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Signify Health (SGFY) Q2 2021 Earnings Call Transcript

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SGFY earnings call for the period ending June 30, 2021.

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Signify Health (NYSE: SGFY)
Q2 2021 Earnings Call
Aug 11, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, welcome to Signify Health second-quarter 2021 earnings call. My name is Luisa, and I'll be operating your call today. [Operator instructions] I will now hand over the call to your host, Jennifer DiBerardino, head of investor relations. Jennifer, please go ahead.

Jennifer DiBerardino -- Head of Investor Relations

Good morning, and welcome to Signify Health's second-quarter 2021 earnings conference call. This call is being webcast live, and a recording will be available on the Events page of our investor website at signifyhealth.com through October 11, 2021. Throughout the call this morning, we will be referencing the financial tables that appeared in our press release dated August 10, 2021. On today's call, we will discuss Signify Health's business outlook, and we will make certain forward-looking statements within the meaning of the federal securities laws.

Please note the cautionary language about our forward-looking statements as presented in our earnings press release and in our quarterly report on Form 10-Q, which will be filed later today. That same cautionary language applies to this conference call. We will also discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin. Reconciliations to the relevant GAAP numbers for these non-GAAP measures are included in the earnings release filed on Form 8-K yesterday and also on our Form 10-Q, which will be filed later today.

We intend to participate in industry or sell-side sponsored conferences. In lieu of issuing a press release to announce each conference, we will be posting our conference attendance on the Events page calendar of our Investor Relations site at signifyhealth.com. I encourage you to register for alerts on the investor site so that you receive an email notification each time we add a conference, any events, or other updates to the Investor Relations calendar. Joining me on the call today are Kyle Armbrester, chief executive officer; and Steve Senneff, president and chief financial officer.

Kyle will provide a business overview followed by Steve with a financial overview. We will have an operator-facilitated question-and-answer session after our prepared remarks. Now I will turn the call over to Kyle.

Kyle Armbrester -- Chief Executive Officer

Thank you, Jennifer. Good morning. Thank you for joining us. Team Signify continues to drive significantly better outcomes for individuals across the continuum of care, while supporting customers with our value-based payment platform.

Our second quarter and year-to-date performance reflects the hard work we have put in and the investments we've made to deliver value for individuals, customers, and shareholders. Yesterday evening, we announced record financial results for the second quarter and first six months of 2021. In the first half of 2021, revenue grew by 50% to $392.8 million. Adjusted EBITDA increased 56% to $89 million from the six-month period a year ago.

Results were driven by continued positive momentum in our home and community services segment. As we reported for episodes of care segment, we experienced COVID-19-related impacts in the recently received BPCI-A reconciliation, although we delivered strong savings to our customers. We remain confident that the program size run rate will recover to pre-pandemic levels of $6 billion as we exit 2021 and that savings rates will resume in the previous growth trajectory. Steve will go into further details on the reconciliation during his remarks.

Our HCS and episodes businesses are highly complementary as we sit between payers and providers to help our customers measure, understand and manage risk. Both segments serve health plans and risk-bearing entities, which enables cross-selling for existing customers. Our episodes segment also serves large health systems and physician groups, who are increasingly assuming risk in value-based payment programs and therefore, need the capabilities of our home and community services segment. Our home and community services segment derives the majority of its revenue from Medicare Advantage and managed Medicaid health plans, who are our customers and who rely on our nationwide network of over 9,000 clinicians to reach their enrolled members in their homes.

These clinicians are supported by our membership engagement teams and our logistical software to conduct comprehensive and home evaluations, which we refer to as IHEs. Our help plan clients value these evaluations because they paint the full picture of the health status and acuity of health plan members and allow appropriate triage and care coordination. Through the six months ended June 30, 2021, we performed approximately 959,000 IHEs, an increase of nearly 60% from the same period in 2020. Virtual evaluations in the first half of this year continued to trend downward from 2020 pandemic levels and only represented about 17% of total IHEs completed.

We believe virtual evaluations will continue to play a role in the second half, but we've found that health plan members prefer our in-home evaluations, which can go much deeper in their assessment, including determining social and behavioral needs in performing diagnostic tests and other preventative services. We also provide access to social services to address those needs through a network of about 200 community-based organizations and delegated social workers. Continued demand for diagnostic and preventative testing in the home also contributed to our HCS results. We offer multiple diagnostics and preventative tests through our connected device hub, and we have a strong pipeline of additional tests and devices.

