Benjamin Mayo: Okay. And maybe this is a dumb question, but looking at the reserve roll forward in your Q, there was $5 million of favorable PYD, but there’s a footnote below that references 870,000. I guess I wanted to — what’s the difference between the 2 and what the P&L impact was.
Robert Freeman: Yes, absolutely. So we typically — on that footnote you’re referring to, we try to look at the change in prior period reserves, excluding the — we think we put a 7% kind of margin factor on top of the reserves for adverse trends. And so think about that 7%. As you added when — you kind of put your best estimate together for a given month, you add 7% to it. If your estimate on that month is perfect, that 7% will just release in the future. But at the same time, you’re always adding new months with an additional 7% pad. And so it kind of becomes a wash from a P&L standpoint where you’re constantly releasing it and adding it over time.
So we really like to focus on what the change in IBNR is excluding that 7%, and that’s the number that we report in our footnote. So it was right, you’re correct, just a little under $1 million for the first quarter, meaning that our year-end reserves for 2023, I think we’re very strong and intact relative to the paid claims experience through the end of the first quarter.
Operator: [Operator Instructions] Our next question comes from the line of Jess Tassan from Piper Sandler.
Jessica Tassan: I’m curious to know just 2025 funding looks favorable in California. You guys obviously have momentum there from a brand perspective, strong provider network. Curious, just in any updated thoughts around the geographies where you intend to participate in ’25 and beyond that, whether new market entries remains a significant factor in your growth.
John Kao: Jess, it’s John. No, we’re going to — we’re not going into states in 2025. The focus has been on the most efficient way to grow. And we just see so much momentum in our core markets. And even in the ex-California markets that we currently have, we’re getting up above kind of that 5,000 member range. And what we’ve seen in the past is you get to 5,000, to get from 5,000 to 10,000 is just a lot faster. And then obviously, in California, we’ve got a lot of momentum. I would suspect that we’re going to be more aggressive in 2026. And what I’ve said in the past is the goal, obviously, is to fund new market expansions from internally generated cash. And so I would expect us to be more aggressive in 2026 in terms of new states.
I will say that the conversations that we’ve had with health systems and I would say, a large provider organizations has been very encouraging. And I think you’ll see more of those kinds of arrangements come together heading into 2026, which require us to have the deals pretty much done by the end of this year so that we can file 4 service area expansions in February of ’25.
Jessica Tassan: That’s helpful. And then I guess, I’m just curious kind of any thoughts on the potential for states’ alignment initiatives for the dual population to kind of pressure future growth in your DSN book? Or just how are you thinking about contending with that in the future?
John Kao: Yes, it’s something that we’ve had to address over the last couple of years with the Alignment and the aligned programs in the CCI Care Coordination programs in California. The rule that just came out, certainly, I think, gives some of the Medicaid folks a little bit of an advantage. But what we are advocating for is chronic special needs programs and chronic special needs lookalike programs that in the most recent regs are certainly going to survive beyond kind of the 2030 time frame. And kind of if you think about the kind of the reality of care quality. We think the quality of the products we have and the care model that we have to serve the seniors is better than any kind of forced kind of Medicaid solution. I just think it’s better quality. And I think people are actually voting with their feet with respect to some of the CSNPs that we have. And that’s been — it’s been very successful for us.
Operator: [Operator Instructions] Our next question comes from the line of Andrew Mok from Barclays.
Unknown Analyst: This is Tiffany on for Andrew. You called out higher inpatient unit costs and supplemental benefit utilization that you expect to continue into the year. Could you give a little bit more color on the expected cadence of those pressure points into the back half? And separately, just anything else to call out on calendar impact to MLR seasonality?
Robert Freeman: Tiffany, so I think nothing specific from a supplemental benefit or inpatient unit cost standpoint over the course of the year. So on the inpatient unit cost side, that obviously will impact any months or quarters where we have higher inpatient utilization overall. So when you think about the next 3 quarters, we typically would expect inpatient utilization to be lower in the second and third and then have a bit of an uptick in Q4, specifically December around flu season.
But generally speaking, I don’t think a lot of seasonality around those unit costs. And similarly, on the supplement benefit utilization side, we don’t anticipate much change there quarter-to-quarter over the next 3 remaining quarters of the year.
I think from an overall seasonality standpoint, we would expect this year to be similar to other years where 2Q and 3Q tend to be lower on MLR and 4Q tends to be a modest uptick higher, though Q1 tends to be a high point for the year. When you think about, I think the improvement initiatives underway that we described in our prepared remarks, I think while our first quarter was very strong and I think it demonstrates our ability to manage really tremendous growth so far this year.
There are some areas where we think we can do better, particularly over the back half of the year. So from a clinical standpoint, getting from — how we say it internally is getting from good to great. And there are certain things that we do a very good job of today, but we think we can do an even better job on in the future, such as post discharge care navigation, SNF length stay management, [indiscernible] admission rate, things that we are already pretty world-class on, but we still see areas of opportunity given the growth we’ve achieved where we think we can dial those levers a bit more in our favor over the back half of the year.
I think similarly, on the Payment Integrity side, we started to see an uptick in our inpatient unit costs in the back half of last year. And I think as we’ve kind of looked under the hood on this, we do feel like there’s an opportunity to use some third parties to help us to ensure that we have accurate claim submissions from our different provider partners over the course of the year, particularly in the second half. So I think those are some of the things that are going to be the biggest kind of drivers of that continuous improvement for us. But nonetheless, as John said earlier in his remarks, I think our first quarter really puts us in a strong position towards our overall full year guidance range.
