Corporate innovator: Parth Mehrotra, President and COO at Privia Health

Steven Loeb · August 17, 2022 · Short URL:

Mehrotra oversees company efforts around growth, financial and operational efficiency

While most entrepreneurs want to be the one to discover the next Amazon or Twitter, oftentimes major technological shifts are coming from the big companies, the players that have been on the scene for years, if not decades. Those companies have survived because they know how to pivot. They're the ones who either seed new ideas or acquire them and distribute them. 

In this column, we talk to those companies and their innovators who are preparing them for what's coming.

In our latest interview, we spoke to Parth Mehrotra, President and COO at Privia Health.

Privia Health is a physician-focused platform which aims to reduce unnecessary costs, achieve better outcomes, and improve patient health and provider well-being be empowering physicians with tools, technology, and talent.

In his role, Mehrotra oversees company efforts around growth, financial and operational efficiency across all markets, shared corporate functions, and Privia’s business development efforts. He is also responsible for setting corporate strategy and leading Privia’s technology innovation.

VatorNews: The way we like to start these off is by learning a little bit about you love to give our listeners some context about your background, your career, and what led you to join Privia.

Parth Mehrotra: I'm a typical first generation immigrant to the US. Like many others, I showed up at business school, three bags, no cell phone, no bank account, no credit card, no family, and started life and landed at Wall Street post business school. I was at Goldman Sachs for seven years, did healthcare banking across all sub sectors of healthcare. That led to my next move, This was pre post financial crisis and I was part of a team that worked on the Athenahealth IPO back in the day in 2006 or 2007. I got to know Jonathan Bush and the whole team there pretty closely and, in 2013, Jonathan convinced me, when I could work anywhere when my paperwork came, to leave the dark side, in his words, and join Athenahealth. I was there for three years, lastly as senior financial officer, and left in 2016 to join Privia. When Goldman Sachs invested in the company, my former colleagues invited me to join as part of the holding company as COO and then full time as president and COO over the last four years here. So, I’ve been at Privia since pretty much the early stages of the company and I;m really excited about what we've accomplished as a team here and the value we are adding to the healthcare ecosystem.

VN: Tell us about Privia. What was it about the company at that point where you decided that that was a good career move for you, for you to jump from Wall Street into this new company?

PM: In 2015, we had a very clear thesis that there was a need to establish, at large scale, an integrated care delivery model focused on ambulatory providers in the community. Other than Optum Care, we didn't see anybody doing that at a national scale. There were three key tenets of our thesis at that point, one of which was just, fundamentally, the definition of primary care. In our minds, the word primary is important and we wanted to focus on gatekeeper providers in the communities that were the first point of contact for anybody in the family. So, think about pediatricians for children, OBGYNs For women, obviously primary care, internal medicine, family medicine for the seniors. And we wanted to organize medical groups around those gatekeeper providers at a very large scale. So, that's number one. 

Number two, we obviously recognized that those gatekeeper providers were going to  play a pretty important role as the reimbursement in healthcare shifts from fee-for-service to value-based care and we wanted to participate in the broadest definition of value-based care, which is not only what is well understood, which is the Medicare Advantage population service by primary care providers taking risk, but also could we do value-based care in the commercial population, in Medicare shared savings with CMS, in Medicaid? And we wanted to focus on the broadest possible definition and opportunity all across the country. 

The third thing we recognized was the need to have scale very quickly. In the healthcare ecosystem, everything is consolidated and to matter you wanted to have scale and our view was that we wanted to work with providers in the communities, no matter what their ownership structure was, so not necessarily buy provider practices or build our own clinics, but work within the community providers that already had patient panels. That was an opportunity for us to get to scale very, very quickly and be meaningful to the payers of healthcare, the government, national payers, commercial payers, and then, obviously, make a big difference and move to value-based care at scale. Those three points of view make us very differentiated in what we do and that was the reason I joined Privia.

