Clover Health Investments Corp (CLOV) 2021 Q4 法說會逐字稿

Good afternoon, everyone. Joining me on our call today is our CEO, Vivek Garipalli; our President and CTO, Andrew Toy; and our Interim CFO, Mark Herbers. We will discuss Fourth Quarter and Full Year Results, recent trends and answer your questions. This call is being recorded.

Before we get started, I would like to remind you that our fourth quarter and full year earnings materials, including the release, are available on our website at cloverhealth.com. I'd also like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties, including expectations about future performance. Factors that may cause actual results to differ materially from our expectations are detailed in our SEC filings, including in the Risk Factors section of our latest Annual Report on Form 10-K and in our other periodic SEC filings.

The forward-looking statements are made as of the date hereof, we assume no obligation and do not intend to update these forward-looking statements, as a result of future events or developments. Information about non-GAAP financial measures referenced, including definitions and a reconciliation of those measures to GAAP measures can also be found in earnings materials available on our website.

With that, let me now turn over the call to Vivek. Vivek?

Thanks, Derrick, and thanks, everyone, for joining us today. We are really excited about where Clover sits today. The progress we expect to make in 2022 and our goals for the future, not just enabling physicians to provide great healthcare to all, especially those in underserved communities, but to do this with a growing, sustainable and ultimately profitable model.

Let me now reflect quickly on the past year and some recent accomplishments and events. 2021 was an eventful year for us. We went public, dealt with COVID challenges, and we accomplished a lot. We more than doubled our revenue to $1.47 billion. Lives under Clover Management increased by 124% to approximately 130,000. We launched our first non-insurance line of business Direct Contracting, underpinned by the Clover Assistant.

The Clover Assistant continue to be a differentiator with an MA MCR differential of over 1000 basis points for returning members, whose PCPs use the Clover Assistant versus those who don't. And we did this while operating on a wide network and driving a positive impact on health equity, with more minority and underserved beneficiaries than typical for Medicare Advantage [point of scale].

We also had a strong AEP in Medicare Advantage growing well above industry levels at 28% year-over-year. In Georgia, we nearly tripled our lives and believe we're on a trajectory there similar to New Jersey, where we are a market leader. We believe our increasing scale, attractive benefit plans and the Clover Assistant will enable us to keep gaining share in core markets, while at the same time driving improved MCRs.

In Direct Contracting, we started 2022 with over 100,000 more lives than we ended 2021 and with providers in over 20 states. Largely due to this growth, our lives under Clover Assistant Management increased to approximately 200,000. And our non-insurance lives now represent about 2/3 of our total lives. We believe that more lives under Clover Assistant Management. the more opportunities we'll have to drive clinical and financial improvements for Clover and our participating providers.

Finally, I wanted to touch upon the recent CMS calendar year 2023 advance notice for MA. Obviously, many of the industry are pleased with the rate increase, we are as well. But we are even more excited about the increasing focus on health equity, specifically CMS' commitment to continue to explore ways to revise risk adjustment model in order to more appropriately pay for subgroups of Medicare beneficiaries. This is something that will get much more focus over the next year or so, but we believe Clover is well positioned given that almost half of our MA beneficiaries are in underserved communities compared to 34% for the average MA plan. We encourage you to read our health equity white paper for more specifics.

With that, let me hand over the call to Andrew to talk about the Clover Assistant and specifics around how it is driving a material impact.

Thanks, Vivek. 2021 was a great year for the Clover Assistant, along with unlocking an entire new business line with our entrance into Medicare fee-for-service through Direct Contracting, we continue to invest in its evolution, as the preeminent physician enablement platform and increased our annualized medics under Clover Assistant Management to over $1 billion. The Clover Assistant was built on open fire standards in an effort to break down data silos and improve interoperability across the healthcare system. This enabled us to deliver our first major integration of Clover Assistant within athenahealth market-leading EHR with more integrations coming soon.

We also launched clinical programs and data models specifically targeting some of our most vulnerable members, suffering from cancer and chronic kidney disease. These successes are a validation of our differentiated software-first approach. The Clover Assistant allowed us to iterate quickly, and we can adapt it to fit the needs of different facets of Medicare, as demonstrated by our rapid scaling of both our MA and fee-for-service businesses.

To summarize our opportunity, we believe we can fundamentally change healthcare by providing an easy-to-access on-ramp to value-based care for every single provider in the country. In 2021, the Clover Assistant platform serviced nearly 1 million clinical recommendations to clinicians and flagged more than 200,000 potential care gaps for action. Clinicians that used the Clover Assistant grew 43% year-over-year to approximately 3,000 in the fourth quarter, and on average, the platform aided positions in managing more than 35,000 care plans per month.

By leveraging the Clover Assistant platform, we believe we can raise the level of care given by every provider and rapidly and broadly scale in ways that traditional managed care plans and risk-bearing provider groups cannot. This engagement translates to improved MCR. Not only is there a difference in MCR between members, whose providers used the Clover Assistant and those who don't, but there is also a benefit from the length of Clover Assistant use. We measure this in terms of cohorts of when the physician went live on CA.

