Buried within the seemingly routine earnings call of P3 Health Partners lies a clue, a whisper of potential that may have slipped past the keen eyes of Wall Street analysts. It's not in the bold headlines of CEO transitions or the reassuring affirmations of positive EBITDA. It's hidden in the subtle shifts of financial strategy, a calculated play that hints at a far more ambitious game than anyone realizes.

P3 Health, a physician-led value-based care platform, is on the cusp of a profitability milestone. That much is clear. But what if this anticipated profitability is merely a stepping stone, a carefully orchestrated prelude to a much larger expansion, a strategic maneuver designed to catapult P3 into the upper echelons of the Medicare Advantage market?

The company's approach to its Part D exposure offers a tantalizing glimpse into this potential strategy. In Q1 2024, P3 chose to recognize the full expense of Part D drug costs without simultaneously recognizing the offsetting revenue from rebates, which typically arrive later in the year. This decision, resulting in an $8 million hit to Q1 EBITDA, might appear counterintuitive, especially for a company striving to showcase profitability. However, what if this seemingly conservative accounting choice is actually a bold signal of confidence?

By absorbing the full Part D expense upfront, P3 is essentially building a financial buffer, a hidden reserve that will be released later in the year as rebates flow in. This maneuver allows the company to present a more modest, even conservative, financial picture in the early quarters while strategically positioning itself for a dramatic upswing in profitability as the year progresses.

This financial maneuvering aligns with P3's broader strategy of "disciplined and purposeful growth." By under-promising and over-delivering, the company is quietly building a war chest, a financial foundation that could be unleashed to fuel aggressive expansion in 2025 and beyond.

The numbers tell a compelling story. P3 is projecting positive adjusted EBITDA of $20 to $40 million for 2024. However, consider the impact of the deferred Part D rebates. Assuming these rebates materialize as expected, the company's actual EBITDA could be significantly higher, perhaps exceeding $50 million. Add to this the potential for favorable reserve adjustments, estimated to be between $20 and $30 PMPM, and P3's financial firepower becomes even more formidable.

This potential financial windfall in 2024 could be the catalyst for a major expansion in 2025. Armed with a strong balance sheet and a proven track record of profitability, P3 will be in a prime position to aggressively pursue new markets, acquire physician practices, and forge strategic partnerships.

The company's recent expansion into six new counties, adding 8,000 to 10,000 new lives with an existing payer partner, is a small but telling indicator of this growth ambition. It suggests that P3 is already laying the groundwork for a larger-scale expansion, carefully testing the waters before diving in headfirst.

This potential expansion aligns with the broader industry trend of MA plans seeking deeper collaborations with value-based care providers. As traditional MA plans grapple with rising utilization and shrinking margins, they are increasingly turning to companies like P3, with their expertise in managing medical costs and improving patient outcomes, for solutions.

P3's CEO transition, with Dr. Sherif Abdou stepping down and seasoned healthcare executive Aric Coffman taking the helm, further reinforces this hypothesis of an impending growth spurt. Coffman, with his extensive experience in leading healthcare organizations through periods of transformation and growth, is ideally suited to navigate P3 through a period of rapid expansion.

The silent giant is awakening. While analysts focus on the immediate milestone of profitability, a more profound transformation may be brewing beneath the surface. P3 Health Partners, with its strategic financial maneuvers and a new CEO at the helm, could be on the verge of a dramatic expansion, a move that could reshape the landscape of value-based care and make P3 a major player in the Medicare Advantage market.

Hypothesis:

P3 Health is intentionally understating its 2024 financial performance through conservative accounting choices related to Part D rebates. This strategy is designed to create a financial buffer that will fuel aggressive expansion in 2025.

Supporting Numbers from Q1 2024 Earnings Call:

Reference: P3 Health Partners Inc. (PIII) Q1 2024 Earnings Call Transcript

Membership Growth and Revenue

The chart below shows the projected growth in P3 Health's Medicare Advantage membership and its potential impact on revenue.

This analysis suggests that P3 Health is a company to watch closely. The company's quiet maneuvering and strategic positioning could signal the beginning of a remarkable growth story, one that may have far-reaching implications for the future of value-based care.

"Fun Fact: The "P3" in P3 Health Partners stands for "Patients, Providers, and Payers." This trifecta highlights the company's collaborative approach to healthcare, bringing together all stakeholders to achieve better outcomes and lower costs."