VN: We’ll talk about value-based care, but I do want to ask you about primary care. That's very interesting that you identified them as the gatekeepers and that's true for a lot of people, they can't even see a specialist a lot of the time unless you see your primary care physician first that refers to you. So, how do you see that relationship changing, especially over the last couple of years, between the patient and the primary care doctor?

PM: I have a unique vantage point because a lot of my immediate family lives in Canada, in the United Kingdom, and then in India: three very different healthcare ecosystems, three very different payer communities and reimbursement models, if you will. The one thing common across all three of them is that these gatekeeper providers, the general practitioner, whatever you want to call them, are the focal point and the centerpiece of care delivery in all of those countries and they are the ones who can direct care, they are the ones who have the best relationship with all of us in the family, and they are the ones who can influence where the patient goes, and what they spend incurs, from the largest perspective. So, in our view, that's the right side of history to be on as we try to navigate these untenable cost quality conundrums that we have in US healthcare today, where we are spending a lot of money per capita, one of the highest in the world, with average or below average outcomes, in a lot of cases. There is dissatisfaction on behalf of both the consumer of healthcare, as well as the provider who's providing care, and all of those concepts don't go hand in hand, and there are trade offs to be made, and we think that, fundamentally, is going to be the change going forward where these gatekeeper providers are going to be the centerpiece for delivering care.

VN: You mentioned the cost of care and that's obviously a big problem. We've known that's wrong for a very long time, but we don't really seem to be able to solve it; maybe it's a difficult question to ask, but why do you think that that is? Does it come down to that fee-for-service model versus the value-based care model that drives up the cost, or is it something else?

PM: Obviously, lots have written about it, everybody has a point of view, but if I were to give my two or three key points: fundamentally, number one, this utopia of solving the four quadruple aims of healthcare, if you will, between low cost, very high quality, unlimited access, and very high provider satisfaction to provide care, it may or may not exist. It's very hard to maximize those four variables. In almost every country, you study the healthcare ecosystem, there are trade offs to be made across those four. So, that's issue number one, that we have to recognize our society and make those right trade offs for certain subsets of the population, and that's a hard thing to do. 

Number two is in a healthcare delivery environment where there's been a lot of consolidation, where two or three payers of healthcare comprise over 50, 60, 70% of market share in any geography. And when the biggest health systems in any zip code also are consolidated from a delivery system perspective, when oligopolists collude, and the payment system is largely fee-for-service, to the point you made in your question, where utilization matters, costs escalate. That leads to, obviously, a fundamental alignment of how payments have to shift in delivery of care and taking care of populations. 

I go back to the thesis that we started Privia with: we think, with these gatekeeper providers being on right side of history and aligning incentives between the payers of healthcare, the providers of healthcare, and the community doctors serving their patients, is the right way to go and at least attempt to solve the problem. 

VN: It's interesting what you said about they're basically being, I won’t call it a monopoly because monopoly implies one player, but there's only a few players really dictating the market. Is that what you're solving for at Privia? Are you creating a system where that's not the case?

PM: To be clear, we said oligopolies, so I want to use the word appropriately. 

Look, in our view, to make a difference, you have to be at scale. And everybody operating in healthcare today has the right intention, and have tried to do that, and we are no different. You can make a difference with a few clinics and a few doctors in a particular community, but to really move the needle at scale, for a large portion of the population in a particular geography, whoever the payer might be, whether it's the state or the federal government, whether it's a national payer, whether it's a self insured employer, you need scale to impact healthcare costs with big dollars. And so, that is very important to our thesis; we're not interested in building smaller groups in any particular state. We like to be one of the largest independent medical groups in any geography that we operate. That's the uniqueness of our model.

VN: I know that in each of the markets that you operate in you build a care centric single-TIN Medical Group. Honestly, I'm not sure exactly what that means. So, if you could define that for me and tell me what it is and how it works, and how it helps the physician.

