Bright Health Group, Inc. (NYSE:BHG) Q3 2023 Earnings Call Transcript

Bright Health Group, Inc. (NYSE:BHG) Q3 2023 Earnings Call Transcript November 7, 2023

Operator: Hello, all, and welcome to Bright Health Group’s third quarter 2023 earnings call. My name is Lydia, and I will be your operator today. It’s my pleasure to now hand you over to your host, Stephen Hagan, Investor Relations Director to begin. Please go ahead when you’re ready.

Stephen Hagan: Good morning and welcome to Bright Health Group’s third quarter 2023 earnings conference call. As a reminder, this call is being recorded. Leading the call today are Bright Health Group’s President and CEO, Mike Mikan; and CFO, Jay Matushak. Before we begin, I want to remind you that this call may contain forward-looking statements under US federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we file with the Securities and Exchange Commission, including the risk factors in our current and periodic reports we file with the SEC.

Except as required by law, we undertake no obligation to revise or update any forward-looking statements or information. This call will also reference non-GAAP amounts and measures. A reconciliation of the non-GAAP to GAAP measures is available in the company’s third quarter press release filed on the company’s Investor Relations page at investors.brighthealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated November 7, 2023, which may be accessed from the Investor Relations page of the company’s website. While we continue to work through the necessary regulatory approvals and other closing conditions for the sale of our California Medicare Advantage business, we are not going to be conducting a Q&A session on this call.

With that, I will now turn the conference over to Bright Health Group’s Chief Executive Officer, Mike Mikan.

Mike Mikan: Thank you, Stephen, and good morning, everyone. In the third quarter, we continued to make significant progress across our key initiatives. Importantly, the consumer care business are continuing operations performed well in the third quarter with our second consecutive quarter of adjusted EBITDA profitability. We have focused the company on our value driven consumer care business, new health, where we are serving consumers through a differentiated integrated care model. We are aligned with our payer and provider partners clinically and financially to improve the quality and cost of care in both our care delivery and care solutions segments. We believe we are well positioned for the future of health care as the industry continues to shift to value-based care.

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Q&A Session

On the call today, I’ll start with a discussion of our care delivery segment, provide an update on our care solutions segment including our ACO reach business and go over our progress on our discontinued operations. Then I’ll turn it over to Jay to provide additional details on our financial performance. Our care delivery business had a solid quarter. Excluding the impact of a goodwill impairment recognized in the quarter, care delivery produced another quarter of positive operating income and has shown strong year-to-date results. Across the ACA marketplace consumer served, our medical cost management and member engagement initiatives have been performing well. And in the third quarter, our performance metrics were strong, driving the care delivery upside in the quarter.

The strong performance in Q3 gives us confidence in the potential for further upside in our care partner relationship. We have taken a conservative amount of risk in these contracts as we get to know the patient populations and care provider networks at our payer partners, but it is important to us that we have an aligned interest with our payer partners and that we are taking total cost of care risk. By successfully delivering on our aligned and integrated consumer care delivery model, we are lowering the cost of care for our payer partners and we are beginning to recognize the shared upside in these savings. Importantly, we are also seeing high levels of consumer satisfaction in our care delivery business as shown through our high NPS scores and Google ratings.

Our care delivery business serving Medicare Advantage consumers also performed well in the third quarter. Medical costs on our fully capitated Medicare Advantage consumers were consistent with seasonal trends in the quarter and contributed to care deliveries gross profit performance in Q3. We believe our performance in our Medicare Advantage risk building relationships when measured by medical cost ratio, inpatient admissions and NPS and stars ratings is among the best in the industry. Turning to our care solutions segment and in particular, the performance in our reach ACOs. CMS recently released the final results for the 2022 ACO Reach program that showed solid performance for the two ACOs we operated in 2022. Our ACOs had a combined gross savings of $30.3 million, a savings rate of 4.4% compared to the benchmarks, which was more than 75 basis points better than the program average among all reached ACOs. Please note that this gross margin is before the mandatory CMS savings rate deduction of 2% and any risk-sharing arrangements with our downstream provider partners.

Our new health pineapple ACO was one of the top performing ACOs in 2022 with a gross savings rate of 11%. Our Physicians Plus ACO also produced gross savings, but not sufficient to cover the 2% CMS mandatory savings requirements. The performance of the Physicians Plus ACO was weighed down by the deficit incurred by one of our provider partners, Babylon Medical Group. Jay will provide additional details on the impact of the Babylon relationship and their bankruptcy filing. Apart from the impact of the Babylon bankruptcy, our 2023 REACH ACOs are performing in line with our expectations. In 2024, Babylon will no longer participate in our ACO Reach program. Our care solutions team has secured additional provider partners to add to our Reach ACOs and is projecting some organic growth from our existing partners for 2024.

Although we expect some pressure on top line growth related to the ACO Reach business, we expect overall ACO Reach margins to improve as the terminated providers are projected to run deficits in 2023. The team continues to engage a number of new provider groups on the physician enablement part of the business across payer categories. We see growth opportunities with federally qualified health centers and other provider partners to serve Medicaid as well as a strong pipeline to add to our Reach ACOs. Regarding the announced sale of our California Medicare Advantage Business, the regulatory approval process for Molina’s acquisition is proceeding as planned and we expect to close the transaction by first quarter of 2024. Our MA business had a strong quarter with 17% premium revenue growth compared to Q3 2022.