Privia Health Group, Inc. Q3 FY2025 Earnings Call

Hello, and welcome to the Privia Health Third Quarter 2025 Results Conference Call. Please note that this call is being recorded. I’d like to hand the call over to Robert Borchert, SVP of Investor and Corporate Communications. Please go ahead.

Thank you, Chris, 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 through the Investor Relations section of priviahealth.com, along with today's financial press release and slide presentation. Following our prepared comments, we will open the line for questions. Please limit yourself to one question only and return to the queue if you have a follow-up so we can get to as many questions as possible. The financial results reported today are preliminary and are not final until our Form 10-Q for the third quarter and 9-month periods ended September 30, 2025, 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 November 6, 2025. Such statements, including those related to 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. As a result, 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 on the call. Reconciliation of these measures to comparable GAAP measures are included in our press release and the accompanying slide presentation posted on our website. Now I'd like to turn the call over to Parth Mehrotra, our CEO.

Thank you, Robert, and good morning, everyone. Privia Health continued to execute very well across all aspects of our business through the third quarter of 2025. This momentum positions us for continued success in 2026. Today, I'll summarize our business and financial highlights, and David will discuss our financial results and updated 2025 guidance before we take questions. Privia Health's consistent results, operational execution, and differentiated business model have clearly demonstrated our ability to perform in all types of market environments. We delivered very strong results across our value-based care book, including the Medicare Shared Savings Program for 2024. New provider signings and implementations remain strong across all of our markets, which provides great visibility for 2026. Implemented Provider growth of 13.1% and value-based attribution growth of 12.8% year-over-year helped support practice collections growth of 27.1% in the third quarter. Adjusted EBITDA increased 61.6% with EBITDA margin as a percentage of care margin expanding 720 basis points to reach 30.5%. This outstanding performance gives us confidence to raise our 2025 outlook above the high end of our previous ranges. In September, Privia Health agreed to acquire an accountable care organization business from Evolent Health for $100 million in cash, plus an earn-out of up to $13 million based on 2025 MSSP performance. This business will add over 120,000 value-based care attributed lives across existing and new states in MSSP as well as various commercial and Medicare Advantage arrangements. The transaction offers a compelling synergy for Privia as the ACO participating providers will have an opportunity to join Privia's medical groups for a full technology and service platform. The transaction is expected to close by year-end 2025, pending regulatory approvals, and we expect it to positively contribute to adjusted EBITDA in 2026. Privia's national footprint now includes 5,250 Implemented Providers caring for over 5.6 million patients in more than 1,340 care center locations operating in 15 states and D.C. Our balanced and diversified value-based care organization now serves over 1.4 million patients through more than 100 commercial and government programs. Our total attributed lives increased close to 13% from a year ago. This was broadly driven by new provider growth and our entry into Arizona. Commercial attributed lives increased more than 12% from last year to reach 864,000. Lives attributed to CMS Medicare programs were up 12%. Medicare Advantage and Medicaid attribution increased more than 12% and 18%, respectively, from a year ago. This diversified value-based care book gives us the confidence to build scale and profitability without depending on any one particular contract. With the ACO business acquisition, Privia's total attributed lives will expand to more than 1.5 million. We remain highly focused on generating positive contribution margin in our value-based contracts as we pursue attribution growth, manage risk, and implement clinical and operational enhancements in our medical groups. Our consistent performance over the past few years is a testament of our approach to value-based care and the strength of our actuarial underwriting, physician-led governance structure, and clinical operations. Our physicians and providers continue to strive to reduce costs, improve patient well-being and deliver value to our commercial and government payer partners. Now I'll ask David to review our recent financial results, balance sheet strength, and our updated 2025 guidance in more detail.

