Q4 2024 Agilon Health Inc Earnings Call
Hello and welcome to the Agilent Health fourth quarter 2024 earnings conference. My name is Elliot and I'll be coordinating your call today. If you'd like to register a question during today's event please press star one on the telephone keypad.
Speaker Change: On my left I hand over to Evan Smith, please go ahead.
Speaker Change: Thank you, operator. Good afternoon and welcome to the call. With me is our CEO Steve Sell and our CFO Jeff Schwaneke. Following our prepared remarks, we will conduct a Q&A session. Before we begin, I'd like to remind you that our remarks and responses to questions may include forward-looking statements.
Speaker Change: Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business.
Speaker Change: These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward-looking statements. Additionally, certain financial measures we will discuss in this call are non-GAAP financial measures.
Speaker Change: We believe that providing these measures helps investors gain a better and more complete understanding of our financial results and is consistent with how management views our financial results.
Speaker Change: A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is available in the earnings press release in Form 8K filed with the SEC. And with that, let me turn the call over to Steve.
Steve Sell: Thanks, Evan. Good afternoon and thank you for joining us. On today's call, I will provide you with an overview on, one, our fourth quarter and full year 2024 financial results, and our 2025 guidance.
Steve Sell: to investments we are making to further enhance our clinical strategy and capabilities.
Steve Sell: and three, actions and programs we are implementing to reduce certain business risks that lie outside our control, enhance our operational execution, and drive improved performance going forward.
Steve Sell: But I'd like to begin with some context on the trajectory of our business as we continue to take actions to manage through the third year of a difficult Medicare Advantage rate and utilization cycle.
Steve Sell: Well, the 2025 macro environment continues to be challenging. We enter this year with a laser focus on strengthening our business for near-term improvement, success, and profitability.
Steve Sell: In 2024, we took actions to 1. Reduce our underwriting exposure to costs outside our control, such as a reduction in Medicare Part D exposure to less than 30% of our membership.
Steve Sell: 2. Pursue profitable and measured growth aligned with current payer and provider dynamics, which is reflected in both our reduced 2024 membership step-off and a smaller revised 2025 partner class.
Steve Sell: Three, strengthen our core clinical and operational capabilities to reduce variability and enhance quality outcomes.
Steve Sell: and 4. Maintain operating cost discipline by further leveraging our scaled infrastructure and technology investment.
Steve Sell: We intend for this focused approach to continue in 2025, and despite the near-term headwinds, our goal is to beat cash flow break-even by 2027.
Steve Sell: With respect to those 2025 headwinds, the Medicare Advantage market continues to experience an elevated cost trend.
Steve Sell: for managing through the ongoing transition to V-28, changes related to the Inflation Reduction Act, and increased quality bonus thresholds, all of which are embedded in our 25 outlook.
Steve Sell: Our ability to weather this down cycle in Medicare Advantage and differentiate on the management of medical costs and quality outcomes relative to the fee-for-service alternative should position us well with health plans and physicians as the rate and cost spread ultimately corrects.
Steve Sell: With that said, the recent favorable trends in payer bids and the 2026 advance notice from CMS make us optimistic that we will see a more favorable overall environment for 26 and beyond.
Steve Sell: Now, let me provide a quick overview of our fourth quarter and full year results and our guidance for 2025.
Steve Sell: Note that Jeff will provide more details in his remarks later in the call.
Steve Sell: For the fourth quarter, MA membership continued its growth trend and was in line with our expectations.
Steve Sell: increasing 36% or 138,000 members year over year to 527,000 members driven by the continued expansion of our 24 partner class and 4.1% same geography growth.
Steve Sell: ACO model membership was 132,000 members, slightly ahead of our expectations.
Steve Sell: Total revenue grew 44% to $1.52 billion in the quarter and $6.06 billion on the year.
Steve Sell: Growth was primarily driven by the class of 24 and organic growth in our existing classes, partially offset by higher costs associated with Medicare Part D and lower risk adjustment revenue related to unfavorable prior period development for the full year.
Steve Sell: Medical margin was $1 million in the quarter and $205 million for the year, which when adjusted for a $5 million dollar reserve for estimated 2025 losses from partnerships we intend to exit this year, was at the low end of our guidance range.
Steve Sell: In the quarter, we also recorded elevated Medicare Part D prescription drug and supplemental benefit costs, partially offset by favorable medical cost development from Q1 and Q2.
