Welcome to the Privia Health First Quarter 2024 Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Robert Borchert, Senior Vice President of Investor and Corporate Communications. Please go ahead.

Thank you, Tana, and good morning, everyone. Joining me are Parth Mehrotra, our Chief Executive Officer, and David Mountcastle, our Chief Financial Officer. This call is being webcast and can be accessed in the Investor Relations section of priviahealth.com. Today's financial press release and slide presentation are available on the Investor Relations pages of priviahealth.com. After our prepared comments, we will open the line for questions. The financial results reported today are preliminary and are not final until our Form 10-Q for the first quarter ending March 31, 2024, is filed with the Securities and Exchange Commission. Some of the statements we will make today are forward-looking in nature based on our current expectations and view of our business as of May 9, 2024. These statements regarding our future financial and operating performance and future business plans and objectives are subject to risks and uncertainties that may cause actual results to differ materially. Therefore, these statements should be considered along with the cautionary statements in today's press release and the risk factors described in our company's most recent SEC filings. Finally, we may refer to certain non-GAAP financial measures during the call. Reconciliation of these measures to comparable GAAP measures is included in our press release and the accompanying slide presentation available on our website. Now I'd like to turn the call over to my CEO, Parth Mehrotra.

Thank you, Robert, and good morning, everyone. Privia Health delivered solid first quarter results to start 2024 as we continue to drive towards our long-term vision to build one of the largest ambulatory care delivery networks in the nation. This morning, I'll cover some key highlights and provide a business update. And then David will discuss our recent financial performance and our 2024 guidance outlook before we take your questions. During the first quarter, Privia Health continued to execute at a very high level with a focus on growth and profitability. As we noted on our February earnings call, we were able to nimbly respond to the changing Medicare Advantage reimbursement environment and protect our earnings power by restructuring certain MA capitation contracts. We believe these actions demonstrate the flexibility, diversity, and differentiation of the Privia business model. Our Q1 practice collections increased 7.4% year-over-year, which includes the impact of restructuring certain MA capitation contracts for more favorable terms. Our top-line performance continues to reflect steady growth of same-store and new provider additions. Adjusted EBITDA was up more than 18% as we continue to benefit from operating leverage. This was despite absorbing incremental investment in new markets we've entered over the past 18 months. We are also being prudent and assuming minimal increase in accrued shared savings in 2024 versus 2023. Our sales pipeline is strong across all our markets, and we have a robust business development pipeline of new market opportunities. Our strong balance sheet and free cash flow profile allow us the flexibility to take advantage of any dislocations in the physician enablement space. So overall, we feel really good about our business momentum and operating execution in the current environment. We are closely monitoring medical cost trends and claims data so that we can be proactive in our actions. We feel very positive about the moves we've made in the past two quarters to mitigate the downside risk in our Medicare Advantage book and are reiterating our full year 2024 guidance. The combination of our diversified value-based book and strong underlying fee-for-service business serving the entire physician practice continues to be a key differentiator. Privia's national footprint continues to expand as we build one of the largest primary care-centric delivery networks in the country. At the end of Q1, we had 4,359 implemented providers caring for over 4.9 million patients in 13 states and the District of Columbia. As of March 31 of this year, we estimate Privia serving approximately 1.14 million attributed lives across more than 100 value-based care contracts in commercial and government programs. The total attributed lives increased more than 10% from Q1 a year ago. This positions our business as one of the broadest and most balanced value-based care platforms in the industry. Our commercial attributed lives increased 8% from last year to 685,000. As we noted last quarter, our ability to earn care management fees and shared savings that are incremental to our highly predictable fee-for-service management fees offers a very unique value proposition to our medical groups in the commercial book of business. Core to our long-term strategy is to thoughtfully move lives into increased risk arrangements over time when we are confident it will provide significant opportunities for adjusted EBITDA and free cash flow growth. Our strong and stable performance is a testament to Privia's proven ability to manage risk across a diverse set of 100-plus value-based contracts. We leverage our clinical operations, performance management, actuarial expertise, and close alignment with our physician partners to manage patients across the risk spectrum. In aggregate, Privia's ACOs or risk entities are managing approximately $9 billion of medical spend in 2024 across commercial, MSSP, Medicare Advantage, and Medicaid programs. The current environment, scale of our medical spend, and potential variability of shared savings require us to be particularly thoughtful in our risk-taking to maintain our earnings power for both our provider partners and our shareholders. We are well-positioned to opportunistically increase our attribution in various risk arrangements over the next 24 months to drive future earnings growth. Now I'll ask David to review our Q1 financial results and 2024 guidance outlook.

