Signify Health Inc (SGFY) 2020 Q4 法說會逐字稿

Ladies and gentlemen, welcome to Signify Health's Fourth Quarter 2020 Earnings Conference Call. My name is Simona, and I will be coordinating the call today. (Operator Instructions)

I will now hand you over to your host, Jennifer DiBerardino. Jennifer, please go ahead.

Good morning and welcome to Signify Health's Fourth Quarter and Full Year 2020 Earnings Conference call. This call is being webcast live and a recording will be available on the Events page of our investor website at signifyhealth.com through May 25, 2021. Throughout the call this morning, we will be referencing the financial tables that appeared in our press release dated March 24, 2021.

On today's call, we will discuss Signify Health's business outlook, and we will make certain forward-looking statements within the meaning of the federal securities laws. Please note that the cautionary language about our forward-looking statements is presented in our earnings press release and in our annual report on Form 10-K, which will be filed later today. That same language applies to this conference call.

We will also discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin. Reconciliations to the relevant GAAP numbers for these non-GAAP measures are included in the press release.

Joining me on the call today are Kyle Armbrester, Chief Executive Officer; and Steve Senneff, President and Chief Financial Officer.

The format we will follow for today's call is a strategic business overview from Kyle, followed by a financial review by Steve. We will have an operator-facilitated question-and-answer session after our prepared remarks. Now I will turn the call over to Kyle.

Thank you, Jennifer. Good morning and thank you for joining us for our first earnings conference call as a public company. We enjoyed meeting many of you during our roadshow, and we are happy to provide you with an update on our business, which delivers significant value to individuals along the continuum of care.

I want to start off by saying thank you to our provider networks and our employees for all their tremendous work over the past year. As you saw in the financial results released last night, the Signify Health team's hard work helped accomplish a great deal in 2020 during unprecedented times. We grew our top line last year by 22% to $610.6 million and delivered $124.9 million of adjusted EBITDA, an increase of 34% with a corresponding adjusted EBITDA margin of 20.5%. These results reflect strong performance across all of our services and expanded growth with our customers.

For those of you less familiar with Signify Health, we believe we are at the forefront of the movement to value-based care with payers and provider partners across the whole continuum of care, activating the home as a key part in that continuum. We believe a focus of this movement is the shift from traditional, facility-centric, fixed-rate, fee-for-service models towards a preventative, holistic model increasingly in an individual's home. We believe Signify Health has become an integral partner for our customers and their success as they aim to participate and thrive within the value-based care arena. We are the engine helping them power and create value-based payment programs. And by helping them to drive better patient outcomes and capture revenue through a more efficient and effective management of care, we become a critical driver of their long-term success.

While we activate the home as a key site in the care continuum, it's important to note that we are not a home health company. We don't employ a single home health worker at Signify. We have a nationwide network of about 9,000 providers that we mobilize across every state and every county of the United States comprised of doctors, nurse practitioners and physician assistants who go into over 1 million unique homes, facilities and community organizations.

We have 2 segments in which we execute our work at scale. In our Home and Community Services segment, or HCS, we help individuals remain healthy and independent at home. Our in-home evaluations are nearly an hour-long, comprehensive visits where our contracted providers document approximately 240 data points, which are then audited and shared with health plans to capture conditions and address unmet patient needs. The findings from these in-home evaluations are shared with the patient's primary care physician or specialists to provide a holistic view of the patient, including their clinical, social and behavioral needs that we can address through our network of community organizations and social and clinical care coordinators.

More than 90% of the time, patients who have an in-home evaluation engage with their primary care physician or follow up with a specialist. This is an important statistic for health care in that it helps drive continuity of care and preventative services that can ultimately help prevent adverse events such as a hospital admission or unnecessary readmissions. At the height of the pandemic last year, our in-home evaluations became even more critical as people were trying to balance social conditions and manage their chronic health conditions while staying home to stay healthy.

Using our member engagement team and proprietary technology, we are able to deploy our 9,000-provider network to members either virtually or in person with comprehensive COVID-19 safety protocols. Customers requested that we deliver against significantly higher goals despite the temporary pause due to COVID-19 that occurred starting in late March 2020. Our team was able to successfully pivot in a matter of weeks to offering virtual in-home evaluations in support of our customers and their members. In 2020, we performed over 1.4 million unique in-home evaluations, including 500,000 virtually. We believe and customers have told us the help we provided was critical and, in some cases, life-saving services during this period of isolation for so many.

Our unparalleled access to the home through our nationwide network of clinicians provides additional growth opportunities. Beyond IHEs, we have the capability to perform in-home diagnostic services, utilizing our expanding device, hub which includes peripheral artery disease testing, EKGs and diabetic eye exams, among other services. This is a growing and differentiated part of our business that we are excited about and are investing more in this year.