Thank you, Parth. We continue to see very strong performance across our value-based care book, especially in the Medicare Shared Savings Program. Across our 9 ACOs and MSSP in 2024, Privia managed over $2.5 billion in medical spend. Our aggregate savings rate of 9.4% was up from 8.2% in 2023. Total shared savings of $234.1 million increased 32.6% from a year earlier. This demonstrates our continued success in increasing savings and profitability while adding value-based and downside risk lives and contracts. After CMS' share, Privia's gross shared savings was $160.1 million, a 36% increase over 2023. This is the amount recognized in practice collections and GAAP revenue. In the Mid-Atlantic region, we operate one of the country's largest ACOs caring for about 60,000 patients. We delivered savings of 11%, which for the fifth year in a row was the highest savings rate of all ACOs with greater than 40,000 attributed lives. Privia Health's strong operational execution and growth continued through the third quarter. Implemented providers grew 125 sequentially from Q2 to reach 5,250 at September 30, an increase of 13.1% year-over-year. Implemented provider growth, along with strong value-based performance and solid ambulatory utilization trends, led to practice collections increasing 27.1% from Q3 a year ago to reach $940.4 million. Adjusted EBITDA, which is reconciled to GAAP net income in the appendix, increased 61.6% over the third quarter last year to reach $38.2 million, representing 30.5% of care margin. This is a 720 basis point margin improvement year-over-year as we posted better-than-expected results across our value-based care book, which helped generate significant operating leverage across both the cost of platform and G&A. For the first 9 months of 2025, practice collections increased 19.6% to $2.6 billion. Care margin was up 16.7% and adjusted EBITDA grew 43.5% to reach $94.1 million. Our business continues to generate very strong free cash flow. Pro forma cash at the end of the third quarter was $409.9 million with no debt. This assumes the deployment of $100 million by year-end for the ACO business acquisition and the net cash received from CMS for the 2024 MSSP performance year. Year-to-date pro forma free cash flow, excluding cash deployed for business development transactions, was $104.4 million. Assuming no further deployment of capital for business development, we expect to end the year with at least $410 million in cash. This continues to position us with significant financial flexibility to take advantage of opportunities in the current market environment. Our outstanding year-to-date performance positioned us to once again raise our 2025 outlook. Using the midpoints of our new 2025 guidance, implemented providers are expected to increase 11.2% year-over-year to reach 5,325 by year-end. Attributed lives growth is expected to be approximately 12.5%. We expect practice collections to grow 17.1% and care margin 13.2% at their respective midpoints. We are also guiding to adjusted EBITDA growth of 32% at the midpoint and expect more than 80% of full year 2025 adjusted EBITDA to convert to free cash flow. Privia's consistent long-term growth and profitability across economic, health care and regulatory cycles validates the strength of our differentiated business and economic model and consistent execution by our provider partners and our employees year after year. Our momentum and diversified book of business has positioned us well to drive organic provider growth and increase operating leverage for long-term adjusted EBITDA and free cash flow growth as we build our national footprint. We look forward to continuing to serve our physicians, providers, and health system partners and their patients on our long-term journey together. Operator, we are now ready to take questions.

And your first question comes from the line of Joshua Raskin with Nephron Research.

This is actually Marco on for Josh. Actually, I had one on your MSSP performance. So given the very strong results for that program in 2024, I was just wondering how you plan to guide to that in the future. Does the outperformance in 2024 now just get factored into the baseline for future planning? Or are there any reasons why we should consider that year to be above the go-forward run rate?

Yes, I appreciate the question, Marc. So I think we're going to be pretty consistent with how we've done it over the past 7, 8 years. We take into account all the data we received from CMS, look at our attribution, see any changes to the program structure, fee rates, et cetera, just factor all that in. We look at the results and if we perform well relative to benchmarks, all that just gets factored into the next year. So every year when we report, we are updating for prior year and then also updating current estimates for the current year. So all that's factored into the guidance. So you can see with our outperformance, that includes both factoring in for '24 actual results as well as updated view on '25.

Your next question comes from the line of Elizabeth Anderson with Evercore ISI.

Congrats on the quarter and the good MSSP results. Could you talk to us about the one, the sort of go forward for the 4Q? I know you obviously had the outsized gains in the third quarter, but sort of how are you seeing the core business performing as we go into the fourth quarter? And on prior calls, you talked about over $130 million of EBITDA for 2026. I don't know if you could comment on sort of where you're seeing that number now.

