Earnings Call
Astrana Health, Inc. (ASTH)
Earnings Call Transcript - ASTH Q3 2023
Operator, Operator
Good day, everyone, and welcome to today's Apollo Medical Holdings Third Quarter 2023 Earnings Call. Today's speakers will be Brandon Sim, Co-Chief Executive Officer of Apollo Medical Holdings; and Chan Basho, Chief Strategy and Financial Officer. The press release announcing Apollo Medical Holdings, Inc.'s results for the third quarter ended September 30, 2023, is available at the Investors section of the company's website at www.apollomed.net. To provide some additional background on its results, the company has made a supplemental deck available on its website. A replay of this broadcast will also be made available at ApolloMed's website after the conclusion of this call. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terms such as anticipate, believe, expect, future, plan, outlook and will and include, among other things, statements regarding the company's guidance for the year ending December 31, 2023, continued growth, acquisition strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment, operational focus, strategic growth plans and merger integration efforts. Although the company believes that the expectations reflected in its forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ dramatically from those projected. There can be no assurance that those expectations will prove to be correct. Information about the risks associated with investing in ApolloMed is included in its filings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision. The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, changes in market conditions or otherwise, except as required by law. Regarding the disclaimer language, I would also like to refer you to Slide 2 of the conference call presentation for further information. With that, I'll turn the call over to ApolloMed's Co-Chief Executive Officer, Brandon Sim.
Brandon Sim, Co-Chief Executive Officer
Thank you, operator. Good evening, and thank you all for joining us to discuss ApolloMed's third quarter performance. We are pleased to deliver another strong quarter at ApolloMed, one in which we not only continue to deliver strong operational, clinical and financial results, but also continue to grow the momentum we've had in transforming health care for local communities across the country. The infrastructure that we have built and the alignment we have with our partners continues to accelerate the country towards our vision, one in which everyone has access to high quality, accessible and high-value care. Starting with financial highlights for the quarter. Revenue of $348 million grew 10% compared to the prior year period, as we experienced growth in all three of our segments: Care Partners, Care Delivery and Care Enablement. Capitated revenue grew almost 34% to around $306 million in the quarter compared to the prior year period. Adjusted EBITDA of $52 million benefited from the aforementioned strong growth in capitated revenues in the Care Partners business, and our continuing successful efforts in managing total cost of care for these members and value-based risk-bearing arrangements. Adjusted EBITDA margin was around 15%, as we continue to grow while building a sustainable business. Before getting into strategic and operational developments from the quarter, I wanted to comment on our announcement today of our intent to acquire assets related to Community Family Care Medical Group, including their independent physician association, Restricted Knox-Keene licensed health plan and managed service organization entities. Community Family Care is a scaled, full risk-bearing provider group, made up of more than 350 primary care providers and more than 500 specialists, managing care for over 200,000 Medicaid, Medicare and Commercial members in Los Angeles County. They have been a care enablement client since January of 2020. And we'll continue to utilize those solutions with no further onboarding period necessary as a care partner going forward. In addition to its unique network and robust clinical capabilities, CFC will also bring pending regulatory approval with existing Restricted Knox-Keene or RKK license for Medicaid members, which will accelerate our path to scale and full risk for this important population. Furthermore, we expect to harness synergies in shifting our existing Medicaid population to full-risk arrangements, while also moving CFC's Medicare members into full-risk arrangements utilizing our senior-focused RKK. We anticipate that this will allow us to more effectively manage total cost of care across our Medicaid book of business, while expanding access to high-quality care to even more patients across the Los Angeles metropolitan area. Importantly, the acquisition of an existing client shows the value and synergy of leveraging both our Care Enablement and Care Partners business segments, transitioning from a vendor-client relationship into one in which we are responsible for the total cost of care of their scaled membership base in a derisked and accretive fashion. We are excited to not only recognize several costs and revenue-related synergies in partnering with CFC and its providers, but far more importantly, continuing to deepen our commitment