In conjunction with an IHE, we can also provide social care coordination services to address food and security, slip and fall risk, access to transportation, social isolation support and the financial resources to afford medications. We refer to this service as an IHE+.

While our network is predominantly focused on use cases mentioned above, we are also increasingly diversifying the type of work and the customers who need our services in the home. One exciting area of growth and a great example is our Biopharma services division, where we're working with some of the largest and most innovative life sciences companies. This team is helping increase healthy, happy days at home for individuals participating in clinical trials or with rare diseases, leveraging our same network of in-home providers.

In the first quarter of 2021, we launched 2 oncology support programs, one supporting a pediatric clinical trial and a second supporting caregivers for patients undergoing novel oncology therapies. We also focused on helping patients initiate therapies more quickly and driving persistence and adherence on therapies. Through our pharma industry partnerships, we support a class of multiple sclerosis therapies by deploying our network of practitioners to assess and monitor complex drug initiation protocols in the patient's home. We look forward to continuing to support all of our partners as they expand their in-home service offerings across their portfolios.

In our Episodes of Care Services segment, or ECS, we identify patients entering an episode of care, such as spinal surgery in the acute setting, or proactively identify patients for episodes such as maternity. We then provide next site of care decision support tools and services to facilitate the patient's transition to the most appropriate care setting.

As a part of these services, we work with about 3,000 post-acute facilities across the country and also offer services to help patients succeed once they're discharged home. Our services include ongoing patient monitoring, reviewing admission protocols and coordinating the transition to home, including social and clinical care coordination. Today, we do this primarily through the CMS-sponsored Bundled Payment for Care Improvement Advanced, or BPCI-A, program. In the BPCI-A program, we help drive savings, which we share with the federal government and our provider partners. In 2020, we drove a savings rate of 7.3%, up from 5.3% in 2019. This was a great result as we worked with our provider partners to continue driving positive patient outcomes throughout the pandemic, creating shared savings and delivering value-based payments that have been crucial for many of these providers. We also successfully helped these same partners navigate through the process of bundle selection for the balance of BPCI-A program through 2023.

The success of the Signify model was reflected in the fact that our customers expanded their participation in the BPCI-A program even after a year of tremendous challenges for the health care system. In September of 2020, the CMMI directors' desk issued a letter stating that episodes will become mandatory post the end of the BPCI program in 2023. We believe this will lead to an increase in growth opportunity, thanks to our provider partners who laid the foundation for innovation in value-based care.

In 2020, we also launched our Commercial Episodes of Care product offering, which we expect to contribute to the future growth in episode program size and savings. We currently have 3 commercial customers for whom we are designing value-based payment programs. We launched the state of Connecticut, an employer; and Cambia, a health plan in the Pacific Northwest. I'm also excited to announce that we recently expanded into a new geography, the Southwest, through a contract with Superior, a health plan in Texas. These programs cover inpatient and procedural care, such as sepsis and joint replacement, but also managed conditions and chronic conditions such as maternity, substance abuse, oncology and diabetes.

As we expand our Commercial Episodes of Care product, our goal is to not be everywhere in a shallow way but instead to go deep in specific regions and use our network effect to stack value-based payment programs by adding providers and new, risk-bearing entities, such as employers, ASOs and health plans, in a particular market. We believe we are just beginning to scratch the surface of our large opportunity we see before us in value-based care. In 2020, we performed in-home evaluations in only 1.4 million of the potential 79 million homes where members are enrolled in Medicare Advantage and Medicaid managed care. We are seeing great demand from our customers, including expansion and diversification opportunities to drive in-home growth. Additionally, while value-based spend across the nation for government and commercial lines of business is around $400 billion, we expected that $142 billion of this spend lies within alternative payment models where there is real downside risk. In 2019, we managed a program size representing $6.1 billion of that $142 billion.

Looking forward, the self-insured employer market is increasingly moving towards value-based payments. This is our sweet spot, and we believe it represents a significant tailwind where we have a real first-mover advantage with completely aligned incentives to ensure that we're actually driving positive outcomes for our customers by bringing our unique blend of financial technology, data and analytics and holistic care services to activate the home as a care setting.

At Signify, we refer to our flywheel, which describes what has made us successful and also serves as a road map driving corporate strategy, our product portfolio and our acquisition strategy. And there are 4 key components to that flywheel. First, capturing data. We receive extensive data from our clients, then add to it through our interactions with individuals in the home and community. These interactions deliver data that isn't available in a traditional health care system. We also capture real-time data from providers, payers and CMS.

All this data leads to, number two, generating insights. We generate insights through risk stratification, predictive modeling and targeted consumer engagement. We help guide next-site-of-care decisions and design and price episode-of-care programs, which leads to, number three, delivering action. To that end, we drive access and coordination across the entire continuum: ambulatory; acute; post acute; and the home, employing our holistic care model. And last, but most importantly, number four, we improve outcomes. We put the patient first across the entire spectrum of care by reducing unnecessary facility time, ensuring that there is a better consumer experience and outcome at the end and driving more healthy, happy days at home.

