigna is exiting at 600,000 lives, and they're attributing it to not having the right amount of scale. And so you're smaller than that, potentially bigger in terms of local density for where you are, but just curious, like, how you think about what is the right level of, you know, scale that you would need to effectively compete with, like a United and a CVS and Humana, which are significantly larger? Yeah, it's a very fair question. And I would go back to what we started with, which was, I think we've tripled in size since the IPO. I mean, tripled in size. And I think you're gonna see the scale economies from that growth starting to be realized already in the last couple of years. And I think back to your point on just kind of local market competitive dynamics, we deal with IPAs and the global cap providers differently when you're 200,000 members than when you're 50,000 members. And so I think the opportunity for us to deploy our model more aggressively, actually, is an opportunity for us for MLR reduction based on the logic that I just went through, and margin expansion. And so, I mean, I would say the larger folks have, the bigger competitors have, I would say, the SG&A scale economy advantage that they've had, over the last you know, several years. But we're getting big enough that we're getting that SG&A line down closer to that 10% number. And so, like, the kind of the target is you're at 85%, you got on MLR, and you're at 10% on SG&A, that's your 5% EBITDA margin. To the extent that you have additional investments within the 85%, where a lot of the big guys do, in terms of your own supplemental vendor solutions, whether it be dental, PPOs or, you know, transportation solutions or fulfillment vendors or whatever the case may be, that gives you some additional margin expansion. Those are some of the things we're gonna start doing as we get bigger. Okay, great. Shifting tone a little bit to, like, I think, a little bit more short term. You know, in the quarter, you, you had a little bit of a different tone than some of your peers in terms of MLR and utilization, despite having, I think, higher percentage membership growth than pretty much all of your national peers off a smaller base. But what, what data points are you seeing in terms of utilization that give you, you know, confidence, and can you delineate between what you're seeing on new versus returning members? Yeah, yeah. So we had a really successful start to the year. So as you mentioned, we delivered about 50% membership growth year-over-year and added between January 2024 and March 2024, about 10,000 net incremental lives for us. So it was very successful from a growth standpoint, and then obviously, our objective becomes: well, how do you service these members, both from a clinical standpoint and then, more broadly speaking, from an experiential standpoint? And so we shared on the earnings call a couple data points about how we were able to service those members, starting from a call center standpoint, from a fulfillment standpoint, getting them access to our PBM, things like that. It was a pretty incredible start, where, in spite of that 50% growth, we actually maintained a 65+ NPS score. Our Google reviews are at a 4.9, I think, star. And I think from a kind of, you know, first call resolution standpoint, we're at 90%, with our average handle times for our calls down by 50% year-over-year. So all these investments we made last year from a member experience standpoint are really, I think, taking hold, and that's the starting point for then how you actually get them to engage in our clinical efforts. And so as the quarter began, we, of course, can see every single day, starting January first, who's in the hospital. In the first week of January, our doctors are on the phone with our local care team saying: "Okay, Mrs. Smith or Mr. Smith is in the hospital, who's on point to go, engage them post-discharge?" That led to about 151 inpatient admissions per 1,000 in the quarter, which was 8% lower than the first quarter of 2023. And then, I think importantly, to your point on loyal versus new, the new members ran in the low 140s, about 141, which is pretty consistent with what we saw in the year prior in the first quarter. And there's actually the loyal members that really drove that 8% reduction in totality year-over-year. So I think we're feeling really great about the way we started. I think it's a sign of both the fact that our kind of selection of members was not adversely selected against us. And then from a loyal member or returning member standpoint, I think it's a great data point that we're continuing to engage the right people into our clinical programs and drive those MLRs down, as you see in those historical cohorts over time. ... if I could ask a question maybe from a slightly different angle. Could you tell us, like, what you assumed in guidance in 2024 from a year-over-year cost trend perspective, and then in terms of seasonality, how you see it going from Q1 to Q4? Mm-hmm. I think you mentioned something on the call about how inpatient costs, I forget if it was on new members or old members, was gonna decline throughout the year. So if you could just give more color on that. Yes, sort of. So, in terms of the overall year, we would expect this year to be a bit better in terms of admissions per thousand than the prior year, if nothing else, just from a mix standpoint, where