John Kao: Yes. Tiffany, on the acute unit cost, I mean, it’s clearly — the offset to that has to be improved kind of admission management, right, I mean, and readmission management, and all the clinical quality drivers that we’ve spent so much time on. And I think last year, Thomas, we were 163 in the month of 80,000, admissions per 1,000 [indiscernible] . It’s going to require that kind of kind of continued excellent clinical performance to offset some of those unit cost increases.
Operator: [Operator Instructions] Our next question comes from the line of John Ransom from Raymond James.
John Ransom: I knew I had another good question. I could remember on the slide. I got [indiscernible] there. So there’s been a lot in the press about MA plans having more difficulty contracting downstream with hospitals pushing back, and then a lot of plans, you lay your risk off of some of these physician groups that are probably getting killed with V28. So when you think about your provider contracting, how does that look now versus a year ago? And is there anything to call out there, good or bad?
John Kao: Great question. [indiscernible] about our shared risk contracting model. And we think it’s much more durable. We think that it comes in the form of either PCP capitation and/or professional capitation and then we share in the risk associated for the institutional costs. And so if we all work together and we cut these deals not only with the downstream providers, but also with the health systems, and we have aligning principles with hospital systems and IDNs, I think that’s going to be part of the future personally in terms of how the space shakes out.
And so the shared risk model using the tools, using the data that we have access to, not just limited to the EHR data that’s in the providers, but having a holistic view of that patient through some of the tools that we have in AVA and our patient 360 longitudinal patient, exposing that information to the providers is what’s allowed us to take action with the providers to get the outcomes that we have.
And it’s in a, I would call it, a capital-efficient model. At our old company, we had a lot of bricks and mortar. It’s very expensive. And so the whole thesis that we have is work with the community doctors that are independent and I don’t want consolidated per se, and/or health systems that have clinically integrated networks and give them the tools and create economics that are aligning.
And the other thing I would say, John, is the health systems has approached us, and apologies for the long winded, but this is really important. They’re approaching us going, particularly the top tier health systems, the top ones are overcapacity, meaning they’re at 120% to 125% of what their physical capacity will allow.
And so what they’re asking us is, well, if we partnered, can you help us lower the admissions of seniors into our facilities? And that they are so confident that they have lower senior admissions, they can backfill those senior admissions with commercial admissions, which they’re just getting paid more. So they’re getting 100% of Medicare, they’re getting 200% Medicare.
So those kinds of, I think, macro dynamics with respect to reimbursement, not only for the plan, but for the facilities and the doctors, all kind of are factored into where we see M&A going forward. And I think you’re going to see much tighter partnerships. And a lot of these folks are not happy with some of the, I’ll call it, kind of claims-editing protocols that certain MCOs are using with these health systems. And so they’re kind of coming to us as an alternative.
And that gets back to some of the questions that I think just asked with respect to how do we think about growing in new markets. And it’s going to be with provider partners in 2026 is the answer.
John Ransom: Do you think that’s the longest answer you’ve ever given in your career, John? I think it might be.
John Kao: Not by a long or shot.
John Ransom: And my other question, and this is kind of into the weeds. But 5 years ago, we made a lot out of these conveners. We see the headline that Optum is laying people off at Nova Health. Have we done all what we can do in terms of redirecting post-acute? I know Thomas mentioned this, but for every 100 post-acute discharges, are we doing the best we can still in terms of redirecting them to the home health versus SNF? Or is there some wood to chop there, as you guys kind of alluded to?
John Kao: You’re talking about for the industry for us?
John Ransom: Well, for you guys. You guys — do you think you’re at peak of in terms of…
John Kao: I think there is a huge amount of opportunity for us to be better at that. And it’s very topical for us. We have — and I alluded to this, we have so much focus on inpatient acute admissions. And I think the opportunity for us to have post-discharge care navigation, SNF rounding, just all those things that we know how to do, I think — and we do it, and we do it well, but I think we can do it even better, is the short answer.
John Ransom: Is it just hard to compete with the guys playing offense with dropping off the doughnuts and charming the discharge planners? Is it — what do you have to do to get on your front with some of these discharge planners? Because you’re kind of up against an industry that is pushing in the other direction.
John Kao: I would say alignment with the facility, alignment and relationships with the facility, not at the discharge planner level, but at the CEO of the health system level. Those are the conversations that we’re having now.
And what’s consistent, John, is people like the care model. At the end of the day, in health services, most of the people we deal with, doctors and health systems, they actually care about optimizing care delivery and quality of care. That matters to them. And they see what we’re doing. And to the extent that it is aligned with their economics, people want to work with us.
Robert Freeman: One thing I would add to that as well, John, is the bigger we get, the more it affords us the ability to have those conversations. And when you think about us today, we’re starting to become more significant in many of our markets. And that’s, I think, just given us better opportunities to engage across different sites of care and at different levels within those different institutions.
John Ransom: Yes. I mean I’ll shut up after this, but it’s just been surprising to me, going back through medtech data, how stable to well the SNF industry has done when you have all these forces on paper pushing discharges into — literally cost of care, this one set the cost of the SNF, and yet those — their admissions are growing. That’s just been a big suppress to me that the industry is kind of still where we are in 2024. So anyway, that’s my editorial comment.
John Kao: You got it.
Operator: Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.
