Welcome, everyone. My name is Michael Ha, the Managed Care and Healthcare Services Analyst at Morgan Stanley. Our next session is with ApolloMed, a leading physician-centric, technology-powered, risk-bearing healthcare management company. I'm pleased to have with us today Co-Chief Executive Officer, Brandon Sim. With that, thanks again. Brandon, I'd like to turn it over to you for some introductory remarks. Yeah. First of all, thank you so much, Michael, and Connor and your team for having us here. It's been a great conference so far, and great to see many of you during the one-on-ones as well. I just wanted to highlight, you know, briefly for those who are not as familiar with our story, a bit of kind of who we are and what we do. We're headquartered in California. Like you said, a physician-centric healthcare company. We operate in three different business segments. We operate a business which partners with independent physicians and physician groups in order to help them access and succeed in value-based Medicare arrangements. That's our Care Partners business. We have a technology arm, or a tech-enabled services arm, in our Care Enablement business, which supports those independent physician groups as well as our employed physicians. And finally, we own and operate clinics as well, both primary care and multi-specialty clinics across California, Nevada, and Texas, in order to better deliver care to the populations that we serve in our care delivery arm. And, you know, I really wanted to talk a little bit about how those three businesses really complement each other. I think it certainly makes for a more complicated story, so I apologize to those, you know, who are getting familiar with our story for the first time. But we really think that it solves a lot of the problems that are addressing or that are facing healthcare delivery today. The Care Partners business, for example, allows us to access and more quickly act on CMS's mandate to have everyone in an accountable care relationship by 2030. I think it's probably infeasible, all of us agree, to build enough clinics, you know, from scratch, to address the entire American population by the end of the decade. And our ability to partner with and enable physicians, regardless of where they are on their path towards value, allows us to kind of more rapidly make that transition for them. In the Care Delivery business, many of the issues that, you know, that make it challenging for kind of clinic-based models is the high startup costs that are associated and the time it takes, you know, the J-Curve it takes to build a clinic and have it become profitable over some number of years. And I think one of the things we've done really that's very interesting about our model is that we can take the Care Partners physicians and slowly aggregate them into our Care Delivery business, giving us some of a kind of a warm start, so to speak, to overcome, you know, the cold start problem of having to start a clinic from scratch with zero patients. And finally, all of that needs to be supported by physician-led and intimately useful technology, driven by physicians and not necessarily by, by technology folks. So even though we have, you know, close to 100 engineers at, at the company building technology each and every day for our proprietary care management stack, our payer tools functionality, as well as, you know, remote patient monitoring and patient-facing applications, all of that is very physician-led and supports both the kind of employed clinic model physicians that we work with, as well as our partnered independent physicians and physician groups. And so, that's kind of a high-level overview of the business. We serve over a million patients in value-based care arrangements across nine or 10 different states, focused primarily on California, Texas, and Nevada today, and also across all lines of business, Medicare Advantage, Managed Medicaid, Commercial, and Medicare fee-for-service as well. So with that, I'll turn it back to Michael, and I think he has a lot of great questions today. Terrific. And we're going to jump deep into the core story. I think, maybe first we'll tackle a couple hot topics, utilization and the V28 risk model revisions. So utilization to start off, MA outpatient surgical, the trend has been, notable, over the past quarter. I understand you previously mentioned not seeing any increase in utilization in 2Q to 1Q- Mm-hmm. Versus 1Q, but a slight uptick in 3Q, based on your prior authorization. But cost trends still well within your expectations for the year. But with that said, do you mind providing just a quick update on utilization and what you're seeing specifically on the outpatient surgical front end? Yeah, totally. So I'd like to point out that kind of one of the unique, interesting things about a lot of our California-based patients, not all of our patients, is that we are delegated payer services, from the insurance companies that we work with. So, for example, you alluded to prior auth data. We actually are the approver, you know, of prior authorizations in California, and so we actually do have a lot of pretty up-to-date information about kind of future utilization trends, even before the claims come in, which are sometimes, you know, three