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Highlight of the thesis
I believe Privia Health (NASDAQ:FIRST) is currently undervalued. PRVA sees the struggle facing the U.S. healthcare industry primarily due to different reimbursement models. With the Privia Platform, PRVA seeks to optimize healthcare management and general performance of professionals. Despite the current risks, such as the existing strict regulations, the competitive market and the demand for competent healthcare professionals, the company is expected to maintain an optimal growth rate.
Company overview
Privia Health is a technology-driven national physician enablement company that partners with physician groups, health plans and health systems to optimize physician practices, improve patient experiences and reward healthcare professionals to provide great value care both in person and in person. Setting up virtual care on the “Private Platform”. PRVA enters markets, organizes providers, drives operational and clinical improvements, and transitions the market to value-based care (VBC).
Merits of investments
The US healthcare industry faces several challenges
As the healthcare industry moves toward VBC, current care delivery platforms are ill-suited to work with different payment models.
I believe there is a possibility that primary care-led physician groups will cope with rising health care costs and poor outcomes and perform well in different VBC models for decades to come. Managing the entire cost of care for an underlying patient population and improving a variety of quality indicators are necessary for these models to be successful and reimbursed for use. It appears that the regional market, demographic cohort, and payer will play a role in determining how these value-based models will develop in terms of program structure and rate of growth.
Traditional medical groups are struggling to find ways to reduce costs while improving the quality of care and making it easier for more people from different regions to receive care. As a result of the additional administrative work required to manage patients, medical practices have experienced a decrease in their profitability, have had more difficulty accessing funding and are experiencing cash flow difficulties. Physician burnout and physician-patient relationships are partly the result of complicated payment arrangements and outdated technology. Health care insurance companies are placing more limits on their networks, which puts pressure on volume and hurts independent practitioners in particular.
The US health care system is struggling to improve health outcomes and keep doctors and patients satisfied despite the country’s high levels of spending. One clear evidence is that, according to the World Bank, life expectancy in the US was 77.3 years in 2020, lower than that of other developed countries.
The transition to VBC also has its own pain
The US health care system has significant obstacles and opportunities. Historically, health care delivery has focused on providing reactive care in response to acute situations. This approach led to the development of a payment model known as fee-for-service (FFS). The FFS model does not reward prevention, but instead inadvertently favors treating acute care episodes as they occur by tying payments to the number of encounters and pricing more complex interventions.
The shift toward value-based payment systems has gained support from patients and policymakers. I agree that there is a demand for technology-driven disruption that, if implemented, would move the healthcare system toward a value-centric model. PRVA’s integrated platform, powered by data and technology, is poised to completely change the way the healthcare business operates. With PRVA’s expertise working across all reimbursement environments, the company meets providers where they are in their transformational journey and enables them to accelerate and thrive in their transition as each geographic market moves to VBC.
The Privia Platform is the backbone of PRVA
Care team, patient and provider workflows are streamlined by Privia’s cloud-based end-to-end platform, which focuses on:
Various patient access (patient portal, mobile application and search engine optimization) Pre-visit analysis and preparation Provision of face-to-face or virtual care Post-visit analysis, care coordination and reports
More than that, PRVA’s technology platform:
Scale operations to 3,250 suppliers in multiple markets; Improves multi-payer contract performance Provides high-quality care to all patients; It supports providers to reduce administrative burdens by using machine learning and AI; Help own company scale operationally by collaborating closely with clinical and operational teams to optimize workflows as it enters new markets and payment contracts.
As we can see, PRVA’s platform is based on a modern cloud-based technology stack that uses agile development cycles and API standards to add new features and connect to systems outside of PRVA.
Privia Platform built with a doctor-first mindset
Privia’s goal is to redefine the way physician organizations are managed and develop a system that fits the specific requirements of these organizations to optimize their overall performance. The company achieves this through the following five critical elements of its platform:
Emphasizing technology and the health of the population. Create a single medical group TIN and establish a governance model in individual geographic markets. Own and lead a management services organization in each target market. Developing Accountable Care Organizations (ACOs) to harness the potential of VBC. Offering a network of high-quality, low-cost suppliers for buyers and payers.
Too often, technology hurts providers and patients instead of helping them. To improve workflows in both the FFS and VBC settings, the Privia Technology Solution was developed with input from both the practice’s physicians and patients. This increased patient engagement at all stages of a visit, including pre-visit, point of care (in-person and virtually) and post-visit. PRVA wants to improve the technology and marketing of its Privia providers so that patients can find a provider online, make an appointment and receive reminders. These three actions have been shown to increase patient retention and decrease the number of costly no-shows.
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The ability to scale across markets sets it apart from competitors
PRVA’s capital efficient model is easily replicable in new markets. This is great because they use a low-asset business model as well as a methodical and consistent approach to market structure and development. Anchor relationships are formed in a new market between PRVA and market-leading provider groups and health systems, and consist of a single medical group TIN to which all other providers (whether employed by PRVA or not) are aligned ). PRVA differs from its competitors because its business model is not based on large investments in things like buying existing medical practices or building new clinics. PRVA’s predictions for new markets are based on data from past provider cohorts, which show consistently improving practice performance on both FFS and VBC metrics over time.
As a result, with each new market added to PRVA’s portfolio, the company’s path to profitability and free cash flow contribution accelerates. In addition, PRVA’s business model allows the company to grow incrementally by acquiring minority or majority stakes in existing practices and launching new wholly-owned and direct-hiring Medicare Advantage care sites.
Evaluation
target price
My model suggests a price target of $41.54 or 28% upside in FY23 from today’s share price of $28.54. This assumes that revenues will continue to grow at a high rate (high teens to 20s) through 2024e, and the future EV/revenue multiple will be 2.3x in FY23e.
Estimates of the author
My model is based on consensus estimates, which is also relatively in line with management’s long-term guidance of 20% top-line growth (mentioned in the 2Q22 earnings call). In terms of valuation, PRVA is currently trading with forward income of 2x to 1 year. As long as PRVA can maintain its revenue growth at this level, I don’t expect any change in its revenue multiple, especially since it has already been pulled a few weeks ago.
risks
Regulation
Authorities at all levels (federal, state and local) closely monitor the health care industry in the US, which is subject to strict regulations. The breadth of these regulations and the scope of statutory exceptions and safe harbors available make it possible that some of PRVA’s business activities, despite the Company’s efforts to comply with these laws, may be challenged under one or more of these laws. If PRVA does not accurately anticipate how these laws and regulations will affect its business, the business may be held liable and its operations may suffer.
Doctors are the critical asset
The success of PRVA’s business strategy is largely dependent on the Company’s ability to recruit a sufficient number of Privia physicians for each of its medical groups. The number of Privia physicians working in a given market affects the Company’s ability to negotiate competitive reimbursement rates with commercial payers, as well as the number of lives attributable to the Company for VBC calculations and the unit cost of providing its services in different geographic markets.
Competitive market
PRVA is in direct competition with national, regional and local health service providers for patients, physicians and non-physicians. There are currently a large number of other companies and individuals offering healthcare services, including some with technology business models that focus on the domestic market in a similar way to Privia. Many of these competitors have been around longer than PRVA and/or have far more money and resources than Privia.
conclusion
I think PRVA is undervalued as of today. The technological solutions provided by PRVA have a direct importance and impact on the healthcare sector. As reviewed, PRVA has shown market potential in the industry’s transition to VCB and the overall optimization of US healthcare management. Whatever happens in terms of risks, such as tight regulations and tough competition, I expect PRVA’s market share to grow in FY23 and have great potential to continue to grow revenue.
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