Specialist
Former VP at Cano Health Inc
Agenda
- Major trends and developments in the primary care services industry
- Cano Health’s (NYSE: CANO) recent strategic struggles, discussing resignation of board members and senior leadership
- Cano’s value-based care model and competitive differentiation
- Cano’s financial struggles, capital allocation effectiveness and path to profitability
- 2023 company outlook
Questions
1.
What are some major trends and developments you’ve been following in the US value-based care physician group sector over the past 6-12 months or so?
2.
In April 2023, concerned shareholders of Cano Health issued a statement regarding the board’s entrenchment manoeuvres and latest governance failures. The group believes the board has disregarded shareholders’ concerns by appointing Solomon Trujillo as an Independent Chairman. What are your broader thoughts on the company’s work culture and environment, and what trickle-down impact might the leadership-board of director dynamics have on the organisation overall?
3.
How would you suggest Cano should move forwards regarding the status of Mr Trujillo? Or is it the case that the smaller group of shareholders have strong opinions, and it’s more or less run its course?
4.
Moody’s downgraded Cano’s corporate family rating from Caa3 down to a Caa1, but it has a relatively stable rating outlook. The rating downgrade reflects Moody’s view that the company’s capital structure is becoming a bit unsustainable, and the profitability of a default, by way of a distressed exchange, is relatively high. With its significant growth, there does come some erosion in operating performance and profitability, and there is a possibility this could continue when we look through 2023 and 2024. What’s your outlook for Cano’s current credit story? What are your thoughts on the company’s ability to generate positive free cash flow, as well as some of the erosion you saw during your time there when it was at a period of high growth?
5.
There’s been a lot of M&A activity in the space within the past 6-9 months. CVS was previously rumoured to buy Cano, before then acquiring Oak Street Health in May 2023, which was a deal valued to be roughly around USD 10.5bn. What are your thoughts on CVS’s strategic rationale behind picking Oak Street over Cano, noting the pros and cons between the two companies’ business models?
6.
Aside from the CVS-Oak Street merger, we saw other retail players scoop up Cano’s competitors, including Walgreens increasing its ownership stake in VillageMD, announced in October 2021. How are you assessing the likelihood that Cano could still be an acquisition target in a couple of years?
7.
Cano reported capitation revenue of around USD 841m, which was an increase of 25% YoY, but we saw the PMPM [per member per month] capitation revenue was 13% lower YoY. This was primarily driven by a higher proportion of non-Medicare members, which was partially offset by overall membership growth. What’s your forecasted outlook for Cano’s PMPM capitation revenue to fluctuate as we move later into 2024 and 2025, given the increased scrutiny the MA [Medicare Advantage] space is currently facing in regards to auditing and rate cuts?
8.
How might accelerated capitation membership growth erode Cano’s risk adjustment capabilities? Or is it more so if we see more impact on the ICD [International Classification of Diseases]-10 or ICD-9 changes, that would materially impact the company’s risk adjustment capacities more significantly than accelerated capitation membership growth?
9.
What improvements has Cano made in either its risk adjustment or population health management departments to be able to better serve a higher volume of risk-bearing patients?
10.
What’s your take on the opportunity the Medicaid redetermination might pose for Cano to fuel organic membership growth within its Medicaid and ACA [Affordable Care Act] business?
11.
Can you explain what methods Cano Health utilised to better manage cost of care in comparison to other PCP [primary care provider] groups?
12.
How would you compare Cano Health’s level of patient engagement and preventative tactics within its MA population vs Oak Street Health?
13.
Labour has been an issue for virtually every player in the healthcare space. How has Cano weathered physician labour shortages and combated the rising wage inflation? When you were with the company, did you see any strategies implemented to combat turnover levels and maximise retention that either fared relatively well or poorly?
14.
We saw SG&A expenses decrease for Cano from roughly USD 108m to USD 96.5m from Q4 2022 into Q1 2023. What should we be attributing this decrease in SG&A expenses to? What are you seeing in terms of physician total comp, and how is that factored into the overall SG&A expenses?
15.
What challenges Cano faces with scaling or expanding its value-based care model into new geographies? To what extent is Cano’s standardisation of internal operations easily replicated across newer markets with different demographics than its core market in southern Florida?
16.
Cano’s 2023 projected medical centre footprint will downsize marginally from 172 to 170. Could you discuss the typical timeline to profitability the company realises across its medical centres, noting any areas in this process where you see potential room for improvement?
17.
What is your strategic outlook for Cano Health, highlighting any key factors we haven’t discussed yet or that you think we should continue to monitor?
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