Company: PIII
Filing Date: 2025-03-28
Form Type: 10-K
Source: 0001628280-25-015305
Chunk: 296

Company: P3 Health Partners Inc.
Filing Date: 2025-03-28
Form: 10-K
Item: Item 8
Chunk 296
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 the significant judgment used in developing certain assumptions in the expected MLR. Auditing these elements involved subjective auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skills or knowledge needed. 

The primary procedures we performed to address this critical audit matter included:

•Assessing the reasonableness of certain assumptions used in the expected MLR by comparing them to historical performance of the Company and its peers to determine if contradictory evidence existed.

•Utilizing personnel with specialized knowledge and skills in actuarial methods to assess the reasonableness of the healthcare claims trend assumption in the expected MLR.

Valuation of Incurred but Not Reported Claims

As described in Notes 3 and 8 to the consolidated financial statements, the Company’s claims payable balance was approximately $255.1 million on December 31, 2024. The Company’s claims payables primarily consist of the Company’s estimate for claims that have been incurred but have either not yet been received, processed, or paid and as such, not reported (“IBNR”). Management develops its IBNR liability estimate using standard actuarial methodologies, which utilize historical data, including the period between the date services are rendered and the date claims are received and paid (the completion factor), per member per month healthcare cost trends, denied claims activity, expected medical cost inflation, seasonality patterns, changes in membership mix, and a provision for adverse deviation (“PAD”).

We identified the valuation of IBNR liability as a critical audit matter. The principal considerations for this determination were the significant judgments involved in: (i) evaluating the actuarial methodologies used, (ii) estimating the completion factors and per member per month cost based on historical payment patterns and consideration of health care cost trend factors, and (iii) determining the appropriate level of PAD. Auditing these elements involved subjective auditor judgments due to the nature and extent of audit effort required to address these matters, including the extent of specialized skills or knowledge needed.

The primary procedures we performed to address this critical audit matter included:

•Testing the completeness and accuracy of the underlying reports used in estimating: (i) the completion factors by agreeing to underlying claims data and repricing certain claims, and (ii) the per member per month cost by agreeing to underlying claims data and confirming member information with health plans.

•Utilizing personnel with specialized knowledge and skills in actuarial methods to assist in: (i) evaluating the appropriateness and consistency of the actuarial methodologies used, (ii) evaluating