Q4 2023 Privia Health Group Inc Earnings Call

Participants

Robert Borchert; Senior VP & IR; Privia Health Group Inc

Parth Mehrotra; Chief Executive Officer; Privia Health Group Inc

David Mountcastle; Chief Financial Officer & Executive Vice President; Privia Health Group

Josh Raskin; Analyst; Nephron Research LLC

Brian Tanquilut; Analyst; Jefferies

Lisa Gill; Analyst; JP Morgan

Ryan Daniels; Analyst; William Blair

Sameer Patel; Analyst; Evercore ISI

David Larsen; Analyst; BTIG

Justin Kessler; Analyst; Piper Sandler

Gary Taylor; Analyst; TD Cowen

Richard Close; Analyst; Canaccord Genuity

Whit Mayo; Analyst; Leerink Partners

Jeff Garro; Analyst; Stephens Inc

Presentation

Operator

Good day, and thank you for standing by, and welcome to the Privia Health Group Fourth Quarter 2023 conference call.
At this time all participants on a listen-only mode. After the speakers' presentation, there will be a question and answer session to ask a question. During this session, you will need to press star one on your telephone. You will then hear an automated message. Advising your hand is raised. To withdraw your question, please press star one again. Please be advised that today's conference is being recorded.
I would now like to hand the call over to Robert Borchert, SVP, Investor and Corporate Communications.
Please?

Robert Borchert

Thank you, Shannon, and good morning, everyone. Joining me are Parth Mehrotra, our Chief Executive Officer; and David Mountcastle, our Chief Financial Officer. This call is being webcast, can be accessed in the Investor Relations section of Privia Health.com. Today's financial press release and slide presentation are posted on the Investor Relations pages of our e-health.com. Following our prepared comments, we will open the line for questions.
Please limit yourself to one question only and return to the queue. If you have a follow up and get to as many questions as possible.
The financial results reported today are preliminary and are not final until our Form 10 K for the year ended December 31st, 2023, as filed with Securities and Exchange Commission. Some of the statements we will make today are forward-looking in nature based on our current expectations and view of our business as of February 27th, 2020 for such statements, including those related to our future financial operating performance and future business plans and objectives are subject to risks and uncertainties that may cause actual results to differ materially. As a result, these statements should be considered along with the cautionary statements in today's press release and the risk factors described in our Company's most recent SEC filings.
Finally, we may refer to certain non-GAAP financial measures on the call. Reconciliation of these measures to comparable GAAP measures are included in our press release and the accompanying slide presentation posted on our website.
Now I'll turn the call over to Parth.

