Evolent Health Inc
NYSE:EVH

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Evolent Health Inc
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Earnings Call Transcript

Earnings Call Transcript
2018-Q2

from 0
Operator

Welcome to Evolent Health earnings conference call for the quarter ended June 30, 2018. As a reminder, this conference call is being recorded.

Your host for the call today is Mr. Frank Williams, Chief Executive Officer of Evolent Health. This call will be archived and available later this evening and for the next week via the webcast on the company's website in the section entitled Investor Relations. Here is some important introductory information.

This call contains forward-looking statements under the U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the company's reports that are filed with the Securities and Exchange Commission, including cautionary statements included in the current and periodic filings. For additional information on the company's results and outlook, please refer to its second quarter news press release issued earlier today.

As a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in the company's press release issued today and posted on the Investor Relations section of the company's website, ir.evolenthealth.com, and the 8-K filed by the company with the SEC earlier today.

At this time, I will turn the call over to the company's Chief Executive Officer, Mr. Frank Williams.

F
Frank Williams
executive

Thank you, and good evening. I'm Frank Williams, Chief Executive Officer of Evolent Health, and I'm joined by Nicky McGrane, our Chief Financial Officer.

I'll open the call this evening with a summary of our financial performance for the quarter and share our perspective on the overall market and our pipeline. I'll then hand it over to Nicky to take us through a detailed review of our second quarter results, and I'll close with an update on our clinical operations. As always, we're happy to take questions at the end of the call.

In terms of our results for the quarter ended June 30, 2018, total adjusted revenue increased 34.7% to $144.5 million from the comparable quarter of the prior year. Adjusted EBITDA for the quarter ended June 30, 2018, was $4.9 million compared to negative $3.6 million from the comparable quarter of the prior year. As of June 30, 2018, we had approximately 3.1 million total lives on the platform. With the announcement of 3 Medicaid partners this spring and a new partnership with Torrance today, we've welcomed a total of 9 new partners to the Evolent national network this year. Overall, we're pleased with our results having met our strategic and financial objectives for the quarter.

In terms of the macro environment, we continue to be encouraged by the direction of the new administration in demonstrating a commitment to moving the market towards value-based care payment models. First, Secretary Azar [indiscernible] and key leaders in Congress have repeatedly emphasized the importance of accountable care and value-based reimbursement as key tools for managing skyrocketing costs in both Medicare and Medicaid.

Second, while we haven't seen a market-moving policy announcement to date, we are seeing a number of exploratory moves that are sending a clear signal to providers about their future intentions. For example, CMS is actively soliciting feedback from organizations through [ a Stark ] RFI on value that's seeking ways to remove regulatory and legal barriers for aggressive risk-based models. In addition, a new bipartisan House Innovation Caucus is also exploring ways to accelerate innovation through value-based models.

Secretary Azar also recently tapped new CMMI Director Adam Boehler, to lead the charge in accelerating one of his 4 key pillars: the transition from fee-for-volume to value-based care. Based on his extensive experience working on innovative risk performance improvement models, we believe Director Boehler will be aggressive in developing new models that align financial incentives for providers in improving health outcomes.

These moves, combined with significant efforts in several states to innovate in Medicaid, new HHS requirements around pricing transparency and supplemental benefits, and the increasing use of waivers to drive innovation, are creating opportunities for entrepreneurial provider organizations to move into profitable risk-based arrangements. Most importantly, if you're a physician group or health system attempting to read the tea leaves on future policy, all of the signs point towards an emphasis on population health and risk-based contracting. To that end, we continue to engage Evolent network partners in productive conversations with policy stakeholders and lawmakers in D.C. and are encouraged by our most recent discussions, both in improving the structure of current programs and in potentially introducing new initiatives that can help us accelerate market adoption.

In terms of our recent new partnerships and current pipeline, we come into August with both a strong and diverse pipeline across a number of key areas. We're pleased to see a number of larger opportunities moving through our partner development process and to see considerable interest from IPAs, health plans, health systems and larger networks across multiple regions. While some organizations are looking to fundamentally transform their business, others are more focused on improving operations using our scalable infrastructure and solutions. We're well positioned to meet both market needs through our integrated platform, which serves all populations including the Medicaid, Medicare, commercial and individual segments.

Most importantly, it's our ability to deliver positive clinical and financial results for our current partners that has built a strong reference base and established Evolent as the leader in the value-based care marketplace. In particular, our investments in the Medicaid Center of Excellence and specifically in in-depth clinical programs, the Identifi platform, and an integrated health plan services infrastructure have led to considerable momentum and wins this year in several Medicaid markets.

Medicaid continues to present a significant opportunity for Evolent and our partners, given that it represents over $550 billion in spending nationally on an annual basis. We're serving a critical role in several regions deploying a provider-led managed care model alongside our provider partners to help lower medical costs and improve health care for at-need patient populations.

In May, we announced our partnership with Lee Health in Fort Myers, Florida to assist them in providing physical and behavioral health care services through Florida's statewide Medicaid-managed care program in Region 8. And in June, we were thrilled to announce 2 additional Medicaid partners in Florida: Baptist Health Care in Pensacola, serving Regions 1 and 2; and Nicklaus Children's Health System in Miami, serving Regions 9 and 11.

In total, Evolent will help launch and operate Medicaid plans in 5 regions of Florida that cover more than 1 million eligible beneficiaries. Long term, it gives us a strong entry into the fourth largest Medicaid population in the United States. Establishing a major presence in key markets like Miami-Dade, Palm Beach, Fort Myers, Pensacola and Tallahassee also creates a long-term growth opportunity in Medicare and other populations as we look to leverage the network and infrastructure in each market more broadly.