Yes. Thanks, Elizabeth. Appreciate it. So look, I think we continue to see very strong trends. There's no reason to believe the momentum changes in Q4. We don't give quarterly guidance. We're just focused on annual results, given when value-based care results flow in into the year. There’s a very specific reason we just avoid the quarterly guidance or implied outlook and so on and so forth. I think we're being our usual prudence in terms of implied guidance for Q4. So I think we'll just see how the year goes. We just didn’t want to get ahead of ourselves given we've had a pretty outstanding year, year-to-date Q3. And then I think, look, I mean, the updated guidance, we are sitting close to $120 million for 2024. I think we're going to keep targeting 20% growth off of that where we closed this year into next year. We'll just see how we close the year, hopefully strong and then close the Evolent transaction like we noted, factor all that in, see updated results on the value-based book across all categories as we enter later this year, early next year, factor all that in and give guidance in February like we do. But there's no reason to believe. I mean, we've had one of our best years, and I think the momentum should help us take that forward like we noted in our prepared remarks, that positions us exceptionally well for a pretty strong '26.

Your next question comes from the line of Whit Mayo with Leerink Partners.

Okay. When I look at revenues or practice collections per provider, it's just up a ton this quarter. And I know it's just a metric, but can you just talk about the factors influencing the strong fee-for-service growth? I know you don't give same-store volumes, but just the revenues are growing so much faster than the implemented provider growth.

Yes. Thanks for the question, Whit. So I think it was pretty broad-based. We saw that across the fee-for-service book, utilization trends and then also value-based book where if the actual results come in ahead of accruals, all that gets factored into the practice collections. We added a couple of markets. Arizona is now fully factored in. When we give original guidance, we don't include BD like we noted. And once we close the transaction, all that gets factored in. Indiana has got implemented, that got ramped up. So I think you're seeing the momentum across the business, same-store new provider growth, new markets, good value-based book, and it just speaks to the momentum in the business. When all of these things hit, you get results like this and it flows down EBITDA free cash. So I think we're really pleased as to how it's played out.

Your next question comes from the line of Matt Gillmor with KeyBanc.

Parth, I wanted to ask about the synergy opportunities with the Evolent Health ACO. How are you thinking about the pathway to enhancing the savings rate from Evolent's ACO up to previous performance? And then also, can you provide a couple of comments about the physician base, which I think is relatively large, around 1,000 physicians. Just give us a sense for what those practices look like and the appetite to join the Privia Medical Group.

Thank you for the question, Matt, and I appreciate your foresight in recognizing this deal last year before we even began discussions. As you've pointed out, this is a central component of our business. We have been in the MSSP for a decade and believe we can deliver significantly more value to these provider groups. There is clearly an opportunity for synergy in the states where we already have medical groups and a complete infrastructure in place. Many of the practices that can join us should see a notable return on investment, which creates a cross-selling potential. However, I don't anticipate this unfolding in the next quarter or two; this will take a few years as some of the larger practices make the critical choice to join our medical groups. The business value proposition is fundamentally different. Additionally, we plan to enter six new states with a more streamlined model solely focused on the ACO, while also locating key providers to establish our medical group and implement our full suite in these areas. Therefore, we will concentrate on both these initiatives. Improving the performance of our current ACO remains our top priority. They currently have a certain level of shared savings rate with CMS, and we've demonstrated consistent improvement across our other ACOs. We now have four or five ACOs approaching or exceeding double-digit savings rates. Once again, this improvement won't be immediate, but we hope to enhance performance over time. There are several ways to achieve synergies within the business. Since we have not yet finalized the transaction, we will proceed from there. We are optimistic that this will provide us with favorable conditions over the next two to three years as our strategy unfolds.

Your next question comes from the line of Andrew Mok with Barclays.

This is Thomas Walsh on for Andrew. Hoping you could discuss some of the moving pieces in the capitated business this quarter, including the step-up in revenue, prior year claims development and any change in membership?