Parth Mehrotra

Thank you, Robert, and good morning, everyone. Privia Health, close 2023 with another quarter of strong performance. We extended our market reach and continue to execute at a high level on multiple fronts with a focus on growth and profitability.
This morning, I'll briefly highlight our 2023 performance, discuss our core focus areas for 2024 and cover some key business highlights. Then David will review our recent financial results, our balance sheet and capital position and our business and financial outlook for 2024.
Before we take your questions, 2023 was another outstanding year of growth for Privia Health. I'm extremely proud of our employees and provider partners whose contributions drove results that met or exceeded our updated guidance across all key metrics. We had a record year of new and same-store provider sales as we continue to build one of the largest ambulatory provider networks in the nation. We added 200 implemented providers in the fourth quarter and a total of 699 implemented providers in the year, meaningfully increasing density in existing states.
The ongoing success of our model is underlined by a gross provider retention of over 98% in 2023. We were also pleased with our practice collections growth for the year following the restructuring of one capitation agreement announced in the first quarter of 2023. That led to an approximate $110 million headwind to our initial guidance. A combination of accelerated implementations from organic sales, strong fee-for-service and value-based care performance and new market launches contributed to actual practice collections ending the year near the high end of guidance.
We entered three new states in this past year with the addition of Connecticut, South Carolina and Washington, our business development efforts continue to expand our total addressable market and bring the Privia model as a differentiated alternative for community providers and new state growth in our more mature markets drove meaningful outperformance and platform contribution above the high end of guidance due to the operating leverage embedded in our model, validating our strong unit economics. Given our strong free cash flow conversion, we ended the year with approximately 390 million in cash and no debt.
Moving on to 2024, we are taking appropriate steps to manage our value-based risk arrangements, given the regulatory and utilization headwinds faced by various payers in the Medicare Advantage market over recent months, we have heard commentary from payers anticipating top line and margin pressure stemming from several factors, including B. 28, a continuation of strong inpatient and outpatient utilization and an expected reduction in the number of four and five star rated health plans.
As payers look to strengthen their market position, some are adjusting planned benefit designs and setting MLR thresholds in the risk-based MA contracts that do not sufficiently compensate provider groups taking risks downstream. As we stated earlier this year, we believe that the environment today does not support over extension into downside risk or capitation arrangements. We are prudently managing our risk book for more favorable contract structures and margin contribution.
Our ability to nimbly respond to the changing reimbursement environment is essential for the provider organization and demonstrates the flexibility and diversity of the Privia business model. We expect to benefit from these changes as we continue to grow adjusted EBITDA year over year in a sustainable manner while limiting downside risk in this environment in the near term.
To that end, for 2024, we are renegotiating certain MA capitation arrangements and moving 19,900 attributed lives into upside downside risk arrangements. This lowers our risk exposure and reduces practice collections by approximately $198 million year over year with improved economic terms, we expect to benefit on a cash margin basis from restructuring the contracts.
Second, we notified CMS that we are exiting the Delaware ACO effective January first, of 2020 for this ACO comprised approximately 12,000 attributed lives in MSSP. And given utilization trends in that market was expected to generate a negative contribution margin for the foreseeable future.
Third, we continue to be prudent with our value-based care accruals. Our 2024 guidance assumes minimal increase in shared savings accrual across our value-based care arrangements in the aggregate The goal of these actions is to actively manage our risk exposure like our capitation contract rebid reevaluation in early 2023.
Looking back at the past couple of years, we believe our thoughtful approach to managing risk arrangements has served our providers and shareholders well in delivering consistent, predictable EBITDA growth.
As we look out into the future, Privia is exceptionally well positioned to enter new capitation arrangements when the market conditions become more favorable and present the right opportunities for Privia and our provider partners.
Our long-term goals remain unchanged to build density in existing geographies through organic provider growth, move our medical groups into value-based care arrangements at scale and expand adjusted EBITDA and free cash flow in a durable manner.
As many of our newer markets enter the next stage of their lifecycle. We expect to invest $10 million to $12 million in platform costs in 2024 to continue supporting their growth. Despite this increased investment and minimal accretion and shared savings accruals in 2024, we expect 21% adjusted EBITDA growth at the midpoint of our guidance. Adjusted EBITDA margin as a percentage of care margin is expected to increase 200 basis points at the midpoint with minimal capital expenditure.
In our Capital Light model, we expect about 80% of our adjusted EBITDA in 2024 to convert to free cash flow. This would increase our cash position to over $450 million by year end, excluding any business development activity. Our business development and sales pipeline for both new anchor partners and existing provider groups continues to be very robust.
In addition, we are starting to see some disruption in the provider space due to the challenging environment. Given our thoughtful approach and very strong balance sheet, we look forward to pursuing opportunities that position Privia as a partner of choice for physician groups. Previous national footprint continues to expand as we build one of the largest primary care centric delivery networks in the country.
Today, we have more than 4,300 implemented providers caring for over 4.8 million patients in approximately 1,100 care center locations across 13 states and the District of Columbia expansion into new markets is picking up pace as our multi-specialty provider partnership model across all patients and all reimbursements is a key differentiator for Privia. As of January 1st of this year, we estimate Privia is serving 1.13 million attributed lives across more than 100 at-risk payer contracts in commercial and government programs. Total attributed lives increased approximately 32% from year-end 2022. This positions our business as one of the broadest and most balanced value-based care platforms in the industry.
Our commercial attributed lives increased more than 36% from year-end 2020 due to 678,000. 69% of our commercial attributed lives are in upside only arrangements and 31% are in arrangements with some downside risks, our ability to own care management fees and shared savings that are incremental to our highly predictable fee-for-service administrative fees offers a very unique value proposition to our medical groups in the commercial book of business.
Total lives in Medicare shared savings program, excluding Delaware, grew 6% from 2023, approximately 76% of the 192,000 attributed lives participating in MSSP R&D, enhanced track with significant upside opportunity as well as the greatest downside risk CMS offers in the program. As of January first, 75% of the 172,000 attributed lives in Medicare Advantage are an upside only payer contracts, 16% are in upside downside arrangements. The remaining 9% or approximately 16,000 lives are expected to be in capitation arrangements, down from 35,900 at the end of 2023 due to our actions to limit downside risk exposure, there remains a significant embedded opportunity for us to move our Medicare Advantage lives into downside risk arrangements over the next few years.
As we've consistently noted, core to our long-term strategy is to thoughtfully move lives into increased risk arrangements. When we are confident it will provide significant opportunities for EBITDA and free cash flow growth. We wanted to provide additional color on the substantial amount of medical spend that underscores our value-based arrangements.
In aggregate, Privia as ACOs or risk entities are managing approximately $9 billion of medical spend in 2024 in most of our contracts. We only recognize care management fees and or shared savings in practice collections and GAAP revenue due to revenue recognition rules in our capitation contracts. We recognize the medical premiums associated with those lives, any shift of lives between different types of value-based care arrangements such as into ACO reach from MSSP or capitation from upside downside, MA contracts could lead to significant movement in practice collections and GAAP revenue potential.
Volatility of shared savings associated with the scale of our medical spend under management requires us to be thoughtful in our risk-taking, including limiting downside risk as appropriate in the current environment, we remain focused on growing our value-based care business in a profitable manner for our provider partners and shareholders.
Now I'll ask David to review our recent financial performance, capital position and our operating and financial outlook for 2024.