PM: We have three components that we establish in any particular state or geography that we operate in. One is a single tax ID Medical Group, in which the physicians come together as common governance and a common contracting entity with payers of healthcare. Again, no matter who the payer might be, between CMS, the state government, Medicaid, national payers, or self insured employers. The single tax ID Medical Group solves an issue, which is to have a common governance structure to have the doctors and physicians and providers operate as one entity with best practices, both clinical and operational. It allows us to then establish our second component, which is a risk bearing entity in which we are operating at pretty large scale, in entering risk contracts across the value-based care spectrum, across populations, and across the levels of financial risk that we take at pretty large scale. And then the third component we establish is a full technology enabled clinical performance operations platform entity that services those two, to enable our physicians and providers to perform really well, take care of these patients, lower cost of care, and then deliver very high quality health care.

VN: Part of your platform seems to be that you're taking data, right from the EHR, and feeding it back to the physician. Is that correct?

PM: We operate a full stack across the entire workflow or lifecycle. So, if you think about it from a consumer’s perspective our technology stack and operations, operating platform involves everything from access, which is how do you find a provider? How do you book your appointment? How do you put in all the data? That’s number one. Number two, access to that data at the fingertips of the provider, even before the patient shows up. So, where have you been in the last few days before seeing your provider? What are your issues? Have you been in the ER? Have you seen a specialist for any issues? Are you experiencing any irregular issues at home that we've captured with some wearable device? All of that data needs to show up before you even meet your provider, and they need to understand who you are as a patient. 

Number three is how do you see the patient from a visit perspective? Is it in person? Is it virtual? What happens during that visit? Are we identifying care gaps? Are we referring you to the right higher quality, low cost specialist network? And then, finally, what happens after you after your visit? Are we sending you appointment reminders for your follow ups? Are you ensuring you're adhering to medication? What happens if you have social determinant issues, you don't have transportation, you don't have good food, and so forth? We need to take care of some of those, especially in a risk contract. And then, ultimately, what happens if you show up in the ER? Can we intervene to pull you back out? So, that's hand to hand combat in healthcare every day to improve quality and lower costs. And so, our tech stack is all encompassing of these four components. 

There's really no ERP for a physician's office and there's no cloud based ERP. And what we've attempted to do with, whether we build, buy or partner with other great companies, for any particular point solution across this workflow, we've attempted to create a pretty synthesized workflow and tech enabled stack that all of our physicians participate and join in.

VN: So, there is a patient-facing part of your platform? So, I could go on to Privia Health to make an appointment? Do I understand that correctly?

PM: That's exactly right. You can go through our mobile app and schedule an appointment virtual, in-person, on the spot, and put in all your data. And if you are a new patient, we will try to get your data from the rest of the ecosystem. If you're an existing patient, we already have it and you'll be off.

VN: For a patient who's going to use Privia, is it generally that their doctor is already part of the platform and then they invite the patient to join? Is that the typical use case?

PM: In most cases, when we partner with a community physician practice, they already have an established patient panel. So, when the practice joins Privia, they retain their local branding, they become a part of the premier medical group in that region. So, it could be Dr. Smith in Reston, Virginia as part of Privia Medical Group. We implement our technology stack and our operating platform in that practice, and modernize that whole infrastructure. And the patient, obviously, doesn't see any of this change until it all happens. And then they are interfacing with upgraded tech platforms, whether it's mobile, whether it's online, whether it's in-person, and they experienced that upgrade. But the physician patient relationship is already established there. That's for existing patients. And then obviously, physician practices are adding new patients every day of the week and so we help our practices grow and add new patients. And then obviously, we onboard them in a similar fashion. 

VN: So tell me about your management services organization, what that is, and how that works.

PM: This is that third component I had alluded to earlier. So, this is the full stack technology performance and clinical operating platform. There's a national component to it, which scales and provides some scale services across all of our states that we operate in. And then there's a local component in each particular geography. 