to local communities across Los Angeles and continuing to drive access, quality and value in these communities. Chan will dive more deeply into the financial details of this acquisition later in this call. Turning now to business updates from the third quarter. We continue to build on our momentum this year, with two new provider partnerships since our last earnings call. First, we have partnered with Associated Hispanic Physicians, a group of over 150 primary care providers and over 450 specialists in Los Angeles with around 25,000 Medicaid, Medicare and Commercial members in value-based care arrangements in order to support that group with our Care Enablement offering. We expect Associated Hispanic Physicians providers to be onboarded onto our Care Enablement platform by March of 2024. Next, we expanded our relationship with Advantage Health Network, a group of approximately 15 primary care providers and several hundred specialists in Los Angeles, which supports around 4,500 Medicaid, Medicare and Commercial members in value-based care arrangements. As part of the partnership, Advantage's providers are slated to join our Care Partners business. We also acquired five primary care clinics in the Advantage Health Network, which will be integrated into our Care Delivery business. Of note, Advantage Health Network has been a long-time care enablement client of ours, and will continue to benefit from the Care Enablement offering. As in the case of CFC, Advantage Health Network's providers are already onboarded onto the ApolloMed platform. This is another example of our ability to support our Care Enablement clients seamlessly and more deeply in our Care Partners business, where we manage the member's total cost of care on a capitated basis. We believe this tuck-in acquisition and partnership will be immediately accretive and will further expand our Care Delivery and Care Partners geographic footprint in the Los Angeles area. In totality, the partnerships with Community Family Care, Associated Hispanic Physicians and Advantage Health Network will strengthen our ability to provide high quality, accessible and coordinated care for local communities throughout Los Angeles. Finally, we are excited to share that we have entered a strategic partnership with Wider Circle, a peer-based community health organization working with payers and providers to connect neighbors for better health. Under this partnership, our two organizations will provide comprehensive patient-centered care and enhanced care management for Medicaid members with complex needs, an integral component of the California Advancing and Innovating Medi-Cal or CalAIM initiative. By pairing Wider Circle's community-based engagement model and our core clinical offerings and proprietary care management platform, we will strive to bring community-based, interdisciplinary and person-centered care to all who need it, especially those most underserved. We believe that this joint venture will be an especially valuable offering, given our definitive agreement to acquire Community Family Care, a full risk-bearing Medicaid organization as well as the Managed Medicaid scale that already exists in our existing and new provider group partners. This brings our total number of provider group partnerships signed for the year, so far, to 5, with 2 of those in Texas and 3 of those in California, not including our joint venture with Wider Circle and our planned acquisition of Community Family Care. And our outlook for additional provider group partnerships for the remainder of this year, in both California and beyond, is very strong. Overall, we continue to be a leader in value-based care with a focus on all populations, including members in Managed Medicaid, Medicare Advantage and Medicare fee-for-service and Commercial lines of business. We believe that our scaled and highly diversified business with over 10,000 providers on platform, serving approximately 900,000 members in value-based care arrangements, alongside over 20 payer partners, positions us very strongly to accomplish our mission to provide high-quality, accessible and high-value care to all and communities across the country. And with over 90% of our revenue related to value-based care, our incentives are truly aligned with those of the patients and providers, whether in our core markets in Southern California or in our newer markets in Northern California, Nevada, Texas, and beyond. Our scaled value-based care infrastructure and long-proven ability to effectively manage total cost of care and patient outcomes allows us to have confidence in sustained profitability as we invest to grow our model into local communities across the country. We are excited by the continued momentum we are seeing in the business, and we'll continue to work to improve our members' health, empower physicians and effectively manage total cost of care for those we serve. To close my prepared remarks, I would like to thank our teammates and partners for believing in our vision to transform health care in local communities across the country. The accelerating growth and outcomes of our business would not be possible without your passion, dedication and support. With that, I'll turn it over to Chan to review our financial results.