David Mountcastle

Thank you, Parth. For the health, strong operational execution and financial performance continued through the fourth quarter of 2023. We added 200 providers since the end of September, bringing our implemented provider count to 4,305, up 19.4% year over year, combined with solid ambulatory utilization trends. This led to practice collections increasing 19.2% from Q4 a year ago to $757 million.
Platform costs and SG&A expenses grew slower. The growth grew slower than our top line, and this operating leverage helped drive adjusted EBITDA up 21.1% over Q4 last year to $17.3 million as we continue to grow and more mature and newer markets. As part noted, we met or exceeded guidance for all key operating and financial metrics.
For full year 2023, practice collections increased 17.1% from a year ago to $2.84 billion. Care margin was up 17.5% and adjusted EBITDA grew 18.7% to reach to $72.2 million despite absorbing new market entry costs. Our business model continues to generate very strong cash flow. And we ended the year with no debt and a cash balance of approximately $390 million.
Free cash flow for the year was almost $81 million or more than 100% of adjusted EBITDA due to timing differences. We generated net cash of $41.5 million in 2023 after investing $43 million of cash for business development activities to enter new states. We also have an undrawn and available $125 million credit facility and plan to continue maintaining a conservative balance sheet. Previous strong 2023 performance business momentum and diversified book of business has positioned us well heading into this year.
Our focus in 2024 is threefold drive organic provider growth to increase density and scale in existing geographies, limit downside risk arrangements for more favorable contract structures and margin contribution and drive operating leverage for adjusted EBITDA growth using the midpoint of our 2024 guidance, implement and providers are expected to increase 9.2% year over year to reach 47 hundred by year end. Attribute lives growth of approximately 5% at the midpoint includes our exit from the Delaware ACO in 2024.
Moving to our top line we are proactively adjusting our risk book to focus on positive margin contribution as we foresaw a more challenging M&A environment ahead of us. Therefore, we expect practice collections and GAAP revenue growth to be essentially flat year over year. Our practice collections guidance includes a reduction of approximately $198 million from 2023, given lower risk exposure from the MA capitation agreements we are renegotiating. The improved economic terms are expected to benefit our Caremark.
We are also assuming minimal increase in shared savings year over year as part of our prudent accruals. This implies expected 2024 growth in fee for service practice collections of approximately 10%, driven by implemented provider growth in more mature markets in 2023 as well as early provided growth momentum in newer markets. We expect care margin growth to be 9.7% at the midpoint, given the minimal increase in shared savings accruals. Platform contribution growth of 5% to 6% at the midpoint of guidance reflects an incremental $10 million to $12 million of operational investment in the new markets we've entered over the past 18, we are guiding to adjusted EBITDA growth of approximately 21%.
Adjusted EBITDA margin as a percentage of care margin is expected to expand 200 basis points year over year at the midpoint as our operating leverage in more mature markets more than offset new market entry costs. We also anticipate our newer markets to contribute significant growth in providers attribute lives and adjusted EBITDA in the future in the near term, given the current environment, we are targeting annual organic practice collections growth in the mid 10s and adjusted EBITDA growth of 20% or greater, excluding the potential positive impact of any business development activity or growth in our capitated MA book.
Finally, we expect capital expenditures to again be less than 1 million this year as part of our capital-light operating model and are assuming an effective tax rate of 27% to 28%. This should all lead to approximately 80% of our full-year adjusted EBITDA converting to free cash flow. Premier Health continues to grow in existing and new markets, and we remain focused on building one of the largest ambulatory care delivery networks in the nation. We remain extremely well positioned to reaccelerate our move to downside risk arrangements when the appropriate MA market conditions present themselves in future years. And we look forward to continuing to serve our physicians, providers and health system partners and their patients.
Operator, we are now ready to take your question.

