Tim Bensley: Yes. Generally speaking, as we move through the year, there is a — seasonally, our medical margin does drop down. And in Hawaii and particularly, that drives some pretty big deleverage because it’s a delegated model, we have a higher cost basis there. And so in the third quarter, without any acceleration of medical margin, you would see a bigger and bigger drag on EBITDA as we move through. And your math is correct. The absolute drag of Hawaii in the quarter was about $12 million on the EBITDA line.
Gary Taylor: Got it. So just normal seasonality. The second one was, I guess, I’m kind of probably not the only one struggling a little bit with the negative PYD that keeps showing up, but the concept also that you’ve been building reserves. But net-net, how do we think about carrying — end of the day, the PYD says the prior year’s cohort medical margin wasn’t as good as you originally thought. The boosting of reserves says this year, medical margin won’t be as high. How do we think about carrying that in over the next couple of years? Like how does this development reserve building impact how you’re thinking about modeling the cohort medical margin development?
Steve Sell: I can start, Tim, and you can jump in. Gary, I think the thought process is we’ve been building this year to remove the issue for next year. And so this year, we have the impact of the negative PPD in our results. We also have the impact of the build, which is there to try and put us in a position where we don’t have it going forward for next year. So I think you step off with a very strong run rate across REACH and MA. I think we have a plan to not have PPD recurring, which we’ve had in the last couple of years. So that should really help as we do that. And then we have a really strong class coming in for ’24 that we just told you is larger than we had previously told you. And the performance of that class we expect to be at the very high end of our typical margin range.
And so all of those things I think as you look towards ’24 are real positives for us. And that’s been our goal. Our goal has been to deliver on the EBITDA for this year and to try and take this issue around negative PPD off the table. And we’ve had the ability to do that because of the strong performance.
Gary Taylor: Okay.
Operator: Thank you, Gary. We will now take our next question from Jailendra Singh from Truist Securities. Jailendra, your line is now open. Please go ahead.
Jailendra Singh: Thank you. Thanks for taking my questions. One quick clarification if you’re willing to share, who was the buyer for Hawaii asset? Was it a related party? And then my main question is on the topic of utilization trends. Like one of your peer partners, Humana, talked about recently — about having higher MLR from their PPO book of business, which I believe is like almost more than half of your membership. Curious what you are seeing in terms of utilization trends among PPO members versus HMO members? And one more kind of same topic, like some payers have talked about offering Flex cards and OTC benefits as they view this as an advantage next year. How have been your discussions with them about getting reimbursed for this pressure as you are effectively taking on for them?
Steve Sell: So that’s three questions in one. I’ll go down — so the buyer is an experienced California-based organization that’s really strong in delegated model services, so really strong in claims, very strong in customer service. And we think they’re a great match with MDX Hawaii. So that’s the first point. In terms of our PPO experience, we’ve talked about this before. We are probably the largest risk-based player in terms of PPO in the country. Our PPO business is just over 50% of our membership, it’s also the fastest growing component. And our PPO business is — performance is in line with our HMO business. And I think the reason for that is the differences in our model. A large payer with a broad network versus our high touch PCP patient model, which has the ability to guide that patient on where they’re going to go for specialty care.
At our Investor Day, we shared over 90% of specialty referrals come through that primary care physician even in a PPO model, that is allowing us to really deliver cost effective care. And so our PPO experience is very strong. And then just on the — I think your question is on the Flex card side. Our conversations with folks is that on an aggregate basis, we’re probably seeing a reduction in those year-over-year in terms of the total dollars across our population that will be out on those.
Jailendra Singh: Thank you.
Operator: Thank you, Jailendra. Our next question comes from George Hill from Deutsche Bank. George, your line is now open. Please go ahead.
George Hill: Good evening, guys. Thanks for taking the question. Mine was actually pretty similar to Jailendra’s that I want to ask at a higher level that I know that kind of going into the back half of the year, we were looking at a lot of the Medicare Advantage MCOs to ratchet back on benefit design given the kind of the poor rate environment for ’24 and the changes to the risk model. But it looks like most of them preserved benefits despite kind of the tough rate environment. I was wondering if you could — and you kind of communicated that the negative rate environment would flow through to their risk-bearing care providers. So I guess maybe just walk us through at a high level how you guys are thinking about what looks like a preservation of benefits and what looks like a tougher revenue environment? And just kind of how you’re thinking about that with respect to medical margin and EBITDA margin?
Steve Sell: Yes. So, George, I think our outlook on ’24 is strong for the reasons I talked about strong run rate, strong class coming in for ’24 being able to manage that new risk adjustment model very well. I think our view on aggregate supplemental benefits is that there will be a net pullback on those for the markets that we’re in. It’s a market-by-market basis. We don’t have a lot of D-SNP in our markets. And so that’s kind of the view. And so that would be neutral to a net tailwind, meaning the supplemental benefit experience from ’23 to ’24. But the big drivers are really the step-off in the run rate, the strong class of ’24 and then just our ability to drive kind of medical margin maturation year-over-year.
Matthew Gillmor: And George, I’d add one thing. I think when you look at our geographic exposures relative to some of the companies you were referring to, we’ve got a very different geographic exposure and a very different patient population that we serve. And it — that’s what really drives our view that the changes that you talked about are very manageable for agilon.
George Hill: Okay. I appreciate the color. Thank you.