Signify receives an additional fee per test performed, while our customers benefit from enhanced information and lower costs. We also coordinate with the member's primary care physician and provide them with additional data on their patients. Most importantly, the individual member benefits because he or she don't need to leave their home to visit an office or facility to obtain the same test. Our episodes of care services segment provides a comprehensive platform that serves government programs, health plans, employers, and healthcare providers.

We deliver software, analytics, in-clinical, and operational services as well as develop contracted provider networks to help these organizations and their value-based payment programs. Our episode services are critically important to the financial and operational success of the customers we serve and, more important, significantly improve patient outcomes. With the BPCI-A program as the anchored for our episode segment, we continue to build out deep provider networks in three geographic regions represented by our current non-BPCI-A payer clients to establish this business as a future growth driver. While still in the early stages, we are gaining traction in building provider networks and having productive conversations with plans, employers, and providers to be under three current payer contracts.

As an example, along with Regence yesterday, we announced that Washington State Healthcare Authority, the state's largest purchaser with 363,000 members doing the Regence episodes of care program effective January 1, 2022. Through these episodes, we can support not only procedure-based bundles but also conditions such as maternity, oncology, and substance abuse. From an employer perspective, conditions like these drive a significant amount of healthcare costs for self-insured organizations, and we can facilitate substantial savings through episode management. Our consumer engagement and assessment capabilities in our HCS segment are being leveraged to improve the performance of our episodes of care programs through higher shared savings and better patient outcomes.

Our Transition to Home solution demonstrates our extensive capabilities in engaging patients in and around the home for our provider partners, who are participating in episodes and other value-based programs. The solution is designed to reduce the clinical and financial impacts of avoidable inpatient readmissions and unnecessary emergency department visits. Hospital readmissions cost Medicare approximately $17 billion per year. An analysis of readmission results were 800,000 episodes of care managed by Signify under Medicare's value-based bundled payment program, BPCI-A, shows that nearly 44% of all readmissions occur more than 30 days following discharge from the hospital.

To address the risk of readmission during this critical phase, our Transition to Home solution provides evidence-based clinical and social care coordination services to patients. These services are provided not just during the initial 30 days following discharge, which is the market standard, but rather for a full 90 days following discharge. Early results showed this solution has statistically significant effect on reducing rehospitalization rates. We have activated our Transition to Home solution in 50-plus hospitals within the industry's most visionary health systems and healthcare providers, including Ardent Health Services, Beaumont Health, Cape Fear Valley Health, and Premier Health.

We are seeing strong consumer interest in virtual post-discharge care coordination support with upwards of 60% of base contacted engaging with the Signify care team. Facilitating the timely transition to the home and extending our partners' reach beyond the hospital setting enhances patient care, experience, achieve better outcomes, and improves financial performance through the elimination of costs associated with avoidable readmissions. We are excited to see this key synergy between our divisions driving such a positive impact in individual's lives while also removing barriers to recovery in the home. Our long-term vision at Signify is to drive positive outcomes for our partners as their platform for value-based care.

We simplify highly complex payment programs and enable health plans and health systems to successfully transition to value-based payments. We may supplement our strong capabilities with acquisitions or partnerships with other companies to add further functionality and innovation to our platform to drive increased value for our customers. I will now turn the call over to Steve to walk you through our second quarter and year-to-date financial results.

Steve Senneff -- President and Chief Financial Officer

Thank you, Kyle. Good morning, everyone. We reported record second quarter and year-to-date financial results yesterday afternoon. I'm happy to be able to walk you through the details.

Strength in our home and community services segment is driving our results. As Kyle mentioned, episodes of care results are being impacted in the short term by the effects of COVID-19 on the BPCI-A program, which I will discuss in detail momentarily. During my commentary, I will be referring on the tables that appeared in the earnings press release issued yesterday. As you can see in Table 1, we had record total revenue in the quarter of $212.8 million, an increase of 63% when compared to the same period last year.

Revenue strength in the quarter was primarily driven by HCS growth of 109% to a quarterly record of $175.4 million as we had record in-home evaluation volume. Total evaluation volume for the second quarter was approximately 497,000, including virtual evaluations compared to 298,000 in the second quarter of 2020. Virtual evaluations as a percentage of total evaluations continued to decline, reflecting customer preference to perform the evaluations in the home. HCS segment services also include diagnostic and preventative testing services.

