Good afternoon, and welcome to Alignment Healthcare's Fourth Quarter and Full Year 2021 Earnings Conference Call and Webcast. [Operator Instructions]. Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC, including the Risk Factors section of the prospectus for our initial public offering filed with the SEC on March 29, 2021, and in our Form 10-K for the year ended December 31, 2021. In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and in our Form 10-K for the year ended December 31, 2021. Leading today's call are John Kao, Founder and CEO; and Thomas Freeman, Chief Financial Officer.

Hello, and welcome to our fourth quarter and full year 2021 earnings conference call. I appreciate you joining us today. I'm pleased to share that Alignment Healthcare had a successful 2021 financially and operationally, including a strong fourth quarter across our critical KPIs. We continue to distinguish our business by demonstrating the power of our proprietary AVA technology platform and our clinical model to deliver strong medical benefits ratio management while also achieving solid growth. That performance was driven by our team's steadfast commitment to change health care one person at a time and to always put the senior first. I thank our team for their tireless efforts toward making 2021 a success. For the fourth quarter, our health plan membership ended at 86,100 increasing 26% compared to last year. Total revenue of $298 million in the quarter grew 23% from last year, led by our health plan premium revenue growth of 28% year-over-year. Adjusted gross profit came in at $43 million in the quarter with a strong MBR performance of 85.7%, and adjusted EBITDA was a loss of $9 million. Our robust performance through round out the year translated to total revenue of $1.168 billion in 2021, reflecting 22% total revenue growth and 28% health plan premium growth year-over-year. Our 2021 adjusted gross profit was $144 million with an MBR of 87.6%. Lastly, our adjusted EBITDA was a loss of $33 million, ahead of expectations. As important as our strong financial performance was in 2021, even more important was our continued progress towards building the foundation to achieve our vision of changing health care for seniors across the country. We believe our data and technology-enabled care model produces the highest value for seniors and is the cornerstone of our ability to manage future growth. With that in mind, we…

Thanks, John, and thanks to everyone who has joined us on the call today. I want to reiterate John's sentiment that we are proud of our 2021 results and committed to building upon them in 2022. On the call today, I intend to touch on a few highlights from the year, review the fourth quarter results in more detail and conclude with a discussion of our first quarter and initial full year 2022 outlook. For the year ending 2021, our health plan membership surpassed our initial expectations and ended at 86,100 members, representing an increase of 26% year-over-year. Over the course of the year, we added approximately 6,000 members from January 2021 to December 2021, which is in line with what we achieved the prior year as well. Our total revenue grew 22% to $1.168 billion, driven by our strong health plan premium revenue growth of 28%. Further, our adjusted gross profit of $144 million reflected in an MBR of 87.6% for the year, demonstrating the power of our clinical model and our AVA platform. As John mentioned, we're particularly proud of the strength of our California franchise where our MBR outcomes continue to showcase the differentiation of our core capabilities relative to the market. Lastly, our full year adjusted EBITDA was minus $33 million, materially exceeding our expectations for the year on the back of strong adjusted gross profit performance as well as continued discipline through the SG&A line. Our consolidated adjusted EBITDA loss for the year reflects our legacy markets continuing to build momentum towards consolidated profitability. Meanwhile, given the strength of our MBR outcomes over the last several years, we continue to believe in the importance of reinvesting this performance towards future growth. Our balanced approach targeting sustainable growth with an eye on long-term profitability is something…

[Operator Instructions]. Our first question comes from the line of Ryan Daniels of William Blair.

John, you discussed this a little bit, but I want to go back to it. In regards to the slower-than-anticipated membership growth, can you again go into how much of that was related to greater churn in existing members versus more difficulty attracting new members given some of the competitive dynamics in the market?

Sure. Ryan, nice talking with you. Yes. Our churn was slightly above the previous years. And so that fundamentally was not our problem. And for AEP churn, I think for 2020, we were at about 5.5%, and we think we went up to something like 6.5%, something in that range. And so I don't think that was the big problem. I think the competitive nature in some of our markets was the main culprit. And specifically, we're talking about what we announced was 92,700 members for 1/1 compared to 96,000. So we're talking about a delta of 3,200 members. And candidly, that's not something that should have prevented us from hitting our numbers. It is just the truth of it. And so we've been very aggressive in looking at all the other markets that we have and being very aggressive about resourcing those markets with what I would call market management resources and specifically community reps, building relationships with all the different senior centers and churches and whatnot in each local market as well as more provider contracting individuals that are telling the story of why it works to be part of alignment. And so we've just been very aggressive on that. And are we happy about being at 16%? Absolutely not. It's pretty much driven all the competitive fires and the management team to make up for the shortfall, and we're aggressively attacking it. But we're going to get these kinds of competitive products every year somewhere. We always do. And we've always been over to overcome it in the past. And in many respects, it's something that I would have rather happen to us now. We were talking about 3,000 members. And we're making all the changes needed to not let that happen again.