If you think about it, we are establishing multi-specialty medical groups in the broadest sense, and every state we operate in and we are meeting the providers where we are on this journey to value-based care. So, if you look at the spectrum, the management services entity is providing a full technology stack, as I described it, but then also all of the processes involved in the fee-for-service realm, as well as the value-based realm, to enable these providers to succeed and help them see patients across their panel and across different reimbursement models, as those models shift over time, as the demographics age. So, that's the uniqueness of our platform. 

VN: In my intro, I mentioned that your goal is really to empower physicians. Why physicians? I mean, there's so many different players in the healthcare space, but you go after the providers. Why are they the right ones to help the system be more efficient and be less costly?

PM: This goes back to your earlier question on how to solve the healthcare cost quality issue and the concept of these gatekeeper providers in the community, doctors that have very deep relationships with their patients for many, many years, decades in some cases. And we think that's the right side of history to be on. We think that those are the providers that are the lowest cost setting in the healthcare ecosystem and it's a very fragmented part of the healthcare services spectrum. We are enabling these providers to stay in their current ownership structure, but modernizing the entire infrastructure around them, enabling them to have better payer contracts, modern technology, actuarial capabilities, and really help them transition into different value-based reimbursement models as they shift. Doctors go to medical school to learn how to take care of people; they don't go to medical school to figure out technology stack, healthcare economics, actuarial sciences, dealing with payers, and running the business of physician practice. That's the conundrum that they face. It's a big reason why they choose to sell their practice or get employed and get consolidated, then they're really dissatisfied being owned by a corporate entity. So, Privia sits in this very unique intersection, where we interact with the payers of healthcare on one end, in the broadest sense, again, like I'd mentioned between federal, state government, national payers, self insured employers, and then us as consumers as we pay out of pocket in a high deductible plan. And then we enable these providers in the communities to really take care of these patients and try and create a win-win, no matter what the reimbursement model might be, as they shift over time, with all the modern interest infrastructure that we talked about. We think that's the unique need and the missing element today and we're the only ones that are trying to do this at scale, at a national level in many states.

VN: And that's probably what leads to a lot of burnout as well, is asking doctors to essentially be businessmen.

PM: That's exactly right.

VN: I’d love to talk more about value-based care, because it's such an interesting shift that we've seen over the last few years. We're still getting there. Where do you think we are on that spectrum? How far along are we in that shift to value-based care?

PM: This has been happening for the past 30 plus years; you've had different models over that time. Our view is a little bit different from the consensus view, which is value-based care, number one, can happen across the patient population in all segments of healthcare. So, whether it's the commercial population, with employers, either self insured or insured by a national payer; it can happen within the Medicare Shared Savings Program with CMS; it obviously happens the best in Medicare Advantage, where the per capita costs are the highest. And then, obviously, there's the Medicaid population, funded by the state governments in most cases, where there's an acute need to have good quality and lower costs. So, we try to participate in eight plus value-based care contracts across our geographies today, across the spectrum; one of the only entities that is doing this in the broadest sense. 

Number two, is the level of financial risk that a physician organization can take also varies. When most people talk today about value-based care, they're focused on full capitation in the Medicare Advantage population and their focus there. That's, again, the highest per capita spend and the most opportunity, but that is a small sub-segment of the population. Medicare Advantage penetration also varies vastly by the states in this country. So, you cannot have, in our minds, a single track model and an approach because penetration varies, the density of dual eligible varies, unit costs pricing varies between many different states. So, Privia is focused on different strategies in each state as those elements evolve over time. In Virginia, for example, where MA penetration is about 10 or 12%, we are focused on commercial value-based and working with CMS on one of the largest MSSP ACOs. In Florida, in Texas, where there's higher MA penetration, we do Medicare Advantage really well. And you need to run different plays in different geographies and have a flexible model to tackle value-based care, in our view, in the broadest sense.

VN: What's the advantage of value-based care for the physician? How does that model help them? 