Chan Basho, Chief Strategy and Financial Officer
Thank you, Brandon. Before I review the third quarter results, I wanted to discuss our recent acquisition of Community Family Care Medical Group, including their independent physician association, Restricted Knox-Keene licensed health plan and managed service organization entities, or in aggregate, CFC, as well as our recently announced Term Loan A and the financial flexibility that it provides. As Brandon already highlighted the strategic benefits of the CFC transaction, I'm going to provide an overview of the financials. CFC is expected to generate approximately $190 million of revenue this year, and approximately $25 million of adjusted EBITDA. Once the transaction is closed, which we expect to happen in Q1 2024, we will transition their approximately 200,000 members to our Care Partners platform. This will be meaningfully additive to our Care Partners revenue. It will also slightly increase our intersegment eliminations, since this population will continue to utilize our Care Enablement solution. The transaction price of $202 million is a combination of $152 million of cash from our balance sheet, $20 million of equity and up to $30 million of performance-based earn-outs. Today, we also announced an oversubscribed term loan of $300 million, which increases the company's facility to $700 million with our existing $400 million revolver. We intend to use these funds to position us for future M&A transactions, which allow us to continue to expand our geographic footprint and grow our membership base. Through this process, we were able to negotiate expanded baskets within our overall facility, including increasing the maximum levels of certain forms of permitted indebtedness, increasing the maximum levels of restricted payments, including share repurchases, and increasing the maximum levels of certain investments. The term loan is also being used to fund our recent $100 million share buyback from APC-excluded assets. We have confidence in the future growth and profitability of our business, and with this buyback, we're optimistic about our ability to generate sustainable shareholder value in the years to come. This buyback also allows us to work towards a consolidated tax return and solve for our effective tax rate. Now turning to our third quarter results. Our third quarter revenue of $348.2 million increased 10% compared to a year ago, and was driven by growth in all three of our core segments. Our capitated revenue grew by 34% annually during the same period, from $227.6 million to $305.7 million. We ended the third quarter with 900,000 members, which is the total number of unique members we support in our Care Partners, Care Delivery and Care Enablement segments. As a reminder, we take some level of medical risk in each of our Care Partner members and receive the appropriate level of reimbursement. In Care Enablement, we receive a smaller fee to utilize our technology platform to support third-party providers in their value-based care efforts. Because of the different financial profiles of each member, I want to take a moment to share how our membership has changed and will be changing within our segments. Our Care Enablement membership decreased to approximately 900,000 members this quarter as a result of our previously reported Care Enablement client ending their contract. Additionally, when CFC closes, we expect to see the growth of approximately 200,000 members in our Care Partners business, as we begin to take risk for those members' total cost of care. Adjusted EBITDA was $52 million compared to $57.1 million a year ago. Sequentially, adjusted EBITDA benefited from our continued care management efforts. On a year-over-year basis, the decline was a result of our one-time 2021 NGACO payment in Q3 2022. As a reminder, the impact of that program was recognized in one quarter in 2022 and going forward. We have been and will continue to accrue the profitability of the ACO program throughout the year. Our effective tax rate of 26% in the third quarter was lower than our historical levels due to the release of valuation allowances. As previously mentioned last quarter, our effective tax rate has been historically high due to the income tax associated with certain intercompany dividends. The release of valuation allowances offset our high historical tax rates, as we continue to work to implement measures to bring down our effective tax rate, which we anticipate being in the mid-30s by the first quarter of 2024. Net income attributable to ApolloMed in the third quarter was $22.1 million compared to $23.2 million in the prior year period. Earnings per diluted share was $0.47 compared to $0.50 a year ago. Now turning to our balance sheet. We ended the quarter with $273.9 million in cash and total debt of $209.2 million. As it relates to our long-term view on our leverage ratio, we aim to have a net leverage in the range of 2.25x to 2.75x but may experience short-term variations. The last topic I want to cover on today's call is our guidance. Given where we are in the year, we are narrowing our range for the full year and now expect the following: In regards to revenue, we expect to be between $1.34 billion and $1.39 billion, compared to our previous range of $1.3 billion to $1.5 billion. We anticipate coming in slightly below the midpoint of our previously disclosed guidance range, primarily due to small headwinds around Medicaid redetermination and the rolling off of our previously mentioned client. We still remain very confident in our ability to continue to grow in the 20% to 30% range. We expect adjusted EBITDA to be between $135 million and $150 million, compared to our previous range of $120 million to $160 million. We continue to see utilization trends being stable across our at-risk book of business because of the unique capabilities of our clinical model and some initial conservatism. We expect to come in on the upper half of our previously disclosed guidance range, as well as within our target at scale EBITDA margins even as we expand into new regions and grow value-based care membership. In regards to earnings per diluted share, we expect to be between $1.10 and $1.20, compared to our previous range of $0.95 to $1.20. In conclusion, we're pleased with our financial performance growth partnerships and capital deployment during the third quarter, further demonstrating our platform's ability to continue to execute on three key operational goals: growing our membership in core and new geographies, empowering our Care Delivery and Care Partners providers to successfully move down the glide path towards value-based care, and enabling our providers to deliver excellent patient outcomes in order to effectively manage risk. The CFC transaction further diversifies our membership mix and provides us a pathway to expand our value-based care exposure. The ApolloMed platform provides a highly differentiated, pure-play, value-based care company that is profitable, growing rapidly and yields profitable and sustainable growth. We made meaningful progress in all three areas, and we'll continue to use this roadmap as we close out the year, having established a solid foundation for continued growth in 2024. Brandon and I want to thank you all for your time today. We're always open to a dialogue with investors and welcome visitors to our offices in Alhambra, should any of you be in the L.A. area.