Thank you, Parth. Privia Health delivered another solid quarter of performance in the first 3 months of 2024. Our implemented provider count of 4,359 was up 17.3% year-over-year. Solid ambulatory utilization trends, new implemented providers, and additional attributed lives led to practice collections increasing 7.4% from Q1 a year ago to reach $707.7 million. As we noted in February, the balance and flexibility of our operating model enabled us to shift attributed lives out of capitated agreements for improved contribution margin. Most importantly, we continue to invest in existing and new market growth while generating operating leverage. Our adjusted EBITDA was up 18.1% over Q1 last year to reach $19.9 million. Following our solid Q1 performance, we are reiterating our full year 2024 guidance. Our business momentum and diversified book of business has positioned us well to drive organic provider growth, limit downside in risk arrangements, and increase operating leverage for adjusted EBITDA growth in 2024. Implemented providers are expected to increase 9.2% year-over-year to reach 4,700 by year-end at the midpoint of our guidance. As we noted in late February, we are also assuming a minimal increase in shared savings year-over-year as part of our prudent accruals. This implies expected 2024 growth in fee-for-service practice collections of approximately 10% driven by implemented provider growth in our more mature markets in 2023 as well as early provider growth momentum in newer markets. Adjusted EBITDA growth of approximately 21% at the midpoint of our guidance is expected to be driven by operating leverage in our more mature markets, which should more than offset new market entry costs. We also anticipate our newer markets to contribute significant growth in providers, attributed lives, and adjusted EBITDA in the future. Our full year guidance assumes a reduction of approximately $198 million in our top line from 2023, given lower risk exposure from MA capitation agreements. As we continue to invest across our business enterprise, our 2024 adjusted EBITDA guidance absorbs approximately $10 million to $12 million in new market platform investments. We expect to scale our new market significantly in the coming years as we grow our provider base and attributed lives in these new states. Our balance sheet and capital position continue to be very strong with cash of $351 million and no debt. Similar to previous years, Q1 is typically our lowest cash flow quarter. Our cash balance declined sequentially due to timing differences in cash received at the end of Q4 with the related outgoing payments occurring in January 2024. We also paid our annual employee cash bonuses in March. We expect capital expenditures to be less than $1 million this year as part of our capital-light operating model. This should lead to approximately 80% of our full year adjusted EBITDA converting to free cash flow. Finally, we have an undrawn and available $125 million credit facility and plan to continue maintaining a conservative balance sheet. Privia Health remains focused on profitably growing and expanding our business for many years to come and investing to support this growth as we build our national footprint. We would like to thank our physician partners and employees for their dedication and hard work to deliver consistent solid results quarter-over-quarter, especially in the current environment. We are now ready to take your questions.

Our first question will come from A.J. Rice of UBS.

I appreciate it. Taking a step back from the risk arrangements allows for a bit more cushion. Can you comment on the tough funding environment for Medicare Advantage as we approach 2025? How are your discussions going? How are your underlying providers responding, and what conversations have you had with Medicare Advantage plans about potential adjustments that could affect you?