PM: Fundamentally, doctors are interested in having their patients lead a very healthy life; it's a very noble profession, they don't go to medical school to join a profession that is paying them based on utilization, and the more the patient uses a particular system, the more money they make. It runs a little bit contrary to what they believe in. It's a little bit of a noble profession from that perspective and, obviously, the pandemic has made us as a society really value the place of doctors and providers in our communities. So, fundamentally, if you see what's happened is the payers of healthcare have attempted to capture a lot of the value in the ecosystem, or other big large entities, whether it's health systems or other facilities, have attempted to capture a lot of value in the system, where you were compensated based on utilization. Once you shift to a value-based care payment model, you're focused on keeping the patient healthy and not going through a pretty high level of utilization in their care journey. Our focus on these gatekeeper providers, which become the centerpieces for managing care for patients, is very important as that shift happens. The ability for them to capture some of that value as that shift happens, and getting paid for keeping people healthy, and not excessively using the system, obviously, is a big benefit to society, reducing overall costs for all the payers of healthcare, improving quality, and then, obviously, compensating these providers who are taking that risk and making sure that large scale populations are leading a much healthier life.

VN: It's an interesting thing, and I don't want to phrase this incorrectly, but the implication is that in a fee-for-service system, the physician is not looking out for the best interest of their patients, in a certain sense, but in a value-based care model, they would. I don't know if that's necessarily true, but that seems to be the implication when I hear about these different kinds of models. I wonder how you respond to that.

PM: If you look at it from a financial lens only, that statement might hold true and that runs contrary to, like I said before, doctors go to medical school to be in a very noble profession, and the ultimate outcome is to have healthier patients and healthier customers, ultimately. They don't go to medical school to keep people unhealthy and therefore earn more money. So, it runs contrary to what they believe in. Again, we are on this journey where, if the payment mechanisms are not aligned, then you can have that misalignment, or perceived misalignment, but any doctor that I've ever met has the right intention. If they can get compensated in the right way, in a payment model that focuses on keeping people healthy, that's our focus here at Privia, across very large scale patient populations across the age spectrum.

VN: The advantage for the patient is pretty obvious, they're getting the best possible care at the lowest possible cost. Do you actually have any numbers on how value-based care changes things for the patient? On average, how much does that actually lower the cost and what outcomes do they see?

PM: The answer really would vary by population cohort, by age cohort, but to give you a great example of publicly available data: we are one of the largest participants in the Medicare Shared Savings Program, all the data is publicly available on the CMS website, and in 2020, as an example, we took care of about 121,000 Medicare beneficiaries in our ACOs in four markets, and our stats are off the charts. Comparing to fee-for-service Medicare, if you look at some key metrics, we we lowered inpatient facility spend by close to 30%, outpatient facility spend by over 35%, hospital observation days by 27%, ED utilization by 30%, and then total annual average expenditure by close to 25%. Those were relative to fee-for-service Medicare; if you compare us to other median ACOs also participating in the same program, most of those stats were above 20%. So, you can see, if you operate at scale with very large population subsets, and you do this in the right manner, you're able to improve a lot of the key quality metrics very, very meaningfully, 20 to 30% improvement is not nominal, and then save the taxpayer a lot of money in doing that. Overall, we generated brochette savings of close to $87 million, we share that with CMS, close to 75/25, and our overall savings rate was close to 8% across all our ACOs. In the ACO that we took the most risk with, the savings rate was close to 9.5%. So, again, you can get both those outcomes of lowering total expenditure, while improving quality metrics at a pretty large scale if you can do this correctly.

VN: Talk to me about accountable care organizations and how they work in value-based care.