For example, in service year 2021, our MA members with PCPs, who went live on Clover Assistant in 2019 had a 2.7% lower incurred MCR than members with PCPs, who went live on Clover Assistant in 2020. Similarly, members with PCPs, who went live on Clover Assistant in 2018 had a 4.9% lower incurred MCR than members, whose PCPs went live on Clover Assistant in 2019.

Further, the Clover Assistant is a key to unlocking non-insurance business lines. For example, in Direct Contracting, we principally scale our model of care by deploying physician enablement software to providers versus acting as an insurer. In these scenarios, we provide care coordination primarily through our software, the Clover Assistant. This year, we expect to have approximately 250,000 lives under management with about 2/3 of these lives and 2/3 of our revenue to come from these non-insurance scenarios. We'll be talking more about expanding this non-insurance opportunity in the future.

Ultimately, we believe our success in fee-for-service is not indicative of anything program-specific regarding Direct Contracting, but rather proof of our ability to provide software that allows any physician to be successful in value-based care. This has been demonstrated by our leading growth in fee-for-service, and we fully believe our software platform will be successful in other Medicare value-based models as well.

We are highly supportive of innovation in the healthcare space, whether it be through new programs, like Direct Contracting, Medicare for all or Medicare Advantage, as it evolves. In all these cases, the one constant, one that we feel we are well poised to address is how do we quickly bring more physicians into these programs and make them successful. We believe that Clover Assistant [has proven] to be this digital on-ramp on to value-based care, and we feel very confident about our ability to be successful, as new programs launch and all programs are changed.

With that, I will now hand it to Mark for the financial update.

Thanks, Andrew. I'm going to quickly cover the important items from the fourth quarter before handing it over to Vivek to wrap up the call. We delivered $432 million in revenue in the fourth quarter, up 160% year-over-year. This growth was driven by the launch of Direct Contracting and growth in our MA membership. As of year-end, we had approximately 129,900 lives under Clover Management, and this was comprised of MA membership and Direct Contracting lives of 68,120 and 61,876, respectively.

Moving to medical expenses, our net medical claims incurred for the quarter were $442 million. Our GAAP MA MCR was 102.8%, up only 30 basis points compared to the third quarter despite increased direct COVID costs of approximately 200 basis points, typical seasonal trends and higher outpatient utilization, which has carried over into January and it's something we'll be keeping an eye on. Also, our non-GAAP normalized MA MCR was 96.7% compared to 98.0% in the year ago quarter.

We recognized a net premium deficiency reserve expense in the quarter, equating to a non-cash net expense of $62 million. This was primarily driven by a $110 million reserve recorded for the 2022 financial year to reflect an estimate of the sum of future medical costs, claim adjustment expenses and administrative costs exceeding related future premiums in 2022. This was partially offset by the amortization of the remaining 2021 premium deficiency reserve of $48 million.

Direct Contracting net medical claims incurred on a GAAP basis were $235.4 million, and our Direct Contracting margin was 103.0% up only slightly compared to the third quarter due to seasonality and increased COVID costs relating to the Omicron spike in New Jersey and New York, both of which ranked at the top in terms of hospitalizations by state in early January. Excluding direct COVID costs and prior period development, non-GAAP adjusted Direct Contracting margin was 102.1%.

Fourth quarter non-GAAP adjusted operating expenses, which excludes non-cash stock-based compensation, Seek and Clover Therapeutics from salaries and benefits, plus general and administrative expenses were $77.5 million, representing [18%] of total revenues compared to $46.8 million and 28% of total revenues in the fourth quarter of 2020. We expected adjusted operating expenses to grow at a more moderate rate and become a smaller portion of revenues, as we scale and drive efficiencies, which is a key focus in our 2022 operating strategy.

Our GAAP net loss for the quarter was $187.2 million. Our adjusted EBITDA loss for the fourth quarter was $154.8 million. After excluding gross loss from Direct Contracting, PDR, Seek and Clover Therapeutics and normalizing our MA business for the MCR impact of COVID, our normalized adjusted EBITDA loss for the quarter was $68.5 million.

Clover had approximately [471] million total shares outstanding at the end of the fourth quarter, which includes the 52 million shares we issued in November as part of our capital raise.

Our cash, cash equivalents and investments totaled $791 million, as of December 31, 2021 and included $285 million in net proceeds from our capital raise.

Now, let me turn over to Vivek for some closing comments.

Thank you, Mark. Just to wrap up, we are excited about our expected improvements for 2022 MA MCR. In addition, we believe we will see another step-wise improvement in MA MCR 2023. As it relates to operating expenses, we expect there will be only a moderate increase this year versus our Q4, 2021 run rate driven by operating leverage and efficiency efforts. There is much more work being done this year to drive further cost efficiencies, and because of that work, if a number of things fall into place, it is even possible may be profitable next year on a non-GAAP basis, excluding non-cash expenses and non-recurring expenses.

Our mission is to improve every life. As part of that, I want to reiterate that we are very pleased with the CMS proposal that is now out for comment that lays out a path [narrowing] the health equity gap around risk adjustment and [stars].

With that, let's take questions.