Steve Sell: It should be noted that $6 million of the higher Medicare Part D costs in the quarter are tied to payer contracts in which Part D risk is carved out starting in 2025.
Steve Sell: Adjusted EBITDA was minus 84 million dollars for the quarter and minus 154 million dollars for the year, which came in at the low end of our guide.
Steve Sell: The quarter reflected lower medical margin due to the aforementioned items, lower ACO model contract performance isolated to one partnership that we will be exiting for 2025, and favorable operating cost leverage.
Now turning to full year 2025 guidance.
Steve Sell: Based on current market dynamics, we have made a strategic decision to constrain our 2025 MA membership to balance near-term risk and opportunity.
Steve Sell: And we now anticipate a full year M.A. membership decline of approximately 4% or 22,000 members to a range of 490,000 to 520,000 or 505,000 at the midpoint.
Steve Sell: This year-over-year change includes adding 20,000 members in a smaller class of 2025 from three new partners.
Same geography growth of 3% for 13,000 members.
Steve Sell: and a reduction of 54,000 members from previously disclosed partnership exits.
Steve Sell: multiple December 2024 payer contract terminations and tighter attribution management with health plans.
Steve Sell: Similarly, our ACO model business, which has been an area of strength, will see 2025 membership projected at 110,000 members as we exit one underperforming MSSP partnership.
Thank you.
Steve Sell: Revenue is forecasted to decline 2% to 5.925 billion driven by the impact of the above-mentioned membership decline.
Steve Sell: Offset by a better revenue yield, inclusive of improved payer contracts, member mix changes, and 2025 payer bid impact.
Steve Sell: Medical margin is expected to improve 46% to 300 million dollars at the midpoint.
Steve Sell: which reflects a slightly lower jumping off point from what we communicated in November in our view of an elevated cost trend continuing in 2025.
Steve Sell: Finally, 2025 adjusted EBITDA guidance is expected to be minus $75 million at the midpoint.
Steve Sell: which assumes a gross medical cost trend of 6.3% in line with our 24 experience and a series of offsetting strategic actions noted above.
Steve Sell: Jeff will provide more specific details on the impact of our actions, market trends, and growth priorities embedded in our 25 guide.
Speaker Change: Well, the outlined actions are anticipated to provide incremental benefit in 2025.
Speaker Change: We expect they will be more fully reflected in our 26th performance, supporting a potential re-acceleration of medical margin and adjusted EBITDA growth.
Speaker Change: Now, let me provide some color on the focused investments we continue to make in what we see as a differentiated set of clinical and quality programs.
Speaker Change: Our ability to manage cost trends relative to a benchmark and deliver top-tier quality performance fully relies on our ability to leverage the strength of a PCP's relationship with the senior patient.
Speaker Change: Current MA results show our readmission, hospital admission, and ER visit rates 20-30% better than the local fee-for-service benchmark and quality scores for each year 2 plus market approaching or greater than 4.25 stars.
Speaker Change: This level of quality performance reinforces our value to payers and is reflected in 2025 payer contracts.
with increased incentives tied to delivering 4 plus stars performance.
Speaker Change: Similarly, ACO REACH results show our network as a top performer in terms of quality and medical cost management, with the most recent period delivering 150 million dollars or 13% in gross savings.
Speaker Change: meeting the national overall cost trend by approximately 280 basis points.
Speaker Change: To extend our impact on these key metrics and drive stronger, more consistent performance, we continue to advance our clinical strategy.
Speaker Change: Specifically, with our physician partners, we are better connecting opportunities across our burden of illness, quality, and care delivery programs.
Speaker Change: to drive best-in-class medication adherence, further address advanced illnesses like palliative care.
and target significant high acuity chronic disease categories.
like heart failure, dementia, and COPD.
Speaker Change: in which the primary care physician is positioned to intervene earlier with the goal of preventing disease progression.
alleviating symptom burden and avoiding unnecessary ER and inpatient utilization.
Speaker Change: In addition to continuing to invest in our clinical strategy, we continue to be tightly focused on the block and tackle elements of our business to improve operating performance and reduce variability around the following key components.
Speaker Change: First, we are focused on measured growth as a controllable lever across existing and new geographies with a smaller 20,000 member class of 2025.