Implementation is currently underway as we help our partners prepare to launch their respective health plans. Standing up a full infrastructure in 6 months is a heavy lift. Teams have been working diligently to meet critical state-driven readiness milestones throughout the summer and are focused on preparing for upcoming enrollment periods and operational readiness. Pending readiness review, these 3 plans are slated to begin operations in late 2018 or early 2019. The fact that Evolent has the ability to leverage a significant investment in scalable operations and to rapidly deploy broad expertise to the market is an important part of the value proposition for our partner organizations. There's no way that they could have done this on their own, given the short time frame, new capabilities required and on-the-ground resources needed to meet the needs of ACA and ultimately perform in the market.

Switching gears to another important segment of our business, one of our core competencies for helping provider organizations create and capture value is risk adjustment, which continues to represent a strong growth opportunity for Evolent. In this area of our business, we're highly focused on delivering results for our partners to drive efficiency and improved performance across our networks.

Recently, one of our risk adjustment partners exceeded its projected business case by more than $12 million, providing them with a much-needed financial boost in their value business. It's not by accident. Our methodical and unique approach of engaging network providers in the day-to-day process is also delivering highly differentiated results. For example, rather than offering direct coding support, we provide our partners with the education, training, technologies and actionable analytics they need to improve performance with their current workflows. Our risk adjustment solution, powered in part by Identifi, offers a single workflow to consolidate operations in a multi-payer environment.

Our ability to innovate and stay on the cutting edge of technology has also been critically important. Our solution integrates automation tools and machine learning risk adjustment analytics. And it's helped create a better provider and patient experience for a wide range of our partners. We're also leveraging artificial intelligence to create rapid cycle improvements in our analytics package across multiple lines of business as well as leveraging the network to identify rigorous operational best practices for improving performance. These innovations have helped Evolent stand out in the market as we continue to demonstrate results.

To that end, I'm pleased to announce a new risk adjustment partnership with Torrance Health IPA and Torrance Memorial Integrated Physicians. Torrance Health IPA is a nonprofit, multi-specialty physician network and division of the award-winning Torrance Memorial Health System based south of Los Angeles. Torrance Memorial Integrated Physicians was established in 2012 to launch a Next Generation ACO. Torrance Health IPA and Torrance Memorial Integrated Physicians collectively manage more than 20,000 Medicare Advantage and Next Generation ACO lives. These organizations are leveraging our Identifi population health platform and risk adjustment solution to help enhance performance across a network of 500 providers in the Los Angeles metro area, with an ambition to expand the network and lives under management over time. Torrance has a strong reputation as an innovator in the market, and we're incredibly excited to welcome them to the Evolent network.

Turning for a moment to our performance with True Health New Mexico. The plan is off to a strong start in 2018, exceeding its operational and financial targets. In a recent study, the New Mexico Coalition for Healthcare Value revealed that True Health New Mexico outperformed its competitors in the market in several key performance benchmarks, including the lowest number of hospital bed days and emergency department visits per capita. Ultimately, that means better, lower-cost health care for patients and an opportunity for True Health to expand market share over time.

In terms of the overall environment around same-store growth and renewals, we generally feel good about our overall performance across the network year-to-date. As we look across our partner base, we have a number of partnerships that are performing quite well from an outcomes perspective and have strong possibilities for growth heading into next year. This includes the Next Gen ACO cohort as well as a number of our health plan services clients. A few partners in the network have opportunities for stepwise increases in lives under management, and we're working diligently to try to close those opportunities between the now and the end of the year.

We anticipate continued softness in the provider-sponsored health plan segment in Medicare Advantage, which represents roughly 4% of current revenue. All in all, while we still have several months to go to close out the year, the Evolent network feels reasonably stable with some strong opportunities for expansion in certain areas and some expected contraction in others.

In summary, we're happy about our performance thus far in 2018 and feel good about our setup for the remainder of the year. We welcomed 9 new partners to our network thus far and have a strong pipeline heading into the second half of the year.

With that overview, I'll now turn it over to Nicky to touch on our financial performance for the quarter.

N
Nicholas McGrane
executive

Thanks, Frank, and good evening, everyone. Today, I will cover our financial results for the second quarter 2018. We're pleased to report another strong quarter, marked by solid top and bottom line growth.

Beginning with the consolidated second quarter results. Adjusted revenue increased 34.7% year-over-year to $144.5 million through a combination of continued growth in our services segment as well as the introduction of our True Health segment. Adjusted EBITDA increased $8.4 million year-over-year to $4.9 million, driven by strong revenue growth and 6.7 points of margin expansion.

As of August 3, 2018, there were 77.9 million shares of our Class A common stock outstanding and 0.8 million shares of our Class B common stock outstanding. Adjusted loss available for Class A and Class B common shareholders was negative $2.3 million or negative $0.03 per share for the quarter compared to negative $8.8 million or negative $0.13 per share in the same period of the prior year.

Within adjusted EBITDA, adjusted cost of revenue, which includes claims expenses, increased to $86.6 million or 59.9% of adjusted revenue for the second quarter compared to $66.2 million or 61.6% of adjusted revenue in the same quarter the prior year. Adjusted SG&A expenses increased to $53 million or 36.7% of adjusted revenue for the second quarter compared to $44.7 million or 41.7% of adjusted revenue in the same quarter the prior year. The increase of both adjusted cost of revenue and adjusted SG&A expenses year-over-year was due primarily to the costs assumed from the assets acquired as part of the True Health transaction as well as additional personnel costs and third-party support services across the organization. Combined, our total adjusted cost of revenue and adjusted SG&A expenses as a percentage of total adjusted revenue declined to 96.6% in the second quarter of 2018 compared to 103.3% in the same quarter of the prior year.