(Operator Instructions) We'll take a question from Richard Close of Canaccord Genuity.

Andrew, I was wondering if you could go over that 250,000 lives again in more detail. You said something about non-insurance, and I just want to make sure I understand that.

Yes. So basically, the way that we're looking at this is that we have the insurance line of business, which is obviously Medicare Advantage, where we act as the insurer and that you understand that business, obviously. In other areas, which started with Direct Contracting in the fee-for-service space, we consider that to be non-insurance because we are not acting in an insurance capacity. We're not an insurance company. That's not how we're covered underneath sort of like sort of HIPAA on regulations.

We are actually signing business associate agreements with practices and physicians providing them with Clover Assistant and then helping them go at risk within fee-for-service with the government in a value-based program. So where we're assisting physician groups and enabling them to go into value-based arrangements, but are not acting as an insurance company, that's what we meant by that. And the bulk of those are right now in the -- obviously, in fee-for-service and Direct Contracting, but we intend to look at expanding that business too, by enabling physicians to go at risk in other programs as well.

And do you think you'll have lives in other programs during 2022?

Yes. So we're very -- looking at this very seriously. It's something that we're looking at right now. If you want to think about it, it's quite straightforward for us to -- for a physician, who's already using Clover Assistant that have started with either fee-for-service and Direct Contracting or what our MA plan and then bring that into other areas of that panel. We do want them to use Clover Assistant for as much as the panel coverage as possible. So while we don't have any guidance around that, it is something we're looking at very seriously this year.

And Richard, this is [Vivek]. See the breakdown of that almost [250,000 is 160,000 to 165,000] Direct Contracting lives and 84,000 to 85,000 MA lives, sorry, 84,000 to 85,000.

And Andrew, I was wondering if you could talk a little bit about now that you have some scale with expected 160,000 to 165,000 lives on Direct Contracting. How are -- have you guys been successful in getting MA physicians essentially more interested in utilizing Clover Assistant. How has that worked since you're entering the third quarter of this?

Yes, absolutely. So what we're seeing here is that there are definitely synergies, the more -- as I referenced just now, the more lives that a physician can use to manage their panel using Clover Assistant, the better it results in more of that development of software, muscle memory and engagement with the platform. So we definitely are seeing that. We track physicians, who are using it for both fee-for-service and MA, and we're encouraged by what we see there.

In addition, we definitely are going out and bringing in folks, who are not basically in a region that served by our MA plan. I just want to also emphasize that, that's something that we think is very successful as well, is to be able to approach people on just the fee-for-service side and not necessarily on the -- on the MA side at all.

We actually do believe that, that non-insurance segment could be a very fast-growing segment for us, as shown by our initial success in fee-for-service. And that there are certainly folks that once they start looking at our actual sort of success with Clover Assistant, that is easy to integrate to their practice, we see that very quick to bootstrap them on that Direct Contract fee-for-service side and then we can talk to them about moving at -- at risk with either our own MA plan or with others.

We'll take our next question from Kevin Fischbeck of Bank of America.

This is Adam on for Kevin Fischbeck. Couple of questions. I think based on the MA MLR disclosure in commentary, you're kind of saying that you baked in a little less COVID costs than probably most of the risk adjustment benefit. So are you basically saying that this 600-ish basis points of COVID that you're building into MA MLR, like if things are going to come in better than that, that's all upside?

Adam, this is Vivek. Are you asking specifically around the guidance side, the 95% to 99%?

Yes. You've guided to the GAAP MA MLR, and you said you built in slightly less COVID costs. So I'm just wondering if the rest would be upside if it came in better than the 600-ish basis points that you're implying?

Yes. I can't remember the exact specific amount if we guided specifically to the amount of COVID costs baked in. But in our last earnings call, we did talk about baking in a few hundred basis points of COVID impact this year. Again, it's -- we're not delineating specifically between kind of the risk adjustment portion or pent-up demand or just increased utilization driven by COVID impact. But to your point, if COVID subsides and [diminishes the impact] over this year, that technically would be upside.

And then I guess not sure how much you have to say about this, but there's just been the controversy around Direct Contracting in the headlines. I'm wondering if you have any thoughts? And also you guided to a slight improvement in MLR year-over-year. So is it fair to say any adjustments are unlikely to actually be impactful to earnings given that it's largely breakeven in the near term?

Yes. Great question. Andrew, if you just want to hit maybe kind of our perspective on core verus Direct Contract, and I can add some, some thoughts?

Yes, absolutely. So obviously, Direct Contracting is something that's always being reviewed at the CMMI program there, the government is entitled to review this. And -- but what we believe is there's definitely a focus on bringing more physicians into value-based care, and this is something that's just as applicable on the traditional original Medicare side as well as in Medicare Advantage.

We definitely believe as a Company that it's a consumer choice, a legitimate consumer choice for someone to pick original Medicare, and that may be with and without [med sup] or they might pick Medicare Advantage. And our goal is to provide Clover Assistant in either of those scenarios. Right now, we access the original Medicare market through the Direct Contracting program, but there have been other forms of value-based contracting between providers and the government before, whether it be like MSSPs or similar -- ACOs and similar structures. So we believe that's going to stick around a while. Value-based care stick around for a while.