Question and Answer Session

Operator

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one. Again, please stand by while we compile the Q&A roster.
Our first question comes from the line of Josh Raskin with Nephron Research. Your line is now open.

Josh Raskin

Hi, thanks. I appreciate the question. Can you talk about the negotiations with payers around taking risk. I'm specifically interested in why they're okay with you sort of titrating risk back when you see utilization and other changes and how receptive you think they're going to be in the future when you come back and say we want to resume capitation when things sort of come down?

Robert Borchert

Yes. Thanks for the question, Josh, great question up. So there are a few things. Number one, we've built a very conscious model from day one that can take risk in different flavors and do value-based care across the spectrum, as you know. So we're doing fee-for-service with upside, only shared savings and bonus payments. We're doing upside downside risk arrangements. We're also doing capitation, and we're doing that across commercial, MA and MSSP. So that value proposition is fairly broad for any payer in the industry, public or private.
When we discuss our the capitated book specifically to your question with payers, they are seeing utilization trends that everybody seeing it's impacting their book. And at the end of the day, they understand that this is a long-term partnership with Privia if they have given us MLR targets that are no longer supported given recent historical trends, we've tried them make sure that they have certain skin in the game and every payer contracts. And if we had that leads to adjusting those levels appropriately, we can have that discussion.
To be clear. We are still taking pretty substantial risk in these contracts of 50% or higher is just that we are not we're dialing it down with a certain higher MLR thresholds and it's up one to three year arrangement. That changes over time. The ability for us to take risk changes over time. And then we've just got to deal with the realities that are that we are seeing in the marketplace. So I think it speaks to our strength of the business model and how we can work with the payers and the long-term nature of the contract fate.

Operator

Thank you. Our next question comes from the line of Brian Tanquilut, Jefferies. Your line is now open.

Brian Tanquilut

Hey, good morning.
It's Jack Slevin on here. Thanks for taking the question. I guess looking at the numbers, there's a little bit of optical impact, I think from the strong print on implemented providers in Q4, and I'm shaking out at somewhere in the 14% to 15% average provider growth for 24 and based on the guidance range is, I guess, one, is that the right way to think about it? And then two, as you think about jumping off from 24, given the change in operating leverage from platform contribution to EBITDA in the guide, how should we think about where provider growth and attributed lives growth needs to be off of 24 to sustain a growth rate in the same range that you've guided to for the year? Thanks.

Robert Borchert

And thanks for the question, Jack. So I'll answer them in order of number one, look, we've always said we're going to target four to five hundreds new implemented providers every year as we get into new states, our TAM expands and ideally, we'd like to exceed that number by 2023 was an outstanding year of we implemented close to 700 providers as we noted. So there's always some timing difference. All else being equal will drive and implement them as soon as possible.
Some of the new markets also come with implemented providers day one, and that's what happened in '23. So the right way is just to normalize that over the over a two or three-year period of time. But given the TAM, we have a low penetration even in the existing states, we think we can continue to add 400 to 500 implemented providers in just the existing footprint without adding a single new market. And then those providers come with attributed lives. We move them into value-based arrangements and then have that flows down the P&L.
And you can see 2024 is a perfect example where we are not assuming any accretion and shared savings just given the current utilization trends across the value-based book, and we're not assuming any new market entries in 2024, we still have three or four markets that are negative EBITDA that we entered recently. And despite that, we are able to generate operating leverage and grow EBITDA at 20 plus percent at the midpoint of the guidance.
So I think as we move forward into 24, if we keep adding at that level of clip, implemented providers and lives. And those are the two units that drive the business, we think the inherent unit economics and operating leverage in the business just magnifies. And we like to keep increasing the operating leverage to grow EBITDA at least 20 plus percent in the existing footprint, the marginal provider that joins and the life that joins is highly accretive. And the beauty of the business is we've already proven the unit economics and operating leverage today.