Speaker Change: In addition, for certain new partners in 25, we have taken a glide path approach with select payers via year one agreements with a no downside and care coordination fee structure.
Speaker Change: Second, our payer strategy is focused on minimizing risk for elements outside our control, like Part D and supplemental benefits.
Speaker Change: and maximizing reward for areas within our control like quality performance,
and Part C Medical Cost Management, where we perform well.
Speaker Change: For January 2025, we successfully repriced 40% of our membership with improved percentage of premium economic terms, including incentive dollars tied to our partners' quality performance.
Speaker Change: while reducing our Part D exposure to less than 30% of our 25 membership.
Speaker Change: Third, we are enhancing our core clinical strategy and capabilities to improve quality outcomes and accelerate performance.
Speaker Change: This includes leveraging our investments in software and AI technology, physician education and coaching content and practice, and the expanded team of regional medical directors.
Speaker Change: And fourth, we continue to maintain cost discipline while investing in technology and clinical programs to further support medical margin and patient outcome improvements, as well as strengthen our position with payers and PCPs.
Speaker Change: All these actions are supported by our enhanced data and analytics capabilities that benefit our geography, practice selection, contracting, and day-to-day operating visibility. Jeff will talk more about these important improvements.
Speaker Change: In closing, and before I turn it over to Jeff, there are a few points I want to underscore.
Speaker Change: First, we see 25 as both a transition year in terms of membership and financial performance.
Jeff Schwaneke: and an inflection here in terms of focused quality, clinical program, and payer underwriting work to further position our platform and network as the scaled solution for physicians and health plans in full risk care for senior patients.
Jeff Schwaneke: Second, the scaled platform we have built across 615,000 senior patients, 2,200 PCPs, 30 markets, and 12 states.
Jeff Schwaneke: has yielded more favorable payer economic contract terms while delivering consistent outperformance relative to the MA and ACO quality and clinical cost benchmarks.
Jeff Schwaneke: Third, we believe the actions we took in 24 and are continued focused.
Jeff Schwaneke: on reducing our exposure to things outside our control, pursuing measured growth due to current market dynamics.
enhancing our core clinical and operational capabilities.
Jeff Schwaneke: and maintaining cost discipline will further strengthen our network and support improved and sustainable performance for all stakeholders.
Jeff Schwaneke: And fourth and finally, while early, the advanced rate notice is a positive signal that MA rates will improve for 2026, but it renews the call for rates that keep pace with increased costs in Medicare Advantage.
With that, let me turn the call over to Jeff.
Thanks Steve, good evening.
Jeff Schwaneke: Before I discuss the fourth quarter results and 2025 guidance, I want to highlight the actions we have taken to improve the performance of the business.
Jeff Schwaneke: Over the last six months, we have exited two unprofitable partnerships and underperforming payer contracts, substantially improving our bottom line profitability and cash burn.
Jeff Schwaneke: We've improved our back-end processes and data and analytics capabilities designed to enhance our visibility and reduce volatility around risk adjustment and medical costs.
Jeff Schwaneke: We've reduced our exposure and risk in areas outside of our control, such as Medicare Part D.
Jeff Schwaneke: We've implemented new training and clinical programs designed to improve practice performance and increase our ability to more closely align incentive payments and percentage premium to Agilent performance.
Jeff Schwaneke: These actions will help mitigate most of the cost trend headwinds and regulatory changes impacting our 2025 outlook and establish a stronger foundation for the future while we continue to navigate a rate environment that has not kept pace with underlying cost trends.
Jeff Schwaneke: Early indications from the advance rate notice, combined with greater potential contribution from our actions, gives us confidence in our ability to deliver improved financial performance in 2026 and beyond.
Jeff Schwaneke: Now let me start by reviewing our overall financial performance for the fourth quarter and full year 2024 results, and then I will discuss our guidance for the first quarter and full year 2025.
Jeff Schwaneke: Overall medical margin and adjusted EBITDA came in at the lower end of our previously communicated guidance range driven by several items.
Jeff Schwaneke: First, we recorded $5 million of additional medical expense associated with projected 2025 losses on a contract we intend to exit at the end of this year.
Jeff Schwaneke: and we reported higher Medicare Part D and supplemental benefits expense in the fourth quarter based on updated information from our payer partners.
Jeff Schwaneke: Walking through the line items, our Medicare Advantage membership increased to approximately 527,000 members at the end of the fourth quarter of 2024, representing a year-over-year increase of 36 percent.