Yes. Thanks, Thomas. So I think we have a pretty small capitated book, about 20,000 to 22,000 lives. So I think that's just to note that. And then this was a small book that we retained on a capitated basis when we kind of restructured these contracts a couple of years ago, given our view on the broader MA environment. And our hope was that we would perform well in the book that we are keeping. So I think you're seeing that play out. I think it's effectively the factors that you would expect on the revenue side, given attribution, risk adjustment and then obviously, performance relative to that on the cost side with all our programs just performing a little bit better than what we expected, which was the hope. So you're seeing that play out. I don't think it fundamentally changes our view on capitation and how that plays out going forward. We continue to believe having shared risk model with payers, providers, Privia, like we've said on our previous calls. We just think that's the most optimal structure. All the pressures in MA continue to persist as most of the analysts on the call have written pretty extensively about V28 and star scores, utilization trends, none of that is changing fundamentally. So I think we're going to be pretty cautious on capitated MA, but we're really pleased with the book we have, and we'll continue to optimize it for profitability and continue to give that value to both our payer partners and our providers.

Yes. And just to add to that, for the quarter, there was a little bit of timing of data and a little bit of retroactivity back to 1/1. So I would say we're looking at probably Q3 is the high mark for the year and wouldn't expect that exact trend to continue into Q4.

Your next question comes from the line of Matthew Shea with Needham & Company.

Congrats on the nice quarter here. I wanted to ask about kind of the go-forward growth algorithm. Historically, you've stuck to a cadence of 1 to 2 markets per year. You demonstrated that this year. Evolent obviously adds more than 1 to 2 markets immediately. So curious, how does the acquisition change the cadence of new markets? Is it fair to expect you will pause for a bit while you process through integrating those assets? Or just how does the deal change the growth algorithm? And then you also commented on the flexibility, the cash position gives you at this point. So just curious what your appetite for incremental M&A is?

I appreciate the question, Matt. I don’t believe anything fundamentally changes. We still have a strong business development pipeline. Evolent allows us to enter six new states, but it doesn’t come with the full model we discussed earlier. When we mention a new state, we’re talking about implementing the complete model with our medical groups, risk entities, and full services platform. That will be our approach moving forward. We have a strong cash balance of over $400 million by the end of the year, even after spending $200 million this year. We will continue to capitalize on market dislocation, as many companies that started public or private have encountered challenges for various reasons. I see that new investments are not pursuing these models, which is beneficial for us. As some of these models falter, new opportunities arise for us. We will be aggressive in business development and leverage this opportunity to grow our total addressable market and our business. However, we will remain disciplined regarding pricing and the types of deals we pursue, as we have in the past. We will proceed with our established cadence, so there are no fundamental changes in how we view our growth strategy.

Your next question comes from the line of Jailendra Singh with Truist Securities.

Congratulations on a strong quarter. I want to discuss MSSP, as the results are clearly solid. However, the overall landscape is changing. We've encountered several companies that were once solely focused on the ACO REACH program, but they’re now looking for ways to pivot towards MSSP due to the uncertainties surrounding ACO REACH. How does this shift affect your strategy? Regarding mergers and acquisitions, do you see this as a chance to explore these entities that may have fared well under ACO REACH but are now uncertain about their future? Can you provide some insight into how this situation might be influencing the landscape?

Yes. Thanks, Jailendra. I think it ties to the previous question. I think there's a lot of dislocation the barriers to entry to start a REACH or an MSSP ACO were pretty low. But then executing on it and scaling it and making it profitable is where I think all the secret sauce is. I mean, there's no IP in health care services. So I think as new money does not flow in and people are not willing to put in good money behind bad money and some of these models struggle to get profitable or scale, I think all of those give us good opportunities. I mean, at the end of the day, if you look at Slide 12, like we are chasing 2 units that drive this business, providers, the patients they cover our lives and then how many of those are in some value-based arrangements. So as I think some of these entities struggle, the physicians come out, or we have an opportunity to buy some of these entities at a reasonable price, I think we're going to look at all of those. The transaction we did with Evolent is an example of that. I mean, they didn't do REACH, but I mean, there was a pretty big value-based care book available. And I think the transaction was good for both parties. We got it at a reasonable price. They had something that was non-core to them. So I think we're going to look for those kinds of opportunities. But I think, like we said, we're going to be pretty aggressive across the board in looking for opportunities to keep growing.

The next question comes from the line of Jeff Garro with Stephens.