Operator

Thank you.
Our next question comes from the line of Lisa Gill of JPMorgan. Your line is now open.

Lisa Gill

Thanks very much. Mid-morning part and I want to go back to how you're seeing the market right now.
And you talked about minimal increases in shared savings. I mean, as we think about 2024, you talked about renegotiating some of these risk contracts but when I think about, for example, the minimal increase in shared savings is that utilization? Is that the risk model changes? And how do we think about the timeline of view coming back into more capitated type of relationships? Is that several years away? Or do you think like we just need to get through 24 and have a better baseline just any thoughts that you have on how we should think about this?

Robert Borchert

Yes. Thanks for the question, Liisa. So just from a macro perspective, look, we've had a little bit of a contrarian viewpoint over the last two years on the MA and capitated space. And we've been that viewpoint has been against the grain, which has been hard when both public and private investors have focused on risk-taking businesses without regard to in your profitability or free cash flow are right, we had and I will say that you are right.
I mean, if we look back now if you're going to drive the record thought to do and yet it does to our healthcare economics team and data analytics team, we have some of the best in the industry that see these trends and keep us out of trouble. We think of some of these regulatory changes would have pretty significant impact if you've heard it from all the payers, we think the 28 would be a pretty significant impact. I think you're seeing some of that in 2024 when payers have reset expectations.
We do think 25 would be the first deal. Will you actually see the impact downstream in the provider groups and knowing that we've actively restructured our book and protected the downside risk for both our providers and our shareholders. I think look, our view is we on the right side of history, we are building multi-specialty medical groups at scale with community doctors, which are lowest cost setting in the communities that we serve and eBay are wanting to do.
Value-based care at the end of the day would rely on such a network. And we just think you are in an environment where obviously everybody protects that dwarf the payers are going through a pretty challenging phase of things, do normalize. The MA business goes in cycles. We've seen this over the last 20 years.
And we think once we get through 24, 25, things would normalize our ability to work with the payers and make sure we do the right thing by providers that are actually undertaking total cost of care management and helping the bears lower total cost in across different books of business, including commercial is very differentiated and the payers are willing to work with us. So I do think to answer your question directly, once we get through 24, 25, we should see some normalization Thank you.

Operator

Thank you. Our next question comes from the line of Ryan Daniels with William Blair. Your line is now.

Ryan Daniels

Hey, thanks, guys, and subject. Sometimes Brian, Daniel, thanks for taking the question, just kind of off of the provider question asked earlier, I guess in terms of the implemented providers and as you previously alluded to, you're looking to add about 400 providers in 2024 and in 2023, the provider as a bit more back half-weighted. Can you just discuss the cadence you expect for added providers over the year, what should that be more linear and kind of weighted equally or maybe back half weighted and similar to 2023?

Robert Borchert

Thanks. Yes, absolutely. So usually, they should be pretty linear with the exception of new market entries.
So what happened in 23 was we entered South Carolina. We entered Washington. Both of those came with some implemented providers day one and so that led to that increase. And then obviously, we blew through the numbers. You know, 699 was one of the best years we've had that just speaks to the strength of the model and the momentum that we have.
But other than that, we should expect it to be pretty linear. We are not including any new markets in our guidance as we've done previously in previous year or so as and when we enter new markets. And if that comes with implemented providers, that would be additive to the guidance we've given.

Operator

Thank you.
Our next question comes from the line of Elizabeth Anderson with Evercore ISI. Your line is now.
Hi, guys.

Sameer Patel

This is Sameer on for Samir Patel. On for Elizabeth Anderson.
Thanks for the question. I just wanted to confirm as it relates to you guys moving the capitated contract those lives over, are there any like fee-for-service economics that you're going to be now gaining on this? Or is this strictly a shared savings?