Jeff Schwaneke: ACO model membership was approximately 132,000 at the end of the fourth quarter, representing 48% year-over-year growth.
Jeff Schwaneke: M.A. membership growth was driven by the Class of 2024 and 4.1% same-geography growth.
Jeff Schwaneke: Total revenues increased 44% on a year-over-year basis to $1.52 billion for the fourth quarter. For the full year, revenues increased 40% to $6.06 billion.
Jeff Schwaneke: Growth was primarily driven by the Class of 2024 markets and continued organic growth in our existing classes, partially offset by higher costs associated with Medicare Part D and lower risk adjustment revenue related to unfavorable prior year development that we recorded in the third quarter.
Jeff Schwaneke: Fourth quarter medical expense increased to $1.52 billion compared to $1.16 billion last year.
Jeff Schwaneke: The 31% growth compared to last year was driven by the expansion of the 2024 class and continued elevated cost trends.
Jeff Schwaneke: Additionally, as mentioned earlier in my prepared remarks, in the fourth quarter we also recorded additional reserves of five million dollars for lost contracts that we expect to exit at the end of 2025, as well as additional medical expense primarily related to supplemental benefits.
Jeff Schwaneke: For the full year, medical services expense increased 46 percent due primarily to average membership growth of 38 percent and the continued impact of elevated medical cost trends and unfavorable prior year reserve development.
Jeff Schwaneke: The fourth quarter and full year 2024 cost trend was 4.6% and 6.8% respectively.
Jeff Schwaneke: The full year also includes the lost contract that I previously mentioned.
Jeff Schwaneke: Medical margin for the fourth quarter was $1 million, compared to a negative medical margin of $102 million in the fourth quarter of 2023. The full year 2024 medical margin was $205 million, compared to $299 million in 2023.
Jeff Schwaneke: Medical margin for the full year 2024 was negatively impacted by prior year development that we recorded in the third quarter and the continued impact of elevated medical cost trends.
Jeff Schwaneke: General and administrative expense, or G&A expense, for the fourth quarter of 2024 was $60 million, compared to $65 million in the fourth quarter of 2023.
Jeff Schwaneke: For the full year, G&A expense was $269 million compared to $286 million for 2023.
Jeff Schwaneke: G&A expense for the fourth quarter and the full year 2024 reflect lower geography entry cost, capital support, and stock compensation expense.
Jeff Schwaneke: This was partially offset by costs related to exited markets resulting from business optimization initiatives.
Jeff Schwaneke: Lower geography entry costs for 2024 are driven by continued cost discipline, lower capital support funding needs,
Jeff Schwaneke: and, as Steve mentioned, a more measured market expansion strategy to balance growth and performance in the current cost trend and rate environment.
Jeff Schwaneke: Platform support costs were $40 million compared to $37 million for the fourth quarter of 2023. For the full year, platform support costs were $169 million compared to $164 million for 2023.
Jeff Schwaneke: Platform support costs remain in line with our target and demonstrate our cost-discipline efforts while continuing to invest in the business.
Jeff Schwaneke: The adjusted EBITDA loss for the fourth quarter of 2024 was $84 million, which compares to a loss of $137 million for 2023.
Jeff Schwaneke: For the full year, 2024 adjusted EBITDA was negative $154 million, compared to negative $95 million for 2023, and is attributable to the continued elevated medical cost trends and unfavorable prior year development as previously discussed.
Jeff Schwaneke: Adjusted EBITDA for our ACO model markets for the fourth quarter of 2024 was break-even.
Jeff Schwaneke: For the full year of 2024, adjusted EBITDA attributable to our ACO model markets was $33 million, compared to $39 million for the full year 2023.
Jeff Schwaneke: Fourth quarter and full year 2024 results include $5 million of additional medical costs for one of our Medicare Shared Savings Program contracts, where we received additional performance data in the fourth quarter.
Jeff Schwaneke: This true-up is related to an underperforming MSSP market, which we expect to exit in 2025.
Jeff Schwaneke: Performance in our other ACO model markets was in line with expectations.
Jeff Schwaneke: Turning to our balance sheet and cash flow, Agilent ended the quarter with cash and marketable securities of $406 million and another $36 million of off-balance sheet cash held by our ACO entities.