And we are seeing attachment rates increase, which is additive to HCS revenue. As I mentioned on our first-quarter call in May, our expectations are that HCS revenue growth will continue to be strong in 2021. After a COVID impacted 2020, we expect revenue to follow a more typical seasonality pattern in 2021, where our costs and utilization are better spread out across the year. We still expect higher first half IHE volume compared to the second half of the year with the fourth quarter projected to be our lowest quarter of the year, which will be a decline year over year from the 2020 fourth quarter.

Still on Table 1, second-quarter 2021 ECS revenue was $37.4 million, a 20% decline compared to the same period last year. Despite the headwinds from COVID-19 on savings rates and program size, we still delivered strong savings to our partners across the program, while ensuring individuals received excellent care within their episodes. There were two distinct areas where the savings rate was negatively impacted in the latest reconciliation. The first area relates to patient case-mix adjustments and missing comorbidity diagnosis codes.

There's a 90-day period prior to an acute episode being triggered that CMS incorporates diagnosis coding, which ultimately adjusts an episode's target pricing. During the pandemic, Medicare patients were avoiding routine healthcare visits. And as a result, comorbidities were not being diagnosed and coded. As individuals entered episodes, the coding for associated comorbidities did not fully reflect the acuity of the patient and therefore, was not reflected in the target price for that episode.

This, in turn, contributed to the lower savings rate and lower shared savings for the second quarter. The second area relates to the next site of care transfers. During the pandemic, when skilled nursing facilities were facing reduced bed availability due to COVID-19 outbreaks and staffing shortages, patients were being discharged from acute care facilities to inpatient rehabilitation facilities and other post-acute facilities with significantly higher cost than skilled nursing facilities. In total, we believe the COVID impact on these two areas impacted the weighted average savings rate for 2021 by at least 1 percentage point.

We believe the patient case-mix adjustments will normalize as individuals resume routine visits to receive outpatient care. Our data says that utilization trend is improving and supports our assumption for more normalized healthcare utilization for the balance of 2021, unless a COVID resurgence shutdown occurs. Regarding the next site of care transfers, skilled nursing facilities are recovering from the pandemic, making them once again a viable next site of care choice for those in need. More importantly, we believe that the traction Kyle described in our Transition to Home solution will more frequently make homeless services the best next site of care for appropriate individuals leaving acute care facilities and reduce costs and readmissions, all of which we believe should increase shared savings.

Assuming that the worst of the pandemic is behind us and the country will not go into another COVID variant lockdown, we expect to end the year at a $6 billion run rate for a program size, setting our Episode business up for a strong 2022. We also believe the savings rate will rebound in 2022 once the country becomes more fully vaccinated and the impacts of the COVID-19 fade in the rearview mirror. Moving to Table 4. Total company adjusted EBITDA for the second quarter increased 55% to $54.6 million, compared to $35.4 million for the second quarter of 2020 driven primarily by the strong revenue growth in home and community services.

Back to Table 1. Second-quarter total net loss was nearly breakeven at a loss of $100,000, compared to net income of $7 million for the same period a year ago. Operating income for the quarter was offset by the quarterly reevaluation of the equity appreciation rights agreement or EARs of $14.5 million and a loss extinguishment of debt of $5 million due to the June debt refinancing. As disclosed last quarter, the incremental expense reflects the increase in value of the EARs largely related to the change in fair value of the company upon our IPO as these instruments are directly linked to the value of our equity.

Year-to-date results through June 30, 2021, largely reflect the continued overall strength in our home and community services segment with strong IHE volume for the first six months of 2021 of approximately 959,000, 17% of which was virtual. For comparison, for the full-year 2020, approximately 38% of total IHE volume was virtual. We expect virtual evaluations as a percentage of total IHE volume will continue to decline from pandemic levels. Episodes of care services results for the first half of 2021 continue to reflect the COVID-19 impact on healthcare utilization.

But we expect utilization to improve as the year progresses. Moving on, as you can see in Table 2, we ended the quarter with $631.9 million in unrestricted cash, a decline from the first quarter primarily related to our debt refinancing and deleveraging that we've successfully closed at the end of June. As a result of the refinancing, we have reduced our annualized interest expense on the term loan by approximately $10 million, reflecting a $61 million reduction in debt and more favorable pricing. We ended the quarter with debt outstanding of $350 million and $173 million in capacity under our new revolving credit facility.

