Operator: Thank you, George. Our next question comes from Whit Mayo from Leerink Partners. Whit, your line is now open. Please go ahead.
Whit Mayo: Yes, I’ve got just two really quick ones. But Steve, you’ve talked about the investments you guys are making, the 60s blind spots on trend. Is there any update or anything you can share that gives you confidence that you’re seeing some of these gaps begin to be improved here. And I just want to be clear. I’m a little confused here on the guidance here. But I think it was last quarter, you guided to a $30 million increase in the reserves within that third quarter range. And so are you saying there’s another 30 million now on top of the previously contemplated 30 million? Sorry, I’m just — I think some of us are a little confused.
Steve Sell: Yes. So maybe we can start with the guidance. I think last time we talked about a total of 60 million in Q3, and what we are saying is there’s another 30 million in Q4. So that is the combination of those two. I think it’s — and we’re able to do that because of the strong overall performance across. In terms of the investments that we’re making, I do think we’re making progress with our payer partners on the data submission. I think it’s really in terms of getting that information from there where we’re getting it in a faster way. But the other thing I would tell you is that our REACH real-time data tells us that we’re tracking pretty well with that. And that we’re able to manage things within kind of the ranges that we expected.
Inpatient continues to be down, outpatient is up, but we will take that trade kind of all day long. And that’s true across MA and across REACH. But those investments we made and the new data officer we brought in is making us better for that. And we are building reserves so that we make sure we’re adequately reserved if development does come through.
Whit Mayo: So can I ask just one — sorry, I’m confused on this point. So does the guidance — is it 60 total or is it 90 now?
Tim Bensley: Yes. So when we came through the second quarter and said, hey, we’re going to basically increase our outlook for reserves because we didn’t feel like we had clear visibility to some of the increases in utilization that the big payers were putting out there. So now we’ve actually seen that. We did see that spike up in May, moderated a lot in June came back down, continued to come down in July. So we’ve now accounted for that, and that was part of our increase on a rate basis the $60 million of medical expense that we had forecast or that we had guided through coming out of the second quarter. And we’ve accounted for that all now in the third quarter results that we just published. As we look forward now to the fourth quarter, we’ve assumed that even though the spike in May clearly has moderated down some that we’re not going to forecast that it’s going to moderate any further our guidance has then anticipated, it’s going to moderate any further, and that would essentially represent an additional $30 million that we’ve put into our medical margin or medical expense forecast for the second half and is the second reason why our medical margin forecast for MA has come down.
So if an additional $30 million makes this assumption that we don’t see any further moderation in claims and puts us, we believe, in a strong position to minimize the possibility that they’ll be negative development bleeding through into 2023. And we’re able to do that at the same time maintaining and actually slightly raising the midpoint of our overall EBITDA guidance for the year.
Whit Mayo: Okay. Thanks for the clarification.
Operator: Thank you, Whit. We will now take our next question from Adam Ron from Bank of America. Adam, your line is now open. Please go ahead.
Adam Ron: Hi. I have a quick one on cash flow. It seems like adjusted EBITDA is up $50 million year-to-date year-over-year, but cash flow from operations is actually down. It looks like working capital used to — like doubled year-over-year. Just wondering what’s driving that if it’s a timing thing, if we should expect a step-up in Q4 and just generally how we should think about EBITDA flow through into cash flow? Thanks.
Tim Bensley: Yes, Adam, thanks for the question. It’s always a timing thing with cash flow. Our cash flow when you think about what our final payments and our big payments come in from payers when years are settled up and our surplus has settled up, we typically do have a lag of when EBITDA is generated versus when we actually see the cash for that. So the fact that we have a large number of new payers and a large number of new markets this year, I think something like 34% of our members are actually from this year or on the MA side are actually from our new markets, that just exacerbates that delay essentially. So we always say that the EBITDA that we’re generating this year, we would primarily see transitioning into improved cash flow in the next year.
So a little bit in the third quarter, we also have just with the sheer number of new payers and new markets we have, a little bit of a timing issue even when we would normally get some of that settled up. And so we’ve got maybe a little bit less cash payments that came in, in Q3 that will come in through the rest of the year. But yes, we always do have a timing disconnect between the EBITDA we’re generating and the cash that we receive for that performance.
Operator: Thank you, Adam. Our next question comes from Jamie Perse from Goldman Sachs. Jamie, your line is now open. Please go ahead.
Jamie Perse: Hi. Thanks. Good afternoon. First one, a quick clarification on the 60 million medical margin reduction year-to-date. How much of that is from changes in utilization patterns that you’ve seen and how much of that is from insulation from future prior period development? And then my second question, just on new membership for next year, the 25,000 from ACO REACH, 110,000 from MA. You guys have previously said a higher starting point on medical margin per member per month next year. I think you’ve given above 60 for that on the MA side. How should we think about that in light of what you’re seeing in utilization and the new reserving policies? And a similar question on ACO REACH, just do you think the 300 basis point delta versus the benchmark can hold next year? Thank you.