Now I'll walk you through the second quarter results by segment. We have delivered strong execution against our plan for the first half of the year with both segments managing to meet or perform above our previously provided guidance ranges.

In our services segment, second quarter adjusted services revenue, before intersegment eliminations, increased 16.8% to $125.4 million, up from $107.3 million in the same period of the prior year. Adjusted transformation revenue accounted for $8.2 million or 6.6% of our total adjusted services revenue for the second quarter compared to $5.4 million in the same quarter last year. Adjusted platform and operations revenue accounted for $117.2 million or 93.4% of our total adjusted services revenue in the second quarter compared to $102 million in the same quarter last year. This increase was driven primarily by new partners that went live in the first and second quarter as well as growth from some of our existing markets, particularly with Passport and Cook County.

As of June 30, 2018, we had approximately 3.1 million lives in our services platform. Our average PMPM for the quarter was $13.24 compared to $12.23 in the same period of the prior year. Adjusted EBITDA from our services segment for the quarter was $5.6 million, up $9.2 million, from negative $3.6 million in the prior year.

Turning to our True Health segment. True Health continues to serve approximately 21,000 large and small group members in New Mexico, producing second quarter premium revenue before intersegment eliminations of $22.9 million. Adjusted EBITDA from True Health for the quarter was negative $0.8 million.

Our medical cost ratio was 80.3% in the second quarter compared to 71% in the first quarter. This was within expectations and primarily attributable to the previously mentioned seasonality experienced from this particular business. We continue to see favorable utilization trends and improvement in the risk mix of the plan versus 2017 and are comfortable with the IBNR reserve exiting the quarter. We expect that medical costs will normalize between the first and second quarter results for the remainder of the year. As such, we are not changing our full year guidance of breakeven contribution from this segment.

Turning to the balance sheet. We finished the quarter with $198 million in cash and cash equivalents. Long-term debt at quarter-end consisted of $121.9 million net carrying value of our 2021 convertible senior notes.

Our claims reserve liability totaled $9.5 million at quarter-end and represents 46 days in claims payable compared to 36 days for the first quarter of 2018. For the quarter, the claims reserve development and associated increase in claims payable is the result of establishing a reserves liability for True Health in the first quarter and the timing of claims payment thereafter as well as the sequential increase in the medical cost ratio. There were no other individual factors that were significant in the claims reserve development in the quarter.

For the second quarter, cash provided by operations was $6.7 million. Cash used in investing activities during the quarter was $6.7 million and attributable to approximately $10.7 million of capitalized software development expenses and purchases of PP&E, offset by $4 million of principal repayment of the implementation funding loan we extended to Cook County. Cash provided by financing activities during the quarter was $17.9 million and largely comprised of increases to restricted cash account held on behalf of our partners for claims processing purposes.

Finally, let's turn to guidance. For the third quarter of 2018, we are forecasting adjusted revenue to be within the range of $140 million to $144 million. The components of adjusted revenue in the third quarter are as follows: adjusted services revenues are forecast to be within the range of $122 million to $124 million. True Health premium revenue is forecasted to be within the range of $22 million to $24 million. And intersegment eliminations are forecasted to be approximately negative $4 million. Adjusted EBITDA in the third quarter is forecasted to be within the range of $3 million to $5 million.

For the full year, we expect to be within our original guidance range of $570 million to $585 million of total adjusted revenues. We are making 2 small adjustments to full year guidance: reducing the high end of the range in the services business by $5 million and adjusting the intersegment eliminations to $15 million -- to negative $15 million to negative $20 million. The adjustment in the services business guidance is due to timing of health plan launches in Florida.

As a result, the components of full year adjusted revenue are as follows: adjusted services revenue is forecasted to be within the range of $495 million to $505 million; True Health premium revenue is forecasted to be within the range of $90 million to $95 million; and intersegment eliminations are forecasted to be approximately negative $15 million.

We expect full year adjusted EBITDA to be within the original range of $18 million to $23 million, but likely toward the middle to the lower end of the range based on the timing issue in Florida cited above.

In summary, we're pleased with our performance in the second quarter and first half of 2018. Our focus now is on executing against our plan for the remainder of the year, while continuing to drive continued growth and momentum into 2019.

With that, I will turn it back over to Frank.

F
Frank Williams
executive

Thanks, Nicky. I want to close with a few updates on our clinical operations. Much of the discussion in the health care policy world is centered on how to evolve the payment system to reduce spiraling cost pressure, particularly [ clinical ] cost, which makes up over 85% on total spending. Accordingly, an absolutely critical factor to success in value-based arrangements is ultimately in managing medical costs and reducing the medical loss ratio. And that's why we've made such a significant investment in supporting analytics, integrated technology, clinical program development, physician engagement and embedded care management. As a result, the Evolent care model and platform is helping to drive some impressive consistent results for our partners across Medicare Advantage, the Next Gen ACO program and Medicaid populations.

In our work with these populations, we're seeing a 21% to 48% reduction in total medical expense, a 33% to 66% [ reduction ] in inpatient admissions, a 36% to 51% reduction in emergency department visits, and a 7% increase in PCP visits. These results in Evolent's care model have been validated by an independent third-party, and most importantly, we're using our own rigorous evaluation process to understand which levers for each clinical condition give the greatest improvements in costs and quality. Our focus on rapid cycle learning and innovation is key to driving near-term results as well as in developing a world-class clinical model for our provider partners. In particular, our ability to identify and engage the right patients well before an adverse event occurs makes a tremendous impact from a clinical and cost standpoint.