Given our strong cash position at June 30, 2021, which exceeds our debt levels, we ended the period with negative net leverage. We are in a strong and flexible financial position to continue to invest directly back into the business and evaluate potential partnerships or acquisitions. Given our record results for the first half of 2021, we are raising total revenue and adjusted EBITDA guidance ranges for 2021 as follows: total GAAP revenue in the range of $745 million to $765 million and total adjusted EBITDA in the range of $155 million to $165 million. The revised financial guidance assumes that the COVID-19 situation will not worsen and negatively impact IHE volume, the weighted average savings rate or program size for the balance of 2021.

We are also updating estimates for the following key performance indicators for the full-year 2021, reflecting continued strength in HCS and the ongoing impact of COVID-19 on the episode segment: HCS segment IHEs of approximately 1.785 million to 1.815 million; ECS segment weighted average program size of approximately $4.9 billion to $5.1 billion; and ECS segment weighted average savings rates of approximately 6.1% to 6.4%. I look forward to being able to update you on our financial results next quarter. Now I'd like to turn the call back over to Kyle for closing remarks.

Kyle Armbrester -- Chief Executive Officer

Thanks, Steve. I'd like to take this opportunity to thank our Team Signify for continuing to put in the hard work to grow our business and drive positive results. Signify is bringing their passion and energy to work every day to guide our mission: to transform how healthcare is paid for and delivered so that people can enjoy more healthy, happy days at home. Now I'll turn the call over to the operator to take your questions.

Operator?

Questions & Answers:

Operator

Thank you, Kyle. [Operator instructions] Our first question comes from Andrea Alfonso from UBS. Andrea, please go ahead. Your line is open.

Kevin Caliendo -- UBS -- Analyst

Hi. It's Kevin Caliendo with Andrea. First question is really about the HCS revenue per eval. It was up 10% sequentially.

Can you maybe discuss what's driving that, other additional services? Is this the kind of trend? I guess, as we think about modeling going forward and the like, is it expected that the baseline that you have on a per member eval would increase as the year goes on? Or is there a new baseline that's established that would carry over to the next year?

Steve Senneff -- President and Chief Financial Officer

Kevin, it's Steve. So the reason the average price is going up is a couple of things. One, it's going to be the virtual versus in home. So as that virtual number comes down, as a reminder, it's about a 20% pricing differential.

That's going to give us some lift. And so last year, we were close to just under 40%. As we've said here through the first half, we're about half of that. So that's going to be a driver.

The other thing that's also driving it is we continue to have our preventative and diagnostic testing that continues to be a big driver for us. And the attachment rates there have gone up nicely, and we continue to drive nice revenue there. So those are really two of the big drivers that we're seeing.

Kevin Caliendo -- UBS -- Analyst

A quick follow-up. A topic among all sort of providers nowadays is labor and wage costs. Are you seeing any pressure either in terms of filling seats or cost per seat in terms of the people who are doing your assessments or any other labor-related issues?

Steve Senneff -- President and Chief Financial Officer

So I think the thing here, Kevin, is the one beauty of our model is the flexibility that we have to -- we've got over 9,000 providers in our network, where we're able to move them around. So we're seeing not a lot of wage pressure per se, but more of like can you -- do you have the volume to get us more in-home visits? And so they're looking at their total compensation. The more they can work, the more business that they can perform, the more money they're going to make. And so we continue to try and drive and become more efficient and allowing them to have more visits per day.

And that's really been our focus. We have a couple of areas that we continue to focus on where there's real hotspots and getting the providers in there. But we've not seen any major wage pressure across our network that's put any pressure on any of our margins.

Operator

Thank you. Our next question comes from Michael Cherny from Bank of America. Michael, please go ahead.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Good morning. Thanks for taking the question. I want to stay on the topic of HCS in-home evaluations. Clearly, you had a very strong outperformance in the quarter.

You talked about the return of more normalized seasonality and obviously, a ridiculously hard 4Q comp. As you think about the performance in the quarter, what was the main drivers of the outperformance there? Was it the activity on the part of your clinicians? Was it something with regards to the patient population? Was is it something regarding the availability of individuals? Just curious such as you learn more about the business to get an understanding of what drove that meaningful level of outperformance.

Kyle Armbrester -- Chief Executive Officer

Yes. Good to hear from you, Michael. I'd say it's a few things. Let's say, one, demand for the services are at an all-time high.

So we have -- our conversion rates continue to trend very nicely. So we're getting better with our data, better with our engagement tactics. So we've invested heavily, as I mentioned on the last call, with SMS, email, and a really multi-faceted platform to bring in services more easily to folks. So that would be number one.