Operator, Operator
We'll take our first question from Ryan Daniels from William Blair.
Ryan Daniels, Analyst
Congrats on all the momentum. Brandon, maybe one for you. Strategically, it just seems like a bevy of partnerships and the acquisition are all coming together here towards year-end. And I'm curious to hear your view on what's driving that. Obviously, some of these are prior partnerships moving to more integrated relationship. But what's really driving such strong momentum over the last few months in driving your partnership growth?
Brandon Sim, Co-Chief Executive Officer
Ryan, thank you so much for joining the call today, and thanks for the kind words. I think we've really seen a lot of momentum across all aspects of the business, organically in terms of kind of same provider member panel growth, organically in terms of the number of partnerships we're signing with provider groups and other entities such as the Wider Circle partnership and of course, the larger acquisition that was announced today. I think the way I would characterize it is that these are partnerships we've been working on throughout the year. I think it happened to land in this quarter, and we decided to announce them all at the same time here. As I mentioned earlier in my prepared remarks, I think we have a very strong pipeline for even further partnerships, potentially even for the class of 2024. And so I don't think there's anything necessarily special about this quarter. These are longer-term things that we've been working on, and we're glad to be able to announce them today.
Ryan Daniels, Analyst
Okay. That's great. And then with the pending transaction, you mentioned you'll have RKK for Medicaid. I know you already had one with the FYB deal before. Are those different licenses, meaning do you need separate ones to run Medicaid and Commercial and Medicare in the state so that this actually does expand your risk-bearing capabilities?
Brandon Sim, Co-Chief Executive Officer
Yes. So in terms of the Restricted Knox-Keene licenses, which all my comments here are going to be pending regulatory approval of the transaction, of course. There are actually separate licenses necessary or at least separate approvals necessary for each line of business and each health plan in each county. And so while the plan was always to expand our existing license into new counties and into new payer relationships, this will drastically accelerate the process, we believe, again, pending regulatory approval to take on full risk for Medicaid populations across California.
Ryan Daniels, Analyst
That's helpful. And then maybe one financial, and I'll hop off and save the rest for later. But just in regards to the expanded credit line, I know it's up to $700 million. You have just over $200 million in long-term debt. Is that all part of that revolver, meaning effectively, you have $500 million available? Or is there a different structure to that $200 million plus debt that's already outstanding?
Chan Basho, Chief Strategy and Financial Officer
Yes, you are correct. The $180 million is part of the $400 million facility, which has now been expanded to $700 million.
Brooks O'Neil, Analyst
I guess I'll follow on with Ryan. As you guys, I think, know, I'm particularly excited about the opportunity you have to take on the global risk through the RKK. And I'm just curious, obviously, Brandon just said the opportunity exists now to go after Medicaid full risk. But can you give us any update on what's going on with regard to the Medicare license that I think you acquired up in San Francisco, and whether you've had any success beginning to think about moving those capabilities across the state?