What's really necessary is so many physicians are -- have been unsuccessful, have not been able to move into value-based constructs, which are better ways to create better outcomes at lower cost, and Clover Assistant is a way for them to do that. So we feel good about the success we've had. We believe that we're accessing a part of the market by helping physicians with our software platform, who need the help and who are not getting that help from others. And we believe that's a durable value that we are providing.

And just to kind of add to that, when we go back to kind of the original founding vision of Clover, it's really was always about how do we enable clinicians to make great decisions at scale, and that's the Clover Assistant, our software platform. We made a very intentional decision that we thought we could build the best software inside of a wholly owned insurer in this case, an MA plan. And we don't think the debate around payment models is going to slow down. I think it's only going to accelerate, whether it's Medicare for all, Medicare Advantage, Direct Contracting.

We're generally agnostic long-term to payment models, mainly because the vast majority of our R&D efforts doesn't go into -- to the payment model side very much around clinical decision support and how do we help physicians make great clinical decisions on a day-to-day basis. And that demand, I think we're at the very early part of that demand curve over the -- as we kind of look out over the next 5 years to 10 years, that's really where the big business opportunity, clinical opportunity, consumer opportunity is really developing that platform and making that much more powerful.

And then my last question would be around the commentary around MLR improvement into 2023. Was that mostly in reference to stars coming into your P&L, the benefit from 3.5 stars, and then given some of the [late] fee that CMS gave for those plan rated years in 2023. I was wondering if you can remind us about the confidence levels and maintaining at least 3.4 star -- 3.5 stars into 2024?

Yes. So we've -- from a guidance perspective, we -- our original guidance was to have 3 stars for payment year 2020. We ended up with 3.5. Our guidance for 2021 was 3.5 stars. Nothing has caused us to change that guidance that would affect the payment year 2024.

As it relates to looking out past this year and into 2023, I think one of the things that is unique to Clover is Clover Assistant is constantly improving. So there's actual feature [durations] happening every 3 weeks or so. That, by definition, we feel good. It's going to cycle into impact throughout the course of this year and definitely into next year.

Beyond that, in terms of actual clinical programs, one program that we stood up in the very part -- beginning of this year, as part of our in-home primary care program is the palliative care program, that this is the first time we've launched that for in-home primary care program. Couple that with what we've started to execute on towards the back half of last year on our partnerships with [time care and quick and health] in oncology and in chronic kidney disease respectively, we expect to start having an impact going into next year as well. And there's a multitude of other programs that may have more of a modest impact beyond getting to kind of the -- the stars improvement impact to next year.

We'll take our next question from Jonathan Yong of Credit Suisse.

I appreciate the commentary on MA and events -- the events notice. I guess when you think about 2023, how are you thinking about benefit design kind of moving forward? You obviously have rich benefits already. So I guess, given some of your larger peers are thinking about going back into the market a little bit more heavily, how are you thinking about that competitive landscape? And if you have to redesign your benefits a little bit more in '23?

Yes. So I think if you just take a step back and if you look at where the growth has been in Medicare Advantage over the last -- particularly the last 5 years, it's really been on the PPO side. I don't have the numbers in front of me, but I think the growth rate for PPO versus HMO plan segments has probably been double, maybe even more than double. So when you look at kind of the incumbent plans that you're probably referring to, their HMO book of business is twice that of their PPO book of business, but it's growing at a much lower level.

When they think about driving gross margin, it's really on their HMO side. They don't really have the capabilities to drive attractive gross margin at scale in their PPO plans for a multitude of reasons. Their models are very much generally tied to having strict control around the network and really using kind of that stick approach. The vast majority of our business on the MA side, 90% plus is on the PPO [end]. So irrespective of what competitors do in terms of pouring dollars additionally, the benefits, they still have to go up against the option of flexibility. So you can make an HMO plan more attractive, but you're still competing against at least in the markets we're in an attractive PPO model or that's actually our core business.

So if we kind of -- if you fast forward to next year and the year after and so forth, the incumbents are getting into a business model that they're not actually well equipped to execute well on, which is world of choice and network flexibility and technology. And so we feel very good about continuing to invest in building a great PPO plan model, but again, powered by the Clover Assistant.

I think taking a step further, I think you're absolutely right. There is definitely a -- in terms of your initial point, a huge gap between our plan design attractiveness versus the competitors. We're still though very -- in the very kind of early stages in terms of thinking through bid design, how we want to adjust that and which markets we may adjust that. And so I think a lot of work to do there between now and bids initially in the May time frame.

But in terms of thinking about balancing growth versus MA MCR, it's very much top of mind. It's something we're super focused on. And we made reference in kind of our earlier comments around if some things fall into place, there's definitely that potential on a non-GAAP basis to get to profitability. And next year, MA MCR is definitely going to be a huge [lever] towards that.

And then just going back to DC again, kind of turn around the program, I guess. I guess, are there any steps you're taking in case there are significant changes to the program? I understand that you're obviously going to continue to build out the software and develop it as needed. But I guess is there any contingencies in case there are major changes to the DC program? Are you looking to go into the other ACO programs, perhaps anything of that nature?