The flywheel allows us to drive positive outcomes at a national scale by empowering the large, adaptive networks that are driving holistic care. It enables us to execute and deliver and align incentive programs via our episodes or other value-based arrangements. And finally, it helps us to continue to dig deeper and deeper into our large markets where we want to grow and diversify.

Our model, which is aligned with our customers and their success, has driven Signify's compelling growth and strong financial performance to date, and we believe it will be the core underpinnings for our growth and shareholder value creation over the long term.

Now I'll turn it over to Steve to review our fourth quarter and full year 2020 financial performance.

Thank you, Kyle. Good morning, everyone. I'm excited to be able to present our strong fourth quarter and 2020 results. In addition to successfully adjusting the business to address the impacts of the pandemic on the company and our customers, we grew our business, all while working toward and completing a successful IPO. As I walk through 2020 fourth quarter and year-end results, I will be referring to the tables that appeared in the earnings press release issued yesterday.

I'd like to point out that we are reporting revenue on a GAAP basis, which is reduced by an adjustment relating to equity appreciation rights or EARs. In 2020, the full year impact of the EARs was $12.4 million. And for 2021 and 2022, the impact will be a reduction of $19.7 million for each year.

As you can see in table 1, beginning with the fourth quarter, we had strong total revenue growth of 45%, which is a testament to the strength of our business, model and team. A driver of the growth was HCS revenue, which increased 65% in the fourth quarter. As Kyle mentioned, during the pandemic, we received increased customer demand to perform evaluations in order to keep members engaged as they remained at home. Additionally, the pattern of the when evaluation revenue typically occurs was altered by events in the first half of 2020. Historically, the fourth quarter tends to be our lowest revenue quarter for HCS as we work through client member lists. Due to the pandemic, we made the shift to virtual IHEs during the second quarter for a short period of time as we ramped up PPE protection for our providers to get back into the homes. We successfully managed through the pandemic, giving our customers confidence in our flexibility and scale, which led to an increase in IHE volume in the latter half of the year, driving strong fourth quarter revenue.

Our expectations are that HCS revenue growth will continue to be strong in 2021 and also following a more typical seasonality pattern where costs and utilization is better spread out across the year. We expect the seasonality trend to return to a higher first half for IHE volumes compared with the second half of the year, with the fourth quarter generally being a lower revenue quarter.

Still on table 1. ECS revenue grew 3% in the quarter to $44.7 million primarily due to improvements in the savings rate, offset by changes in the timing of recognizing revenue between the third and fourth quarters. In the BPCI program, we recognize the revenue attributable to episode savings based on our estimates of savings realized. Each quarter, we evaluate if any adjustments to our revenue estimates are required based on the monthly information we receive from CMS. The most significant adjustments tend to be in the second and fourth calendar quarters when we receive reconciliation statements from CMS. These statements include some detailed information about our performance that we use to revise our estimates in light of actual results.

Timing in 2020 was a little different. In the third quarter of 2020, we had sufficient information that savings would be higher than we had originally estimated. Therefore, we booked a favorable adjustment to revenue in the third quarter ahead of the reconciliation received in the fourth quarter. In contrast for 2019, the company recorded all of the revenue related to the savings rate reconciliation in the fourth quarter.

Moving to Table 4. Total company adjusted EBITDA for the quarter increased 46% to $38.9 million compared to $26.6 million for the fourth quarter of 2019 driven primarily by strong revenue growth. In turn, we had an adjusted EBITDA margin of 20.2% in the quarter, a 20 basis point improvement from a year ago. HCS contributed $30.5 million to total adjusted EBITDA in the quarter with ECS contributing $8.4 million.

Back to Table 1 and turning to full year 2020 results. We had an extremely strong year in light of COVID and in our first full year as a merged company. You can see our overall revenue growth for the year of 22% was driven by strong growth in HCS and ECS. HCS revenue growth of 20% was driven by an increase in IHEs to more than $1.4 million for the year from $1.1 million in 2019. In ECS, revenue growth of 28% was driven by approximately 200 basis point improvement in the weighted average savings rate to 7.3% from 2019 levels, demonstrating positive momentum and the significant value we are delivering to our customers participating in the BPCI program. This substantial improvement reflects our work in helping providers improve their performance as they matured in the BPCI-A program. To a lesser degree, this also reflects the effect of COVID relief offered by CMS, which resulted in a selective exclusion of certain episodes.

Partially offsetting the savings rate improvement was a decline in the weighted average program size to $5.2 billion from $6.1 billion in 2019. The decline in 2020 program size was due to 2 factors: first, the overall reduction in health care utilization as a result of the pandemic; and second, CMS' decision to temporarily allow certain bundles to be excluded from the program. We expect our 2021 program size on a weighted average basis to approximate 2020 levels. However, as we exit 2021, we anticipate a program size run rate of approximately $6 billion, assuming that the pandemic continues to subside throughout the year and COVID bundle exclusion diminishes.

