Astrana Health, Inc. (ASTH) SEC Filing Report – Form 10-K (FYE 2024)
Executive Summary
This report analyzes Astrana Health, Inc.’s 2024 Form 10-K, focusing on financial performance, key risks, and strategic initiatives. Astrana Health, a provider-centric, technology-powered, risk-bearing healthcare company, operates through three segments: Care Partners, Care Delivery, and Care Enablement. The company reported revenue growth, driven by acquisitions and increased managed lives. Key risks include those related to the proposed acquisition of Prospect Medical Holdings, regulatory compliance, and cybersecurity. The overall assessment is cautiously optimistic, with a “Hold” recommendation, pending successful integration of acquisitions and effective risk management.
Company Overview
Astrana Health, Inc. (ASTH) is a healthcare company focused on value-based care. It operates an integrated healthcare delivery platform, enabling providers to participate in risk-bearing arrangements. The company’s business is divided into three segments:
- Care Partners: Manages provider networks and facilitates value-based care arrangements.
- Care Delivery: Operates primary and specialty care clinics, and ancillary service providers.
- Care Enablement: Provides a technology platform and management services to support value-based care.
Recent developments include the proposed acquisition of certain assets and businesses of Prospect Medical Holdings, and the acquisition of Collaborative Health Systems (CHS).
Detailed Analysis
Management’s Discussion and Analysis (MD&A)
Management highlights the company’s combined clinical, administrative, and technology capabilities as a key strength. They emphasize diversification through subsidiaries and affiliated entities. The MD&A discusses the proposed acquisition of Prospect, noting potential benefits and risks. A key area of focus is the ACO REACH Model and its potential impact on revenue.
Financial Statement Analysis
Revenue
Total revenue increased by 47% from 2023 to 2024, driven by capitation revenue and risk pool settlements.
| Revenue Type |
2024 (in thousands) |
2023 (in thousands) |
% Change |
| Capitation, net |
$1,856,785 |
$1,215,614 |
53% |
| Risk pool settlements and incentives |
$86,224 |
$63,468 |
36% |
| Management fee income |
$13,979 |
$38,677 |
-64% |
| Fee-for-service, net |
$62,331 |
$59,658 |
4% |
| Other revenue |
$15,221 |
$9,244 |
65% |
Expenses
Operating expenses increased by 49%, primarily due to cost of services.
| Expense Type |
2024 (in thousands) |
2023 (in thousands) |
% Change |
| Cost of services, excluding depreciation and amortization |
$1,763,152 |
$1,171,703 |
50% |
| General and administrative expenses |
$154,111 |
$112,597 |
37% |
| Depreciation and amortization |
$27,927 |
$17,748 |
57% |
Profitability
Net income attributable to Astrana Health, Inc. decreased by 29% from 2023 to 2024. Adjusted EBITDA increased by 16%.
| Metric |
2024 (in thousands) |
2023 (in thousands) |
% Change |
| Net income attributable to Astrana Health, Inc. |
$43,149 |
$60,717 |
-29% |
| Adjusted EBITDA |
$170,370 |
$146,587 |
16% |
Key Ratios
- Adjusted EBITDA Margin: 8% (2024) vs. 11% (2023)
Cash Flow
Cash flow from operating activities decreased, while cash flow from financing activities increased. Investing activities used significantly more cash in 2024 compared to 2023, primarily due to acquisitions.
Risk and Opportunity Assessment
Risks
- Proposed Acquisition of Prospect: The acquisition is subject to regulatory approvals and bankruptcy court approval, creating uncertainty. Increased indebtedness to finance the transaction could limit financial flexibility.
- Regulatory Compliance: The healthcare industry is heavily regulated, and non-compliance could result in penalties. Corporate practice of medicine laws could restrict the company’s business model.
- Cybersecurity: Breaches of information security systems could lead to data exposure and disruption of business operations.
- ACO REACH Model: Uncertainties in the design and administration of the ACO REACH Model could negatively impact results.
- Reliance on Key Payers: A limited number of payers represent a significant portion of net revenue, creating concentration risk.
Opportunities
- Shift to Value-Based Care: The industry’s move towards value-based and results-oriented models presents growth opportunities.
- Integrated Health Network: The company’s integrated health network positions it to capitalize on industry trends and meet patient demands.
- Strong Leadership Team: An experienced leadership team provides strategic direction and operational expertise.
- Comprehensive Healthcare Management Programs: Effective healthcare management programs improve quality metrics and patient satisfaction.
Uncommon Metrics
The filing mentions several uncommon metrics that provide deeper insights:
- Cash-to-Claims Ratio: A measure of financial solvency for risk-bearing organizations.
- Risk Adjustment Factor (RAF) Scores: Used to determine payments from health plans based on patient health status.
Red Flags
- Restatement of Financials: The company restated certain previously issued consolidated financial statements in August 2023, indicating potential weaknesses in internal controls.
- IRS Examination: The company is currently under examination by the IRS for its 2019-2022 tax returns, creating potential for unanticipated tax liabilities.
Conclusion and Actionable Insights
Astrana Health demonstrates revenue growth and strategic expansion through acquisitions. However, the company faces significant risks related to the proposed acquisition of Prospect, regulatory compliance, and cybersecurity. The decrease in net income and Adjusted EBITDA margin warrants attention.
Overall Assessment: Hold
Recommendations:
- Monitor Acquisition Integration: Closely track the integration of acquired businesses, particularly Prospect, to ensure realization of expected synergies and mitigate potential risks.
- Strengthen Internal Controls: Address the identified material weakness in internal control over financial reporting to improve the reliability of financial statements.
- Manage Regulatory Risks: Proactively address regulatory challenges and ensure compliance with healthcare laws and regulations.
- Enhance Cybersecurity Measures: Invest in robust cybersecurity measures to protect sensitive data and prevent breaches.
- Diversify Payer Base: Reduce reliance on key payers to mitigate concentration risk.