we have a larger percentage of new members. Within that new member cohort, there's still the 10% or 20% of the members that are unmanaged, where I think we have an opportunity to drive that 141 in Q1 even lower as we ramp up those engagement rates throughout the year. But I think from a big picture seasonality standpoint, what we would typically see is that Q1 typically starts higher from an MLR standpoint, both in terms of having the new member growth we're absorbing. Typically, January, at the end of flu season, tends to have higher inpatient utilization, although we didn't experience it this year. And we also have the Part D seasonality we described on the call that leads to a higher Q1 MLR. Typically, Q2 and Q3 would be our kind of lower MLRs for the year, and then oftentimes you see a modest step-up in Q4, just given, again, the return of flu season in the back end of the fourth quarter. Not usually to the extent of the first quarter, though. Okay, great. And then if we can pivot a little bit to 2025, it seems like there's more moving parts than average, especially in your markets for 2025. Your peers are probably losing a significant amount of stars, revenue, and, you know, additional risk adjustment headwinds than, than what you're seeing, and it seems like most of them in the market mispriced in 2023 and 2024. And so, like, with all of those moving pieces, how does that set you up in 2025 in terms of bids? We feel very, very confident in really 2024 and 2025. I think we're set up very nicely. I think these tailwinds on stars relativity is a big deal. We've got competitors that have dropped from four to three and a half stars, four and a half to three and a half stars, four to three stars. And again, that was a function of the really the higher standards imposed by CMS on the stars methodology. And so for we to maintain the four stars was a big deal. V28 on the risk model, it's gonna be now phased in two-thirds, right, in heading into 2025. And we have been talking about this reimbursement reversion risk for the last three years, and so we've prepared ourselves to not be exposed as much on V28. And so when you kinda add those couple things together, it just the pure math of it gives us the latitude to be very tactical, market by market, competitive by competitor, to look at what the right 2025 bid strategies should be, and that's what we're in the middle of. And I think our ability to produce the margins that we think we can get heading into 2025, and get the growth because of the dynamics you mentioned with our competitors, we feel very well positioned, and frankly, I think it's gonna be like that for the next two, maybe three years. Yeah. On the call, you mentioned that 2025 would be a big margin year, I think was your words. And 2024, on your current guidance, is already expected to increase 200 basis points on adjusted EBITDA as a percentage of revenue. So does that mean 2025 should expand more than that if it's a margin year? And if not, is there some, you know, tailwind in 2024 that you don't see repeating? Yeah. So I think we're not gonna probably draw a line in the sand today on the 2025 margin target, but I appreciate the question. But here's how we look at it. So, when you think about what's happening between 2023 and 2024, the entirety of our EBITDA margin improvement is coming from SG&A operating leverage. Part of that is because of the significant growth we're realizing this year. The other part of it is because we spent a lot of time trying to improve our shared services or some of our variable cost centers to drive down the lower incremental cost we have to incur every time we add an additional senior. So I think we're seeing the benefits of those efforts in 2024, and I have a lot of confidence that will continue into 2025, both in terms of leverage on our fixed costs as we continue to grow, but also some incremental improvement on more of the, the variable cost side of our SG&A. But from an overall MBR standpoint this year, our MBR is, from a guidance standpoint, is not too different, 2024 versus 2023, and that in large part is due to the significant year one membership growth we're achieving. When you think about our historical cohort results and the fact that we currently anticipate likely closer to 20% growth next year, as opposed to maybe 40% or 50% growth next year, I think what that allows us is the ability to see the cohort improvements impact the consolidated MBR for 2025. So I think we have an opportunity to improve both SG&A as a percentage of revenue and MBR while driving towards our 20% growth target next year. Whether that will be, you know, 200 basis points or not, we'll talk a little more about that probably when we get later in the year or into early next year. But it's a unique setup, I think, compared to years past, in terms of our ability to drive both growth and margin. Just two additional data points. We feel very good about stars, you know, very strong. We feel very well-positioned on stars and number one, and we know what it's gonna be in 2025, right? But even heading forward, I think the ability to focus is really, really good. That's number one. Number two is, if you just think about, you know, the growth that we've had this year, so what is it? 50,000-60,000 new members. It's interesting and we were spot on on our bids in terms of what the new member risk adjustment factors were coming