On Table 4, you can see that total adjusted EBITDA for 2020 increased 34%, while the adjusted EBITDA margin improved by approximately 190 basis points to 20.5%. HCS segment adjusted EBITDA for 2020 contributed $96.3 million to overall adjusted EBITDA for the year with ECS contributing $28.6 million. This strong performance was driven by revenue growth due to the higher IHE volume and substantial improvement in the savings rate for ECS, partially offset by investments to grow commercial products and technological capabilities where we see ample opportunity for growth.

As you can see in table 3, we managed through COVID very successfully in terms of our 2020 cash flow. We increased cash by $26.8 million to end the year with unrestricted cash of $73 million. We ended 2020 with debt outstanding of $412.5 million, $77 million in capacity under our revolving credit facility and a net leverage ratio of 2.7x. After factoring in the approximately $610 million in IPO proceeds, net of underwriting fees, we are in a very strong net negative debt and leverage position. We plan to use the proceeds to continue to invest directly back in the business and make potential acquisitions. We will continue to evaluate our capital structure for optimization in light of our stronger financial position following the IPO.

I want to provide a few housekeeping items related to our recent IPO and our financial statements. You'll note that we did not show earnings per share in the results of operations tables in the earnings release. The Up-C structure that we've put in place in conjunction with the IPO did not incur until February 2021. The financials we presented for 2020 were under our prior partnership structure. We will disclose earnings per share reflecting our current capital structure beginning in the first quarter of 2021. There will be a 2020 earnings per unit number disclosed in our Form 10-K that we intend to file shortly, but it will not be comparable to 2021 EPS. Management will be focusing on revenue and adjusted EBITDA when evaluating the financial progress of the business.

The Up-C structure with Signify Health, Incorporated. as a public company corporate entity will also change how we account for taxes. In 2020, as a partnership, the tax burden rested on the individual partners, and you will note we did not have any corporate tax expense. Post reorganization, Signify Health, Inc. will be subject to corporate tax on its majority share of income from Cure TopCo, LLC, the partnership below it, although we will still be required to make some tax distributions to the noncontrolling interest. We expect the blended federal and state statutory tax rate will be approximately 25% in 2021, excluding any stock option activity or nondeductible items.

Now I'd like to walk through our 2021 guidance. The following estimates are for the full year and assume that the COVID-19 pandemic subsides throughout 2021: total GAAP revenue in the range of $725 million to $760 million, net of the $19.7 million reduction in revenue due to equity appreciation rights, and total adjusted EBITDA in the range of $150 million to $160 million.

We are providing 2021 estimates for several key performance indicators or KPIs. For our HCS segment, we estimate in-home evaluations in the range of $1.7 million to $1.75 million. For our ECS segment, we estimate our weighted average program size will be in the range of $5.1 billion to $5.3 billion, and we project that we will achieve a 25 to 50 basis point improvement in our weighted average savings rate from our 2020 levels.

We have great momentum going into 2021, and I look forward to being able to update you as we progress throughout the year. Now I'd like to turn the call back to Kyle for closing remarks.

Thanks, Steve. I'm proud of what our team accomplished in 2020 during truly unprecedented times, seamlessly pivoting to work from home, creating virtual in-home assessments in a few short weeks' time, guiding our partners through bundled selection while dealing with the COVID impacts on our health care system and generating strong financial results with an achievement of which we are very proud.

As a result of the team's efforts, we were named a fast company's prestigious list of the World's Most Innovative Companies for 2021, ranking eighth in the health category. Fast Company stated that the recipients of this honor exhibited "fearlessness, ingenuity and creativity in the face of the crisis." We have a phenomenal team that truly exhibit all of these qualities, and I want to thank all Signifiers and our network of providers and community workers for a great 2020.

I also want to thank our shareholders who are going on this journey with us. We take your investment in our company very seriously, and we believe we will be able to generate significant shareholder value over time. We plan to do that by capturing the opportunity in front of us to power and grow value-based payment arrangements while never losing focus on creating positive outcomes and experiences for the millions of lives we touch every year. We are fully committed to our mission to transform how care is paid for and delivered so that people can enjoy more healthy, happy days at home.

Now I will turn the call over to the operator to begin the Q&A session. Operator?

(Operator Instructions) Our first question today is from Robert Jones of Goldman Sachs.

Kyle and Steve, I guess maybe just the first one. And you touched a bit on this, but clearly risk coding was a significant issue for the MA carriers in 2020 for 2021. I was just curious, Kyle, maybe if you could comment on kind of what you're hearing and what some of the conversations have been with your MCO partners so far in 2021. How have they responded to kind of getting this right for next year, obviously, as it relates to your offering for in-home assessments? And any kind of anecdotes about increased appetite or increase in master lists? Or anything of that nature just to give some context on how your partners are responding to the risk coding issue, I think, would be really helpful.

