Company: PIII
Filing Date: 2025-03-28
Form Type: 10-K
Source: 0001628280-25-015305
Chunk: 36

Company: P3 Health Partners Inc.
Filing Date: 2025-03-28
Form: 10-K
Item: Item 7
Chunk 36
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 or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Estimate of the Premium Deficiency Reserve Liabilities

As described in Note 3 to the consolidated financial statements, the Company’s consolidated premium deficiency reserve liabilities (“PDR”) balance was approximately $67.4 million on December 31, 2024. PDR is established when it is probable that expected future health care costs and maintenance costs under a group of contracts will exceed future premium and stop-loss insurance recoveries on those contracts. The Company assesses if a PDR is needed through review of current results and forecasts. For purposes of determining premium deficiency losses, contracts are grouped consistent 

P3 Health Partners Inc. | 2024 Form 10-K | 76

with the Company’s method of acquiring, servicing, and measuring the profitability of such contracts based on the expected medical loss ratio (“MLR”).

We identified the estimate of PDR as a critical audit matter. The principal consideration for this determination was 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