Yes. So [without being too] specific because, obviously, we just want to see what the CMMI decides to do here before we react too much for obvious reasons. Yes, we believe that we want to serve as large a portion of a patient -- of a provider's Medicare panel as possible, that includes fee-for-service and original Medicare. That can be through Direct Contracting program, but there will be programs in this area that we can move into as well as being able to serve across the Medicare Advantage gamut, whether or not we're the risk-taking entity or not. That's why we're thinking of it as our non-insurance businesses, where we're not playing the role the insurer.

So with -- I think when you look at our success in Direct Contracting and our rapid, rapid growth there, that's just a sign of the demand and the fact that we're in that blue water market and have access to this very large TAM, where everyone else is sort of competing for a very small number of sophisticated providers, who know how to go into value-based programs and that's fine. That's sort of like people can compete over those providers. We are able to access the majority of providers who need help going into these programs, haven't been successful in the past, but with Clover Assistant can be successful. And that model, we are sure, is going to continue to exist, and in the need for that will remain in the fee-for-service world as well. So we don't think we need that kind of direct backup plan here, but we intend to stay in the fee-for-service market.

And just last one. You broke out the cohorts for your MA MLR. I guess, if we think about that, from the DC side, should we expect kind of similar improvements in terms of cohorts, you're obviously adding a lot this year for 2022. So I guess, should we expect 100bp improvement on the 2021 cohort? How should we think about the 2022 cohort coming on? Just add color around that?

Yes, very interesting question.

Yes, I think (inaudible) is to -- sorry about that.

Yes, I got to say, I think it's a little too early for us to actually look at this right now, very fair question to ask. But we need more data to obviously do that cohorting and DC, and they are obviously different programs similar and almost identical in terms of clinical care, as Vivek pointed out. But one is the benchmark based program, one is a competitive program, right. So we wouldn't expect identical, just goes that the dollars flow through slightly differently. So we'll share more as we actually are able to track and create those cohorts.

We'll take our next question from Gary Taylor of Cowen.

Just a couple of questions if I could, I wanted to go Vivek's comment that could actually be non-GAAP profitable in '22. I just want to make sure, I'm understanding the point there, if we take the midpoint of your MLR and revenue guidance in your G&A number, I think it implies an EBITDA loss of roughly $240 million. So to flip that even to breakeven, you'd have to outperform your MLR by 750 basis points or so. So am I kind of in the ballpark on those numbers? And is that MLR piece, what you're describing is sort of the key ways that profitability could be plausible for -- and when you went next year, do you meant '23 versus maybe I'm off a year, and it's '23 versus '22. But just to clarify that.

Yes, no, I meant '23. And just to your point around MLR. So obviously, there's 2 parts of a P&L, there's the revenue line, and then you have the expense line. So I think as you've seen, there's been a top line growth component this year versus last year. And then if we kind of look at next year, we expect growth again. One of the things Gary, given that you spent kind of the vast majority of your career with managed care organizations, in terms of researching them, I think you're pretty familiar that kind of a typical OpEx as a percentage of aggregate MA premiums is anywhere from kind of 8% to 12%, depending upon the size of the plan. And you obviously see, we're well above that.

So from -- and it's not rocket science, past a certain size organization to be able to right size, leveraging growth in terms of operating synergies to get there. So it's a big prong. And there's a ton of efficiencies we have ahead of us to be able to achieve, particularly in the technology side and the synergies across different lines of business -- MA and beyond, as Andrew referenced.

And then on the MLR side, again, kind of viewport parts of the equation. There's definitely the MCR side on MA. But I'm going to resist on giving you any specific guidance around that, given there's lots of different paths to that. And again, we've described it as go round with possibility. And we do think it is possible, but we're not necessarily guiding to that.

And do you have a parent cash figure for us at the end of the calendar year?

I think total cash I want to say was around $800 million. Mark, you can correct me.

For the end of the year, I don't have a number I can share at the moment.

Gary, we'll get back to you on that.

We'll look forward in the K then. Last one for me. Can you just describe a little bit about how you've grown the Direct Contracting? So you've raised guidance twice in terms of your enrollment there for '22? Could you just break out, how much of that enrollments coming in through claims alignment versus voluntary? And then really, is your strategy around -- is there a per-visit financial incentive for the physicians? Is there a profit split? Is it really the attractiveness of getting to use Clover Assistant? Can you just -- one I'd like to see sort of breakout of claims versus attribution, but just sort of, how are you finding the success of signing up these physicians as participants under your DC?

Yes. Thanks, Gary. So basically, I don't have the exact number, but the heavy majority of it is coming through claims alignment. And that's part of our strategy here. The reason is, is that the success we're coming from as we go to existing physician groups, like I said, who wants to move into -- largely they've been on fee-for-service, maybe they've tried to put their toe in there in the water with value-based contracting, and we say to them, we can help you move into a value-based contract, and be successful in that. And so we are actually having a B2B, a business-to-business motion there, where we contract with an existing physician and then their lives move into the DCE, as claims aligned lives, the normal methodology.