Through pilot programs and other initiatives, we found we can overcome common industry issues such as claims lag by aggregating real-time clinical and encounter data and applying artificial intelligence and machine learning algorithms. In one partner market, we're able to reduce the time between the normal lag in accessing critical claims data and patient outreach from an average of 96 days in the traditional payer world to 2 days. This timely engagement can help avoid unnecessary medical costs and the risk of an emergency department visit or long-term hospital stay.

Integrating behavioral health into our clinical care also plays a vital role in delivering outcomes. In an effort to truly integrate behavioral health care into our clinical programs, we've incorporated behavioral health screenings into our assessment and clinical interactions to drive an integrated care planning process. We conducted more than 40,000 behavioral health screenings this year as part of our clinical programs, which equates to roughly 200 screenings per day. These are just a few examples of how our focus on piloting and innovation enables results that we can scale across populations and markets.

Helping providers build confidence and experience in value-based care is also essential to success in value arrangements. Over the years, our partners have generally done well in performance-based arrangements, including Next Generation ACOs and delegated risk arrangements. For instance, in its first year as a Next Gen ACO, one of our partners saw 48% lower medical spend and 66% lower inpatient admissions through our Complex Care program. Earlier this year, we launched our 2018 cohort of 10 Next Generation ACO partners. We're making good traction with the cohort over the course of the year and we've engaged more than 9,000 MSSP and Next Gen ACO members through June.

Our cohort continues to benefit from sharing best practices which have been invaluable to clinical and operational results. In general, these types of outcomes are driving high levels of partner satisfaction across our markets. We have a strong partner base committed to continuing the value-based journey with us. This has opened the door to many same-store growth opportunities, including expanded scope within our clinical programs, potential plan launches, new delegated risk arrangements and managing additional health plan administration capabilities.

In closing, we're pleased with our results for the second quarter and remain focused on achieving our strategic and financial objectives in 2018. We look forward to continuing to deliver strong results for our partners this year to help advance their value-based care businesses and make a positive impact on patient care in their communities.

Thank you, again, for participating in this evening's call, and we're happy now to take your questions.

Operator

[Operator Instructions] The first question is from Robert Jones of Goldman Sachs.

R
Robert Jones
analyst

Frank, I think your comments around the administration support around ACOs and the general shift towards value-based care I think is appreciated. I was hoping maybe you could talk a little bit about the ACO opportunity in 2019, specifically there seemed to be some concern that there's some hesitation from systems and ACOs to sign up, just given some delays at the OMB around a proposed rule and the release of the actual applications for 2019. So just curious if that's crept into your conversations at this point in the year versus the conversations you were having around the ACO opportunities in previous years.

F
Frank Williams
executive

Yes, I would say we haven't seen a real impact on decision-making due to the delays you're referring to. We have a lot of interest in Track 3 and, as you know, that does have some downside risk as well as significant upside. And so we have several partners evaluating participation in that program. We have a number of Next Gen partners which have performed really well in that program and want to look for ways to expand and add lives to those populations. We are not just in the ACO side as you know and obviously are doing a lot on the Medicaid side and with providers that, today, you'll have existing risk lives and yet want to enhance infrastructure. So I would say overall pipeline feels pretty good. It's our feeling that the new administration is going to come out with some new programs and policies that will really encourage providers to be moving more into significant downside risk-oriented programs, and we'll give them some incentives to do that. Obviously, the earlier the better for us because I think that would surely be a catalyst. But overall, I would say we feel generally good about the breadth and depth of the pipeline and haven't seen a slowdown as a result of anything going on in the government side.

R
Robert Jones
analyst

Got it. And then, I guess, Frank, we kind of asked this question from time to time as you guys continue to grow. But you mentioned 9 customers to date. I think you guys had a target of 7 to 9 for the year. To your comments, it sounds like the pipeline is robust as ever, particularly in Medicaid. Anything you can share as far as how we should think about, how much business you can take on, how much business can the infrastructure handle.

F
Frank Williams
executive

Sure. I mean, I think we've done a pretty amazing job historically of accommodating growth and significant growth. This year, as you know, we'll be over a $500 million revenue business in a relatively short period of time. So I do feel that we built a very scalable infrastructure. I think in the first half of the year, we received 60,000-plus resumes, so we're really able to scale from a talent perspective. I would say, if you think about launching 5 regions and 3 health plans in Florida, that's a heavy lift. The team is working round the clock to make sure we're up and running and feel very good about our setup for next year. That's a huge opportunity. So I think the mix of business does matter. Next Gen Track 3, we have a scalable infrastructure that can easily be [ onboarded ] to several clients, trying to stand up. An example would be 4 states in Medicaid at one time across multiple regions would probably strain our infrastructure. I think it would strain anybody. Right now, I think we feel very confident in our ability to accommodate the existing partners that we brought on this year. My guess is, we'll add a couple between now and the end of the year. And again, we feel good about our ability to accommodate that. But surely, in certain situations, there may be limits. But a lot of the investments we've made has been around standardization, scalability, ability to bring on talent, train them quickly and deploy them. And I think we're very well positioned to do that.

Operator

The next question is from Jamie Stockton of Wells Fargo.

J
Jamie Stockton
analyst

I guess, maybe the first quick one, just because I'm sure that there are a lot of people who are going to be curious about this. Nicky, the sequential decline in revenue, at the midpoint in Q3, is that transformation revenue kind of winding down before we see a tick back up around some of these Florida plans going live in Q4. Just any color around that would be great.

N
Nicholas McGrane
executive

I mean, Jamie, I think to our point, we just see it as effectively consistent with what we outlined at the start of the year, broadly consistent across the first 3 quarters. And so I mean, as you know, as you say, transformation does move around quarter to quarter. We expect lives to be pretty consistent, and PMPM, across the back half of the year. So I think it -- we would expect Q3 to come in substantially on par with Q2. So I don't really see an issue there.