PM: The concept of an ACO is you're pooling large subsets of populations in a risk contract with a particular payer, and that could be CMS in MSSP, it could be a national payer in Medicare Advantage, it could be on the commercial book, again, with a national payer, and so forth. And so, from that perspective, the ACO solves two or three or four issues. One is, you’re pooling risk, and diversifying that risk, across a large subset of the patient population. That helps in the provider entities taking that risk versus the payers of healthcare. Number two, it also ensures that you're able to manage that risk population across a large subset, so no particular cohort can tank the risk pool and, therefore, the provider entity is going out of business, as that's not the intention. And then you're able to provide scaled services to take care of the population better. So, not only are those actuarial capabilities, healthcare economics, compliance, governance, but then also how you deliver care; that includes the technology stack, that includes clinical best practices, performance improvements in how you take care of the patient. So, everything that I talked about in our operating platform that enables better quality of care, you're able to accomplish at a very large scale through these organizations. And that was the point where no single small practice of four or five doctors in a small county can do this at scale, and interact with the payers. And so, you need to pull that risk and establish much larger entities to do that. So, that's what we're aiming to do with our ACOs.

VN: Talk to me about some of the competition in the market. We talked to Signify Health for our podcast. Are they a competitor of yours? And if so, what's your differentiation from them?

PM: Look, I'm not going to comment on any particular company; we have a very broad platform and we compete with almost everybody, if you will. If, by definition, we are establishing multi specialty medical groups and risk bearing entities, seeing patients across the age spectrum, across all reimbursement models, we are, by definition, going to compete with almost every company that's out there; we compete with health systems, we compete with other ACOs, we compete with clinic models that are only focused on MA patients, we compete with other entities or other provider groups that may be independent private equity. So, again, our focus is to access the broadest possible dam and we compete with a lot of folks.

VN: Let's talk about your business model. How does Privia make money?

PM: We are really focused on aligning our interests with those of our physician partners. We fundamentally believe prior methods of organizing physicians largely failed because the misaligned financial incentive; you're trying to buy physician practices and cut a big check and create a synthetic earnings stream, or you're trying to give equity to them and some mothership, or you're trying to backstop risk in a risk contract. All of those have limited time spans and don't stand the test of time as this plays out. 

So, Privia makes money, very simply, when our doctors do well, we charge a management fee on the fee-for-service book as a percentage of their overall collections; it typically ranges from 11. to 12.5%. And then we then charge a percentage of the shared savings that we generate in any value-based arrangement, and we split those 60/40, where the physicians get 60% and Privia keeps 40%. And we typically keep any care management fees to establish our clinical and operating platform to participate in those contracts. So, we do well when our physicians do well, and as the payment models shift to value-based arrangements, no matter whether it's in commercial MA, MSSP, or Medicaid, and across the risk spectrum, those incentives are also aligned with the payers of healthcare. So, our hope is that we are generating shared savings, improving quality outcomes, and therefore the payers of healthcare benefit, our physicians, benefit and we benefit, and that financial alignment is what is very unique to us.

VN: How do you determine shared savings? How do you calculate that?

PM: Fundamentally speaking you have a total cost of spend that exists today in any population cohort, and the shift to value-based basically means the provider entity is getting paid if you're lowering the total cost, relative to a certain benchmark spend that already exists today in the fee-for-service world, while improving key quality metrics. So, I gave a few examples in the MSSP example earlier, and so you're trying to improve outcomes and lower overall costs. And then that answer will depend on each particular value-based arrangement. So, it can be structured differently in the commercial population, obviously can be structured differently in the Medicare Advantage population, the Medicare Shared Savings population, and then the Medicaid population. So, the payers determine what levers they want to pull, that is determined based on the population cohort and the geography, and then the provider entity is paid based on bending some of those metrics. And so, each program runs a little bit differently, but that's a fundamental premise.

VN: Let's say a patient comes in with a heart condition, and they're treated under the value-based care model, they would compare that to what it would have cost under a fee-for-service, and that's the shared savings?

