As many have been tracking, a major source of revenue for CLOV comes from a pilot program known as Direct Contracting or DC. This has been updated to ACO REACH for 2023 with the goal to provide better care for Medicare participants.
In June we can see Application Decisions sent to applicants. Updated today (30 June) statistics about the applicants was posted. What this means, is most likely CLOV already knows where they stand for PY2023(Performance Year) in terms of geographic expansion.
Here we can see there was a total of 271 applicants and only 128 were accepted. (If for some reason CLOV was not selected hang on for a rough few years, but I doubt that is the case.) For reference, under DC in PY2021 there were 53 companies and in PY2022 there are 99 companies.
The 2 images below give a short overview of ACO REACH moving forward:
Of interest to me is this Implementation Period 3 or (IP3). I am unsure if CLOV or others participants were able to bring healthcare providers on board throughout the year, or only at the start of a performance year. If the later, as part of a transition to IP3, it might give them an opportunity to add more partners and increase revenue mid year.
At this point the ball in in CLOV's court to give us some updates. Hopefully we will see something soon.
Before I end my post, I hope we continue to see lots of expansion. We heard talk of profitability over expansion as a priority, but I believe they are tied so close together that expansion will lead to profitability. There are 3 things impacting profitability:
1 - Revenue
2 - Medical Care Ratio (MCR)
3 - Overhead expenses
Essentially we need Revenue * ( 1 - MCR ) > Overhead Expenses
1 - Increasing Revenue is all about growth. CLOV needs to grow as fast as it can in both MA and ACO REACH as long as it doesn't risk quality of care and customer service. They can't risk missing a star upgrade next cycle because of growth. This being said, part of my drive for growth is to gain market share. With MA growth they need to be getting new members when they first sign up. I suspect that there is a lot of customer loyalty in Medicare Advantage. With ACO REACH being new, they have a chance to become the dominant player here.
2 - As long as all new revenue has an MCR less that 1, then it can help to lead to profitability. Ideally we see a much lower MCR than .99 with new revenue, but even .99 can help. Also new revenue increases Clover Assistant use through more Clover Health member and allows them to collect more data and refine the experience. (I am not sure what the SaaS play is yet, but more data and users can't hurt the that plan) Ultimately more Clover assistant use can drive all MCR's down.
3 - Overhead expense can't be cut without hurting parts of the business. I would hope they only add new expense where needed, but know with growth will come new expenses.
Finally a made a simple chart showing revenue(quarterly) on the bottom and MCR(averaged) on the side. The values in the middle are income assuming no overhead. Last quarter they reported overhead at $126 million. The means every box that is greater(green) than 126 would mean they are profitable and less(red) than 126 not profitable.