J
Jamie Stockton
analyst

Okay. And then maybe more high level, it seems like -- I don't think it's going to overlap too much with what Bob asked about. But it seems like this year, you guys have done a really good job of leveraging the Medicaid kind of Center of Excellence that you developed with Passport to sign a lot of incremental Medicaid business. You've also had a good, let's say, last 9 months or so signing up a lot of business on the Medicare side. Do you feel like Medicare is as far along as Medicaid is? If you could just talk about maybe whether or not the momentum there could continue to build on a relative basis. And then maybe if you could just touch on your ability to share best practices between these clients and what inning you think we're in there.

F
Frank Williams
executive

Sure. I think you're right. We've obviously had a lot of success in Medicaid across really the last several quarters. And if you go back 2.5 years, I'm not -- I don't think we had any lives on Medicaid and we're approaching 2 million lives and entrance into some very large states which have tremendous growth potential. I would say on the Medicare side, we anticipate doubling of Medicare enrollees over the coming years. You have the aging in of the baby boomer population, which is going to be very substantive, and you have significant cost pressure on the federal budget. So I think we saw a lot of momentum in the last administration and then a pause last year, as people were getting their feet on the ground as you were getting new administrators in place. But everything that we hear on both sides of the aisle suggests that the cost pressure is not abating, that there is going to be an aggressive effort to force providers into downside risk and significant incentives for them to do so. That could take its form in a variety of ways, so extensions of existing programs, new programs that are introduced. And we feel very confident that, that will be happening. And again, hard to guess timing with the federal government, but just based on what we've heard, we believe we will see that. You also have major payers that are trying to be as competitive as they can in Medicare Advantage, and given pressure on rates, are looking for highly competitive networks. So a lot of our work is working with existing payers that have lives and creating delegated risk arrangements where they can delegate clinical functions, and frankly, providers can help deliver a better product in the marketplace. So I would say, it's obviously a large market today. It's one that we see accelerating and the pressure will increase substantively, we believe, across the next several quarters. And in terms of best practices, I think one of the things we feel really good about is if you look across our cohort of Next Gen partners, we're seeing very consistent savings being generated that's both for the federal government and dollars in the pockets of our partners. We have successfully taken best practices, both from our clinical research center and other partners, and shared those across the network and we're seeing substantive reductions in hospitalizations, internal medical costs, improvements in quality. And it really is -- it's proving this model that if we can get really deep in specific clinical areas and around specific patient populations, you begin to have all sorts of insights, all the way from the analytics, to the actions that you take, to the clinical programs you develop, to how you engage physicians, and ultimately, how you engage patients. So again, we see Medicare as a big source of growth for us long term, and again, having 10 in our cohort this year has been a big move towards that ultimate goal.

Operator

The next question is from Ryan Daniels of William Blair.

R
Ryan Daniels
analyst

I guess, Frank, a little bit of a follow-up for you. Given the clinical performance you've seen with your partners you highlighted earlier, there's an opportunity for some, I think you used the term, stepwise increases. Is that working with those partners to bid on new at-risk lives or to enter new programs like Next Gen? Or is that really more existing lives that they have in value-based programs that you don't yet have, but given your performance and what you do have, they're likely to move over to you?

F
Frank Williams
executive

I would say, in most cases, we see a substantive opportunity to bring on a fairly large new population. There are some examples where it would be additional services. So we're working with a large body of lives. There's a piece that we don't have today and we're going to add that on. The example you gave, they have lives that we're not currently touching. We don't have a lot of situations like that because, in most cases, we've really pushed the benefits of a fully integrated platform and the ability to have one operation across all their value lives. And in most cases, we therefore have access to their full value business, at least as it currently stands. So it really is generating new opportunity.

R
Ryan Daniels
analyst

Okay. That's helpful. Then Nicky, I know this is a very modest adjustment, less than 1% on the revenue, so largely uneventful. But can you give a little bit more detail? I'm sure people will ask about the Florida health plan. Does that relate to Lee Health, which was the one you already announced, thinking that, that might start sooner? Or is it something different from that?

N
Nicholas McGrane
executive

Yes, I would say back in the dark days of February, we gave full year guidance. We just looked into the fourth quarter and the range of opportunities. But we would have hoped that across that -- the 5 regions in Florida, that the start dates would have been more say the midpoint of the fourth quarter, just based on what we've seen in history, 2 of the 5 are going live late in the fourth quarter. So it's really just to do with that timing and expectation of start date mid-quarter versus late -- fewer -- only 2 of the 5 going live late in the quarter.

R
Ryan Daniels
analyst

Okay, all right. So really nothing, just timing issue. And then last quick one for Frank. You've mentioned again a lot of positive developments in your Next Gen ACO cohort. When do you guys anticipate some of the incremental data becoming public, or available at least for you guys, to market to either existing Next Gen operators your services or those who are interested in joining?

F
Frank Williams
executive

I would say very soon. I mean, the good news is we obviously have immense amounts of data that we track, and so we are able to share some of the current performance year-to-date. We could do it on a [ disguised ] basis. There is a lag with government data. There is a more comprehensive data set that has come out that we began working with. And we feel pretty confident when we're allowed to release it, it will be excellent from a marketing perspective, just looking at our cohort performance versus the average organization participating. We're not able to use that data today, but we believe we will across the coming months and agree that it will be very helpful in some of the work we're doing with organizations looking at some of these programs.

Operator

The next question is from Sean Wieland of Piper Jaffray.

S
Sean Wieland
analyst

Long-time listener, first-time caller. The question -- on the competitive landscape, just curious, your impressions, initial impressions on Lumeris and Cerner teaming up, if you think that, that will have any implications on the competitive landscape and what you think largely about the need to tie up with closer to an EHR vendor?