Okay. I appreciate that. That's very insightful. And then maybe a totally different topic, and I can address this to you again, but both of you can probably comment. Just in regards to direct contracting, margin is clearly lower there. Some providers have seen success, but you continue to take what I would characterize as a more conservative stance to your long-term participation and the outlook of the program. Can you talk maybe about what the main concerns are you have about D.C. and the economic impact that might keep you from moving forward more aggressively with that?

Ryan, this is Thomas here. Maybe I will start and then John can chime in. So I think in terms of what we've seen so far, I think we shared back when we first started in the second quarter of 2021, that our MBR in that program was just north of 110%. And so we actually have seen a lot of progress over the course of the year, and we're pleased with some of the not just financial but operational outcomes we're starting to achieve in terms of engaging the care in our population and applying a lot of those lessons learned and best practices from MA towards the seniors in the program. I think having said that, though, we clearly are not where we want to be long term. I think our overall MBR to get to EBITDA breakeven in the program is in the 95% range. I don't think we need to be necessarily at 85% to make it work from an EBITDA or net income perspective. But we recognize that we're not quite there yet just given our starting point in terms of both members and benchmark. And so we're kind of working through what the new program changes and what they might mean for us in the future, both from an economic perspective. And I know folks have asked about from a governance perspective, we might have to consider some changes there going forward as a possible participant in the ACO reach program. But I think we're sort of in early days of thinking through what that means for us and how that might impact our 2023 strategy.

Yes. Ryan, it's a great question. It's John. I think we're looking at it from a strategic lens also. I mean I really think that the Medicare advantage TAM continues to go up. The market share continues to go up. And so I think our strategy with respect to focusing resources on that in MA is the right one. However, we are looking at, and I would say and underscore early stages looking at really unlocking some of the capabilities that we've developed in AVA and the AVA Health technology platform. And it's been somewhat a result of providers asking us to help them with getting into value-based care, specifically in the context of the ACO reach program. And so we're exploring that from more of a fee-based perspective. And we've touched on it in the past. But if you think about we driving our strategy in MA with our products and our provider engagement and complementing what we're doing on the fee-for-service side with some of the technology. There seems to be some synergy there that we're exploring.

Okay. Great. Look forward to hearing more. And thanks, and congrats on the strong end to the year.

Our next question comes from Ricky Goldwasser of Morgan Stanley.

It's Michael Ha on for Ricky. So I just wanted to touch on competitive M&A environment again. So when thinking about the landscape 2022, I mean, arguably one of the most competitive benefit offering years in recent history. But as I look at your average benefit rich since this year, just per our own analysis, it looks like you guys are still pretty competitive. So heading into next year, as you look to rebuild your membership growth, how do you view the balance of investment into benefit richness versus other contributing factors? And based on your comments, it sounds like you're primarily focusing on bolstering things like customer service, sales and other member experience factors.

Yes. Michael, it's John. Your comments are correct. It's really both and I would say, and so let me be very specific. Number one is 4 components the way I look at it is in addition to benefit design. Number one is just the market management. And it's really just focused community reps, resources that are just in the field, in each market, we are doubling down on that pretty much at every single market as we head into 2022. Historically, we've focused on provider engagement, making sure that we focus on quality, make sure we focused on making sure that the model is working. But I would say that we've under-resourced that part of it. So number one is market management, resourcing and investment. Number two is what you alluded to, which is just improved service delivery. Our NPS wards are high. We're 5 stars in terms of our members liking our plan. But we've got 22 different supplemental types of benefits. We've got 10 vendors that support that. And there's a couple that we can improve on. And so we're really doubling down and focusing on that, making sure that the experience and the service levels that we give to our members is just the best in the business. I just think service delivery is pretty much everything. So we got to get that to the next tier. The third pillar, I would say, is continuing to execute on our operational scalability. We've got a multiyear plan. We're about halfway through it in terms of just making sure that all of the workflows are automated, and we're getting a good PMPM scalability from those initiatives, but we got to continue doing that. That's what's going to fund a lot of the end market resources. And then lastly is really just to continue making the broker experience more seamless for us and for them. And we're making investments in AVA to make sure that there is a faster, more automated direct payments to the broker community. And that's something that they've shared with us that they want a faster payment, more transparency. And I think if we get those foundational layers in place I think that, combined with just more specific market tactics, market by market, combined with the benefits and the products that we're talking about, I think we're going to get just more consistent growth in terms of both market share increases and new market penetration in some of our newer markets.

