Tim Bensley: Yes. The ACO REACH population has been more traditionally an unmanaged population. So there is a big opportunity for us there. We tended to be even as we move through this year. We have very good current data from CMS on our members and we tended to be a little bit conservative. So we actually saw even positive development as we moved into Q3. We had guided about a $12 million EBITDA flow through for ACO REACH. We ended up with some positive development flowing through from the previous quarter — $18 million overall so far during the year. The way you make money in ACO REACH is — the way you perform well in ACO REACH is essentially you just outperform the Medicare fee-for-service reference population on cost performance, and we’re outperforming that on a year-to-date basis by over 300 basis points. So the model really is starting to prove to be very valuable on the ACO REACH side.
Matthew Gillmor: And then, Justin, what was your real question? Sorry.
Justin Lake: Well, the other question I was going to ask on ACO REACH, and again I could be — it’s been a long couple of days, I might be off again. But my recollection of the Investor Day was that you guys actually kind of titrated lower your expectations for ACO REACH. I think I was looking at it and you would expect that I think in 2026 to be at — am I recalling the number right, $35 million of profitability?
Steve Sell: That’s right.
Justin Lake: Okay. So it sounded like you had kind of gotten more conservative or is the thought process there like, hey, let’s take that number down a bit. So six months later, you’re running at that run rate already looks like. Is that a number that you think we should be looking at differently than from the Investor Day? Are you thinking about that business differently?
Steve Sell: Yes, absolutely. Our emphasizing the power across the entire senior panel is hopefully one of the big takeaways that you’re going to have. The way the mechanics and the ACO REACH model work is you carry forward your performance, and you need to beat that underlying benchmark, which we would expect we’re going to do again next year. And so I think we feel like we’re going to have much stronger performance going forward. We’ve already seen it this year-to-date. And it’s — we have much more valuable and readily available and consistent information, which is giving us high confidence in that.
Justin Lake: Got it. All right. I’ll jump back in the queue. Thanks, guys.
Steve Sell: Justin, thanks.
Operator: Thank you, Justin. We will now take our next question from Stephen Baxter from Wells Fargo. Stephen, your line is now open. Please go ahead.
Stephen Baxter: Yes. Hi. Thanks. Just wanted to try to clarify the discussion a little bit on the revisions to the medical margin guidance. So I think I’m following you that you’re saying $20 million of the lower $50 million to $55 million revision on medical margins related to pulling Hawaii out. So I guess that leaves, call it, the $30 million for the continuing partner markets. I’m just trying to understand kind of the $30 million in the context of the quarter you just had. It does look like including — I guess I wanted to strip out the Hawaii results out of the quarter. It doesn’t really look like you were kind of off your medical margin guidance that you provided for the third quarter. So just trying to understand why you have $30 million lower medical margin on a core basis if the quarter was relatively in line.
Ex-Hawaii, it kind of implies that it’s primarily related to the fourth quarter. Just trying to correct my understanding of that, hopefully, if that made sense. Thanks.
Steve Sell: Sure, Stephen. Thanks for the question. I think a key goal for us was to raise and be adjusted EBITDA in the year. We were able to do that based on the strong performance across REACH and across MA. To your point, in those partner markets, they were very strong. The second goal was to really put ourselves in a position from a reserving standpoint in which we could significantly mitigate the chance of any negative development into 2024. And so I think that, coupled with this utilization outlook, which we think is prudent that the deceleration we’re seeing in Q3 will not necessarily continue. That’s what puts that 30 million on top of the 20 million that you take out for Hawaii. So that’s really the logic around it.
Tim Bensley: Yes, I think that’s right. As we close Q3, if you put the prior period development aside and you take the Hawaii, which was — did perform below our expectation for the quarter out of it, our overall medical margin PMPM did perform well within the range that we had guided to. So we were very happy with that. On the other hand, that was a combination of higher revenue as we synced up our final — got all the mid-years in and synced up our final or the next round of our rev estimates for the year as well as some higher medical expenses that flowed through from that May and early June spike that we saw. So we just looked at the rest of the year and said, hey, if we just assume that there’s not really any further moderation and we want to continue to make sure that we minimize the possibility of any prior period development bleeding over into 2024, that’s an additional $30 million of just medical expense versus what we had in our previous guidance.
And we were able to do all that in addition with the strength of the ACO REACH business and the other actions that we just identified. We’re on top of that in a position to essentially slightly increase our overall adjusted EBITDA guidance for the year.
Steve Sell: Thanks, Stephen. I think we’re ready for the next question.
Operator: Thank you, Stephen. We will now take our next question from Gary Taylor from Cowen. Gary, your line is now open. Please go ahead.
Gary Taylor: Thanks. A couple of questions. The first one, just on Hawaii. Why was that — I think I’m talking at the EBITDA line, if I wrote it down correctly. But why was that an $11 million drag in the third quarter when I think in the first half, it was only a $2.5 million drag? Like in all those sort of metrics on Hawaii got quite a bit worse in the third quarter.