F
Frank Williams
executive

Yes. I mean, we always monitor the market and competitive offerings. And I think as we've discussed, we're very committed to market leadership and we always want to try to learn from the market and adjust accordingly. I mean, what I would say, in general, is we feel really good about where we're sitting. We believe we built a comprehensive infrastructure, integrated all populations. And we have an emerging national network and 3 million lives. So we do believe we've established that leadership position. As you know, we've really focused on full infrastructure for Tier 1 providers that are really committed to risk. That's what we believe we're built for. And so being able to stand up 5 regions, 3 Medicaid plans in Florida, being able to support every aspect of what a Passport does in Kentucky is where we've positioned our offering in the marketplace. Cerner, as you know, has been in the market ever since we started and they serve everybody. And they serve everyone, we believe, with a lighter offering than a fully comprehensive integrated full health plan offering that we ultimately bring to the table. So we have a lot of Cerner clients that are Evolent clients, and we believe that will continue because we have a very distinctive value proposition and we totally understand when some clients have the Cerner stack and want to use some of the capabilities that they're building in population health. That falls far short of some of the larger undertakings that we have with our partners in terms of full infrastructure. So I would say, given our strategic focus, what we're trying to do in the marketplace, all populations, integrated infrastructure, we don't see a big impact from the partnership. And I would say, competitively, if anything, if you look at the xG offering that came out of Geisinger, I think that's been folded back into Geisinger. Think some of the major payer efforts, and if you look at HealthEngine, not as much emphasis on serving providers. So in my mind, the competitive landscape has probably simplified across the last 1.5 years. And again, we feel like we have a substantial lead in the market, but we'll continue to monitor and continue to innovate our tool so that it has clear differentiation for providers that, again, are really leaping into risk and want to do it across multiple products. But that's our perspective based on what we know today.

S
Sean Wieland
analyst

All right, a follow-up on your commentary around the pipeline. Does your pipeline consist largely of net new footprints? Or is it cross-sell within your existing base?

F
Frank Williams
executive

I would say both. I think a lot of times when we use the term pipeline in this context, we're talking about new. But to be fair, we obviously look at both our current partners and opportunities there as one aspect of the pipeline and then fully new opportunities. And I would say, in both of those areas, I feel like current partners, we have some very substantial growth opportunities that we believe we can close between now and, let's say, the first quarter of next year. And I would say on the new pipeline side, pretty robust and pretty deep across a variety of segments, some existing providers that have existing lives so they already have a footprint in the value business, but are looking for more sophisticated infrastructure, opportunities in Medicaid across several states, and then also we touched earlier on some of the government ACO programs where we have a number of providers looking to get more engaged in downside risk because they realize that's where the market is going. But that's generally how I would characterize a lot of physician ACOs, which has been a newer segment for us, but a lot of opportunities there as well.

Operator

The next question is from Matthew Gillmor of Baird.

M
Matthew Gillmor
analyst

Just a quick follow-up to Sean on the renewal discussions for 2019. I think Frank gave some puts and takes with some larger clients looking to increase and then maybe some risks with respect to Medicare Advantage and some of those clients pulling back. But I'm curious if you could compare the discussions this year versus last year. And specifically, I was curious to know if the growth opportunities you saw were bigger than the attrition risks and how that kind of compares versus this time last year.

F
Frank Williams
executive

Yes, I would just say last year felt a bit like a "deer in the headlights" moment, because the government really hadn't said anything well into August about where they stood on value, what they were thinking from a program perspective. There'd been a whipsaw, repeal-and-replace, replace, repeal. So I think it was a very unique moment and very difficult for providers to know whether they should really continue with a lot of these programs or whether they should pause and see where the government was going to come out. I would say the good news is that there's been enough statements, enough actions by the new administrators that any provider would get a sense that, okay, that's where they're going to continue to go, and there is going to be a push towards value. And so I would say, incrementally, that definitely helps us because we're not having to sort of get over real inertia in the market. Yes, I would say general environment both current network, renewal environment pipeline, we've said we feel pretty good about where we are. And if you'll go across the last several quarters, and I would say, we're in a similar position today. So again, based on what I see, feeling pretty good. We've obviously got the normal work we have to do between now and the end of the year, both with current partners and new, but slightly improved to last year. But still some work to do to close out the year.

M
Matthew Gillmor
analyst

And then one follow-up to Florida, and I suspect you'll probably defer on this. But I was curious, as you think about the 1 million lives in the regions that you're serving, do you have any expectations in terms of how many lives your clients will be serving?

F
Frank Williams
executive

Yes, I would say that it is a real guessing game. We're in 5 regions. The program is just getting rolled out. It's across 3 provider partners. I think what we feel best about is that there is a very strong proposition for local providers that have been in the market, in many cases for over 50 years, that have very strong brands, that have very connected physicians, that are part of those organizations, that are embedded in the community, that they have some real advantages over traditional national plans that have less brand recognition. Sometimes the brand recognition, just because they're managed care players, isn't positive. And so I do think we like the positioning of our partners relative to the other alternatives in the market. And we've done our best to make all sorts of estimates. But I think it would be premature to try to throw out a tight range on what we believe, just that we feel we can have some very successful plans in those regions. Obviously, it will take some time to build those up. And we also see the entry into Florida and opportunities for other populations as a really significant win not only for our partners but also for Evolent.

Operator

The next question is from Richard Close of Canaccord Genuity.

R
Richard Close
analyst

Yes, as a follow-up to that question, I guess, maybe thinking about it on the expense side, depending on how the enrollment tracks once you to get those plans or those regions up and operational. If they don't meet the expectations maybe that you set with your partners, is there any risk of a negative impact with respect to EBITDA from expenses that you incur during those ramp-up periods?