Robert Borchert

Yes. Thanks for the question to me or so. So there's always fee-for-service economics even when we move lives into capitation because we are deeply in the workflows and processing claims. So we earn a fee for service administrative fees on any claims that go through even when the lives move into capitation. What happens is the fee-for-service spend is captured also as a medical expense if we are getting capitated payments up top. So that's the nature of the business but we do earn fees on both the fee-for-service book and then any shared savings on the value-based book on the on the same patient as you think that differentiates ourselves and are able to get a pretty good unit economics on the same life if we can process both fee-for-service and value-based care payments.

Operator

Thank you.
Our next question comes from the line of David Larsen with BTRG.

David Larsen

Congrats on the good quarter. Can you talk a little bit about your relationship with Besse Medical? And I'm assuming your retention levels with your groups are high and maybe talk a little bit about your on chosen your choice to exit Delaware. Thanks very much, and thanks, David. So on the first one, we have a pretty good relationship with vast Medical Group, long-standing relationship where we are helping the group grow. And we obviously have a joint venture Amisol entity. So that relationship remains pretty strong. They were looking for a joint venture partner to establish a California.
Our risk bearing organization that have delegated risk downstream from the bears is not a business Privia as in how we do work with other such entities that do that. As an example, we work in North Texas with Walmart that is owned by Optum for certain MA contracts. Our economics are unchanged. We continue to get 40% of shared savings on all providers participating in value-based arrangements.
And so we've been discussing that with the vast medical group and we respect the decision to establish such an entity and we expect to participate in some of those contracts. And hopefully that helps the group the growth of the Delaware had a question of look, it was purely an economic decision to underwrite some of these businesses looking at the utilization trends and if that changes, as we noted in our prepared remarks, up given what we were seeing in the marketplace, we didn't think that ACO would have generated any shared savings for our provider partners or for EBITDA for previous shareholders for the foreseeable future.
Sometimes that happens and the flexibility in our model is that we can prudently dial back risk or exit these ACOs when we can in an appropriate manner. And we'll keep monitoring the situation if the opportunity arises in the future will venture back end.

Operator

Thank you.
Our next question comes from the line of Jeff Kessler with Piper Sandler.

Justin Kessler

Thank you for taking my question and congrats on the quarter. So I just wanted to kind of clarify, where are you experiencing new market entry costs in 2024? And then just maybe if you could articulate when you expect to lap those headwinds and I know that 10 to 12 million, but can you can you remind us which states those headwinds are attributable to.
And then is the Delaware exit effectively a tailwind for EBITDA in 2014, you won't have those new market entry costs associated assuming you wind down. Thanks for.
Thanks.

Robert Borchert

Thanks for the question, Jess. So on the first piece, as we've said stated consistently, when we enter a new state, we first start with the spend at the sales and marketing line. So a lot of the spend in 2023 was building out our sales team and the infrastructure to go add providers in those new states, and that continues to be there in 24. However, once we start implementing provider, some of this spend also increasing increases in the cost of platform.
So you're seeing a majority of the $10 million to $12 million spend is now incremental in the platform costs to support our implementing and working with these providers as we ramp them up. So that shift happens. And of these other recent new markets, as you would expect between Connecticut, North and South Carolina as well as a higher they are some of those are still EBITDA negative, and we would expect to breakeven over the next couple of years.
Obviously depends on the provider growth, but that's our trajectory from one Delaware perspective of we did not have any implemented providers. As you recall, this was our care partners deal with a health system. So we would not have those providers were not on our platform. So they were not substantial sales and marketing or implementation costs in that market. However, we've exited the ACO and that prevents a negative care margin and EBITDA impact that we would have faced had we not shut down the ACO.

Operator

Thank you. Our next question comes from the line of Gary Taylor with Cowen. Your line is now open.

Gary Taylor

Good morning. Most of my questions answered. Just a couple of maybe follow-ups. Just following up on Delaware and and BV, which when you announced with a couple of hundred physicians, is there still some commercial shared savings, risk-taking activity happening in that market or was MSSP. The only thing that you were doing with that group?

Robert Borchert

Gary, it was only MSSP, so they were not on our platform. There was no fee for service work that we were doing and there was no other line of business only accessible.
Got it. And my other quick one was on the capitated book of prior-year development swung to a positive $3.3 million in the fourth quarter first half of the year, you had some headwinds from negative development and I was just trying to intuitively understand that. Is there a quick explanation for that?
Yes.

