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Thursday, September 22, 2022

The U.S. Centers for Medicare and Medicaid Services knows it has a problem with spending spiraling out of control and, frankly, not very great patient outcomes. In 2020, national health expenditures grew a stunning 9.7% to $4.1 trillion, or $12,530 per person, while accounting for 19.7% of the country’s gross domestic product. It’s a model that is simply not sustainable. To wit, CMS is on a mission to curtail spending and improve patient outcomes. One way that they’re trying to right the ship is through the implementation of a value-based care (VBC) model and it’s catching on.

According to CMS, “Our value-based programs are important because they’re helping us move toward paying providers based on the quality, rather than the quantity of care they give patients.” In other words, CMS is aiming to eliminate the doctor’s office practice of ringing the cash register by shuttling as many patients as possible into exam rooms every day. It’s time for a change where doctors are rewarded for keeping patients healthy.

And you can bet that where the government leads, private insurance will follow.

The market is nascent, valued at $1.94 billion in 2021 and experiencing double-digit growth with expectations to reach $3.4 billion in 2026. That’s still a tiny fraction of the healthcare market, but plenty of opportunity for Skylight Health Group Inc. (TSX-Venture: SLHG) (OTCPK: SLHGF) to keep deepening its footprint as a premier provider of VBC software and services.

The multi-state primary care management group has already been experiencing significant growth, more than doubling revenue during the second quarter to $16.1 million versus $7.7 million in the previous quarter. Looking to move into profitability, Skylight has been consciously working on operational improvements that management believes will save at least $10 million annually.

What’s particularly exciting is Skylight’s push into Medicare Advantage “full risk” this year through the acquisition of NeighborhoodMD (NMD). “Full risk,” or “full-risk capitation,” is industry nomenclature for a payment model in which insurance companies partner with healthcare provides, transferring all the financial risk for patient’s care to the provider. The provider assumes the expense of prophylactic and emergency care of the patients and has an opportunity to keep the savings if the patient stays healthy.

NMD has 9 practices in Central and Southern Florida with 2,400+ owned and affiliated global capitated risk lives. Unaudited trailing 12-month revenue through April was approximately $35 million. Even with no growth, Skylight is tracking for $70-$90 million in pro forma revenue for 2022 with the acquisition.

While that type of revenue is an anomaly for a company with a C$25 million market capitalization, Skylight set itself apart from microcap peers by announcing a dividend. The company declared a dividend on its 9.25% Series A Cumulative Redeemable Perpetual Preferred Shares for the month of October 2022. The Series A Preferred Shares trade under the “SLHGP” stock ticker symbol. In accordance with the terms of the Series A Preferred Shares, the Series A dividend will be payable in cash in the amount of $0.1927 per share on October 20, 2022 to the shareholders of record of the Series A Preferred Stock as of the dividend record date of September 28, 2022.

Elsewhere, Skylight’s Medicare Advantage initiatives are paying off. Already contracted with Florida Medicare Advantage provider for South Florida, the partners expanded the contract to include three primary care practices in Central Florida beginning in January 2023. The kicker here is that the original contract was structured as a traditional fee-for-service model, but is now being flipped to a VBC model, which bodes well for Skylight’s revenue going forward.

The company currently has four MA value-based care contracts in place in Florida, with more being negotiated that likely will convert as practices take on more health plans and offer patients more options.

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Skylight Health Group Inc. (TSX-Venture: SLHG) (OTCPK: SLHGF) Full Corporate Write-Up: Click Here.

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