And I appreciate that. And one more. I know you've previously discussed JVs and providers, partnerships. And we've seen your larger NCO competitors, basically year-in-year-out offer lower-than-average benefit richness, but they're still growing very strong, gaining market share. Those peers seem to have a large offering of PCP provider assets. I wanted to ask, do you see a correlation between that any plan to have PCP assets and driving members stickiness? Or do you think that's a major differentiator? And also how are those conversations going?

Yes. No. I think there is a correlation. I think the whole thesis and really the name of the company, Alignment Healthcare is to make sure that we create Alignment with all PCPs in the marketplace. And I still believe our model is very, very strong. We're very sensitive to the consolidation occurring with some of our larger competitors as well as hospital systems for that matter. But I have to say in just the last year or so, meeting and talking with PCPs, there's still a lot of the practitioners that want to stay independent. They don't want to be part of a factory. They want to be able to run their own practice with support from us, and they want to grow through product offerings. And so I think that is kind of the best of both worlds, which is kind of this model that we've been talking about is to ensure that the community doctor is empowered, is aligned and will help us just produce better clinical outcomes for members.

Our next question comes from John Ransom of Raymond James.

So you mentioned M&A. You have a sizable cash port. What would -- what kind of screen would you apply to M&A? And do you think if we looked at '22, is it more or less likely that you might pull the trigger on something? And how do you -- there haven't been a ton of transaction. So how do you think about valuation per member gross profit or other considerations? How do you think about that?

John, this is Thomas here. So I think we started sharing back really around the time of the IPO that we were considering some of this in addition to our organic growth strategies. And we talked about it both in terms of some potential payer assets, things that were small enough to be manageable for us, but also probably small to where they might not be as meaningful for some of our larger competitors. And then also provider assets, either in new markets where they could serve as an entry strategy as a part of our expansion efforts or in some of our existing markets where we think it fits into our overall competitive framework. So with that in mind, I think we still remain offensive on kind of both of those types of areas. But I think what we've seen across the market over the last few months is obviously a change with respect to investors' sentiment around profitability. And I think we're being disciplined in making sure we protect our balance sheet, which obviously is clearly an asset of ours today. And so we want to make sure that if we do anything, it does not impede our ability to get to EBITDA breakeven and support our organic growth efforts with the cash balance we have. But with that said, I think we have plenty of capital on the books today, and I think we could explore some smaller and of course, highly accretive opportunities. In terms of how we might value those is to your other part of your question, I think it depends on the type of asset. I think per member valuations are interesting, but I'm not sure they always tell the whole story because not all businesses and members are made equal. And so we would look at revenue, gross profit, EBITDA and kind of all of the above in addition to membership.

And then my second question is, and this is probably not answered little bit I'll take a shot. Let's look out to the future and you're double the size that you are today, 200,000 members. Do you think the -- and I think my dog has gone to market. Tell me -- do you think the -- there you go. The geographic mix would look similar to today? Or do you think that a couple of big new states?

John, it's John. I think if we look out 2 to 3 years, I think you're going to have a couple of the new states that we're in, begin to take root and get to that 10-plus thousand member threshold we talk about and we've communicated we want to get to kind of operating breakeven in each market in 3 years when I get to 10,000 members in 5 years. That's been consistent with all the new markets that we've entered with a couple of exceptions where we've grown faster, specifically in our Sutter markets and our San Diego markets. But -- and really now in our Santa Clara markets, we're up to 15,000 members. But I think I really think our model is going to be well received outside of California. I think the demand from the -- as Michael asked earlier, the demand from the primary care community for alternatives is very high. And I think we can be that solution. I think as we partner with those PCPs, we're going to be able to generate kind of those kinds of growth numbers. And we're still mindful of, as Thomas mentioned, EBITDA, and we're still mindful of managing growth and protecting our balance sheet. And so if we kind of get the performance I expect in the markets that we lost in '21 and '22, we'll probably do a couple in '23. I don't think we're going to do 4 or 5. I'd be surprised, I should say. Again, just to make sure that we're minding cash flow.