months or more lagged behind the actual date of service. And so based on our prior authorization trends, we're actually... You know, I highlighted on our Q2 earnings call that there was a slight uptick in outpatient, sorry, inpatient, senior utilization. We're still seeing that come to bear. It's probably, you know, between 50 basis points and 1%, and closer to the lower end of that range than the higher. So again, not a very material change to MLRs overall. We continue to see high 70s, low 80s MLR across our different books of business, and that hasn't changed our outlook. So we feel pretty confident going into Q3 and the rest of the year that utilization trends are well within kind of projected trends. Great. Great. So looking forward and pivoting to MA risk model revisions. So it's been a hot topic, increasing focus as we head to next year, year one of phase in and impact to high quality value-based providers. And especially the ones that have aggressive risk coding practices and the ones in markets like Florida and, like, California. But given your 1.05 RAF or 30% Dual-Eligible members, that would suggest it might not be as much of a headwind to ApolloMed versus the industry. So my question is, have you run an internal analysis to quantify this impact? And higher level, what do you perceive this as impacting long-term for value-based care altogether? Sure. Yeah, I can address kind of company specific first, and then maybe comments about the industry at large. Depending on our region, our actual Medicare Advantage RAF scores are actually between 0.95 and 1.05 today, kind of like you said. So it's very much hovering around the kind of 1.0 average mark. Frankly, it's not an area where we have traditionally focused on really coding to the proper specificity or complexity that we could have. That's something that we've worked on changing over the last, you know, 2-3 years as it's become, you know, more important to optimize both revenue and cost. But traditionally, our company has been focused on really bending the cost curve, focusing on the numerator of the medical loss ratio, rather than expanding the denominator, you know, the revenue number as much as possible. That being said, you know, running an analysis on the actual codes, some of the deletions, some of the changes in score, we actually don't think there's going to be a material headwind to, if any headwind at all, to MLR profitability in California, and/or in the rest of our regions. The reason is this, the RAF score is still going to have an average of 1.0, even after the V28 model. It's not like the average RAF score is shifting downward or anything. What they're really doing, in my view, is kind of minimizing the variance, the dispersion between the high-end RAF scores and the low-end ones. And so by taking away some of the, you know, things like diabetes with complications, you know, or some of the BH codes, they're lowering the potential very, very high RAF patients. But the demographic score, just for being a, you know, 65-year-old female, from a demographic perspective, we're actually coming up slightly to compensate because the average still needs to be one. And so the dispersion of kind of the highest versus the lowest RAF scores is going to be narrowed, and everyone, in essence, absent, you know, changes in coding behavior, is going to be pushed towards that 1.0 number. We're gonna, we're gonna see less groups with, you know, 2+ RAFs, but we're also going to see less groups with, you know, 0.3 RAFs, right, or 0.4 RAFs. And so again, you know, if we think about that model of everyone being pushed towards the 1.0 mark, and we're hovering at 0.95-1.05, depending on geography, even absent any coding changes or changes in behavior from the physicians, we expect to be compressed towards onr, which will have a very minimal impact on where we are today, given the factorial kind of average has to be one, you know, by, by definition. That being said, you know, going forward, we, we do think it potentially changes some of the ultimate upside. You know, I don't think we can ever get to, you know, 1.8 RAF, you know, with the V28 changes. But again, that's not something we were looking to do anyway, and it's not in our models necessarily, you know, for future projections. And so, we're not very concerned about the V28 model. That being said, I think overall, it's probably a good, good change for the industry. I think I would think that it's more important to focus on bending the cost curve than to get every single possible code in a kind of gamified structure for physicians. They should be focusing on interacting with the patient, connecting with the patient, rather than deciding if I need to code, you know, diabetes or diabetes with complications for this particular... to maximize my revenue. And so we're generally in favor of the changes. Great. As they come in. So no material headwind or maybe no headwind at all? Yeah. You're at 0.95-1.05, that's below the national average RAF score. Does that present an opportunity long-term as you continue to improve your risk coding to reflect what the national average is? How do you view that long-term opportunity and towards earnings? Yeah. We see that as a real opportunity. When I started the company