Medical services expense represents costs incurred for medical services provided to members by physicians, hospitals and other ancillary providers for which the Company is financially responsible and that are paid either directly by the Company or by payors with whom the Company has contracted. Medical services expenses are recognized in the period in which services are provided and include estimates of claims that have been incurred but have either not yet been received, processed, or paid and as such, not reported.

Such estimates are developed using actuarial methods commonly used by health insurance actuaries that include a number of factors and assumptions including medical service utilization trends, changes in membership, observed medical cost trends, historical claim payment patterns and other factors. Generally, for the most recent months, the Company estimates claim costs incurred by applying observed medical cost trend factors to the average PMPM medical costs incurred in prior months for which more complete claims data are available.

Each period, the Company re-examines previously established medical claims payable estimates based on actual claim submissions and other changes in facts and circumstances. As more complete claims information becomes available, the Company adjusts its estimates and recognizes those changes in estimates in the period in which the change is identified. The difference between the estimated liability and the actual settlements of claims is recognized in the period the claims are settled. The Company’s medical claims payable balance represents management’s best estimate of its liability for unpaid medical costs as of September 30, 2022 and 2021. The Company uses judgment to determine the appropriate assumptions for developing the required estimates.

The following table presents the components of changes in medical claims and related payables (in thousands):


	September 30,
	2022			2021
Medical claims and related payables, beginning of the year	$	239,014		$	164,161
Components of incurred costs related to:
Current year		1,756,943			1,217,386
Prior years		14,692			(347	)
Discontinued operations - current year		—			1,241
Discontinued operations - prior years		—			(2,000	)
		1,771,635			1,216,280
Claims paid related to:
Current year		(1,283,242	)		(939,588	)
Prior years		(236,413	)		(148,327	)
Discontinued operations - current year		—			(1,241	)
Discontinued operations - prior years		(154	)		(3,164	)
		(1,519,809	)		(1,092,320	)
Medical claims and related payables, end of the period	$	490,840		$	288,121

Medical claims and related payables presented in the periods above include immaterial balances related to claims liabilities associated with certain divested California businesses for which the Company has retained the liability for claims incurred prior to the date of divestiture.