F
Frank Williams
executive

I mean, look, I would say anytime you do a large implementation, and just imagine you get much less revenues than you expect, it's surely going to have an immediate impact on EBITDA. Now we would have a lot of time to make adjustments and lower the expense base and respond. And hopefully, we would make up for that in forward periods. And that's something that's definitionally true with the flexibility of our model and infrastructure and how we would deploy resources. So I think we could adjust very quickly. But by definition, you've staffed up. You've set your budget level based on what you think the population is going to be. And again, some of that is going to be variable. I mean, you would need to make some adjustments. So look, we do a lot of work. I mean, the good news is we stood up over 30 partners. We've done a lot in Medicaid. We've got deep expertise in our team. So we have people involved to get as precise as we can and then to be conservative in how we're building infrastructure to make sure we're managing costs well and all of those sorts of things. So I feel good about how we've approached it. And obviously, we'll have to see where we come out. But we would adjust very quickly if, for some reason, we weren't where we wanted to be on the revenue side.

R
Richard Close
analyst

Okay. And Frank, I thought it was interesting that you highlighted behavioral health and some of the screenings that you've done there so far this year. And I've had some conversations with Nicky actually during the quarter on behavioral health. Do you think that's a big differentiation point for you guys, the amount of behavioral health you're doing and the, ultimately, the results that you guys are posting in some of your clinical operations in terms of that's a competitive differentiation point for you guys?

F
Frank Williams
executive

Yes. Well, first of all, I hope the behavioral health conversations with Nicky weren't about his behavior. But I know what you're referring to, if that's what it was. But in all honesty, if you think about population health and a lot of costs existing with chronic condition patients and the amount of times that a behavioral health issue copresents, it is a major, major area that needs to be emphasized. And if anything across the last 20 years, it was deemphasized, and many times, not integrated. And you could do all that you could do on the clinical side, but if you weren't addressing the behavioral health side, it was difficult to get a depressed patient to get really engaged in their health. And so it's a place -- by the way, our lineage with UPMC, that is, one of their big areas of expertise is incorporating behavioral health. So very early on, we adopted some of the things that they have done in their model. And then we began to expand and think through how do we think about the pharmacy side. So we're using those analytics to identify patients that have that diagnosis but aren't picking up their meds. How do we make sure a social worker is involved, if there's certain issues that present themselves that may be barriers to people's recovery, how do we make sure that we're doing huddles with primary care physicians around these complex patients and making sure they're getting that picture in terms of what they're doing, and then how do we track compliance through our care management activity through the ways that we engage with patients, how do we have softer outreaches that, again, continue to engage them and identify issues. And so that is a big area of emphasis. I think it's made a difference in, frankly, our wins in Florida and other Medicaid situations, as organizations see what we've invested there, and it is an area where we plan to continue to invest because I think, ultimately, it will deliver better outcomes for patients, lower costs and better economics for our providers.

Operator

The next question is from David Larsen of Leerink.

D
David Larsen
analyst

Are there any other states in the near or medium term that we should be watching following Florida that have significant RFP activity ongoing?

F
Frank Williams
executive

Yes. I would say, on the Medicaid side, we have some immediate activity going on with existing providers that are already in the Medicaid market. So again, we have to close those out. But I think you could see us entering a few other states as a result of that activity. On the larger state front, there are several states that we are doing work today where we see significant opportunity. Again, generally for those opportunities, it wouldn't be 1/1/'19, we really would be talking about '20, but several states where we're pretty encouraged by the dialogue that we're having and the potential that we see to do something pretty substantive.

Operator

The next question is from Mohan Naidu of Oppenheimer.

M
Mohan Naidu
analyst

Frank, you referred to machine learning and artificial intelligence a couple of times. Can you talk about your efforts there? First, are these in a situation right now that can make material impact for you or your clients? And do you have access to data to explore and create new scenarios here?

F
Frank Williams
executive

Yes. Again, I think this is an area where from the very beginning, we invested in heavy-duty analytics and pulling data from multiple sources, all the way from claims and clinical to wearables to labs to pharmacy. We began working with the data. We began testing programs. We built an incredible team internally that is really rigorous in terms of their approach. And I would say it's already having a tremendous impact. We believe that our ability to predict patients that are going to incur a major medical event in the coming year -- and again, those are not the same patients that cost you a lot last year, but new patients. And not only predict, but also know the ones that you can impact and then what intervention is actually going to have the greatest opportunity to engage them and then being able to really test those clinical insights, adjust the rules based on what we're seeing in the market, develop clinical programs and interventions that you test and continue to hone. So you end up with a very powerful care management organization that's really driven by analytics, insight, using machine learning and experience to do that. And I would just say already, I feel like it's had a major impact in why we're seeing the consistent clinical savings data across multiple partners. That team continues to really push the envelope. We're doing some really interesting things with some clinical research centers around the country and taking their insights and driving it through the network. So I see this as, for us, really what we were built to do. And we got started, and you start doing things, and you ultimately have to prove the model. And I feel very confident that we can deliver superior clinical results working with our partners. And it's only going to get better with all the insights in learning, and again, the ability to use technology to advance our efforts.

Operator

The next question is from Sean Dodge of Jefferies.

S
Sean Dodge
analyst

Yes. Maybe, Frank, going back to the Florida wins, all the 5 plans you'll be supporting are MMA plans. If we think about the types of services Evolent's going to be providing to each, would that support look pretty similar across all of them? I guess what I'm getting at here is, are the PMPMs Evolent will be paid by each of the plans going to be pretty similar? Are there variations in the services they're going to be using that will cause a differential there?