Our next question comes from Jeff Garro of Piper Sandler.

Congrats on the quarter. I want to start with a couple on intra-year enrollment. You mentioned that will be part of the mix again in FY '22. Just curious on feedback so far from the spring OEP enrollment? And also your product mix now has expanded into more special needs plans. So to what extent does that allow you to sign up more members outside of those formal open enrollment periods?

Yes. Jeff, Thomas here. So we're obviously about 2/3 of the way through OEP. And I think it's going well so far. I think the way we thought about our full year guidance and how our full year enrollment may come together, looking at January to December is really in relation to our last couple of years' worth of experience where if you look back at 2020 or 2021, we added about 6,000 to 7,000 lives from January -- January of those calendar years to December at the year-end before the impact of AEP. And so if you think about our guidance and kind of where we said we were at as of January 2022 and our range for year-end 2022, you'll see obviously a symmetry between what we're projecting this year and what we've been able to achieve in years past. And then obviously, our goal is to really start to capitalize on a lot of the investments that John described in terms of our market management initiatives and some of these member experience initiatives that we hope will start to take through over the course of the year as well.

Excellent. And any comments on the special needs plans and whether those can be more of the mix this year?

Yes, I think so. We're actually launching those, as you noted, in more markets than we've ever had before, and that's certainly a part of our broader product road map as we think about 2023 as well. I'd say it's maybe a little bit too early to say how much of a material impact that will have on intra-year enrollment. But it is one of the drivers that we're certainly focused on, both in terms of our D-SNPs and as well as our C-SNPs.

Great. That helps. And one more for me. I want to turn to operating expenses, particularly given the comments on investing more resources in local markets. And correct me if I'm wrong here on the math, but I think I back into a modest sequential downtick in adjusted operating expenses from Q4 to your Q1 guidance. So could you walk me through what seasonal AEP expenses roll off and then how we should think about the ramping of expenses throughout the year and specifically as you think about getting ahead of new market launches in '23?

Yes, it makes a lot of sense. So typically, what we experienced over the course of the year is an SG&A on a quarterly basis that builds from kind of first to fourth quarter, which is reflective of, to your point, the AEP portion of our expense, which is largely concentrated, obviously, in the back half of the year related to sales and marketing as well as some of our year 0 launches where we're starting to onboard and hire folks related to our upcoming new market launches that typically start around June, July, August and kind of run into the AEP period as well. And so as you think about sort of the first quarter of 2022 relative to the back part of 2021, I think you're seeing a slowdown in some of that sales and marketing spend that we would anticipate to ramp back up later in the year. And I think there's also some other adjustments that happened throughout the year, such as our AIP or our overall incentive plans that tend to ramp up or ramp down throughout the year as well. And so I think that's part of what you're seeing also in terms of Q4 versus Q1 seasonality.

Our next question comes from Nathan Rich of Goldman Sachs.

Maybe Thomas, to start. I think the implied PMPM growth for '22 is about 2%. If I heard you correctly, I think you said that the new member RAF was maybe a little bit lower than what you had expected. And then you're expecting the return of sequestration. I didn't know if there was anything else that I might have missed just as we think about PMPM growth this year. And can you maybe talk about the ability to kind of manage those higher cost members and just kind of overall level of confidence and visibility in the MLR outlook that you gave.

Yes, yes, absolutely. So in terms of your first question on revenue PMPM sort of year-over-year, I think you're right that we have suggested that our new member risk adjustment scores are a little bit lighter than expectations. And when I say a little bit, I mean to the tune of a few percent and nothing too significant, but modestly lower than what we would have expected coming to the year based on our prior experience by market, which, of course, it does vary by market. However, that is, I think, being offset by what we've seen on our returning members, where I think 2022 really looks to be a more normalized operating environment based on all of our operational activities in 2021. And then I think the other thing just to keep in mind is every year as we go through our bid cycles and we're making benefit investments, those do have an impact on our overall revenue PMPM from year-to-year. And that's, of course, offset by the benchmark trend. So when you kind of combine those 4 things, the returning members, the new members, the benefit enhancements as well as the benchmark trends all of that for us this year is kind of rolling together to something like you said, I think, about 2%. In terms of the MBR outlook, I think we feel pretty good. And obviously, what we experienced in Omicron over the last part of January and into the early part of February, certainly was a bit of an accelerated clip in COVID-related inpatient utilization compared to some of our experience with the prior waves, just given that it's obviously a much more highly transmissible variant. But that being said, it's come down significantly. And as of the end of February, it was at a much more normalized rate between both Covid and non-Covid consistent with our expectations. So I think we feel pretty strong and confident in terms of our overall MBR outlook for the year and look forward to keeping you guys updated on it.