Number two, Steve alluded to it. We are getting more and more efficient with our technology, automating away a lot of the manual work for the providers. So when they go and they're able to have a more seamless experience and spend more face-to-face time with the individuals, which, in turn -- and we've been doing that few years, leads to better year-over-year conversion, too. And then finally, I would say there's been a radical shift in a lot of our health plan client strategies where the risk and quality and clinical groups have all come together.

And these visits have really taken on a genuinely multi-faceted nature where we're going in and doing everything to properly assess and evaluate somebody. But we're doing a ton of follow-up care, bringing them the devices, helping to schedule folks back to see their specialists for PTP. So it's really broadened the service. The service line has really broadened substantially, which again drives more value into the individuals' lives once we get inside the home.

The final thing I'd say is we've had really great adoption across the client base of our social care coordination service as well. And so we've been able to go in and help with several national payers now, too, as we scaled out our social workers and community organizations, bringing not just a clinical perspective, but also a more holistic, behavioral, and social perspective. And that has driven substantially higher conversion in the markets we've launched that. And we've got a really great pipeline to continue to expand that throughout the year as well.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Got it.

Steve Senneff -- President and Chief Financial Officer

The conversion increase -- Michael, the conversion increase and the demand from our existing clients has been great to see. Obviously, it's led to our third consecutive record revenue quarter in HCS, gives us a ton of momentum, and that's why we raised guidance in that area.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Understood. And just a follow-up to that relative to the guidance and as you think about the back half of the year and what's implied relative to where your expectations were prior to this quarter, how does that back-half guidance on IHEs on implied HCS revenue shakeout? Is there anything that you think was pulled forward into the second quarter? And relative to that implied growth rate, obviously, normalizing for the 4Q comp, is this in line with where you would expect your typical trends to be and where you would have expected it prior to this quarter?

Steve Senneff -- President and Chief Financial Officer

Yes. No. We're excited. Obviously, we've been mentioning all along that the seasonality would be returned back to normal versus last year, where we did a tremendous amount in the back half, particularly in the fourth quarter really due to the impacts of COVID.

This year, what we're excited about is at the end of Q1, we said, "Hey, we're not going to raise guidance until we see is this more than just a pull-forward event that's going on." And as we just said, like the conversion rates, the demand from clients, that's really allowed us to overperform in HCS. And as we look to the back half, yes, it will be less than the first half as it is in a normal year with seasonality. But we're excited. We're still -- even with overperformance and what we've done, I think we're right on expectations for the back half of the year and able to deliver that as well.

Operator

Thank you. Our next question comes from Anne Samuel at J.P. Morgan. Anne please, go ahead.

Anne Samuel -- J.P. Morgan -- Analyst

Hi. Thanks for taking my question. I was hoping maybe you could talk a little bit about margins. As we think about lower ECS revenue in the back half of the year, are there any margin offsets for that? Or how should we be thinking about margins? Thanks.

Steve Senneff -- President and Chief Financial Officer

Yes. So again, if we look at margins in total, we're really happy, right? We continue to expand our margins in total. HCS has done a nice job. ECS is impacted.

There's very little variable cost in that side. So there's going to be some impact there as we have the pressure on year over year. So that side of the business is going to have lower margins projected for the year. But when we look at it in total, we're still able to manage the business and expand our overall margin base for the year.

Anne Samuel -- J.P. Morgan -- Analyst

That's really helpful. And then maybe just on the rebound on the savings rate, how should we think about the cadence of that looking into next year? Or is it something that can kind of come back early on in the year? Or is it something that will be more gradual?

Steve Senneff -- President and Chief Financial Officer

That's one of the things that will be interesting to see. And as we said in the call, it really came down to the reason the savings rate is where it is the case-mix adjustment where we're missing comorbidity diagnosis codes. That, as people return into the healthcare system and have their annual checkups and are returning back to the outpatient facilities, that should naturally just come back. Is it going to happen tomorrow, all in a big bang? No.

But we're already seeing that happen in our trends today. We also -- the IRFs, if we think back, there are skilled nursing facilities back at the back half of last year, even into the first quarter this year, there was a lot of them that were shut down. And so it was just natural people were putting them into higher cost centers like inpatient rehab facilities. That trend is going away, too, as the skilled nursing facilities are back up and running.