in. And can we say what it is? Is that public? It was a 0.9% or something like that, right? So typically, we've had a 10%-15% lift- Mm-hmm. In just compliant coding. It's not very aggressive. Just, you know, so if you get a 0.9%-10%, 15%, you're, let's say, 1.05%. You get a-- You get that lift in just risk, risk adjustment. Each basis point of lift is worth about $8 per member per month. So it's like if you're getting ten... Let's just use a simple 10 basis points times eight, that's $80 PMPM. If you do the growth times $80 times 12 months, just do that math. Just, just that in and of itself is another data point that gives us confidence. When you add that, plus you get the stars, I mean, there's a lot of things that we already know that are gonna be favorable, plus the SG&A levers that Thomas talked about. Is there an amount of growth that if you saw in 2025, where you potentially mis-underestimated, like, how much your competitors were cutting, where you do grow another 50% next year, where- Yeah. - you get worried? Yeah, it is the single thing I'm zeroing in that does give me concern because of, you know, what you're reading about in terms of, you know, people, you know, getting as far down to their TBC levels as they possibly can, cutting supplemental benefits, exiting markets. I mean, all that stuff, I think it's not it is gonna happen. I mean, I think you're exactly right. And so we're literally right in the middle of that. I will say, though, like I said, you know, some of them will not be able to reduce benefits to the extent they want because of the TBC. And so we still need to grow. We still want to grow. And, like I said, I think there's an opportunity for us to get the margins that we want and the growth that we want, and we find that balance. We've been pretty good at that. We've actually been pretty spot on with that, for the last few years. Asking pretty much the exact reverse of that question, in Los Angeles, it seems like the benchmark for MA rates is twice the national average at 5%. So is there a potential that actually the competitors don't cut benefits as much as you think they will because the rate is so strong? And why is that rate so strong? Is CMS seeing a huge cost spike in Los Angeles that you're not? No, it actually relates to not necessarily the utilization side of the equation, but the unit cost side of the equation. So in California, for 2024, we saw higher than average, both inpatient and outpatient unit costs relative to the national average, based on how CMS reclassified some of the hospitals between rural and urban. So as a result, we're sort of absorbing that in 2024, even though the benchmarks in 2024 didn't reflect that change. So what has now happened is it's sort of a way the business model is, I think, insulated from unit cost increases over time, where that impacts us in 2024, but we're sort of seeing the catch-up in our benchmarks for 2025. So, I think to your point on TBC and how that impacts some of the competitors, when you do have higher benchmark increases, it does impact your TBC calculation in terms of how much you can cut. But as John mentioned, there are certain things outside of TBC that can be further adjusted down. So I suspect some of those folks who are struggling with profitability in some of those Southern California markets where benchmarks are going up, may look to cut things like OTC benefits, or I guess John said, exit markets or certain products if they're not profitable. Okay, great. Humana recently said that they think the long-term target margin in MA is lower than what they thought it was previously. Before, it was like 3.5%-4.5% or something like that, and now they're saying at least 3%. And so does that at all change your view about what your target margin is, or at least what it is relative to competitors, if they're going to be bidding down margins? Yeah, I don't see a change in the way we think about it. I think, first of all, Medicare Advantage is here to stay. I think the demand for it and the market share penetration of MA is gonna continue to go up. It's right about, what, 52% now, market share penetration. I think that's gonna go up to 65, even I've heard 70% over the next seven plus, five to seven years. So I think the demand for the product is gonna continue to go up, and I think the margin opportunity for us, given our business model, is still very, very strong. The 85% still in place structurally, you know, so I think we feel very good about it. You sort of alluded to this earlier, about your competitors, but, you know, the fact that CVS and Humana are signaling that essentially for three or four years, they're just gonna be cutting almost to the limit in terms of benefits at the TBC level. Right. First, in your markets, what is your exposure to CVS and Humana? And then do you feel like the competitors that are larger in your markets are in a similar position where they need to cut for three or four years as well? You know, I don't know. We're looking at it, but if you think, when you look at the combination of stars, declines, and you look at the combination of the sustainability of the stars of some of these folks, and then you look at, you know, can they have a clinical model embedded in their organizations, as opposed to, you know, just globally capping, you know, in a V28 world? It's, you know, hard for us to say. I think for us. We have a two to three