This is as opposed to other models, which are heavily relying on voluntary alignment, which means that they're trying to switch folks oftentimes, because by definition, if they were claims aligned, they would be claims aligned. If you need to use voluntary alignment, that means that you actually didn't have the plurality of claims from last year, and you're trying to switch them into your practice. There's no switching required for us, we just wish -- we just did the people who are already seeing these PCPs. And that's how we're able to grow so rapidly, basically.

And then yes, we have a similar model to MA, where we have an economic structure where they are able to predict and say, this is how much we were earning before we give them extra compensation around, like Clover Assistant, just like we do on the MA for the time and the effort they're using to provide value-based care. And then we move on onwards from there.

We'll take our next question from Whit Mayo of SVB Leerink.

I wanted to go back to sort of an industry development that's occurred in the last year with CMS, enhancing a lot of the compliance around third marketing or third-party marketing organizations. And there was a notice that was issued, I want to say, October 8, that I think created a little bit of, I don't know, some anxiety and some concern among certain carriers as to how they were supposed to comply with some of the mandates that CMS had. I guess, by back, I was hoping to get just your overall perspective and view on what happened and how Clover responded? And maybe I'll just stop there to get your response.

Yes, that’s a great question. We’re very very supportive of particularly the recent efforts by CMS to create a much higher bar in compliance requirements around third-party marketing. I think we've seen a lot of third-party organizations sort of pop out of nowhere over the last many years really just trying to generate leads and selling leads to various organizations. And we do think it creates a lot of confusion in the marketplace. Consumers don't generally know always what they're signing up for. It's no secret that churn is meaningfully higher with those strategies than kind of a normal word of mouth or independent field agent type approach. And that turns higher, because there's confusion in the sales process. So we're trying to explain plan options. But I think suffice to say, I think we would expect to see continued rules and regulations on gearing MA to make sure it's serving it's kind of intended purpose and following kind of the policy intent. I think this is just as another example that -- and we referenced in our opening remarks, some of the meaningful proposals that CMS is making around health equity that can impact risk adjustment in a way dramatically to help those that are most in need. I think this that's just another example of that. But I expect those types of changes and proposals don't accelerate. Andrew, do you have any other comments on that?

Yes, real quick -- just quick on that. I think Vivek covered the main points. A couple of different things is, we talked about this in the past, that we've had less exposure to some of the online brokerages. And then as well, as you've said, to the field marketing organizations, where it's been a bit of a game, we think that's been built up to use marketing dollars routed from managed care plans, into these organizations to sort of bypass the caps that are provided on broker commissions, which is obviously not in the spirit of the regulation, so very pleased to see that closing down. And on the electronic side have definitely seen, again, as Vivek alluded to high churn coming from those particular lead sources, as well as a very rapid race to the top in terms of cost per lead. Again, we are sold by those electronic brokerages too. But our exposure to them has been significantly more limited than other managed care plans. I think that's probably why you saw our -- we're pleased with our success in this prior AEP.

Got it. One follow-up question, it's just on, is you sort of reflect back on the 2022 open enrollment cycle and looking at some of the growth that you've had in some newer markets. And I guess I should say, not newer, but not your legacy core New Jersey markets. But what lessons were learned in terms of the receptivity, the benefits, what the plan design looked like? I mean, when you look at some of the success stories that you guys have, internally, what do you think was resonating out in the field with brokers, with consumers. Just anything that would be helpful for us?

Yes, it's a great question. So I think I know, Andrew has some thoughts on this as well. I'll turn a few. I think from our initial sort of readout from a lot of the conversations we've had is, Clover from day zero, it has just been a very transparent organization to individuals who are selling MA plans. In terms of consistency around benefit design, being easy to engage with. And I think, importantly, driving -- we think about the plan design feature, driving true flexibility in network choice. And we're a broken record on that point.

And I think, kind of the Andrew's point, all this AEP really showed is that we've been able to maintain an attractive growth rate by sticking with our core principles of making sure it's a very pure sale process, individual selling Clover know what they're selling. Making sure consumers are picking the right plan for them, irrespective whether it's Clover or another plan design, and leading with choice, leading with PPO. And I think it's going to be a bigger and bigger and bigger struggle with any organizations that lead with HMO, where the majority of their margin or business size is driven by HMO they're going to struggle.

Nothing is going to change that, that trajectory on a go-forward basis. And so that theme is just only accelerating, I think we're seeing kind of we're now getting to that point where it's surfacing into some of the results that investors are seeing, public market investors. But kind of outcomes razor against sometimes that kind of simple answer is basically what's happening, which is, HMO is just not what people want.

Yes. Really the corollary that I had to this question, and I'll stop, is just any way to frame or size the coverage that you have within these newer markets with Clover Assistant? And I guess, the key is to deploy the technology, get it in the hands of your physician partners? But where do you stand today in terms of the adoption levels and that physician engagement?

