Privia Health Group's Q1 2024 earnings call might seem like a straightforward story of steady growth and profitability. But beneath the surface lies a hidden gem, a strategic shift that most analysts have overlooked – one that could lead to explosive growth in the next few years. Privia is quietly positioning themselves as the kingmaker in the volatile world of value-based care, and they're doing it by bucking the industry trend.

While competitors are diving headfirst into full-risk capitation contracts, Privia is taking a contrarian approach. They're actively restructuring their Medicare Advantage capitation agreements, shifting lives into upside/downside risk arrangements. They're even exiting the Delaware ACO, a market deemed unprofitable. On the surface, this looks like a step back from risk. But in reality, it's a calculated maneuver to gain leverage and secure a future windfall.

Here's why. The MA landscape is a storm right now. V28 regulations are looming, utilization is high, and star ratings are under pressure. Payers are scrambling, looking to providers to shoulder more risk with less compensation. But Privia is pushing back. They're not interested in absorbing unsustainable risk with meager returns. Instead, they're playing the long game, strategically building their position to be the partner of choice when the market stabilizes.

Imagine this: It's 2025. The initial shockwaves of V28 have subsided, payers have adjusted, and the market is thirsting for stability. Who do they turn to? The providers who overextended themselves and are now struggling, or the one who remained prudent, financially strong, and ready to deploy capital and expertise? That's where Privia comes in.

They've spent years building a diverse and robust value-based care platform. They're not just a primary care play; they're a multi-specialty powerhouse managing a staggering $9 billion in medical spend. And they're not tied to a single risk model. They can adapt, offering fee-for-service, upside-only, upside/downside, and capitation arrangements across commercial, MA, and MSSP.

Privia understands that a sustainable value-based care model requires shared risk and shared rewards. They're building long-term partnerships, not chasing short-term gains. They're betting that their disciplined approach will earn them the trust and loyalty of both providers and payers.

Privia's Financial Strength

Let's talk numbers. While Privia's top line growth is expected to be flat in 2024, this is a direct result of their proactive risk reduction. Fee-for-service collections are actually projected to increase by 10%. Despite absorbing incremental investments in new markets, they're still guiding for 21% adjusted EBITDA growth. This demonstrates the inherent operating leverage in their model. With $450 million in cash and no debt by year-end, they're poised to pounce on opportunities.

"Privia's Q1 earnings call wasn't just about solid performance; it was a declaration of strategy. They're not going to play the MA game on terms that don't make sense. Instead, they're building a value-based care empire, brick by carefully laid brick. When the dust settles, it's Privia who will be standing tall, holding the keys to the kingdom."

Privia's Attributed Lives Growth

Privia's attributed lives have been steadily growing, showcasing their expanding reach in the value-based care market.

The Hypothesis: Privia's Contrarian Approach

Privia's current "risk-averse" stance is a strategic move to capitalize on the inevitable MA market stabilization in 2025 and beyond.

Their diversified platform, strong balance sheet, and proven ability to generate operating leverage position them as the ideal partner for both providers and payers seeking stability and long-term growth.

When market conditions become favorable, Privia will be able to rapidly scale their capitated MA book at favorable rates, leading to a surge in both revenue and earnings.

Supporting Data Points

Privia is managing $9 billion in medical spend across 100+ value-based care contracts. This is a significant scale advantage that will become even more valuable in a stabilized market.

Their Q1 2024 adjusted EBITDA grew over 18% despite absorbing new market investments and minimal shared savings accrual increases. This speaks to the power of their operating leverage.

Privia is projected to have over $450 million in cash and no debt by the end of 2024, giving them significant financial firepower to deploy in business development and expansion.

"While others are focused on surviving the current MA storm, Privia is preparing to rule the calm that will follow. And that, my friends, is the hidden gem in their Q1 earnings."