four years ago, our RAF scores were not even 0.9. And we've already seen some of the work we've done around better infrastructure for our independent providers, care teams helping the providers do things like annual wellness visits. We've seen that already improve the scores to kind of the 0.95-1.05 that we see across different geographies. So we think the true acuity of our patients, especially with our higher than national average dual population, is probably higher than where we are today. Now, can we get to the 1.8? Probably not with V28, but can it be higher than where we are today? Absolutely. So we do see that as a tailwind over the next, I would say, 1-3 years is the, you know, is when we expect everything to start kicking in. Got it. Great to hear. So pivoting now to a couple of the, what I think are the most attractive long-term growth drivers for ApolloMed, and one of which is the path to full risk in California. And when I think about it, you know, in California, 1+ million lives now, and you've acquired the Knox-Keene license. The sheer magnitude of potential embedded upside, both top and bottom line, is significant if you're able to convert those lives to full risk. Right. So I wanted to ask, where is ApolloMed right now on that path to full risk? Two, what are the hurdles to flip to, to full risk? And three, any sense on the pace of conversion long term of all those lives? Totally. Yeah. In our core markets of California, that's, it's a very relevant concern or consideration as we move all the patients into kind of what we call global risk, 85% plus of a premium dollar type arrangements. Just for context, for those who aren't aware, you know, today, California's regulation, where physician groups are able to take on professional outpatient risk—you know, around 40% of the premium dollars and a bit less than that. And hospitals are able to take kind of institutional or inpatient risk, which is 40%-45% of the premium dollar, in sum making up, you know, the Part A, Part B, kind of 85% that we're talking about. We recently acquired the license to operate as a actually as a health plan, or restricted Knox-Keene health plan, which will allow us to take risk on both sides of the dollar. That's not to say that we have no experience taking risk on both sides of the dollar. Historically, for the last over a decade, we have taken risk on the institutional part of the pool, but in partnership with partnered hospitals, where they will take the actual dollar due to regulatory risk concerns and then pay out all the associated costs and with the remaining risk pool, share some of that upside surplus back with us on the back end. Except we were recognizing that shared revenue as or shared surplus as revenue for us. What's gonna change with our kind of health plan license that we're now licensed to kind of operate is that we will actually be able to take the entire 85% plus of the risk directly at the Apollo level. Which, as you mentioned, embedded in each of the 1 million-plus members that we have in California today, we're not even capturing half, you know, of the revenue and EBITDA potential that those members have, even though we're actually doing a lot of the work. You know, we employ the hospitalists, we employ the inpatient care management teams, we employ the transition of care management teams. Even though we're doing a lot of work to help control the cost of the inpatient utilization for those patients, we're not reaping any of the revenue or much of the EBITDA for the work that we're doing. So what really excites us about having the health plan license, the restricted Knox-Keene license in California, is that we can now be rewarded kind of on a financial basis for the work that we're doing already on the inpatient side for our patients, not just the outpatient side. So kind of, with all the relevant disclaimers in place, you know, if you look at just the value of a potential patient in terms of his revenue and EBITDA contribution to Apollo, a patient that's only in a professional construct, as we are in today, might be contributing X dollars. Once we put them in the restricted Knox-Keene arrangement, they could be contributing more than, you know, 2x dollars on the revenue line. And we expect, you know, between 1.25-1.5 times on the EBITDA line. Over time, as we mature these global risk relationships with our hospital partners, we do think that we'll have 10%-15% long-term at-scale margins for the kind of global risk business as a whole. Mm-hmm. So, that's something we're looking forward to as well. Great. And you said 1.25-1.3x EBITDA margins? 