Yes, absolutely. So, a great point, I think we can share some stats. I don't think we've publicly shared them yet. So we'll think about doing that. So a great feedback there, qualitatively the way we think about this is obviously having access to Clover Assistant physicians is core to our model. It's something that we think every single one of our members, whether it be on the fee-for-service side, or the MA side is entitled and deserves great data-driven primary care. So we always make sure that folks have CA-Doctors that they can go to, it takes a little bit of time sometimes for us to see where our new member is going and where we're growing very rapidly, like in our newer markets.

We obviously have a majority of newer members. And so it takes a little bit more of a time for us to find out where those doctors are and go and talk to him about working with Clover getting on CA et cetera. So we tend to have CA coverage upfront when we build our network for adequacy. And then we build out the network throughout the year, as we see the doctors that our members are seeing -- sorry, as we see it in our data where our members are going. So more to share on that in the newer markets, but that's certainly the trend we've seen in the core markets of New Jersey and what we're replicating in places like Georgia as well.

We'll take our next question from Jason Cassorla of Citi.

Just really quickly, around the incremental 10 states that you're entering in for the DC program in '22, will those new states help inform you in terms of how you think about MA state and county expansion for '23 and beyond? Or is there any way you can kind of like help frame that at all?

And you said the DC side, the DC state framing MA expansion? That was a question, just make sure I heard right?

Yes, you had an extra 10 states, you're going into 10 states, but you're in 10 states in '21, you're going to 10 states in '22. Just thinking about with those new states will help frame the way you're thinking about the expansion.

Yes. The way I would think about this, which is -- which I think is a useful framing here is that previously, when we just had MA in order for us to sort of like a test out a new market or a new state, we had to do build a network, do adequacy, do the bid, which was we were fine doing that we've been showing that we're very good at that actually by our expansion rate. But that hadn't laid out this material overhead in terms of resources, operational cost, like we've extent to do that, was something like Direct Contracting, we're able to much more easily work with physicians directly in any given state and we don't have to -- necessarily have all that overhead of building network, et cetera. So that does give us meaningful signal earlier.

So I think -- I'm not saying that we will also sort of test out markets with MA, it just allows us to have higher conviction before we do that by testing the waters with some of our physician partners on the future service side first.

Got it. That's really helpful. Maybe just go on shifting over to MA. I mean, you're talking 26% to 27% MA growth year-over-year on average. Is there any way to help delineate the attribution of that growth between existing counties and call, 101 new counties for '22? Or just any consideration on that would be helpful?

Yes. So I can't remember what we publicly shared here. So we can make sure that we're consistent in get you more information. But what I'll say is, is that we're definitely very pleased with our growth in the core counties, as we've always been in New Jersey. And then we've also talked about how we've been quite happy. And we have some slides on this that we shared at conferences and things like that, that Georgia is absolutely pacing along the historical growth path that we've seen New Jersey grow along. So we have markets sort of like where we're landing still, establishing our foothold. We definitely think that our core markets in New Jersey are -- I wouldn't say they're mature yet, but we've always done well there. And then somewhere like Georgia, where we've shown that the New Jersey playbook is working well. And it's on obviously, a couple of years back, but growing in a way that we saw with the Jersey markets. So we're pretty happy about that.

Got it. And just really quickly a follow-up on that comment around Georgia, I mean, that's definitely coming in, I think latest enrollment shows around 12,000 members in the States. I know you're talked about replicating what you did in New Jersey and Georgia, but maybe just really quickly, the thought process around jumping into Georgia specifically and then what's kind of helping to drive that outsized growth relative to your expectations from before? That's it for me.

Yes, absolutely. And so we're very data-oriented. So I think someone else alluded we've been in -- we tend have a land and expand strategy with MA, with DC we have more opportunities due to land as well a little bit more flexibly and cost efficiently. But as we look at signal on the market, we look at networks when there's not any one thing, certainly other plans. But I do think that it's a combination of the provider landscape locally, then the benefits we can offer but very centric on do we think we can offer a very, very strong PPO in this market and provide that network choice that Vivek was alluding to. It really is all about that I think that -- we try to emphasize this because so few other MA plans will emphasize the wide network, because narrow network is a priority.

But certainly, most people coming out of commercial are understand that you pick the HMO when you want to compromise and have a narrow network in exchange for some cost savings. But in general, if you can have it you want the PPO. I think that's thinking carries over into Medicare as well. People are just being trained that you get these narrow network HMO MA plan. But the PPO is a more desirable product. So as long as, we have people thinking about that that's really the core of what we've always believed that that choice is good. And then what we're also seeing to add to that is that physician -- that resonates with physicians as well, right. Being able to work with Clover provides some deleveraging from this sort of working to large incumbents helps them with their network negotiations a little bit. So I think that also helps on the physician side.

We'll move next to Calvin Sternick of JPMorgan.

I have a question, going back to the cohort analysis. I know it's not apples-to-apples exactly, it's the non-GAAP versus that 95% to 99% GAAP MCR range you gave. But if I just think about the year-over-year improvement across the cohorts, I mean, presumably a big chunk comes from the earlier or I guess, your more recent cohorts from risk scores improving, but, as we think about the year-over-year improvement, how much -- how did that get allocated really across the different cohorts? Is it more skewed towards more recent cohorts? Or is it come really through some of the more mature vintages?