Yes. What was great for us, I mean, is I think everybody saw the importance of the in-home presence in general. And so we actually exceeded most of our goals for folks in 2020, which is why you saw the financial numbers that we just announced. And so the majority of the shortfall was actually from physician office visits. And so obviously, during the pandemic, a lot of physician offices were shut down or there was delays in elective procedures or other means for folks to go in where they get an annual wellness visit or some other type of visit that would result in risk coding. So it was a tailwind for us.

We saw some additional lift at the end of last year. And I think going into this year, we're seeing a lot of the plans realize the benefit. It's -- and again, I think risk coding is just one component of it. I think that what we're also seeing is the quality and risks have emerged at almost every managed care organization and that the chief medical office and medical directors are getting more engaged. And I think a lot of folks are excited about our model that brings in connected devices, social determinants of health and where we're closing a lot of gaps in care and getting folks back engaged with their clinicians when we detect a condition or detect once they need help 90% of the time when we go inside of the home. And so I think it's twofold. Kind of one, we're seeing more value; but number two is home is a place that's more stable and where folks are preferring to get care delivered now more than inside of a provider's practice for some activities.

No, that's super helpful. And maybe just one on the ECS side. I think in December, you talked about the program size for 2020 being about $5 billion or just over $5 billion. It looks like now you're saying you wrapped up the year at $5.2 billion, so I just wanted to understand that dynamic. But then I guess the more important question on that side is calling for flat program size in '21. Any context you can give around implied utilization of the program versus 2020?

Hey, Bob, it's Steve. Look, the way we look at program size is we finished the year strong. We've got a solid program size base. Just to remind everyone, we've got the impact of the pandemic. And so we had -- as you mentioned, utilization was down. We have -- the way we're thinking about it is we do think the weighted average will be relatively flat to 2020. But throughout the year, we expect, particularly in the back half of the year with the vaccination programs that are out there now, we'll start to see some of that volume rebound. And that's the way -- really what we're focused on in 2021 is with our ending run rate. And we believe that we can get our ending run rate on program size back over $6 billion, which will set us up for a very strong 2022.

Our next question is from Michael Cherny of Bank of America.

Congratulations on strong first results as a public company. Yes. Kyle, you went through a lot of details, but I want to, I guess, dig a little bit further on what Signify is and particularly on the HCS side of the business. You rightly highlighted that you're not a home health business, that you don't employ some of those home health entities. That being said, there's a whole host of substitution and competition that seems to be emerging across the home health market. And so as you think through especially with your partners and the types of other services they have, how do you think about that competitive landscape? And how do you think about who is the best match, best fit of what you do versus who doesn't have that combination of partnership plus integrated technology model that allows Signify to deliver the results you have?

Yes. Good to hear from you. So what's interesting, so much of the work that we do has to be done by a top licensed clinician, so a doctor or a nurse practitioner or a physician's assistant underneath the direct supervision of a doctor. And so that is the complete opposite of a home health agency and the home health workers that they employ. And so they, by regulation, cannot do a lot of the work that we're doing inside of the home. So we're actually seeing 0 competition from the home health agencies on the core part of our HCS business.

I would say the other thing that differentiates us is we're spending $100 million a year in technology. The majority of home health agencies are using third-party technology right? PointClickCare, Homecare Homebase. All of our technology is in-house. We've got large outbound call centers. We have a very complex, 240 clinical data capture points that we run through our proprietary iPad application that's connected into about 12 connected devices. And so bringing all that to bear, it's a pretty big technology moat that we've built up around our business that's really driving a lot of value to our partners. And we're investing even more in that technology this year, and we've got more devices we're looking to connect to. We're expanding the clinical and social data points that we're capturing inside of the home and working harder than ever to build digital connection back into the health systems to make sure that, again, we're referring folks back in to get care when and where they need it most.

Again, that's -- it's a very different model with home health agencies that are helping to take care of low-acuity work inside the home, right? We're doing very high, huge work again with top licensed clinicians, and there's 0 substitution from a home health agency for that. And so we don't view them as competitors at all. We think they're great businesses. And frequently, sometimes we refer out to them to come provide their services as partners to us.

Great, Kyle. And then just, Steve, a question. You mentioned on the potential for M&A down the road. Can you just give us, again, more as background since you're new to a lot of people but some of the success that you've had as an organization around M&A historically and why that sets you up for further bolt-on acquisitions, especially given the overarching IT platform?

Yes. Well, let me just reference a couple of things. So we did the Censeo/Advance acquisitions to put those 2 companies together. Then we had the TAV acquisition, then we've had the Remedy acquisition. So we have a history. We just have the patient blocks to acquisition. We have a history of acquisitions. And what I would say is we've really built up the infrastructure to integrate these companies quickly and get them up and running and then leverage our scale to drive the synergies that we have in these opportunities ahead of us. So I think we're well set up to bring on other tuck-in acquisitions to do the same thing.