Brandon Sim, Co-Chief Executive Officer
Brooks, thank you for joining the call. It's great to hear your voice again. And thank you, Ryan, for the questions earlier. So Brooks, I ran your question on the existing Restricted Knox-Keene license, FYB. We've continued to expand the geographies, the counties in California where it's able to take on full risk for Medicare populations. And there've been several new contracts with payers that we signed since the last time we've conversed here on a quarterly call, and we continue to see good momentum in terms of getting our Medicare Advantage book of business into full-risk arrangements by next year.
Brooks O'Neil, Analyst
Yes, that's great. And then I think it was Chan who said that utilization has been stable. One of the big themes we've been hearing from people around the United States has been sort of strong procedure activity and growth. No one's quite sure exactly what it's all about, a rebound from the pandemic lockdowns and whatnot or some other phenomenon. But would you say that your stable utilization is a manifestation of the success of your business model and your approach to value-based care? Or can you just talk about what you're seeing out there in your markets and how you responded to it?
Brandon Sim, Co-Chief Executive Officer
Sure thing. We've seen fairly stable utilization and MCR trends across the business in totality. Of course, there are slight movements up and down based on line of business because we are a diversified business across government and commercial programs. But overall, on both inpatient and outpatient side of utilization, we believe that our unique care model has always been focused on providing access, and we aren't seeing a large 'rebound,' so to speak, in terms of utilization in this quarter. And that kind of showed in terms of our ability to continue delivering the financial results that we expected.
Brooks O'Neil, Analyst
Yes, that's great. And congratulations on continued success.
Brandon Sim, Co-Chief Executive Officer
Thank you, Brooks.
Adam Ron, Analyst
I think going on what Brooks was saying, I know you don't guide quarterly, but it seems like versus the consensus estimates, EBITDA outperformed significantly. And even if you just look seasonally the cost of care line was down sequentially more than it usually is, usually sometimes, even up. And so I'm taking that to mean that there was actually MLR outperformance or at least, like you're accruing something more positively, it seems, relative to like 2022 or 2023 expectations. Is that right? Or is there not anything really to call out on MLR outperformance?
Chan Basho, Chief Strategy and Financial Officer
Adam, the main item I'd highlight is, in Q1 and Q2, with the limited data that we have around ACO, it’s really breakeven. And so in Q3, we had a slight ACO true-up. And that's number one. Number two, our managed care business, MCR was stable, and those two things together have led to this quarter.
Adam Ron, Analyst
Okay. Yes, because it was just a significant outperformance versus consensus and then the guidance increase was pretty minimal. And so I guess is there anything in Q4 that you're kind of worried about or assuming some big step up in utilization? Or is it really just the Street was mismodeling?
Brandon Sim, Co-Chief Executive Officer
Yes, Q4 will be relatively stable.
Chan Basho, Chief Strategy and Financial Officer
Go ahead, please.
Brandon Sim, Co-Chief Executive Officer
No, no, it's okay.
Chan Basho, Chief Strategy and Financial Officer
Historically, our Q4s tend to be relatively quiet. We usually do not have the same level of quality bonuses or shared risk adjustments. Therefore, based on our guidance, we anticipate Q4 to align with what you have observed in previous years.
Adam Ron, Analyst
No problem. And on the revenue guidance cut due to Medicaid redeterminations, is there any margin implications of losing enough membership that it would actually impact your revenue guidance? And would you continue that pressure to extend into 2024, both on the revenue side? And are you building anything on margins?
Chan Basho, Chief Strategy and Financial Officer
So for every three Medicaid members that through redetermination are leaving the organization, one is reenrolling is what we're seeing in an exchange product. And so in terms of margin, the net margin impact is quite minimal. I'd say it's on an annualized basis, probably $1 million to $1.5 million. In terms of revenue, as you saw from our decrease in guidance, that is probably more of an impact where on an annualized basis, it's in the $5 million to $10 million range for 2024.
Adam Ron, Analyst
That's helpful. And then the APC share buyback, was that purely motivated by the tax implications that you mentioned? Or did they want to sell? Or did you go to them? I'm just like curious what drove that and if the plan is to buyback all the shares and if that's necessary to reach your tax rate targets.