Let me answer this way. And you can ask follow-on if it doesn't make sense. So I definitely, when people start using Clover Assistant, because we have the ML -- the engine, there were the rules engine because we look at total comprehensive body truth. There certainly ARR additional diagnoses. And in the first year where we say, hey, have you thought about this? Have you thought about kidney disease? Have you thought about this, the risk factors? And that results in risk adjustment credit through diagnoses. However, what we also see is that the cause we push for and insist on care planning for all those which is appropriate from a market position, that doesn't really actually increase that much into later cohorts, like as a physician stays on Clover Assistant in later years.

What we're seeing is that it's really the care planning over a longer duration of time, because obviously, if you catch CKD earlier, and you weren't thinking about that, and you're able to capture the lab test and plan for it earlier, that does move the overall medics curve, it might actually increase medic in the short term, but it'll smooth the medics curve over a number of years. And so the increase from cohort to cohort within the same physician tends to be the effects we believe of the better care planning on MedEx and not from something like risk adjustment.

Okay. And then just one quick one on modeling, a couple of other companies who called out something -- some stuff around MCR seasonality from COVID. I'm just wondering if there's anything that you guys have seen in your population so far that would be notable if you're thinking about modeling out '22?

Yes, I think one thing that -- I think will -- the data is publicly available now, but it's a -- look, we're set up a little bit different in the sense of, but we look on the MA side. So a significant percentage of our members are in New Jersey. And so when you look at publicly available data, so you look at 2021, and even into January of this year, and you go back to 2020, as well. The state of New Jersey ranked #2 in the country, just behind New York, of highest per capita COVID Medicare costs, divided by total per capita Medicare costs. I think it was 200 basis points above the median.

I know we've gotten a lot of questions over prior earnings calls around, how is New Jersey different? Well, the data is now kind of pretty loud, that it is pretty different in terms of experience. We don't exactly know kind of the entire deprivation of that. So I think it's a little bit harder for us to sort of map to COVID seasonality. Given that, and we don't know what this year is going to hold versus last year, we obviously assume it's going be a little bit of a lessened impact.

At this time, I would be happy to return the call to Derrick Nueman for the Reddit portion.

Great, we have time for a couple Reddit questions. The first question is when will Clover announce a permanent CFO? Vivek?

So we have got the meeting some great candidates. And I think a couple things as we're thinking about is, we're obviously looking for someone to be with us from a long time. We're being pretty patient with our choice and we're creating a pretty high bar. At the same time, Mark has done a great job as interim, and I think it's given us the luxury of time of being able to be pretty patient with the choice. And at the same time, we've been able to bring on some great talent into the organization over the last few months outside of the CFO role as well. And we created a really strong finance team over the last kind of 6 months or a year underneath, Mark.

Great. Next question, what other possible business pivots, fee-for-service, licensing software, expanding to new healthcare markets are you looking at? Andrew?

Yes, so I wouldn't call a pivot. I think that Medicare is -- we're very comfortable in the Medicare space right now. But there's a lot of room within that to get to that $1 trillion TAM that we've always talked about, right? Our goal is to be the pre-eminent physician enablement platform within Medicare for value-based care. We started in MA, we brought that to fee-for-service where we've been very successful, I think in using our software platform to be able to enable physicians to come to value-based care in fee-for-service. And then there are other places, where it would make a lot of sense for us to enable them to do similar things, perhaps in their other MA plans, perhaps like with areas like Medicaid, for example, which are very adjacent to Medicare. So plenty of room for us to be able to explore new models while staying very consistent, and building on top of our current success.

The sign-up question from Reddit given our time constraints, what new enhancements are being added to Clover Assistant in the near future? And then we'll turn it over to you back for closing remarks.

Yes. So there are big features and there are small features. So what we're always doing is like, just top of mind for me is constantly iterating and doing tests to see like everything down to the smallest things. For example, I know, we're looking at stuff right now, where we're making it easier for physicians to see data points that didn't come from their own practice, maybe there's our lab reports, or maybe those are from other physician practices. And they want to use that information to be able to aid in their own decision-making.

We're making more of that data available. We're constantly building more integration to pull that stuff in. And then making sure that's very easy to access in CA. That's core to what we do, but even just saying something as simple as that there's dozens of different sub features underneath that that we could build to -- in the purpose -- to serve that particular need, but really excited about that, we're constantly iterating trying new things. And then we'll launch major new features probably like 2 or 3 times a year.

Great. Vivek?

Thanks, Derrick. To just close, we appreciate everyone's time today. In summary, we feel really, really good about where we are today, particularly our team, our growth, improvements, MCR, and in particular, lowering our OpEx as a percentage of revenues expected in 2022. And just reiterating what I said earlier, there's a ton of great work being done this year to drive further margin improvements. And because of that, if a number of things do fall into place, it is even possible maybe profitable next year on a non-GAAP basis when excluding non-cash expenses and non-recurring expenses. But enabling this is Clover Assistant and that's providing as a true and growing technology node, while we're making a meaningful and positive impact on health equity on our mission of improving every life. Thank you again, everyone.

This does conclude today's program. You may now disconnect your lines and everyone have a great day.