That's helpful. And any updated thoughts around the time line to profitability for the overall company? I think the EBITDA guidance for '22 is kind of generally consistent year-over-year. Maybe just what the path looks like from here? And it sounds like you may be close to profitability in California. And so that's obviously nice progress to see. Maybe just talk to us about how you expect that market to play out and then what that would mean for the overall business?

Yes, makes a lot of sense. So to your point, we obviously are looking at this kind of market-by-market inside and outside of California and also some of our newer ventures like DCE. And so we've seen a lot of progress in California over the last 2 years, and we're really pleased with where that is shaping up today. And those comments that John and I made earlier, again, that includes a lot of these growth investments we're making in the market management infrastructure as an example. So really seeing some strong performance there. And then meanwhile, our consolidated EBITDA profile this year is reflective of a lot of those investments for the 2021 and 2022 new market launches. So that's North Carolina, Nevada and Arizona as well as some of our 2023 and 2024 expansion initiatives. And so I think to your question on kind of our overall path to profitability, I think we're still envisioning that over the next several years, the strength of our legacy markets will continue to perform and be able to fund the investments we continue to make in the new markets. I think the open kind of question and interrelated relationship is the pace of the new market investments. And so as John mentioned, I think we continue to plan to make new market investments over the next several years, given our confidence in some of our historical and more mature market performance. But that being said, I think while we're comfortable today with a modest EBITDA loss, I don't think you're going to see us go crazy and kind of chase growth at all costs or drive our EBITDA profile to a much more significant loss than what we've currently put out in guidance. So I think we're on the right path over the next couple of years. And importantly, I think we have a strong enough balance sheet to get us there without the need for any type of financing.

Our next question comes from Lisa Gill of JPMorgan.

Just want to go back, Thomas, to just spend a couple of minutes talking about your outlook for medical costs for 2022. As we think about COVID specifically, things like antivirals, thinking about the new testing initiatives, is there anything specific in your guidance for any of those? As I would expect that, that would be kind of outside the norm of what you explained before, where if we saw hospitalization, we saw less outpatient and they kind of offset each other. So anything specific there that we need to think about for 2022?

Yes, I think you're spot on that there continues to be progress across the market. And I think net-net, we view that as a positive. And the way we sort of think about that is, I think we shared with some of you before, our average inpatient unit cost are a case rate for an average COVID hospitalization is over 1.5x as expensive as a non-COVID hospitalization. And so over the course of a year and what's contemplated in our guidance is a mix of both COVID and non-COVID admits per 1,000 or inpatient utilization. And so to the extent that there is additional expense related to, to your point, antiviral medications that can help prevent some of those downstream more costly expenses, I think net-net, that could be a positive for us. So something we're keeping an eye on. But at the time, I don't view that necessarily as a risk and potentially an opportunity, if anything.

And then just secondly, I appreciate your comments around moving towards profitability. When we think about long-term target margins for your business, how should we think about that longer term? Is the anticipation that it would be in line with some of the other MA peers in the 4% to 5% margin range?

Well you say 4% to 5%, that's pretax?

Yes.

Yes. I think that's probably in the right realm. I think what we have said, starting back when we went public is that our long-term adjusted EBITDA margin goal was 6% to 9%. And I think we've talked about the kind of 6% to 7% range being sort of the pure health plan business and really the opportunity to strive for 8% to 9% being related to some of our efforts, both around vertical and horizontal integration. And what I mean by that from a vertical standpoint is our ability to leverage some of our AVA capabilities, the clinical model and some of our other subject matter expertise through provider relationships. And then from a horizontal standpoint, I think over time, we would look to potentially in-source some of our things that are currently outsourced, such as our supplemental benefits, things like behavioral health, areas where we think there's an opportunity to either buy or build businesses to sell into our existing installed base of membership, which is obviously becoming pretty decent at this point in terms of size.