Yes. Thanks for the question, A.J. So a few points. Number one, we proactively anticipated with our slightly contrarian view over the last 18 months. And so whatever changes we've had to make, we've made, and so we feel pretty good about how we execute over the next 12, 24 months. As you can see, we are managing 197,000 lives in MSSP, 171,000 lives in MA. And we are happy to take all the risk we can downstream as long as we are getting paid and our providers are getting paid to take that risk. And I think that's where you're going to see some challenges where we clearly see the payers being challenged with the upcoming V28 impact as they revise their bids and so on and so forth. So while they adjust, it's going to be a discussion on how they are going to enable provider entities like ours downstream, and are they willing to share some of the upside and economics from us taking risk. So we are willing and capable of taking as much risk as possible. We just have to be thoughtful and take it as long as we're getting paid to do so and there's a positive adjusted EBITDA and free cash flow impact both for our providers and our shareholders. So we'll keep having those discussions, but we're very well positioned to increase our risk book.

And our next question will be coming from Elizabeth Anderson of Evercore ISI.

This is Sameer Patel on for Elizabeth Anderson. Congrats on the solid quarter. Maybe just sticking within capitation. Just given the mix in contracts, is the 1Q sort of PMPM an appropriate way to think about the PMPMs for the rest of the year sort of in that 1,050 to 1,100 range? Or how should we think about that for the remaining quarters?

Yes. I mean, obviously, it's still early in the year. But at this point, I would say that's probably a good way to look at it.

Got it. And if I could ask a quick follow-up. Just within your ongoing contracts, have you guys looked to negotiate any sort of off-cycle rate adjustments or any sort of retroactive relief for 2023? I know some of your peers have done that. Do you think there's an opportunity to do so?

We've done whatever we had to, as we discussed on our prior earnings call. So at this point, we feel pretty good about '23. We feel pretty good about '24. We've received a lot of the data for '23, as you would expect by May of this year. So that's all reflected in our accruals. So we made all the adjustments we had to.

And our next question will be coming from Joshua Raskin of Nephron Research.

I heard you say you're being more prudent around accrued shared savings. I assume that's MSSP and maybe across the book. But what are some of the underlying metrics and saving rates that you're tracking, suggesting? And are you being more conservative than you've been in the past? And I guess the last part of that is, did change healthcare, if any, the outage have anything to do with that?

Thanks, Josh. Regarding the first part of your question, we are using the same approach we've adopted for many years. We analyze data from our various business segments, and as you would expect, there are differences among commercial, MSSP, MA, and Medicaid. Each of these segments has its own nuances. Even if we observe similar trends and the same underlying operating metrics related to utilization and patient emergency department visits, the quality metrics vary by segment. Overall, it’s still early in the year. At this moment, we feel optimistic about our performance for 2023 as we've received most of the data for 2024, but we just completed Q1. Given the current environment and utilization trends, it's wise to be more cautious about our accrual estimates. If we notice any positive or negative variances throughout the year, we'll make the necessary adjustments. This approach is consistent with our past practices. As for your second point, we experienced minimal impact from the change, which is reflected in our strong Q1 practice collections. Any slight impact we did see was quickly addressed with our technology partners. Additionally, there has been no known compromise of Privia's provider or patient data, so we believe that did not affect anything.

And our next question will be coming from David Larsen of BTIG.

Congratulations on a good quarter. Can you maybe talk a little bit more about your vision for care delivery components of the business? Like there's a lot going on in the space. Health plans are under pressure with their stars ratings. There's a lot of costs tied to GLP-1s, obesity health that's having a very significant impact on pharma drug trend. Just like things like putting winning skills in the home or creating preferred narrow networks. And then just related to that BASS Medical Group in San Francisco, I just find it interesting that they're going to be working with a competitor of yours. Just any color on your vision for new products and solutions would be very helpful.