1.2-1.5, just depending on, you know, the pace at which we keep- Right ... different relationships wholly in terms of economic- Okay -relationships from the past. Got it. So 2x revenue on 1 million lives on that level of margin potential. Okay. Yeah, 10%, you know, 10%-15%. Probably closer to 10%, frankly, you know, year one, but over time, can expand that margin as those relationships mature. In terms of timing - Sorry, I forgot the second question. No worries that you had. In terms of timing, you know, this does require a couple of different steps. It requires agreement from payer partners. It require, you know, upstream to give us 85% plus of the risk. It requires agreements downstream to fulfill CMS network adequacy requirements from on both the outpatient and inpatient side of things. And so those are the networks that we are working to recontract in the new construct today, as we speak. Once all that is fulfilled, plus the proper regulatory reserves put up, with the state, the state will take generally a few months to approve or deny the request. And so, we had kind of signaled before, you know, 1-2-year period over which we would transition our million-plus lives into these arrangements. We're a little ahead of schedule there. We think we'll have the first groups done probably before the end of the year. And, you know, the revenue and EBITDA will start hitting by 2024. So we'll continue to update the market if there are notable developments. Great. Massive opportunity, 1- 2-year timeline. So I guess the next question would be: How do you view the risk of taking on too many risk-based lives too quickly? What gives you comfort that when you get the green light to flip all those lives, that you can still remain profitable? And, yeah, just your thoughts on that. Totally. Yeah. I think we're, we're generally a pretty cautious firm. You, you can see that kind of in the, you know, bootstrap nature of the company, the, the, the years of consistent profitability of the company. I think what gives us a lot of confidence around California and moving into global risk, you know, doubling revenue essentially, or if not more, on these patients, and also doubling the risk that we're taking on those patients, is because we're already doing a lot of the work, as I mentioned, on the inpatient side of things. We employ hospitals, we employ all the case management. We're actually delegated for inpatient case management by the plans. And so this is something that we already literally live and breathe and do each and every day. We have transitional care programs with discharge planning. We have all the EDT feeds in our technology infrastructure. Everything that we need to take on global risk, we're actually already doing and paying for. And so we think that this is actually just a more of an regulatory kind of financial change than an actual operational change. Not much is gonna change in terms of how we are taking care of the patients, because we didn't ignore the patients when they're at a hospital just because we weren't taking the risk on them. We were already doing all that work already. So, we're, we're very confident in our ability to continue managing the population, even at a global risk level. It's very different from... You know, because we've been doing it for so long. And I think it's a little different from plunging into global risk arrangement without prior knowledge of how to do that in a new region. That, that being said, we've also been in global risk arrangements before that, that have been successful. For example, in our ACO programs, you know, we, we take on global risk, both in the Next Gen ACO, in DCE, ACO REACH. And so that's something that we have experience with doing also. Great. Great. So we just discussed one massive embedded opportunity in California, but another arguably massive opportunity is the fact that only about half of your 1.3 million managed lives in your care enablement business are actually aligned to your Care Partners business. Right. The way I see it is there could be another significant long-term revenue earnings opportunity by converting those existing lives over to a more risk-based model- Right. align roughly 650,000 to Care Partners. Could you talk about this? Is this a real and tangible cross-sell opportunity? And if so, what's happening today to move the needle forward on this opportunity? Yeah, totally. No, thank you for highlighting that. Just for the audience, you know, the care enablement business is the tech-enabled services business that we have clients for. We charge them a percentage of their revenues and/or practice collections to provide those tech-enabled services. But it is not a business in which we are bearing kind of a percentage of a meaningful percentage of the premium dollar on those 1.3 million patients. And so, that's kind of what you're referring to is, can you take some of the clients and ask and actually also bear risk on the patients that they have, especially since you're already providing the technology to help them succeed in the risk-bearing aspect anyway? And the answer is absolutely yes. Actually, in the past couple of years, there have been a few examples of clients from our enablement business moving over to becoming care partners businesses, well, our partners as well. Access Primary Care Medical Group, for example, in Daly City, which is near San Francisco, used to be a client, flipped over to being a risk-bearing partner. We announced on our Q2 earnings call an unnamed California medical group that is joining both our enablement and our care partners business at the same time. So they're receiving services, signing up for a services contract, but are also accessing risk through our restricted Knox-Keene health plan license. Unnamed so for competitive reasons, it's a pretty competitive market in California. So, you know, I think there are a lot of historic and future opportunities, the