Our next question comes from Sarah James of Barclays.

So at the midpoint, it looks like about 20 basis points gross margin expansion and 40 basis points EBITDA margin compression. So about a 60 basis point delta there which translating is like $8 million. So is that how we should think about the incremental investment in growth spend built into '22? Is there any clinic investment in that amount? And are there any other headwinds that are factored in there?

I think that directionally sounds about right. No specific headwinds certainly contemplate. I think what you're probably seeing in terms of the SG&A line is sort of the run rate impact of the new markets we launched in 2022. So what would have been "year 0" in 2021. So you're getting kind of a full annualized impact to some of those investments in Arizona as an example. And then also what we're forecasting over the back half of the year related to some of our potential growth and market launches for 2023. So I think it's just sort of the layering on of those additional market investments that we're contemplating that I think it might be what you're referring to.

Got it. Great. And then as you think about your 20% long-term revenue growth target, how do you think about that between organic and capital deployment or M&A?

Yes. I think our 20% goal remains organic. I think if we see opportunities for M&A, that would look to complement or add to that. But I think from just a 20% perspective, we remain focused on trying to achieve that organically year in, year out.

Our next question comes from Gary Taylor of Cowen.

Most of my questions answered. I just want to go back and make sure I understand the -- John, what you had said about the market management folks in the field. Are you talking about sales reps or your own internal brokers? Or what type of people are you talking about just being around the markets more?

Gary, great question. Yes, I would say that traditionally, our -- the people that we had in the markets, we're the provider engagement reps. And so we are working with a lot of the IPAs and medical groups and making sure different kind of clinical operational gaps were closed on HEDIS and STARs and as well as MRA gaps and making sure that data was properly ingested to feed AVA, that kind of thing. And so what we're doing is we're adding additional resources that are -- that we would call community reps. And so these folks are going to be working with seniors and senior centers and different kinds of organizations within each community to get much more activity on the sales side and working with brokers, by the way. And secondarily is to, I would say, add additional providers into the network, both primary care and some specialists in each community. And we have known that we wanted to do that. We've been also mindful of, again, long-term profitability, but we've gotten the growth by focusing on kind of the former. And I think this is -- it's caused us to accelerate the investment in this area. I think we would have probably done it anyways next year, but we're really accelerating it to this year. And just to get more consistency on the product growth. Hope that answers the question.

Just on days claims payable comments looked like down about 3% year-over-year, 2.5% or so sequentially. Anything there on timing, inventory, IBNR or anything?

No, I don't think anything overly material or consequential. I think we continue to feel pretty good about our approach to IBNR and our reserving methodologies. And I think we shared with many of you in the past that we have a pretty detailed oriented view in terms of how we track our inpatient utilization in terms of facility mix, in terms of high-cost cases that we anticipate would be above and beyond our average kind of average case rates and unit costs. And so we feel pretty good about the way we've approached it, and nothing too material in terms of the day-to-day just speed in which we process claims, I'd say.

Our next question comes from Kevin Fischbeck of Bank of America.

All right. Great. Obviously, this year, you're growing a little bit slower, which, I guess, generally speaking, we think about less G&A leverage, and it sounds like you're making more investments. Is there -- it doesn't sound to me like you've really changed your view on margins meaningfully. So how exactly are you kind of funding these investments? Do you emphasize something else in G&A? Are you changing how much do we invest in the benefits versus these other things? How should we think about the margin implications of what you're doing?

Kevin, this is Thomas here. So I think it's sort of 2 things I'd say. One is you're right. I think we're looking to make improvements across the business in terms of our operating leverage, not just in terms of a lot of the fixed costs, which, of course, those are the areas you'd expect us to get the fastest operating leverage on over time as we continue to grow. But we're still working through a lot of areas and a lot of our more variable cost centers where we think those areas will obviously continue to grow with membership, but there are a way that we continue to be more efficient. And so I think you're seeing some of that improvement come through on both sides. But I would also say in terms of the membership kind of shortfall as of January, as John mentioned, being around 3,000 members short of our 20% growth target. As much as that is obviously very frustrating to us and something we're working to attack as we speak. I think overall, that 3,000 member doesn't have too much of an impact on our overall kind of leverage objectives and ability to achieve those year-over-year from '21 to '22. So I think it's obviously a minor headwind, but I wouldn't say it's causing us to completely rethink how we approach our SG&A for 2022.