Our next question is from Steven Valiquette of Barclays.

So I guess I'm curious on the ECS segment. When thinking about the savings rate projection of 25 to 50 bps improvement in '21 versus '20, my sense is probably every year it's got to be somewhat challenging for management to make that projection no matter what the forecast is. I guess I was curious just to hear a little more color around the puts and takes within that projection. And it gives you the visibility to provide that range today. And also, I'm just curious. Historically, have you found you've been able to forecast that within a 25 to 50 basis point range? Or has it been wider deviations, I think?

Yes, I'll let Steve get into the specifics of forecasting and deviation. But just to your first part of your question, it's actually pretty reliably forecast. So one of the things that we've seen throughout the beginning of episodes, and how we have structured our relationships with our clients is something we're very proud about, it is an ongoing change management activity. And so they're actually building an organizational muscle, discipline, better management intake, better transition to home considerations, better next-site-of-care considerations, better readmission programs. So all the core levers that we drive continue to get stronger and stronger inside these organizations. And so it's actually a general march forward is what we've seen throughout the classic version and now reinforced through an advanced version of the program. So just to clarify that one point. And then I'll let Steve just comment on the specifics of how we forecast and think about it.

Yes. Look, it's actually been very predictable with the change management that we've enacted. If you go back in history, 25 to 50 bps has really kind of been a steady-state increase year-over-year. 2020 was a little bit of an anomaly. I think a couple of things contributed to the 200 basis point improvement. One was just we really have engaged partners, and that makes a big difference. When we're going out there and trying to drive this change management, we have to have engaged partners. Two, we did have some of those COVID eliminations. And so those typically came with some higher costs. But we think that everything that we're seeing and driving out there, that the 25 to 50 bps going back to historical is very reasonable.

And I would say, Steve, just one other follow-up point, the -- because we don't go in with 1-day, 2-day episodes or bundles with these partners and we're doing this organizational discipline, we're seeing them push us into new programs out of BPCI-A in a really positive way. And so we've got momentum with ACO, we've got momentum with general transition to home work across other value-based care programs with them. And finally, and we're hosting a webinar, I think, on April 1, we're in direct contact and conversations with a lot of our partners on how we can best help them as well.

And so this has always been our goal, right? We think episodes are a foundational change management element that gives -- making really a lot of good folks in the health system to do a lot of great changes. Well, it presents a foundation upon which we can execute our value-based care engine across a battery of different programs, and we're seeing that come to reality with our clients and it's exciting to see the results.

We have a question from George Hill of Deutsche Bank.

Yes. And welcome to the public markets. I guess, Kyle, I would ask you, as you think about the HCS segment, can you talk a little bit about how the company works with payer organizations to shift the home evaluation volumes, I guess, to the home from either the doc's office or another location where you guys can clearly collect more data? And I guess kind of how do you -- can you talk about what you guys can do to move that evaluation process kind of away from the annual wellness visit and into a location where you guys can collect more data and add more value?

Yes. So it's great. And it's -- kind of what really happened is the good news. So the majority of our clients give us 90%, 95% of their roster kind of when a year starts off. And it used to be different 5 years ago. There used to be analytics and logic. And they would see if they could get them from the doctor's office. They would see if they could pull -- do some extra chart pulls.

There's been, again, a big cultural shift and change in a lot of the managed care organizations where they view these visits as not only doing risk adjustment but also a holistic in nature and preventative in nature. And so they count on us to go in and do readmission prevention, to tackle social problems, ensure that we're doing care coordination work. And so the -- our visits are way more holistic than they used to be, call it, 5, 6 years ago. And this has been a big focus of ours to diversify and expand the scope of services we're doing inside the home.

And I would say beyond that, there is -- we're identifying 30% to 40% on average more conditions and situations, frankly, when we go inside the home versus someone showing up at the doctor's office, and I'll give you a few examples. Coming into the doctor's office, you can't see typically the full battery of meds that they're on. We go to the meds cabinet with them. We get the paper bag if it's in there. We get their pill dispensing box. We lay it out all on the table, see what's expired, look at drug-on-drug interactions and help get them on a better course for a better medication regimen.

We take a look in their fridge. We assess for all risks. So we see that they've got a granddaughter, or grandson that they have to take care of when we're inside the home or they're caring for their son or daughter. And when you pull all that together holistically, it's getting us and our plan partner a better sense of these individuals' lives, a better sense of how to make a positive impact and a better sense of the care that they actually need. And that was my point earlier, that, I mean, that it's no longer just the kind of risk group, the risk and quality groups that emerge. The chief medical officer and medical directors' offices are deeply engaged and rolling out increasingly more programs vis-à-vis us into the home and capturing a lot of this data to inform their own care coordination and social determinant and other programs that they're running either with us or with themselves.