F
Frank Williams
executive

I mean, there can be different rates by regions, right, so you're going to have some differences just simply in terms of how the rate structure works. There are different mix of services that we might be doing with one provider versus another. In general, I don't think those are hugely material. But you'll see some variability, but I don't think you'll see anything substantially different. Nicky, if you've got anything to add, feel free. But again, I think, in general, you'll similar PMPMs.

N
Nicholas McGrane
executive

I agree. Pretty similar across all 3, small variation, but broadly similar.

S
Sean Dodge
analyst

Okay. And then, I guess, what's a fair assumption for PMPMs related to those? Is something in the mid-20s in the ballpark?

N
Nicholas McGrane
executive

Yes, it's reasonable. But we think about it more as percent of premium, but that's not a bad target to aim at.

Operator

The next question is from Donald Hooker of KeyBanc Capital Markets.

D
Donald Hooker
analyst

Yes. You called out -- I guess, this isn't really new, but you mentioned some ongoing weakness with provider-sponsored MA plans. What would -- looking out with a crystal ball, what would -- what might change your optimism level there? Are you looking for something from D.C.? Or what are you looking for there?

F
Frank Williams
executive

No. I would just say, as you know when we launched the business, we had a few provider-sponsored MA plans that we worked with. There are some reasons structurally why those plans, if they don't really aggressively get to scale, can struggle from an economic perspective. And so some of the plans we worked with had an initial bolus of lives, did some things which sort of disadvantaged the plans because they're really promoting their fee-for-service business. And when you do that, you put economic pressure on the plan. So what I would say, and if you look at Premier, I think, as you know, they exited their MA business this year. That's an example of something. That portion of our work with them will go away going into next year. And so I do think with those specific plans, you'll see some of that softness. We've done a lot of things to try to address that. So one, making sure that upfront we set up those plans for success in terms of things like transfer pricing and networks. So you're being very disciplined about how you ultimately run the economics of the plan, making sure you've got enough regional coverage that you can get to a large bolus of lives. So you look at the overall plan and feel like you can get to 15,000, 20,000, 25,000 lives over time. Again, to get to scale. So I would say -- and then looking at other programs like Next Gen where you can begin working with partners, get them experienced, get them confident and then migrate them into Medicare Advantage when they've had more experience simply than leaping in. So I feel like we've done a lot of things to address it on a go-forward basis. Small portion of our total revenue today, but we like to give you color on the good things going on across the network and some of the things that create pressure. And that's one area where, again, we likely expect some softness going into next year.

D
Donald Hooker
analyst

Got you. And then maybe focus on maybe something a little bit more positive. The SOMOS IPA you announced last quarter seemed pretty promising. I think that was a lift this quarter, if I remember, 300,000, 400,000 members or something this quarter. It seemed like there were some opportunities to expand that over time. You had invested a lot of money into that -- or some money into that, I should say. Any updated plans there for expansion going into next year or the year after.

F
Frank Williams
executive

Yes, I would just share what you -- I agree with what you just said. It's a phenomenal organization. They have a great reputation, an incredible experience in managing MLR and doing it effectively, incredible ability to engage patients. We're off to a great start with them. We wanted to implement around this initial 300,000 lives, get that base in place, get our clinical infrastructure in place, and we have a number of areas from a growth perspective that we're excited about that are in process. And my hope is that it is something that will have an impact on '19 in terms of growth, both in terms of lives and also some of the services that we'll be providing.

Operator

The next question is from Stephanie Demko of Citi.

S
Stephanie Davis
analyst

Just given the recent tailwinds on the regulatory front, could we see the new wins' pace maybe increase above the 7 to 9 target over the near term? And similar to the earlier capacity question, could you just give us an update on the new hire pipeline and machine learning investments to help us frame how you're scaling with these wins?

F
Frank Williams
executive

Sure. In terms of new clients, we're obviously already at the higher end of our range, with 9 new partners this year. My guess is we'll go above the range. We obviously have to close out an additional partnership or 2, but my guess is that we ultimately end up going ahead of the range. We're becoming a pretty large company. We're approaching $600 million in revenue this year. And by definition, just given our footprint, our number of partners will probably go up. Not prepared to change our expected range at this point, but it might go up to 8 to 10 next year. We'll just have to sort of see, based on where we end the year and how the pipeline feels. In terms of investments, as I mentioned, 62,000 resumes in the first half of the year, just an incredible base of talent we're bringing into the organization. I think that's one of our biggest competitive advantages. And we're investing a lot to onboard that talent rapidly to bring them up to speed to provide training and development opportunities. So they're on a very steep career path. But I think that is -- one of our biggest competitive advantages is talent. And then on the technology side, I would just say that the investments that we've made have paid off. We have a differentiated platform, highly integrated. It's allowing us to standardize and reduce costs in many areas, and then it's enabling us to do incredible things from a clinical performance perspective. So that is an area where we want to continue investing. We want to do it in ways that really differentiate our offering. And the results this year are bringing us confidence that we're getting a significant payback.

S
Stephanie Davis
analyst

Good, good to hear. And then one follow-up unrelated on the True Health business. Could you just give us an idea about your risk capitation in that business and how you're handling reinsurance of the book?

N
Nicholas McGrane
executive

Yes, this is Nicky. We have, per member, reinsurance that's very sort of market standard reinsurance per member. So again, a pretty comprehensive policy in line with, I would say, market standards.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Frank Williams for closing remarks.

F
Frank Williams
executive

Well, we appreciate everyone participating on the call. And we'll see a number of you on the conference circuit starting tomorrow and across next week. And I look forward to seeing many of you in person. Thanks, again.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.