Jeff Schwaneke: We added $7 million in cash during the fourth quarter, and for the full year used $90 million, which was well below our previous expectations.
Jeff Schwaneke: About half of the favorable variance is timing-related, which will now occur in 2025.
Turning now to our 2025 guidance.
Jeff Schwaneke: We have provided our first quarter and full year 2025 guidance metrics in the press release and slides provided for you today.
Jeff Schwaneke: For the full year 2025, we expect year-end membership on the Agilent platform will be in a range of 595,000 to 635,000 members.
Jeff Schwaneke: This includes estimated Medicare Advantage membership of 505,000 and ACO model membership of 110,000 at the midpoints.
Jeff Schwaneke: As Steve mentioned, the year-over-year change includes adding 20,000 members in a smaller class of 2025 from three new partners and reduced same-geography growth of 3% for 13,000 members.
Jeff Schwaneke: Note that this is net of multiple December 2024 payer contract terminations.
Jeff Schwaneke: TIDR, Attribution Management with Health Plans, and the reduction of 54,000 members from previously disclosed partnership exits at the end of last year. Regarding these exits, an additional 29,000 members will exit at the end of 2025.
Jeff Schwaneke: Additionally, as mentioned earlier in my prepared remarks, we will exit one of our underperforming MSSP contracts in 2025.
Jeff Schwaneke: For the full year, we expect revenues in the range of approximately $5.83 billion to $6.03 billion, which is down slightly at the midpoint of 2024.
Jeff Schwaneke: The slight decrease in revenue is due to the following. First, a decrease in members served as a result of the market and partnership exits in 2024, payer contract terminations, and more measured growth in 2025.
Jeff Schwaneke: This reduction has been primarily offset by favorable Medicare Part C percentage of premium rate adjustments.
Jeff Schwaneke: inclusive of additional incentives for quality tied to re-contracting approximately 40% of our membership effective January 1st, 2025.
Jeff Schwaneke: Medicare Part D carve-outs and caps, which reduced Medicare Part D risk effective January 1, 2025 to below 30% of our overall membership, which should reduce the performance beta in our business.
Jeff Schwaneke: For 2025, we have assumed that our Part D losses double on a p.m. p.m. basis from 2024 for the membership where we continue to take Part D risk.
Jeff Schwaneke: Targeted clinical programs supporting improved outcomes and quality scores of greater than 4.25 stars, which are heavily valued by our payer partners given the increased CMS STARS cut points effective for measurement year 2025,
Jeff Schwaneke: and year-over-year risk adjustment improvement of a net 2% increase, which is roughly in line with 2024.
Jeff Schwaneke: We expect medical margin to be in the range of $275 million to $325 million in 2025, or $300 million at the midpoint.
Jeff Schwaneke: This reflects a lower starting point exiting 2024 than we previously estimated due to continued elevated medical expense and higher supplemental benefits recorded in Q4 and lower prior year development than we anticipated.
Jeff Schwaneke: Our 2025 Medical Margin Guidance includes the benefit of the underperforming contract and market exits completed in 2024.
Jeff Schwaneke: premium increases in excess of 4% driven by payer bids of approximately 2% and an incremental 2% net benefit from risk adjustment.
Jeff Schwaneke: Additionally, as Steve mentioned earlier, we expect to execute on $50 million of operating, quality, and clinical initiatives in 2025.
Jeff Schwaneke: We expect these tailwinds to be more than offset by the continued high medical cost trend in 2025. Our cost trend for 2024 was 6.8%, which we estimate includes 50 basis points associated with the 2 midnight rule.
Jeff Schwaneke: For 2025, our estimated cost trend is 6.3% gross and 5.3% net.
Jeff Schwaneke: The 1% difference is due to the effect of payer bids, which we expect to lower medical expense in 2025.
Jeff Schwaneke: We expect our adjusted EBITDA to be negative $75 million at the midpoint. This is driven by the medical margin guidance I previously mentioned and assumes flat G&A costs, including platform support costs, as we maintain our cost discipline.
Jeff Schwaneke: We expect our ACO model performance to be between $35 and $40 million for 2025.
Jeff Schwaneke: In addition, we expect geo-entry costs of between $35 and $40 million based on our assumption that the class of 2026 membership will be between 30,000 and 45,000 members, reflecting our balanced approach to growth.