PM: In a very simplistic term. I mean, it depends on who the patient is: if it's a healthy, commercially insured patient, your average premiums run $600 a month, give or take, so $7,000 a year, but it could be higher in certain geographies, and that's your out of pocket cost. And then you're trying to basically see if somebody has a condition, could we manage it, and come within that range? In a Medicare Advantage population, you could get reimbursed up to $1,000 per life per month, and you're basically trying to then manage that particular episode within those parameters, while improving costs. Now, you're doing this across very large cohorts and populations, so that's why you need to pool the risk, it's not about managing one single patient. Again, it's really about managing the overall well being of that particular individual, whatever conditions they might have, heart conditions, chronic kidney disease CHF, and so forth. It just really varies, but you're pooling a lot of these patients in a broad pool, and then assuming risk on that, and then managing that patient population.

VN: Can you give me an example of how much shared savings there is for a particular condition across a population? 

PM: Again, the answer really varies; I’ll go back to the MSSP example where we saved, as I'd mentioned, over 121,000 lives about 7.7% relative to the underlying benchmark in 2020. And then, that varies by geography. With our most advanced ACO, where we take the most significant amount of risk, that moved up to close to 10%. In Medicare Advantage, under capitation, you could do even better. Our view is you could get that savings rate as high as low teens or mid teens, depending on the chronicity of the population. And so, you could really make a big difference, but the answer really varies based on geography and population boards.

VN: Tell me how Privia works with employers.

PM: We have a pretty large commercial population; we see close to 3.5 million patients, and a large portion of those are commercially insured people, like you and me. We do it in two ways: one is, if it's a self insured employer, and we have a lot of density in the market, we could contract with them directly and provide unlimited access to virtual primary care and a full physician network, and help them lower their overall cost. They are, by definition, self insured, so they are focused on providing their employees the best possible access, very high quality of care, and lowering the costs at the same time. And then, similarly, we work with some of the national and Blues plans in every state on the commercial book. If the population is insured by the payer, we try to have a value-based element to our commercial contracts where we are trying to bend the curve on, again, those cost and quality metrics and get paid in a way that is slightly different than just the fee-for-service reimbursement that we get.

VN: I looked at the documents for when the company went public and I saw your 2020 revenue, and I saw that the majority of your revenue came from fee-for-service care. I think it was 70% still came from fee-for-service and it was maybe 15% that came from value-based. So, you're still getting most of your money from fees for service, but do you see that shifting? Is a larger percentage coming from value-based care?

PM: That's a good observation and one of the most misunderstood facts where, in healthcare spending, based on revenue recognition rules, based on the amount of risk a provider entity is taking, the top line revenue really does not fully capture the extent of the value-based reimbursement because another payer might be capturing that. So, if you see on our latest earnings slide, from our Q4 earnings in March, we had this exhibit that showed that, across all our value-based programs, Privia ia managing about $5 billion of medical spend, and over $2 billion of that is managed in value-based arrangements, where we have taken pretty significant downside risk. 

Now, revenue recognition allows you to recognize some of that spend as your top line revenue, if you are taking full capitation risk on a particular life. We do that for a subset of our population, about 25,000 lives, but you can do very significant value-based deals and contracts and participate in these programs without taking full capitation risks, that's just one flavor of it. And so, our top line significantly understates the extent of our value-based book. Another lens to give you is we have now, based on my guidance this year, over 850,000 lives in some value-based arrangements across the commercial, MSSP, MA, and Medicaid, and that is one of the largest books of businesses in any one entity. Obviously, they are bigger entities like Kaiser and OptumCare, and so forth, but from some of the new age providers that have gone public, that is a very broad book of business. So, from both those lenses, if you take the total spend, or the number of lives you're managing, our true mix is much, much higher than what's reflected in the gap revenue mix.

VN: That’s because you're not taking, like you said, the entire risk, that's being spread out, and so the shared savings that comes from the value-based care is spread out among multiple players, is that correct?