Thanks, David, for the questions. So on the first part, look, I mean, we are differentiated because our business model includes creating a very large medical group with physician governance, pairing that up with a risk entity and then our full suite of tech and services platform that is serving every single patient, every single provider in a practice across any reimbursement model. I just think that is so differentiated because it gets to what you alluded to; we can take that broad network and go to the payers of healthcare and create all kinds of products and services, both to the self-insured employer, to large commercial payers, for profit, not-for-profit, Blues plans, and then obviously to CMS. And I think there will be opportunities for us to help the payers manage risk downstream. It's a community-based physician network, lowest-cost setting in the healthcare ecosystem, best relationship with members of the family, whether it's the child, it's the mother, it's a working-class person or it's a senior. And I think we are trying to take risk in the commercial book, which is pretty unique, and then obviously in MSSP, MA, and Medicaid. And then each of those lines will lead us to innovate to better manage care downstream and have much closer partnerships with the payers. So I think you'll keep seeing us do different things. But I think that's a true differentiation for us, where we're not just going to the PCP and offering one single line of product to take risk. It's for the entirety of the practice. And then for your second question, I mean, we covered this pretty extensively in the last call. We're not in the business of delegating claims and taking risk on specialists and so forth. So there's no impact to our economics of our vision for what we have to do in California. We think it's a big opportunity. And we work closely with BASS. I think we covered all of that in the last call.

And our next question will be coming from Richard Close of Canaccord Genuity.

Congratulations. Parth, there's a number of news articles and comments, I guess, coming out of Congress and the FTC about healthcare M&A. And also with the change hike, I guess, Optum has come under a little bit more scrutiny and their competitors. So I'm just curious how you think all that potentially impacts your business, if you're seeing any kind of increased demand in your model? And maybe comments on the quality of the pipeline would be helpful.

Yes. Thanks for the question, Richard. So I think we have a very unique model, just tagging on to the question that David asked. I think what's underappreciated is we offer a unique model of partnership to physician practices, where they can retain their autonomy and yet be bought as something bigger across all lines of business, all patients, every single provider. We're not buying physician practices. We don't have non-competes and so on and so forth that restrict them in certain other arrangements. And every time there's disruption, I think physicians are realizing that Privia can help them in many ways to take better care of the patients, get paid for that, and yet retain their autonomy. And I think that's a very differentiated value proposition. So we feel really good. As you saw last year, we implemented 699 providers. It was a record year for us. You can see our implemented provider guidance, and we feel really good about the pipeline. The metrics in our mature markets are even better where over 50% of inbounds are referrals from our existing physicians, and the conversion rates on those are extremely high to close. And that's a flywheel that gets into effect once we enter a state, we establish ourselves, we have performance history, and then the snowballing happens. So I think as we see disruption in the marketplace, as we see private equity stepping back or not able to do deals, and as we see some of the new VC or private equity funded businesses faltering, I think physician practices are looking for a much stable partner. And given our strong balance sheet, cash flow position, and how we perform over the past many years, hopefully, it makes us a partner of choice.

And our next question will be coming from Andrew Mok of Barclays.

Can you provide a little bit more detail on the timing-related items impacting free cash flow in the quarter? I understand there's some seasonality there. But it looks like the impact was a greater degree than we typically see. And it sounds like you're paying more cash bonuses in Q1 even though stock-based compensation more than doubled in the quarter, I think. So can you give us a sense for what's going on there?

Historically, the first quarter is consistently our lowest cash flow quarter of the year. This is largely due to value-based care agreements, which tend to provide payments in late Q3 or late Q4. We receive these funds in Q4 and then distribute them to our physician partners in January. Last year, the timing worked out such that a larger portion of these payments came in later in the year, resulting in a significant amount being disbursed in January. Additionally, we have an annual bonus that we issue every March, a practice we've maintained for the past decade. Therefore, this remains a recurring cash flow item for the quarter. By the end of the year, we anticipate having over $400 million in cash, excluding any business development deals we might undertake during the year.

Stock comp question.

Yes, what was the stock comp question?

How it was higher in this quarter.

Yes. From a stock compensation perspective, there is a significant timing difference. Last year, our annual grants took place in Q2, whereas this year, they occurred in Q1. As a result, we accounted for a full year of last year's stock compensation in Q1 of this year, which makes the comparison between Q1 of last year and Q1 of this year appear unusual. Moving forward, we plan to consistently conduct our annual grants in Q1, so we don't anticipate this being an issue going forward. For the entire year, we expect stock compensation to range between $55 million and $60 million. So, yes, this pertains to our noncash stock compensation.