David Mountcastle

Hey, Gary, this is David Mountcastle. Thanks for the question. Yes, it's on the payers. I go back and sort of reassess future, but a lot from time to time. And that was just some reassessment from one of our payer groups.
Yes, the overall impact was de minimus. When do you guys care margin?
It essentially took out the same amount of revenue and costs. So and that no real impact overall is just a sort of an attributable I bought it from one of our payers.

Operator

Thank you. Our next question comes from the line of Richard Close with Canaccord Genuity. Your line is open.

Richard Close

Yes, thanks for the question. I realize that you don't have new markets in the 2024 guidance, but Part D, you mentioned something about disruption in the provider market and just curious what specifically you're meaning by that and what that means for Privia as a potential opportunity.

Robert Borchert

Appreciate the question, Richard. Look, I'll just keep my comments generic up. You're obviously seeing some Chapter 11 filings. You're seeing significant earnings revisions and business models that are single line focused facing some headwinds in this market environment, both public companies as well as privately held companies up. We think there's a lot of capital that chase the space and in the past four or five years.
And as things normalize, we think there will be opportunities, both organically for us where provider groups may have partnered with an entity that may not be optimal and they get out of those arrangements and can join the Privia model which is well proven and established. And there will be some opportunities from a business development perspective where we could see entities that may be struggling where there's opportunity for us to both increase our density in existing states or enter new markets.
At the end of the day, we're looking to add to water units add implemented providers at attributed lives. And so if we can go get some lives in an arrangement where they may be struggling in the current structure that they might have in the current environment. I think given our strong balance sheet and capital position, we'd be willing to go at that pretty aggressively to grow.

Operator

Thank you.
Our next question comes from the line of Whit Mayo with Leerink Partners.

Whit Mayo

Thanks, good morning. Just one quick clarification. Real question. I just want to make sure I get this right. The 10 to $12 million in start-up costs is that all incremental are to 2023 or is that cumulative for the investments that you made last year?

Robert Borchert

Yes, I would I would consider those to be cumulative or there are some incremental costs because we added, like I said, predominantly in 23, it was sales and marketing related expenses. Towards the end of the year. We started some implementation and performance consultants and our infrastructure in the state of a lot of the incremental would come in on the platform cost line. But these are costs that are established. They're not one-time, as we've said, they get established in the market.
And then as we add providers, the business scales pretty rapidly and gets to breakeven. So the $10 million to $12 million you should say that if we would have not entered these states, you could simply we could take those costs out as a proxy for what we are adding. All of that is embedded in our guidance, but we give that rationale given the states that we are having a meaningful level of spend that are negative EBITDA states for us today.

Whit Mayo

Okay. That makes that makes a lot more sense. Okay. That's helpful. And I think it was a year or so ago that you guys acquired an ACO, maybe Connecticut had kind of a whole value-based care book to it just was kind of looking for an update around the performance of that and then kind of how you're thinking about other opportunities to maybe deploy capital into opportunities like that?

Robert Borchert

Yes, that was a great transaction for us. The Connecticut Community Medical Group, they've been great partners up. We think we can build a pretty big business in Connecticut. It's performing really well. And we are seeing a lot of momentum in the state with community providers implementing our full scale model at the back of the ACO or the IB. entity that we bought. I think that's a great playbook for us. If we can find like-minded partners and other such IPAs, we're going to go and acquire them given the strong balance sheet that we have. So that's a big part of the playbook.

Operator

Thank you. Our next question comes from the line of Jeff Garrow, Stephens Inc., your line is now open.

Jeff Garro

Yes, good morning and thanks for taking the questions. I'm trying to lump together a few on shared savings first for 2024, I was hoping you could add some more specifics on how many previous providers our participating and beneficiaries are expected to be attributed to Privia MSSP. ACOs. And then I was hoping you could also dig into visibility into 2023 MSSP. performance versus expectations for 2024. I definitely due 2020 for shared savings expectations and the guidance includes some cushion for final 2023 results.

Robert Borchert

Thanks, Jeff. I may ask you to repeat a question given there were a handful. So we don't disclose the number of providers are typically 60% of all providers are gatekeepers, including PCPs and family medicine. A large part of those get the app.
And so you are right, yes, seems to be no. And two days in what are you seeing will? So how are you?