So we're expecting the way that we're thinking about is it's going to be a gradual rebound in the savings rate that will primarily -- we'll start to see in 2022. We've taken a pretty conservative approach for the rest of this year of keeping it around that 6% to 6.1%, 6.4% is kind of what we're guiding to, keeping it around there. But as we said in the call, we think that the impact from those COVID-related were at least 1 percentage point. So if that hadn't happened, we wouldn't be talking much about the ECS business, and it would be a much better story.

Anne Samuel -- J.P. Morgan -- Analyst

That's great to hear and really helpful color. Thanks so much.

Operator

Thank you. Our next question comes from Matt Larew from William Blair. Matt, please go ahead.

Matt Larew -- William Blair & Company -- Analyst

On the Q1 call, I think you mentioned program size was kind of right where you ought to be, and that electives were coming back online. Just curious from sort of mid-May to June how that trended? And any changes you're seeing in terms of program size rebuild here from the back half of the year?

Steve Senneff -- President and Chief Financial Officer

Yes. So that's where we're still really encouraged and optimistic, and that's why we kind of view this, 2021 is the impact of COVID is really a short term. It's really -- if we look to the long-term piece of this, Matt, we're seeing that the program size is coming back even today. So every month, as we continue to look at the claims, that program size is increasing.

We've said all along that our expectation was that we could end the year back to the $6 billion mark. All our trends are showing that that is underway and happening. We're seeing the electives have come back. Even though the electives are actually a fairly small percentage of our total, but our volume continues to trend.

And we feel very, very optimistic about returning back to that $6 billion mark, which is a -- it's a big number for us because with a weighted average of around $5 billion this year, that sets us up for a strong 2022 as we -- it's almost like -- as I've said on the previous calls, it's almost like we won $1 billion client to start the year. And so that's going to be a really strong momentum as we head to '22. And then back to the previous questions around the rebound in the savings rate, as the utilization comes back, the case-mix adjustments issue subsides, we're already seeing the IRF issue subsiding, that savings rate will come back and set us up for a nice run in '22.

Matt Larew -- William Blair & Company -- Analyst

OK.Kyle ArmbresterJust sort of to complement that. Yes. Sorry, just to complement that really quickly, a lot of our core metrics are trending up, too. I mean we've got patient ID, which is obviously critical to finding somebody in an episode to perform services and to help do the work.

Alongside them, we've been integrating with deeply into charge capture feeds. We've been overhauling our ADP infrastructure. So we've really dove in, and the team has done a nice job building a better digital connectivity across the base with some of our largest clients. So we've been very happy about that.

And then as I mentioned kind of in the prepared remarks, our Transition to Home services really is shining. We're live in over 50 hospitals. Our clients are asking us to do that beyond just the episode, PPTI patients that we're working with. So we're looking at expanding it to ATOs and to other diabetes care lives inside of them.

But that also is giving folks the opportunity to Transition to Home as a service indicates and to recover there versus much more costly and unnecessary stay inside of a post-acute facility. So we're excited about those elements as well.

OK. And then just a question about sort of what's built in your expectations for guidance. Steve, I think you said part of getting back to normal. Obviously, it's vaccinations, in terms of 2022 and that there wouldn't be a sort of another COVID surging impact on HCS and ECS.

We have seen a couple of states and health systems discuss the potential for delaying elective procedures in the back half of the year. I guess, just curious from your discussions with your clients or your observation of what's going on, what's built into your expectations for the back half of the year?

Steve Senneff -- President and Chief Financial Officer

Yes. I think the good news is that we're -- the way we're seeing this is we're not seeing anything significant. As I mentioned, it's only 10% to 15% of our volume is really driven by electives. And so if there's a few facilities, it's not really going to have any impact for us.

And we're also seeing that the healthcare systems are much more likely to be able to deal with the situation just go around. So while there may be pockets, we don't -- we're obviously not forecasting that there's going to be any type of national shutdown like there was last time. So we feel like that we've baked in kind of what the new normal is for now into our numbers. Barring any national shutdown, we feel good about the rest of the year and then setting us up for '22, hopefully, getting a lot of this behind us.

Matt Larew -- William Blair & Company -- Analyst

OK.

Steve Senneff -- President and Chief Financial Officer

Having the -- seeing the vaccination rates go up is obviously a big piece of solving part of this problem as well. And so I think that's another factor. As we look at the numbers, we see the utilization returning back to the health systems. They're all numbers and trends in our favor.