And our next question will be coming from Jeff Garro of Stephens.

I'll try to compound a few on business development together. So in terms of potential new anchor practices in new markets. Any color you can provide on types of markets, types of practices that you're interested in and what stages you are in the various processes on that front? And second one, the script was specific in calling out potential weakness in the provider enablement space, and you've commented a little bit more on that. But wanted to ask how that fits into the business development pipeline, thinking about kind of potential for horizontal mergers rather than new relationships with new provider practices.

I appreciate the question, Jeff. The pipeline remains strong. The timing for closing deals in 13 states varies. We have many states left to engage with, and as seen in the last 18 months, we can have several deals close in a short timeframe or some may be delayed. Our long-term target, which we mentioned when we went public three years ago, is still to aim for one or two new markets each year. This may vary based on deal timelines. The nature of these deals will continue to reflect what we've done in the past three years. We aim to establish integrated medical groups, risk entities, and service platforms, which gives us flexibility in entering states compared to others. We've taken over medical groups, MSO entities, and risk entities in various locations. Our guidance excludes new markets, consistent with our historical approach; we will adjust guidance as we enter any new states. Regarding potential disruption, there has been significant investment in this sector, with many venture capital and private equity firms targeting physician practices. This trend may unwind, particularly in Medicare Advantage. Disruption presents an opportunity for us, as we have a proven model, strong unit economics, and a compelling value proposition for physician practices. We will remain disciplined, and we are in a strong position with over $400 million in cash and no debt by the year's end, allowing us to grow the business opportunistically.

And our next question will be coming from Jack Slevin of Jefferies.

Just wanted to touch on cadence quickly and how you're thinking about that throughout '24. Just looking at the fee-for-service side growth running a little bit hotter, and that's really good in the first half versus the full year guide. And I think on the shared savings side also looks pretty strong, even though I know the conservative accrual approach is sort of what you're taking. So I just want to make sure I have my bases covered in terms of how you're thinking about the progression of both revenue and earnings over the next couple of quarters.

Yes. Thanks for the question, Jack. So from a seasonality perspective, I think it should be the same as previous years. It's a pretty predictable business in the fee-for-service side with seasonal trends. So you should not expect anything different. It's always good to have a solid performance in the first couple of quarters so that it positions us really well for the back half of the year. It's still early in the year, and we reiterated our guidance, but we feel really good. The variability at this point is really in the value-based book. While we are accruing prudently, as we say on our slide, it's called risk for a reason. So there can be some elements as we true up for '24, and we'll see how that plays out over the course of this year. But we feel really good about our guidance and our ability to achieve it. If you look at the past 12 quarters, we've met or exceeded our expectations. So we don't anticipate deviating from that cadence. Hopefully, we'll be able to do the same this year.

And our next question will be coming from Lisa Gill of JPMorgan.

It's Kyle on for Lisa. I wanted to ask about the performance of the capitated MA book and the fee-for-service book. Just any color you could give on utilization trends within those businesses, and then any update on the ramping of new markets and how the physician recruitment is going there.

Yes. Regarding the first part of the question, everything is pretty much as expected. We haven't noticed any significant deviations from our accruals, and the data we've received aligns well with our expectations. We have taken into account the utilization trends that everyone is observing, and this has been factored into our initial guidance and our accruals. Overall, we feel confident about how we've anticipated these trends, and there are no major differences to report in our results. As for physician recruitment, we have a solid pipeline, and recruitment efforts are strong. We are optimistic about our year-end provider guidance. Given the 5- to 6-month lag between signing and implementation, most providers are effectively secured at this point in the year, so we feel confident about this aspect as well.

And our next question will be coming from Jess Tassan of Piper Sandler.