PM: Kind of. So, we are only recognizing, actually, the shared savings and not the full medical spend contracts that we don't assume full capitation on in our revenue. So, in that MSSP example, just going back to that, we managed close to $1.2 billion of spend in 2020, and we only recognized about $56 million on our top line, which was our share. So, you can see that vast contrast, where if we were to take full capitation risk on the same MSSP lives, we would have recognized close to a $1.2 billion of top line versus just $56 million. So, what we are recognizing is really the amount of shared savings, and not the true medical spend.

VN: I want to ask you about COVID it's hard to talk to any player in the healthcare system without asking you about that, because it really has shifted so many things in the past couple of years and accelerated so many trends. I'd really love to hear about how COVID specifically affected Privia. What were some of the ways that you had to respond to the pandemic?

PM: Number one, with our focus on community providers, it further highlighted the need for an entity like Privia to partner with them to keep their practices viable. And that goes back to the technology stack, the processes, and the payer contracts. So, from all of those perspectives, we had a full virtual capability embedded in our EHR where, overnight, we shifted a lot of our visit volumes to be virtual and that was already ready by the time the pandemic hit. Obviously, everybody was trying to figure out protocols in the first couple of months, think April and May of 2020 and those days. Obviously, there was some disruption but, by and large, by May that summer, 85% of our visit volume had shifted online and we had established pretty good protocols. 

Payer contracts, again, the diversity of the platform and the ability to get reimbursed on taking care of patients across commercial and MA populations was key to us. So, our payment streams were much more diversified than a pure fee-for-service provider group and, when that happens, you're getting paid per member per month in a different format and not just focused only on utilization, as we talked about. And so, obviously, that diversity helps these practices stay viable from a financial standpoint. Most of our practices, by the fall of that year, were pretty much at or above their baseline from a pre-COVID perspective, which is just remarkable. So, if you think about all the ways that we supported our practices, then being part of a bigger entity like Privia, us working with payers and the right contracts, providing the right technology stack and the processes to continue to see the patients virtually and in person when the protocols were established, our providers had less impact, I guess, relative to others. We think our providers gained market share, grew really well, during the pandemic years. If you see our financial results, we have grown the business, both on a top line perspective, as well as profitability, during the pandemic in 2020 and 2021, and our guidance in 2022 reflects the same. So, that is very unique to us, and speaks to the strength of our business model and the partnership we have with providers where different waves of the pandemic came and went and we continue to grow the business. A lot of providers recognize the need to join an entity like Privia and we continue to do well for them and, therefore, well for our shareholders.

VN: It sounds like a pandemic changed the way physicians thought about value-based care. Did it become more important for them, thanks to the pandemic?

PM: That necessitates the need for having a payment system that is incentivizing provider entities like ours to get compensated based on cost and quality outcomes, less than in fee-for-service. Again, a lot of payers that we are working with now are focused on this broadest definition of value-based; it's pretty well established in the Medicare Advantage population that it’s seniors over 65, but doing that in commercials, doing that Medicaid, is very pioneering and we're one of the few entities that's doing it.

VN: Look into your crystal ball and tell me what you think the future of healthcare is going to look like, and where Privia is going to fit into that.

PM: We continue to have faith in the thesis we had six or seven years ago, when I joined: we think a physician entity focused on gatekeeper providers in the communities is where the puck is going if we have to solve the core quadruple aim of healthcare, which is improving quality, lowering costs, improving access, and improving the wellbeing of our providers. The pandemic has highlighted the need for very strong medical groups in the communities to be present, to be the frontline of healthcare, to take care of the US population at large. And we think Privia is really, really well positioned in that reality as the shift happens to value-based care across different states and different bases. We have a really flexible model that partners with physicians in a very unique way and they're part of something bigger, yet they maintain their respective ownership structures, and we are helping them succeed, no matter what the reimbursement model might be, no matter what the state might be. So, it bodes really well for our physicians and ourselves and we're really excited about our business and hope to keep delivering that value to all included.

This interview has been edited for clarity. You can listen to the podcast of our conversation with Parth below: 

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