Okay. That's helpful. And I guess maybe just the competitive marketplace. It feels like at least the larger disruptive companies have gone public, the market has kind of told them you need to be closer to profitability. You guys have always operated that way, but it seems like some of the other companies who have been more focused on growth over profits are now changing their strategy. Do you believe the same thing is happening in your local markets that there's reason to believe that the competitive backdrop will get less competitive? Or is that not necessarily the right way to think about the actual companies you're competing against?

Kevin, it's John. Yes, I think it's always going to be competitive. I think the legacy players, I think, are very good at this. You've got a lot of new entrants that have been very aggressive. I would say that the question at hand is sustainability of the degree of aggressiveness. I think it's something that we've also seen come and go. And I think with some of the tailwinds that a lot of the plans experienced the last couple of years, I think they invested a lot of that into benefits. We've always said that you really can't get into this business without having some form of kind of ability to manage risk effectively and kind of this clinical model. And I think we're going to really demonstrate consistency around that. That's why we've focused so much on the clinical model and investing in AVA and investing in Care Anywhere and differentiating ourselves from everybody else. At the end of the day, I just think we have the most efficient model to deliver value to the consumer. So -- and that's a long-winded answer, but I think it's -- we're not taking anything for granted, Kevin. I think this little blip we had last for AEP is having us look at everything.

And our final question comes from Kevin Caliendo of UBS.

Thanks for sneaking me in here. So I'd like to kind of follow up on Kevin's question a little bit about the competitive nature and benefit design and the like. You guys are a high-touch plan, high benefit plan, always have high star ratings. In the context of people offering very rich benefits last year, is the fact that the rate update this year being higher, is that actually like a negative, meaning it kind of allows other people to catch up to you guys? Or are there things incrementally that you can do that still differentiate yourselves on the benefit side? Like how should we think about that? Because I haven't been able to figure out if it's a good thing, bad thing or neutral.

Kevin, this is Thomas here. I tend to agree with you that there's a certain bit of neutrality to it. And what I mean by that is, first of all, while the advanced notes was positive, we, of course, are still waiting to see how it comes out for our specific counties here over the next month or two. And so with that in mind, I think you're right that to the extent that it is another solid benchmark year like it was in 2022. I think that gives all plans the same level of incremental flexibility with respect to benefits. And so you're right that, that may allow a competitor to invest in their own benefit offering to enhance it. But that same funding mechanism is the same one that we have. And so if we're already ahead of them, we should be allowed to be able to stay ahead of them. And vice versa, if it happens to be a more modest benchmark increase here, same thing. I think ultimately, if the funding mechanism for incremental benefits is similar between us and a competitor, I think what would allow us to continue to win in the marketplace and to maintain our product positioning that's ahead of a lot of our competitors really gets back to our ability to be high quality and low cost to begin with. So I would never say that a higher benchmark trend is a bad thing. I think we certainly wouldn't say that. But at the same time, I'm not sure that it would cause us to feel very different about our opportunity for growth in 2023, one way or another.

Fair enough. That's actually really helpful. And just one quick follow-up. You discussed your improvement in member engagement from 57% in 2020 to 64% in 2021. And can you sort of quantify what that does in terms of MLR? And where do you think that can go to, whether it's in 2022 or going forward? Like what is the incremental patient engagement? Have you quantified the benefit to you or to the member in any way?

Yes. So I don't think I've quantified it in terms of the impact on NBR per se, but maybe I can give you some data points to help triangulate here. So as you guys have heard us say before, our historical performance is kind of in that 160 to 165 inpatient admissions per 1,000 range. And we shared with Mini back in January that we ran about 155, 156 for full year 2021. And so I think as you're seeing us continue to improve engagement rates, as you're seeing us continue to improve. You've heard John talk about the recall rate. So it's the capture of our AVA inpatient risk prediction models and readmission models. I think all of that lends back to the inpatient utilization metric that we track on almost maniacal daily basis. And so I think we're seeing a lot of progress with it. And over the long term, we still think there's opportunities to continue to improve it. Obviously, we want to get to 100% that might be a bit aspirational, but that's probably the long-term goal. In the short term, though, I think you'll hopefully continue to see us make drives on that metric, and you'll see it come through in the form of improved readmission rates and hopefully lower MBR as well.

And at this time, this concludes today's conference call. Thank you for participating. You may now disconnect.