Jeff Schwaneke: For the first quarter, we expect M.A. membership of 490,000 to 510,000, revenues of $1.48 billion to $1.52 billion.
Jeff Schwaneke: medical margin of 125 million to 140 million and adjust EBITDA of 10 million to 25 million inclusive of 18 million dollars contribution from ACO reach at the midpoint.
Jeff Schwaneke: Our expected use of cash for 2025 is approximately $110 million.
Jeff Schwaneke: We continue to believe we have adequate capital on the balance sheet to support the business and achieve our goal of cash flow breakeven in 2027.
Jeff Schwaneke: Our focus for 2025 is executing on our clinical and operational initiatives to drive better outcomes for our members and shareholders.
Jeff Schwaneke: We are confident that our investments, disciplined growth, and strategic actions will drive long-term profitability.
Jeff Schwaneke: This concludes my remarks. Operator, we are now ready for questions.
Thank you.
Speaker Change: Thank you. If you would like to ask a question please press star followed by one on your telephone keypad. If you would like to withdraw your question please press star followed by two.
Jeff Schwaneke: When preparing to ask your question please ensure your device is unmuted locally.
Speaker Change: Our first question comes from Steven Baxter with Wells Fargo. Your line is open, please go ahead.
Steven Baxter: Hi, thanks. I just wanted to ask a little bit about some of the changes you're making to Part D and the contract in there for 2025, I guess.
Speaker Change: First, can you just give us a little bit more color on how that's going to flow through the P&L, both at the revenue line and the medical expense line, and then...
Speaker Change: It would also be great to just better understand what was actual Part D medical margin in 2024, just trying to understand
Speaker Change: you know why we're not seeing that as a specific spike out in the medical margin bridge and maybe that's because the PMPM losses are getting bigger in 2025 as you mentioned but I just want to make sure we're fully tracking that discussion. Thank you.
Speaker Change: Sure, Steve, thanks for the question. I'll start and Jeff can give you some of the specifics on the P&L. So, last time we talked to all of you, one of the key areas we talked about was really narrowing our
exposure to things that we can't control.
Speaker Change: and Part D risk was at the top of that list.
Speaker Change: It has a series of challenges that come with it. There's a lag in terms of our finding out where the results actually occur, and that's typically Q3 of the following year. But there's also things like the formulary and the rebates that we just can't control and don't have visibility to.
Speaker Change: We laid out a goal of getting to less than 50% of our members with e-risk. We've exceeded that. We've taken it down to 30%, and I think that reflects the good relationship that we've got with our payers, and they're recognizing that we really can't control that.
Speaker Change: So that's been a real area of success for us. And Jeff, you wanna talk about the P&L? Yeah, yeah, thanks, Steve. So a couple of things just to remind everybody, we record Part D net in revenue.
Jeff Schwaneke: in the P&L. That's why you're not really seeing it show up because it's a really small component of the overall revenue number.
Jeff Schwaneke: And it has been a loss for us, so it continues to be a loss for us. And what we've done is, if you think about from 24 to 25,
Jeff Schwaneke: We've taken the 30% of members that we are going to retain that risk for 2025.
We've taken that PM-PM loss.
Jeff Schwaneke: 424, and we've doubled that because we know the Inflation Reduction Act materially increases the dollars at risk there, and we think that's a pretty good starting point for the 25 budget.
Jeff Schwaneke: So, fewer members with de-exposure, but doubling the magnitude of the PMPM.
in 25.
Speaker Change: Our next question comes from Justin Lake with Wolf Research. Your line is open, please go ahead.
Thanks. Apologize if you covered this.
Justin Lake: Can you talk a little bit about the year one performance?
this year.
Justin Lake: versus what you're expecting, or I should say in 24, what you're expecting for 25 there. And then also, can you talk a little bit about how you're thinking about the potential for a class of 26, which you typically have visibility on at this point in time? Thanks.
All right.
Steve Sell: Yeah, thanks Justin. So the year one performance for the class of 24 was very strong.
Steve Sell: is the largest class we've had to date. And as we shared at your conference, they're off to a really nice start and they close the year kind of consistent with that level of performance that we talked about. The class of 25...
Steve Sell: Part of the measured growth strategy we talked about in November is at 20,000 members. So it's a smaller class
Steve Sell: It also is the first class in which we've used a care management fee and no downside construct for the vast majority of those members, really to reduce the beta with the idea that we'll take them to full risk.
as market and payer dynamics improve over time.
for the class of 26.