I want to ask how we should be thinking about the evolution of your relationships with payers as we head into the next calendar year and you might be finalizing any of the negotiations or contractual arrangements with those counterparties towards year-end. Has your execution on value-based care from both the cost and quality perspective changed those conversations dramatically? Or should we continue to think about it as kind of incremental gains towards value-based care as you show the high level of service that your providers offer?

I appreciate the question, Jeff. It's an important one. Given the extent of our relationships across commercial, Medicare Advantage, and Medicaid, we are engaged in continuous discussions. Contracting isn't limited to a specific time of year; we have over 100 value-based care contracts and nearly 200 commercial contracts, including those that are value-based. These discussions are extensive and take place at the state level, which is how the industry operates. As we achieve success in one state, we compile case studies that showcase our performance, allowing payers to see the value we bring. When entering new states or working with emerging markets, these conversations become beneficial. Our discussions occur both locally and nationally, and we incorporate various elements into our contracting. This means that even when negotiating fee-for-service contracts, a value-based component is included across all lines of business. We offer a differentiated value proposition that few companies at our scale can match. We're continuing to engage with payers who are witnessing solid results from our low-cost provider and delivery network. This aligns with the need to reduce costs while improving outcomes and patient well-being over several years, allowing us to present tangible evidence of our success. This not only differentiates us with payers but also with provider groups and government entities. Overall, this positive landscape supports our ongoing momentum.

Your next question comes from the line of Ryan Langston with TD Cowen.

On the MA CAP performance, I think I heard you say there was some favorable retro pickup. I guess, could you maybe help us frame how much of that was sort of core performance versus one-time in nature? And then just on the current number of MA lives, 20,000 to 22,000, if you wanted to, is there an opportunity to increase the number of those lives in the current contracts that you have? Or would you sort of have to move outside of those and sign additional contracts to grow lives?

I appreciate the question. I think the situation involves a bit of both. It relates to our accruals and the actual results. We've been very careful in our approach to accruals, considering the environment and everything from the payers. We were cautious in our assumptions, but at the same time, we do not simply hope for good outcomes without putting in the effort to perform under those contracts. The team did a commendable job, especially given the small scale of operations, which involves about 20,000 to 22,000 lives across 1 or 2 states and a few payers. We focused on reducing costs, improving outcomes, and achieving the results we did. While we experienced great performance this year, we don't expect the challenges in MA to disappear, so we'll remain cautious with our accruals going forward. If results are better, you'll see our outperformance again, and that will be our ongoing strategy. Regarding increasing attribution, we plan to grow same-store attribution in our existing states with current contracts and providers, while also adding new providers in those areas. If we have an MA contract in certain ZIP codes, adding new providers there contributes to our growth. Additionally, we aim to secure new MA contracts in both current and new states. Our strategy is to continue increasing lives across our value-based programs, including MA, MSSP, Medicaid, and commercial, as that's fundamental to our business model. You'll see us work to increase lives as rapidly as possible.

Next question comes from the line of A.J. Rice with UBS.

You have a unique window on a bunch of different payer classes, coverage categories. And I wonder, there seems to still be quite a bit of disruption in underlying utilization trends. Is there anything you're seeing to call out there? There's also been speculation that as people base coverage changes going into the new year, there might be some acceleration on utilization during the fourth quarter. Are you seeing any of that in how people are approaching your primary care operations and so forth?

Yes. Thanks for the question, A.J. So as we've done previously, I think it's important to distinguish between ambulatory utilization, physician practice offices in the communities versus in the hospitals and post-acute and so forth. And so I think we continue to see elevated trends across the board. I don't think there's any reason to believe that those trends reduce. We'll just see how Q4 plays out and whether all the changes in some of the programs and whether attribution might change with Medicaid or exchange population. It's not really big for us. But I think that impacts more of the post-acute and acute side of things versus ambulatory. But we'll see how that plays out. But I think our underlying assumption is going to be pretty elevated. And so we plan for that in the value-based book. It bodes well for us on the fee-for-service side. So I think that's our view.

Your next question comes from the line of Constantine Davides with Citizens.