other half of the membership, where we could very reasonably convert them and have a high degree of confidence that we can take global risk on those patients because we are already powering their risk-bearing activities via the infrastructure we built. And so it provides us a lot of confidence that they're already on our systems, they know how we operate, and frankly, we have visibility into their performance already because they're our clients, and they entrust us with helping them succeed. And so, that's an opportunity we're actively working on. Great. Great. So maybe pivoting now to more of the clinical care model. So there's a multitude of value-based care companies that are now out there on the market. Differentiation between these models is something investors really focus on. And when I think about ApolloMed, the company clearly has tremendous number of lives, 1.3 million, across numerous markets, numerous contracted physicians and IPAs, clear economies of scale, you know, arguably in the most sophisticated market. So I was wondering if you could talk more about the differentiation in the care model. I think the beauty of your model is that you have a Care Partners business, with a care enablement, with a care delivery to bend the cost curve, both technology and physical care delivery. So could you talk more about that? I think one thing investors are underappreciating is the fact that you have a 24/7 care team as well, if you could expand on it. Yeah, totally. So the care... I mean, there's no panacea. I don't think there's a, you know, silver bullet as to if you do this one thing, then all of a sudden, your, all your patients will be healthier or, or have, you know, 70% MLRs or, you know, whatever it is. It's really kind of getting every single element of the, the care delivery right and supporting that with kind of efficient at-scale tools that don't cost you a tremendous amount of dollars to operate in order to actually generate profit to them, but on the populations that you're, that you're serving. And so, you know, I think part of it is that we have a deep kind of history of appreciating not just primary care, which is certainly critical, and we compensate primary care physicians and share surpluses with them far above national average, just like other primary care enablers do. But the part I want to focus on a little bit is our focus on specialty care as well. Even compensating primary care at 20-25% of the premium dollar, you know, I think national average is 10%, but even compensating them that much, over three-quarters of the premium dollar is still spent not in primary care. That's not to say that primary care can't influence some of the costs in specialty or hospital. They certainly absolutely do, and we want to make it easier for them to do that. But having really integrated relationships between primary care, specialty care, and hospitals is also key to driving down total cost of care. There are many opportunities where, you know, a primary care doctor who doesn't maybe communicate as well with a, say, a cardiologist or an OBGYN may do something that is not as efficient or, you know, maybe more costly unnecessarily for a patient than if they were really integratively tied together. What we really do is for every patient, we have customized software platform with care plans, disease pathways, and an actual care team with, you know, a nurse, social worker, if necessary, what we call a member VIP concierge person that they can ask questions to, that is always monitoring the patient. There is a list that is essentially risk stratified or action stratified based on what the next best action is for each patient. That surfaces different tasks for the care teams to work on for each patient, each and every day. They come in, they log in, they see kind of their queue of patients for the day based on the risk factors and recent claims data, prior auth data, social determinants of health data that we gather in our data lake. And they're constantly wrapping around the patient to make sure that they are supported, whether they're in an office, at the hospital, or not. Oftentimes, healthcare is very episodic in the sense that when you're at the office, you're taken care of, but as soon as you leave, you have no clue what to do. And of course, the PCPs play a big role in that, but we think the specialists and our care teams also need to play a big role in that, and I think that's a big difference in terms of our focus. You know, DNA certainly is around PCPs, but actually, founders of the company are both specialists, you know. And so I think there really is a big focus on not only caring purely about value-based primary care, but also about value-based care in terms of specialties. We're actually quite glad because we see a lot of that movement these days in terms of specialty companies thinking through how they can participate and enable value-based care to succeed as well. We truly do think that's the next frontier, that's something we've been doing for decades, actually. The other thing is around our deep kind of ability to integrate data from hundreds of different sources. Part of it is that we are delegated to do prior auth, to do claims, and so we actually have data sometimes before the