Brandon Sim, Co-Chief Executive Officer
Adam, I'll address your question regarding the APC share buyback, which was about $100 million in value. There are several factors at play. First, as noted last quarter, we faced higher levels of taxation due to filing separately and not being a consolidated tax entity. Part of the motivation is, as Chan mentioned earlier, to address that issue. However, regardless of that, we remain optimistic and see great potential ahead with the pipeline opportunities we've been signing, our capital deployment strategy, and the ongoing strength in our clinical models. We believed it was an appropriate time to proceed with the $100 million buyback.
Adam Ron, Analyst
I appreciate the questions. My last one would be, when you guided for the peer, you gave basically flat EBITDA guidance at the midpoint, with the rationale being that there was like Medicaid redetermination headwinds and reinvestments into growth. And so for next year, are there any major moving pieces that we should consider? I guess Medicaid redeterminations will continue. The RKK license should be somewhat lifting revenue. It sounds like on the MA side, at least, there are some deals closing. And so other than those, are there any moving pieces we should be considering?
Brandon Sim, Co-Chief Executive Officer
Yes, business remains strong, and we do not expect significant changes in the medical cost ratio for next year. We haven't released official guidance for 2024 yet but will update the market when we do. With five new partnerships signed this year and more in the pipeline, along with the acquisition of CFC and ongoing provider growth, we are optimistic that EBITDA will continue to grow at a healthy rate, possibly even at a faster pace than this year compared to last. As you recall, there was a challenging comparison this year due to the one-time next-gen ACO payment in Q3 of the previous year. The rest of the business has seen significant growth, which we expect to continue, and that challenging comparison will not be a factor next year.
Operator, Operator
And we'll take our next question from David Larsen from BTIG.
David Larsen, Analyst
Relative to our model, the gross profit exceeded our estimate. Could you elaborate on the utilization you're experiencing and the cost of services? It seems there was an ACO true-up. What does that entail? Does it indicate that the actual claims cost was lower than anticipated? Or did you receive an incentive payment from CMS during the quarter? Any additional information would be very helpful. More importantly, do you foresee this trend continuing into next year?
Chan Basho, Chief Strategy and Financial Officer
David, great to hear from you. Yes, thanks so much for the question. So in terms of our MCR, I'll start with ACO. What we're seeing on ACO is that we have more data really to evaluate the performance of the program in 2023. And we were able to true up where we were coming in, in costs for the first three months of the year relative to where we were in Q1 and Q2, which was really breakeven. In terms of our overall managed care business, as we've mentioned before, we due to our unique clinical model as well that really provides access and quality, and we're continuing to see stable institutional metrics, both of those put together have really led to that strong performance. Lastly, also would want to mention, we saw strong sweeps payments in Q3 associated with our Medicare Advantage members.
David Larsen, Analyst
Okay. Great. That's very helpful. And then as some of these acquisitions and partnerships roll into the Care Partners division of the business, I'm assuming that since they were already Care Enablement clients, you have very good visibility into the membership, their utilization trends, the premium dollars, the margins on each member. So it's not like there's going to be an increase in costs as you try to stabilize these newer members like we see in some other business models, they're already sort of well-known and well-managed to you. Is that correct?
Brandon Sim, Co-Chief Executive Officer
Thank you for the question. You're absolutely right. For the five clinics we acquired that are transitioning into our Care Delivery segment, there will be some minor integration costs, but we expect those to be very minimal. We anticipate that they will be accretive from day one due to the long-standing relationships we have established in the Care Enablement segment. For larger groups like CFC and Advantage Health Network, which are already Care Enablement clients, we also expect to see synergies. These providers are already integrated into our technology platform, so there will be no additional costs or time required to onboard them. We have good visibility into the relevant metrics and are well-equipped to support them in managing their patient panels. We see this as part of the synergy of having all three business segments, which provides us with a more favorable J-curve effect.
David Larsen, Analyst
Okay. Great. That's very helpful. And then do you have any initial thoughts on 2024? We'll call it like Medicare premiums or reimbursement that you expect to see from your docs, from CMS. There's been a lot of noise around RADV audits, lower premium increases in '24 relative to the increase that was seen in 2023. And there's a lot of adjustments that are going on in terms of like risk stratification. Just any thoughts or color there? Do you expect an increase in dollars coming from CMS on a per member basis in '24 relative to '23?