Maybe just Parth changing gears a little bit here, but you've more than doubled the number of providers on the platform in the past 5 years. Can you maybe talk about Privia's ancillary capabilities and how they've evolved over this time frame as you've added new markets and particularly new specialties and increased density in more mature markets. So just again, how your ability to continue to scale the platform is maybe driving your thinking about some of the ancillary services you provide to your groups?

I appreciate the question, Constantine. That's a really good point. Our strategy is to enter a state, increase the number of providers, and then implement our entire business plan across all patients and payers. As we build that density, we see many opportunities to expand into areas like labs, pharmacy benefits, ASCs, and potentially clinical research, utilizing our integrated medical groups, risk entities, and comprehensive tech and services platform. We have access to all the data, and the medical groups make decisions in collaboration with the Privia team. This creates numerous savings opportunities for payers and additional revenue streams for our medical groups and provider practices. We plan to pursue all those avenues, though the approach will differ by state based on provider density. Overall, we aim to monetize and scale our platform. This strategy supports a strong economic model where additional revenue contributes positively to our P&L as we leverage our network effectively. This aspect of our business is often underappreciated. The results of this strategy are evident in our provider growth, collections growth, care margin, EBITDA, and free cash flow, all of which account for full expenses across sales, marketing, business development, software development, and more. We're nearing our target margins, currently achieving a 26% EBITDA relative to care margin, with a goal of 30% to 35%. We are nearly at that target and expect to see continued positive results in the coming years.

Your next question comes from the line of Jessica Tassan with Piper Sandler.

This is Derek Gross on for Jess. I had one on Evolent Care Partners. We believe that they had a $220 million a year partial capitation contract with Blue Cross Blue Shield of North Carolina. Do they have any other contracts like this? And did the acquisition include management of this contract or just the MSSP business?

Yes, I appreciate the question. So like as we noted in our press release, when we did the deal, we bought the entire business, all contracts that included commercial and MA as well in addition to MSSP. And so yes, we assume that contract. We're not going to get into details of any specific contract and lives in it or revenue dollars and so forth, like we don't do it for the rest of our book. We'll include them as part of our whole entire platform and how we report it on Slide 6. But yes, we've inherited those contracts, and it's part of our core strategy to just add to lives in each of the circles that you have on Slide 6, and that will add to the MA lives there, and we'll continue to hope to perform as expected or better over time.

Your next question comes from the line of Daniel Grosslight with Citi.

Congrats on another strong one here. If I look at the implied guide for 4Q on a year-over-year basis, it seems like you're projecting limited profitability growth. It's about low single digits and some margin compression. Parth, I know you mentioned that just given where you are in the year, you do continue to guide conservative. But I'm just curious if there's any investments that you're making in 4Q that may be weighing on margin. And I also just wanted to confirm if IMS contributed anything to profitability this quarter? Or are you still expecting that to start contributing in 4Q?

I appreciate the questions. There are no investments or anomalies; we're just being cautious given the strong results. If the momentum continues, we hope to close the year on a strong note. Concerning IMS, it will contribute in Q4 and beyond after its implementation in September. It hasn't contributed yet, but we expect Q4 to be robust. We'll see how it unfolds, and we hope it surpasses expectations. We've experienced significant outperformance in the first three quarters, but we do not provide implied guidance or quarterly forecasts. We're focusing on the full year, and in terms of our operating metrics, we are well above the high end. If the current trend continues, we hope to maintain this outperformance.

Your next question comes from the line of Jack Slevin with Jefferies.

Congrats on the quarter. Most of my questions have been asked already. So maybe just a tidying up one on the numbers. In previous years, when you've had significant outperformance or a strong lead in? I know you've had sort of higher variable comp or bonuses that have come through in either the fourth quarter or on a cash basis hitting early in the following year. Is there anything we should be looking out for on that front as we look at 4Q and 1Q coming up?

Yes, I appreciate it, Jack. So yes, that's all factored in the guidance. So as we look at our scorecard that you can see in the proxy every year based on the metrics, we accrue for that level of outperformance and bonus accruals and so forth. So that's all in the accrued bonus line on the balance sheet. That's reflected in the P&L. So that's all fully expensed already. And despite that, you're seeing the outperformance. So yes, that will lead to some increased cash outflow in Q1. So you'll expect that. But I mean, that's a result of great business. So the interests are pretty aligned with the shareholders here in terms of how much free cash and EBITDA we generate.