Nice quarter. So given the conservative posture around MSSP accruals, can you just break down the sequential growth in shared savings revenue a little bit? And I guess, just maybe some of that growth is from the shift of lives from full cap to upside, downside, but how did you restructure those MA contracts to make them so much more profitable? And then just some of the sequential growth implying more favorable pricing in commercial value-based care.

Thank you for the question, Jess. Regarding the first part, we restructured the contracts to maintain the EBITDA and earnings potential for both our doctors and ourselves. This is reflected in our underlying benchmark expenses, MLR targets, payment structure, and how we share the risk with the payer. The payer has a financial stake as well. Overall, this aligned with our expectations, and we did this to ensure that at the midpoint of our guidance, we aim to grow EBITDA by over 20%. In this environment, that should differentiate us positively for our physicians while preserving their earnings power, as well as for our shareholders. We feel optimistic about both our Medicare Advantage book and our commercial contracts, managing nearly 700,000 lives in the commercial space, which is a substantial group. Additionally, we’ve noted a consistent increase in care management fees each quarter, which has become a significant component of both our care margin and EBITDA, providing stability through PMPM payments. This is on top of the fee-for-service reimbursement, highlighting our ability to collaborate with payers and ensure we are compensated for our downstream efforts, and it helps mitigate some of the volatility in the Medicare Advantage book. Overall, we are confident across all lines of business.

And our next question will be coming from Ryan Daniels of William Blair.

I'm curious if you can dig a little bit deeper into the pipeline. I know we've already talked a lot about this, but a clean quarter, so maybe it makes sense to focus on the future. And my question is specific to the provider market. We continue to hear about health systems remaining under pressure. They've done a lot of physician group acquisitions that haven't worked out. And I'm curious if you've seen any change in the volume of pipeline, specifically as it relates to health systems or larger groups.

Thank you for the question, Ryan. We're maintaining productive conversations across various areas. We're engaging with small practices through our sales team and entering larger markets with significant anchor organizations, which may include independent medical groups with 100 to 300 providers, as well as major health systems. Disruptions often lead to changes that require time for organizations to adapt and for their strategic goals to be redefined by senior management. Given our strong track record over the past 9 to 10 years, particularly since going public, we aim to be one of the preferred partners they consult. Our business development teams are actively reaching out and are managing their responsibilities well. However, the specifics of each deal, especially when dealing with health systems, require careful alignment and discussions regarding the importance of employed groups. There has been considerable insight into how health systems subsidize physician compensation, and it often varies from one organization to another, depending on their management’s objectives and how we can strategically align for a long-term partnership. When we enter a state, we don't just function as a vendor selling a single product; we integrate into their physician alignment strategy for the long haul. This fosters a strategic relationship that requires time to develop, but we are optimistic about our position and continue to engage in meaningful discussions.

And our next question will be coming from Whit Mayo of Leerink Partners.

Parth, can you just maybe unpack the growth in attributed lives that was up 10%, probably places you at the upper end or above the guide? How much of this is organic or new panels? And when I look at the growth rate of the attributed lives, it's growing less than the provider growth. And last year, it was growing kind of twice the rate of the provider growth. Maybe this is just lapping the Delaware ACO deal from last year. So just trying to understand this dynamic.

Thank you for your question, Whit. There are a couple of key factors to consider. First, we expanded into Connecticut last year by acquiring a substantial IPA, which brought in nearly 185,000 lives. This significantly affects our year-over-year comparisons. Additionally, we exited Delaware, which also impacts those comparisons. The majority of our growth is organic, coming from same-store improvements and new practices joining us in various markets. We're forming multi-specialty groups, which means we're adding specialists alongside primary care providers, OBGYNs, and pediatricians. While attributed lives are primarily connected to primary care, we have a solid mix. Our emphasis is on enhancing primary care, as we seek to create primary care-centric delivery networks that attract attributed lives and can be presented to payers. These elements explain the year-over-year changes.

And our next question will be coming from Jailendra Singh of Truist.