Operator

Thank you. Our next question is from George Hill at Deutsche Bank. George, please go ahead.

George Hill -- Deutsche Bank -- Analyst

Thanks for taking the question. I think, Steve, you might have just kind of pre-empted my question with your answer to the last question, but I was kind of -- I was a little surprised on the ECS weakness year-over-year in the guidance, given that I would have thought this would have been an easier utilization comp or an easier medical comps or I'm thinking as it is growing medical costs year over year in Q2 versus what should have been the bottom in Q2 of last year. But you talked about kind of the discretionary use versus the non-discretionary use of the healthcare system. So I guess just a little more color on what you're seeing as it relates to medical utilization.

And I think a lot of us are seeing a lot of the MCOs are starting to warn on increased utilization. So just kind of how that rolls into your thinking on ECS and expectations there?

Steve Senneff -- President and Chief Financial Officer

Yes. So, George, one of the things here you have to remember, too, is like the reconciliation that we just received from CMS is for the second half of last year. And so the next reconciliation, we'll be getting for the first half of this year. So there is a significant COVID impact going on in the second half and even the first quarter of this year.

Now it's -- now we're seeing an environment where it's more in certain pockets and areas versus nationwide. But that's -- that lag is kind of what's -- part of the impact why we have said that '21 was always going to be a tough year for us. And so as -- again, as that case-mix adjustment starts to rebound, as people go back in, we are seeing those utilization rates. And it's as simple of -- if someone's having an episode and they have not -- and there's comorbidities that are not part of their history, what happens is their target price that we're going against is artificially low.

And so that's what's happened across the program over the last, call it, six to nine months. And as people return, go back into their health, they'll get those diagnoses that will be part of their history, and that target price will go back up. And obviously, the savings rates that we're driving will be based off that target price. I think the thing that we're also seeing in the trends is just as those people go back, we feel that the whole utilization process will just naturally drive that up.

So we're excited about the future. We know we have to get through the next six months of this year. There's going to be some ebbs and flows here. But as far as our guidance, we're good.

And the last thing I would say, George, I know we keep saying about the savings rate going back -- backwards. It's still -- like I would still say that we believe it's leading the industry. And so if we look at all the participants, 6% savings rate is certainly nothing to be ashamed about. Like we're -- our clients are thrilled that we were able to manage that well of a savings rate during this really tough time.

So we know it's going to bounce back. It's just a matter of the timing and when we get that adjusted.

George Hill -- Deutsche Bank -- Analyst

No. That's great color. Maybe just a quick follow-up for Kyle. Just as we think about the guidance and the strength that was delivered in Q2, basically the guidance that was raised for the year reflects the strength of 2Q.

I guess I would ask the question as it relates to HCS. Do you guys feel like you've seen anything kind of in the last six weeks as it relates to the Delta variant and the slowdown that's kind of tempered expectations in the back half? Or I guess, kind of looking for some real-time commentary.

Kyle Armbrester -- Chief Executive Officer

Yes. Nothing at all, actually. I mean, if anything, we've continued to maintain protective equipment on providers. We monitor daily and weekly more on any COVID flareups in particular markets.

We have 0 documented transmission from a clinician to a member. We've taken safety extremely high throughout this entire process. I would say, even in the last peak in pandemic, we were operating in homes. And a lot of folks are scared.

They don't want to go into facilities still. And so we're giving them a great alternative to bring healthcare to them, and it's resonating, right? Like having a doctor come check on you and make sure that you're getting clinical, social, behavioral -- your needs met inside your homes for free is a really strong value proposition. So we've seen conversion continue. So we've seen no softness on that front.

And our providers -- our year-over-year retention and provider satisfaction scores are very high. They realize that they're going in and helping to provide care and services to folks that are off the grid sometimes and don't have easy access to healthcare or for whatever reason aren't able to get in and manage their healthcare proactively is -- they would like to potentially. And so we really haven't seen any degradation in any of our core metrics. In fact, we've got several clients that we're working with in earnest on multitude of ways to expand and do more in the home.

I would say that's the most consistent -- I've been meeting with a ton of clients over the last few months. And the most consistent thing they're all asking to do is you're in there with a doctor, with a nurse practitioner, performing all of this work with these connected devices, et cetera. We want to expand clinical pathways and help you guys with us manage disease and risk and think more creatively about the lives that we're touching. And I think we've got a really amazing opportunity to expand and do that given all the tech investment and analytics and how broad our network is as well.