Your next question comes from the line of David Larsen with BTIG.

This is Jenny Shen on for David. Congrats on a great quarter. I just wanted to ask about the New Big Beautiful Bill Law. Any thoughts on impacts to Privia, any impact on your Medicaid book, even though it's small?

Thank you for the question, Jenny. As you mentioned, the two main areas of focus are Medicaid and the exchange populations, both of which are relatively small for us. We do not take on any downside risk with Medicaid, and it represents a minor portion of our collections. We will monitor how the patient mix evolves, but we do not anticipate significant changes or fundamental issues. Our practices are operating at capacity, and people generally do not forgo their primary care, which is vital for their health, returning to work, and for their children’s healthcare with pediatricians or women’s care with our OB services. Therefore, we do not expect major changes in that regard. We will observe how the shifts occur, but we have seen this happen in the past, and we do not anticipate any substantial impact on our business model and mix.

Your next question comes from the line of Ryan Daniels with William Blair.

Congrats on the strong year-to-date performance. Parth, I wanted to go back to some of your comments on ancillary services. And I'm curious in particular, I know a few years ago, you signed a partnership with a surgery center chain. We've got some potential changes to the inpatient-only list. I'm curious if that, in particular, would be a bigger growth opportunity in kind of managing referrals and point of care for the organization going forward.

Yes, I appreciate the question, Ryan. Absolutely, as we expand, we are intentionally focused on building a multi-specialty medical group for that reason. As you know, about 80% of the costs originate downstream from the primary care provider. Therefore, as we increase our presence in different states, that remains a key priority for us. This growth brings opportunities for outpatient surgeries, ambulatory surgery centers, managing a greater portion of the overall cost of care, and collaborating with physicians. So as we continue to expand our network in each state and enhance density, you can expect us to further develop in that area. We do not plan to focus heavily on surgical procedures due to the nature of our operations, but we will continue to selectively assess areas involving chronically ill patients in specialties like cardiology, pulmonology, and chronic kidney disease. Orthopedics is another significant area of interest. Therefore, you can anticipate ongoing developments in this direction. It will not be uniform across states, but as we grow the medical groups, that will be a major factor in managing the total cost of care.

And your last question comes from the line of Craig Jones, Bank of America.

This is Joaquin on for Craig. You have effectively reduced risk in MA during the first two years of V28. What are the chances that we could see a V29 in the next few years? What factors would lead you to feel more comfortable about taking on additional risk in MA?

I appreciate the question. It's quite similar to what we've said previously. We need to observe how things unfold. Predicting the timing or specifics of V29 is challenging. We still believe that a shared risk model involving payers, providers, and entities like Privia is the right approach. This requires careful consideration because these are long-term contracts. Patients typically do not change their primary care providers, and it’s essential to manage their total costs as they age and become sicker. No single entity can thrive at the expense of another in a sustainable way over the long term. There can be disruptions when businesses attempt to grow through changes in benefit design or when provider enablement entities invest heavily to attract physicians into risk contracts, leading to issues like we've seen in the past few years. Our view is that the most sustainable model relies on aligned interests, where everyone has a stake in the outcome. We believe many became overly focused on how capitation works, whether it should be fully applied at the provider level or the payer level. We support a different approach that we find to be more durable. The underlying challenge will remain unchanged: an aging population that is increasingly sicker, which is an unfortunate reality of humanity. Addressing this requires doctors in the community working on behalf of the payers. Payers without a care delivery arm are not directly caring for patients. Therefore, it's vital to have aligned interests and contracts that reflect that. Physicians need to be compensated adequately to fulfill this role, particularly in the most cost-effective settings. Given these factors, regardless of the changes, as we achieve some balance from the past few years, excess will diminish, and benefit designs will normalize. We will continue collaborating with our payers to establish sustainable contracts that allow us to do our job and receive fair compensation for it.

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

Thank you for listening to our call today. We appreciate your continued interest and look forward to speaking with you again in the near future.

This concludes today's conference call. Thank you all for joining, and you may now disconnect.