year, you know, kind of window where we can really expand both growth and margin, and I really think it's an inflection point for us. And I think people saw it for the first part in the 2024 AEP, and people were kinda scratching their heads, going: "How'd you get 50%? Okay, you must have bought the market." Well, we didn't buy the market, and I think we proved that out in Q1. And so I think when you're at these points of inflection, and there's the potential for paradigm changes, you know, you just have to deliver and it’s not— You can't tell people, because they're not gonna really understand it. You gotta tell 'em and do it, tell 'em and do it, tell 'em and do it. Then I think people will get it, and I think all that tees up nicely to where we're heading in 2024. To your point, 2025, we feel really good about. Most of your business is in California today, and you sort of touched on this earlier, but how are your other markets progressing, and how do you even select which markets you should be joining? Yeah, that's really something. The replication question is sequential. So what I mean by that is, we really want to get the growth and get the margin, get the cash flow to fund some of these new margin to new market expansions. I think it's going to be a function of the quality of the delivery system partner that we end up with, and there's a lot of health systems and large provider organizations that need help in MA, and we see that as another huge opportunity. And as we get better and better with our shared services that Thomas talked about, we get better and better with our shared risk model with our providers. And as we get better and better with making refinements to the care model and to AVA, I think all of those best practices are, we're spending time on, we call them tiger teams, to partner with delivery systems, as I would say, the linchpin of the market expansion model. I think it was you on the call who said that, you wanted to fund new market growth through internal cash generation, which wouldn't that mean that you would need to be free cash flow positive at the parent company in 2025 or 2026 in order to fund that? If somehow you weren't, would that mean that you wouldn't look to grow into new markets? You're the first guy that's asked that. That's really good. But yeah, no, I mean, that's what we're shooting for. Thomas will kill me if I say we will be cash flow positive, but, but, I mean, that, that's certainly the goal. I mean, and and if you look at, you know, what our trajectory is, and if, if we end up, you know, 2024 at, you know, what did we say? $2.5 billion. $2.5 billion, what's 20% of that, right? You get to $3 billion, and, you know, whether it's a little bit more or a little bit less, we'll see. But, then you put a margin, you know, an EBITDA margin on that, and you kinda... It's, it's, it's-- We're-- I'm very comfortable with, with that. Yeah, and so much so that we're starting to really think about, you know, best practices and packaging these best practices. I will say the clinical utilization in every one of our markets is really doing well, right? But, like, how do we make sure we have the broker relationships, the products, the stars, all the other stuff we've talked about is not something that we've stopped thinking about or executing. It's just the prioritization, get the growth, get the share, get the margin, in markets that we're strong. Along the lines of, like, a hypothetical free cash flow positive scenario, I think in the past you've talked about M&A, and talked specifically about IT or enablement capabilities, but would most of any cash flow go towards, like, organic growth, or would you look to maybe buy your way into a market in MA? I would not rule that out. My comments were really around organic growth. I mean, it's organic growth with a twist, and that twist is with a delivery system partner. And Thomas alluded to this. There's a lot of dissatisfaction from the large integrated delivery networks with the type of reimbursement they're receiving on Medicare Advantage members, and a lot of them are just getting out of MA because they think they're getting, you know, paid, you know, 89% or 85% of what they're billing. There's a little asterisk to that. So in defense of, you know, my MCO peers, you kinda gotta look at, well, what are they really submitting? You know, how accurate is the submission of the claims? So I'm not sure it's really 89% when you kinda, at the end of the day, you know, in terms of yield. But they're not happy, and so they're looking for partners, and the ones that are over capacity, right? The health systems that are over capacity, and a lot of them are at 120% of capacity, can't. They don't have enough beds to fill. They're coming to us, and they're kinda going: "You've done a very good job of keeping people out of the hospital while maintaining good stars. How are you doing that? And if you can do that with us and for us and lower the admissions into these hospitals for us, we will backfill that with commercial members, which we're getting paid more on." You know, and the key for everybody is: Can you maintain a happy, loyal customer, that patient? And they are watching that, and they're happy about it. So I think that's an opportunity. Great. I think that's all we have time for, but thanks so much for joining us. Thank you very much. Thanks. Appreciate it. Thanks, everybody.