That's super helpful. And maybe just a quick follow-up for Steve. And Kyle, you might comment on this, too. I guess as we think about kind of the inorganic versus the organic growth opportunities, I guess could you guys comment on whether you see the more attractive white space either as more services to the MA plans or more services to provide organizations?

What's unique for us is they're kind of conversion, right? You've got provider organizations increasingly wanting to take more risk, and you've got MA plans that are increasingly acquiring or deeply connecting with more providers. And so the beauty of almost everything that we've done with respect to M&A and on our organic product build is that we're selling them to both payers and health systems, right? And so it's been a great synergy that we sit in that intersection between our 2 largest base of clients.

And I would also say on the life sciences side, as I mentioned kind of in the script, we're seeing those folks increasingly want to get closer to the home, think about how to drive down trial time and increase adherence to trial protocols. It's a lot of the same things that folks want inside of a value-based care team. And so I would say almost all of the acquisitions we're currently looking at and our -- the overwhelming majority of our product road map are synergistic with both client bases.

Yes. Just to follow up on that, George, we're super excited about the organic growth that we have in front of us on both sides, ECS and HCS. And so there's a lot of runway for us. All the numbers, just to be -- to clarify, are excluding any acquisitions. So anything that we would acquire would be additional items to add to what we've already projected as strong organic growth.

(Operator Instructions) Our next question is from Sean Wieland of Piper Sandler.

Congrats on your first print here. So I want to pick up on where you left off with George. And just I want -- I'd like you could to articulate really the synergies between the [fact that much of the conversation] is focused on each individual segment. Kyle, I guess, [you said it] a little bit when you described how the flywheel works. But when this flywheel really starts spinning, from a clinical perspective as well as a financial perspective, what does that really mean for the patient, for the facility, for the payer? And going forward, how do we really track the execution of this strategy for your company?

Yes. It's a great question, Sean, and thanks to hear from you. The number one thing that we've done is inside the episodes, we've added more services from the in-home side. And we call that transition to home predominantly. And it is clinical, social and behavioral in nature, so it's a holistic service that we provide. And it is going to individuals physically, telephonically virtually in and around their acute episode or wherever they are inside the episode and helping to facilitate a happy and healthy transition to home.

And that has driven shared savings up. We're seeing engagement rates there. We kind of thought initially we have a sort of a 30%, 40%, 50% engagement rate on those transition services. We're seeing them in the mid-80s right now. So we've actually had to staff up and get more folks aligned to that service quickly in our key geos, and we're doing that inside the episodes. And all of that helps reduce costs while also driving better patient outcomes, right? Folks want to recover in home. We're facilitating that and making that a reality.

And keep in mind, Sean, if they readmit or if they have an adverse event that drives costs up and creates a poor health outcome, we lose money right alongside our partners. And so this isn't like -- it's not short changing their recovery, it's actually just giving them the ability to recover when and where they want to in a way that's really safe and down inside their home with our clinical and social services helping to make that a reality.

And so what we've done, we've gone out to a lot of our episodic base and taken those in-home providers. And their day might look like this. They start off doing the quality and risk visit inside a home. Then they do a clinical trial next. Then they spend some time either in an acute facility or a post-acute facility, helping to transition folks directly to their home. And so their days have become more multi-faceted in nature, and we expect that to continue. And that is the main synergy we're driving. We have nationwide network coverage in every county of the United States with doctors and nurses and social workers. And we're taking this inside our episodes and other value-based care programs and helping to drive shared savings up. And so I believe you'll continue to see it in the shared savings rate, and we'll keep giving commentary just on engagement rate of the transition to home services as well.

And if we could maybe try to quantify it. Like the -- what's the -- if you were to draw the Venn diagram, what's the overlap today between the 2 segments?

I'm not sure how to best answer that question. I mean we've got several of our health systems contracted now with transition-to-home services, and that's where I've kind of mentioned the adoption rate around either acute and/or in discharge where we transition them into it. With those health systems that are contracted, we're seeing north of 80% to 85% adoption rate. So we're touching the overwhelming majority of individuals and episodes and helping to transition them directly into their homes.

Our next question is from Matt Larew of William Blair.

Just thinking about the commercial market on ECS, you really have 3 different partners in Cambia, state of Connecticut and then the physician group. So maybe can you just help us kind of compare and contrast those opportunities and give us a sense for what the ECS pipeline looks like maybe in terms of number of opportunities, composition and sort of time line to scale up?

Yes. So they're all a little different, which is exciting, and we chose them very strategically. So state of Connecticut is an employer. So this is for the state employees, their spouses, retirees and their spouses that are all covered by the state. And they have gone out and helped us recruit and sign up a large number of provider organizations across the spectrum, including some of the largest in the state, to help originate and drive episodes. So that's one flavor. Cambia regions, which is obviously a payer-provider partnership in the Pacific Northwest and a few Midwest states, we've gone out with them in their Medicare Advantage book initially and are out recruiting folks in those states and then recruiting provider partners, again, to help originate episodes. And then Superior in Texas, we're starting on managed Medicaid with them. So going out and again recruiting provider partners with them.