Brandon Sim, Co-Chief Executive Officer
There has been a lot of discussion lately regarding reimbursement rates, RADV 28, and other reimbursement items, including stars. We are managing this in a couple of ways. First, we are leveraging our scaled platform to secure strong contracts with our payer partners, where I help them manage quality, stars, and risk adjustment more effectively than others. We believe we are offering significant value to payers, which makes our contracts beneficial. Regarding RADV, as we previously mentioned, we do not anticipate any significant impact. Our average risk score across our Medicare Advantage population remains low, around 1.0, which aligns with the national average. Our approach has not been overly aggressive, especially in analyzing the HCCs targeted in the past. So, we do not foresee any challenges from RADV either. Overall, we are not expecting any headwinds related to Medicare premiums or PMPM for our patients as we move into 2024.
David Larsen, Analyst
Okay. That's very helpful. And then just one last quick one. If we assume Medicaid is around 24% of revenue, and let's say 15% of Medicaid lives are redetermined, in total, that seems like it's maybe around 4% of revenue for Apollo Medical spread over, say, 2 years, which would be maybe 1% or 2% of impact in revenue annually for Medicaid redetermination to you guys. Does that sound reasonable or not? I mean it doesn't really sound that material to me.
Chan Basho, Chief Strategy and Financial Officer
Yes, I think your structure, David, is spot on. I don't think we're seeing the level of redetermination in terms of the 15% range. Yes, I would probably assume maybe half of that.
David Larsen, Analyst
Okay. So the drag for Medicaid redetermination will be even far lower than what I had initially said?
Chan Basho, Chief Strategy and Financial Officer
Yes.
David Larsen, Analyst
Okay. All right. Super. Congrats on a good quarter.
Operator, Operator
And we'll take our next question from Gary Taylor from TD Cowen.
Gary Taylor, Analyst
I had two quick questions. One, the midpoint of the EBITDA guidance is up about $2.5 million. Is it fair to think that's roughly the magnitude of the ACO true-up in the quarter? Or would you steer us materially differently from that?
Chan Basho, Chief Strategy and Financial Officer
I believe it's more than just an ACO true-up. We are seeing very strong overall sweep payments, so that's the first point. The second point is the MA RKKs and the membership transitioning to those MA RKKs. The third point is the ACO that you mentioned. Additionally, as we've stated before, we continue to invest in new market development. Overall, we've indicated that our new market development costs about $5 million to $10 million per market, and those investments are coming in at the lower end of that range.
Gary Taylor, Analyst
Got it. My other question is a follow-up on redeterminations. The Medicaid MCOs are experiencing either adverse selection or higher acuity, and they claim that the states are providing them with positive acuity adjustments in their rates to reflect the remaining population. I'm wondering if your contracts for the professional fee risk you are taking from the Medicaid MCOs automatically incorporate any rate increases that the state is applying to the managed care plan.
Chan Basho, Chief Strategy and Financial Officer
Yes, we’re definitely focused on that. Go ahead, Brandon.
Brandon Sim, Co-Chief Executive Officer
I'll begin by mentioning that our contracts are subject to rate adjustments. Depending on the specific contract, increases in premiums may pass through to us as a percentage of the premium we receive for either professional or full risk. Regarding our announced acquisition of Community Family Care Medical Group and their RKK license to assume full risk for Medicaid in California, we believe this will enable us to transition our membership across the entire Medicaid sector, allowing us to engage in both professional and institutional risk in a full-risk environment. This approach will also help us mitigate some effects of professional rates being fixed, even if acuity slightly increases after redetermination.
Operator, Operator
There are no further questions at this time. I'll turn the call back to Brandon Sim for closing remarks.
Brandon Sim, Co-Chief Executive Officer
Thank you, everyone, for joining our earnings call for quarter 3 this afternoon or this evening. We're very excited about the potential to work together with many new partners that we announced this quarter. We think these results are reflective of our ability to build relationships locally, but very shortly as well nationally. And we're very excited about the momentum that the business has going forward. Thank you again for joining the call. We'll speak to you all soon. Have a good evening.
Operator, Operator
Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.