And sorry, to answer your question is no. No softness and demand is as high as ever, which is why the HCS numbers continue to tick up.

George Hill -- Deutsche Bank -- Analyst

I appreciate the color. Thank you.

Operator

Thank you. [Operator instructions] Our next question comes from Jessica Tassan from Piper Sandler. Please go ahead.

Sean Wieland -- Piper Sandler -- Analyst

This might be Sean on for Jessica. Can you hear me?

Kyle Armbrester -- Chief Executive Officer

Hey, Sean. We can always hear you. We can always hear you, Sean.

Sean Wieland -- Piper Sandler -- Analyst

Sean Wieland in for Jessica Tassan this morning. So what's your latest thinking on the outlook for the bundled payment program longer term? Specifically with respect to mandatory bundled payment, how does the role of the convener change in that environment? And how does program size change?

Kyle Armbrester -- Chief Executive Officer

Yes. Good question. We've been in a bunch of great dialogues with CMMI. We talked to them biweekly and have bigger monthly calls with them, too.

They should be coming out with guidance on model year five, which is the next model year any day now. It's been drafted, it's had script for all the various levels of approval. I mean, there -- they've been pretty steadfast in all conversations with it. They anticipate an expansion and more energy and effort to put behind this program going forward.

We've -- they also fundamentally believe that it has led to dramatic changes for the positive across the healthcare landscape and ushering in more value-based care-centric work and also hoping to -- helping individuals to navigate and manage their care beyond just the procedure or the work that they're getting done in the hospital. And so looking at folks more holistically down into the home. The other thing, we've talked to them a lot about -- in our non-PPTI work, Sean, we are -- so with the commercial folks, the ASOs, the self-insured employers. We're working on prospective gains, right? So we're picking to pay in real-time, not the retrospective way that the BPCI-A program has been run.

We spent a lot of time talking to CMMI on that front, and that's been well received. We've also shown them how we've moved beyond just the procedural work inside BPCI-A to the broader chronic condition works, diabetes, substance abuse, maternity inside of the non-BPCI-A episodes. And that's resonated as well. We've had a bunch of leadership sessions with them.

So we continue to see great engagement with them, and I am anticipating news soon from them just on model year five and the path forward this year for folks. And there's a ton of conviction across our client base. I've said this before, there's still demand. The last time that all of the health systems were able to add bundles during the pandemic, right, where there was a really tumultuous time.

We know there's a ton of additional service lines and a ton of additional volume, again, that we give the Medicare trust guaranteed savings that our health systems are advocating for. So we're hopeful too, that CMMI might reopen the ability to add bundles through model year five. We don't have that forecasted. That's my aspiration.

But we've been on a good dialogue with them on that as well.

Sean Wieland -- Piper Sandler -- Analyst

And remind me, when does model year five hit your P&L?

Steve Senneff -- President and Chief Financial Officer

So model year five will be next year, right? So is that -- the first half of next year will not hit until -- the first recon from that will not hit until October of next year. Now that said, Sean, remember we are estimating along every month on what that actual number is going to be. But we -- as you know, we develop a range, usually take the low end of the range. Unless we see like significant uptick, we wouldn't get that until the second half of next year.

Sean Wieland -- Piper Sandler -- Analyst

Got it. Thanks very much.

Operator

Thank you. It appears we have no further questions from the audience. So I'll hand back over to Kyle for any final remarks.

Kyle Armbrester -- Chief Executive Officer

Great. Thank you, everybody. And just wanted to say a big thank you to our team members and appreciate all the work that they've put into the -- this last quarter throughout this whole year. It's been a big transition year for all of us as the country and COVID has ebbed and flowed.

And they've remained resilient, both helping to make sure our visits and appointments get booked, but also with all the work that they've done, making sure that we get into the homes to help take care and manage the lives that we're responsible for, which we take very, very seriously. So thank you, guys, and we'll talk to you all soon.

Operator

[Operator signoff]

Duration: 49 minutes

Call participants:

Jennifer DiBerardino -- Head of Investor Relations

Kyle Armbrester -- Chief Executive Officer

Steve Senneff -- President and Chief Financial Officer

Kevin Caliendo -- UBS -- Analyst

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Anne Samuel -- J.P. Morgan -- Analyst

Matt Larew -- William Blair & Company -- Analyst

George Hill -- Deutsche Bank -- Analyst

Sean Wieland -- Piper Sandler -- Analyst

All earnings call transcripts

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