This is Jailendra Singh from Truist. So you called out solid ambulatory trends in the quarter. Any particular specialty or payer categories you would call out? Any quantification or directional color there would be helpful. And a quick clarification question. Did you share anything on the unfavorable PYD in the quarter? I know it was pretty small.

Thank you, Jailendra. The utilization was quite broad-based, with no particular specialty or payer standing out. We have a diverse presence across 13 states, and it appears to be consistently broad as others have mentioned. Additionally, I don't believe there was any significant prior year development to highlight. We have gathered all necessary data for 2023, which is now reflected in our accruals and overall results. Therefore, we are confident in the estimates we've made, and our actual results thus far align with all the data we've received for this year.

And our next question will be coming from Daniel of Citi.

It's Daniel with Citi. I want to revisit some of the comments you made about MA, particularly regarding capitation as we look toward 2025 and beyond. My question is more mechanical. If you feel confident after the 2025 bids that you can approach risk more conservatively in 2025 and beyond, how quickly can you shift lives back into capitated contracts? Would that be a matter of a month or two, or are we really looking at this being a 2026 event?

Thank you for the question. There are two key points to consider. First, this is typically an annual process that begins on January 1, with discussions starting in the third and fourth quarters. Second, and more importantly, we believe that 100% capitation is probably not the most effective approach to managing risk downstream. We prefer arrangements where the payer, our organization, and the physicians involved all have a stake in the outcome. We share our economics with the doctors at a 60-40 split, and ideally, we want payers to also have some investment in the risk. This way, we minimize irrational influences on the outcomes. There's a prevailing belief that 100% capitation is the best way to assume risk, but we don’t share that perspective. While we are eager to expand our risk portfolio, we prefer arrangements that do not involve us being fully capitated. As the payers experience pressure from various factors, including bid adjustments and new drug costs, we aim to have informed discussions with them. In this context, it’s crucial to ensure that we are compensated appropriately for taking on more risk. There tends to be inconsistency in revenue recognition within this sector, even for the same lives; for instance, if you're in an MSSP, you don’t recognize GAAP revenue, whereas an ACO REACH recognizes the full medical expenditure. Our focus remains on earnings and free cash flow, as these are what ultimately matter. Our priorities are generating shared savings, ensuring we are compensated for taking risks, and making sure doctors receive fair compensation for their work. We're happy to share benefits with healthcare payers as well. We see continuing opportunities in this area; currently, we have about 170,000 lives in MA, with around 16,000 in capitation. There’s significant potential to increase our risk profile, but we need to be compensated for it.

And our next question will be coming from Adam Ron of Bank of America.

So we heard commentary from many peers in the space that the 2025 Medicare Advantage rate notice was disappointing due to lower benchmarks and growth rates or trend assumptions from CMS. And I should probably know this, but how does that actually flow into Medicare shared savings? Like do we already know the benchmarks for Medicare shared saving in 2025? And if not, what is your read on it based on the data from CMS? And how does it compare versus what you think trend would be in your expectations?

Thanks, Adam. So any physician payment rate expectations are reflected in our guidance. And we think the impact likely will be a little bit more gradual versus onetime increase. You get updates from CMS, and you see them when we see them. So we have certain expectations, and those are all factored in what we've guided. There are other things that MSSP updates, and we think they are kind of favorable overall, whether it's the assignment process and the benchmark risk adjustment methodology, whether it's quality reporting and the potential to take on more risk even more so than the ENHANCED tracks. You saw some of those updates come from CMS. We just think it's a really well-run program, very widely adopted, proven results to generate shared savings. And they've strengthened the overall program, and it's one of the best initiatives that they've had over the past many years. So as one of the largest participants, I think we feel pretty good about MSSP, and we'll see how it goes.

And there are no further questions. Please go ahead, sir.

Thank you for listening to our call today. We appreciate your continued interest and support of our company. Enjoy the rest of your day.

And this concludes today's conference call. Thank you for participating. You may now disconnect.