payer even has data, because we're the ones processing everything. Physicians are sending things directly to us. We have integrations with our EHR directly at the point of care, so we can really see what's happening fairly live, not three months, six months later, as sometimes payers do. And so part of aggregating that data and making it actionable to the doctor in a way the doctor actually wants to use it, rather than a top-down, kind of tech-driven approach, is another difference, so. Great. When you do take Global Cap and you are delegated claims, that's more capitation that you get, and that's more medical cost visibility, more visibility into accruing MLR. It's like a- Exactly. Right. Full-on thing. Okay. So it gives us visibility into future trends as well, because at least in an HMO environment, the claim is just a prior auth with a data service on it attached to it. Right. Yeah, there are few, very few value-based care companies that have claims delegation, so I think it's powerful. So on care delivery, currently overall, you know, smaller part of the business, but very important, leads nicely into the care model like we talked about. Mm-hmm. Looking forward, you have 10+ urgent care centers, outpatient surgery centers, diagnostic labs, staff, specialty clinics. Could you talk about what's next in this growth? Where do you see the future direction of growth for this business? Yeah. On the care delivery side, that's a—like you said, that's a newer part of the business for us, and it was born out of necessity, frankly. We don't just build clinics just to have clinics. I suppose it is really building and operating clinics to enable the overall care ecosystem in a given community. And kind of what I mean by that is that there are oftentimes mismatch in terms of supply and demand for certain specialties or healthcare delivery in general, in a given geography. We live in, I was born and raised in Los Angeles, for example. If you go west of L.A. to Beverly Hills, there's a dermatologist and a plastic surgeon literally on every block, sometimes two on the same block. But if you go out east towards Palm Springs or Coachella, there might not be one in a 50-mile radius, for example. And so the disparity between, access to care, especially certain specialties and sometimes even primary care, really varies at a very localized level from geography to geography. At some point, it makes sense to do so. We would love to enable and empower existing physicians who are independent to succeed in value-based care arrangements. But in some places where it's not possible because there simply isn't a supply of a certain specialty or primary care at all, that necessitates kind of our build-out of a de novo center, in order to fulfill the demand in that region so that the patients can still get access to care. Because if they don't, we're gonna pay for it because they're gonna visit the ER instead, and the total cost of care will be driven up. And so I think it's not necessarily a strategy of we must build, you know, clinics everywhere just because we want to set an anchor down or something like that. It's more as we analyze the supply and demand of healthcare, across specialties in a given region, in order to optimize total cost of care, does it make more sense to contract with X specialists at 200% Medicare? Or does it make more sense to employ someone and operate that clinic ourselves in order to lower the total cost of care and increase access and quality to our-- to the patients that we're serving? So I think that's kind of the future of the care delivery business. We view it as a complement to the overall expansion and total cost of care risk that we're taking on. Perfect. And with the last three seconds, what do you think investors are missing about the ApolloMed story now that they'll come to appreciate in 12 to 18 months? Yeah. I mean, I know we're a little undercovered, you know, and a smaller company perhaps than others. I think what's interesting about us is we have a very demonstrated track record of caring about profitability, of being able to sustain profitability and really do that without compromising on quality of care, and the care model for the patients. We're very proud of that. We serve our entire community, regardless of their walk of life, their age, their demographic status, their how much money they make, you know, Medicaid, care, commercial. We really are dedicated towards serving that community. We think that the long-term drivers of growth, you know, moving towards global risk in California, expanding to other states, which we've already seen promising, you know, signs of, and continuing to have the three parts of the business support each other, we actually think that's the future of healthcare delivery. I think folks who are focused on one or, you know, the other, or are point solution, those are certainly important, they're doing good work, but I think at the end of the day, an integrated delivery system that has all three parts is what's necessary to truly bend the cost curve for, for Americans across the nation, and we hope that that starts to show over the next 18-24 months. Perfect. Thank you, Brandon. Thank you, everyone, and have a great rest of your day. Yeah. Thank you all. Thank you.