So we chose those 3 strategically because it gave us exposure to all 3 of those different value-based care-centric books. We're also tapping into commercial populations with all 3 of them over time. And so the idea is to start with one of the anchor populations and then continue to diversify. And then our strategy in all 3 of those geos, so Connecticut, Texas and then largely the Pacific Northwest with Cambia regions is to continue to stack more provider organizations and more risk-bearing entities to drive more episodic density inside those markets.

And then back to Sean's question, once we have density and increasingly more dense in this market, we use more and more of our provider networks in those markets to drive transition-to-home services and to engage folks at various life cycles of their episodic journey.

And it's really important to note, too, we measure directly all those savings levers constantly in real time. So we're looking at readmissions. We're looking at next site of care. We're helping to guide and steer all of those savings levers to help drive better and more coordinated care for individuals. And that applies to both the BPCI-A, the federal program and these commercial programs as we're launching in various markets.

With respect to the pipeline, it's quite healthy. We have several plans that we're talking to, several regional and several national employers that we're in really good, deep conversations with. So we feel quite good about the momentum that we're seeing.

We're being very strategic. There's a lot of demand in markets for this type of rollout and episodic work right now. Employers are -- in particular ASOs, are fed up just with medical costs and are looking for a solution, and we provide one. And so we think we've got a lot of greenfield space there, but we're being very strategic in looking at markets where we know we can get a good anchor risk-bearing entity that we can stack on to help drive more density. And that's really important for us because we're not looking to do this in a shallow way, but a really meaningful way that's transformational when we move in.

Okay. That's really helpful. I actually wanted to follow up on the last point, which is, Kyle, you mentioned self-insured employers have really been a sweet spot for you. And I think, too, that they -- that makes sense, but it seems like a lot of technology-enabled health care businesses also view self-insured employers as their sweet spots. And so I was kind of curious when you're having conversations, whether it's with the C-suite or benefit managers, how you get mind share, move to top of the list and really get them to see you as a solution?

Yes, [to get them interested,] we're giving them guaranteed savings, right, when we go in. So when we create an episode with a risk-bearing entity, we're giving them guaranteed savings upfront. And so it's typically with the CFO, head of benefits, HR. That group, I would say, is generally engaged. It's material usually, the savings, and so the CFO or someone in the finance office is engaged after we have initial meetings.

We're talking -- the conversations usually start in the C-suite or with one of the heads of one of those groups that we talk to. We've got good relationships with national employee unions, regional employee -- employer groups. We work with benefit managers. We talk with TPAs. So it's a really diverse set of individuals that we go and coordinate with to help build really sticky solutions that can help us drive that network density and scale.

And so there's not a lot of other folks out offering a genuine episodic program that is focused on guaranteed savings but also better outcomes for the individuals. And I think that's super important to a lot of employees, right, because these employees and their health and wellness and their happiness inside other health programs, it's super important for retention and recruiting of some new talent. It's a really hot job market right now.

Okay. Got it, yes. I think might -- yes, so maybe I'm be able to squeeze one more in here, which is just on the IHE+ side, sort of the basket of services you can offer. I just wanted to get a sense for how much of a push versus pull this is. Are plans coming due with specific needs that then you own and try to fill? Or are you finding solutions that then you're selling into plans? Just again, something that intuitively makes sense, but I wanted to just get a sense for what that looks like.

Yes. It's a little of both. Some plans are coming and asking for it very proactively, and we've rolled out with a lot of them. And we're seeing great results. It's driving more schedules and more deeper engagement with individuals when we touch them with this deeper, more socially oriented offering that we've built out, right? And so it's been really very well received, and we're very happy with the initial results.

But we're also spending time educating other plans, right? I think SDOH is a big buzzword. It's hard for a lot of folks to quantify the downstream value and benefits. And some folks -- there's a whole spectrum from just light referral management to deep, community-based organization engagement and routing out problems. We do more of the latter, but showing that we're engaging with members and solving their problems holistically by just showing kind of conversion rate and engagement rate of the IHEs because of this expanded offering is really a clean way to talk about value with our clients, and we're seeing that reality out in the market. And so we're very excited about the work that's been done. This has been a big integration from an acquisition we did a few years ago. It's really exciting for us to see it start to take off.

It appears we have no further questions, so I will hand back over to Kyle Armbrester for any closing remarks.

Great. Well, thank you all so much for your interest in Signify Health. It was a great first earnings call for us, and we appreciate all of you dialing in and taking the time. If you have any additional questions, please reach out to Jennifer. And we'll talk to you soon. Take care.

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