Steve Sell: We have a strong class for 26. We have signed letters of intent around that.
Steve Sell: And so we're feeling good about that. That class will be larger than our class of 25 and where that came in at. And I think it's reflective, Justin, of
Steve Sell: We are positioned well from that standpoint given the success we've had, given the references that we've got from our existing network that's out there, and there's just fewer alternatives for primary care physicians, so that is reflective.
Steve Sell: There's an opportunity for us to make that class of 26 a little bit larger, but we'd like to have a really robust full implementation cycle and so our focus will soon turn to the class of 27.
Steve Sell: And we'll be engaging people, you know, two, three months from now talking about what it could look like around that.
Steve Sell: Now if you think about growth overall, I guess the other area I would call out for you We talked a little bit about this in November is a really strong in market opportunity for us
Steve Sell: And so as we look at that in-market opportunity, we see the opportunity to see a larger growth rate across time, again tied to kind of payer and market dynamics.
Steve Sell: So, that's sort of the balance that we're looking at as we think about being measured and disciplined around our growth strategy.
Thank you.
Speaker Change: We now turn to Jack Slevin with Jeffreys. Your line is open, please go ahead.
Hey, good afternoon. Thanks for taking the question.
Thank you for joining.
Speaker Change: Two things I want to clarify on the medical cost trend guidance, and I appreciate all the color, I just want to say that on the front end, it's really helpful. So two pieces, one on a two midnight, I just want to understand the 50 basis point estimates for the full year, we've got certain mixed read that have on a number of fronts about
Speaker Change: And if so, you know, does that 50 basis points you think sort of fully encapsulate?
Speaker Change: a run rate level that we might be at right now. And then the second piece, just on supplemental benefits, I know, at least in the press release, it looks like it's excluded from the medical cost trend.
Speaker Change: guide that you gave. I just want to understand if there's a tailwind this year on either removing that from some of your contracts or from the plans pulling back on that. My thought is the flow through there could be, you know, decently significant. So, I just want to get thoughts on both of those fronts. Thanks.
Speaker Change: Yeah, thanks, Jack. A couple things on the 2 midnight rule. So there was a little bit of a ramp. That's incorporated into our calculation of the 50 basis points on a year-over-year basis. So there was some of that, but that's incorporated in our number, obviously, because we'll have a full
12 months of that into
Speaker Change: As far as supplemental benefits go, I think we've stated before that based on the bids the payers had, we did see an overall...
Speaker Change: decreased across the board. Roughly 97% of the bids had decreases in supplemental benefits.
Speaker Change: And so, you know, the magnitude of those dollars, you know, for us go down as we think about 2025. And I think your final question was on contracting changes.
Speaker Change: And so, as we think about this, I think Steve has mentioned this before, and we've certainly talked about it, that we really want to be, you know, at risk for the things that we control.
Speaker Change: Supplemental benefits isn't one of those and so long term you know we'd like to go down that path but right now they're all at risk for those in 2025.
Yeah, Jack, I'll just...
Speaker Change: wrap up by saying, you know, we're on an evolution in terms of reducing risk around the things we can't control. We were ahead of what we laid out on Part D for this year. Supplemental benefits based on what Jeff talked about with how payers really adjusted down on those was a little bit lower on our risk, but it remains a real priority and our payer partners know that we would like to carve that out the same way we have on Part D.
Thank you. Thank you.
Got it. Really helpful call. I appreciate it, guys.
Thank you. Thank you. Thank you.
Speaker Change: We now turn to Ryan Langston with T.D. Cohen. Your line is open, please go ahead.
Thank you.
Ryan Langston: Hey, thanks. On the ACO reach side, on that one client, can you give us a sense of the impact for the fourth quarter and for the full year? And then I saw that you, for the cost trend, you're assuming about a hundred basis points lower for the year two.
Ryan Langston: I guess is that just benefit reductions or geography or national versus regional payers? Just looking for a little bit more detail on why the year 2 cohort is just going to run a little bit better. Thanks.
Ryan Langston: Yeah, first question I can answer. I may have to get you a follow-up here in a second. The first question on the MSSP...
Ryan Langston: I mean one of the reasons obviously we're exiting is because it was you know losing money for the year So I'm not going to quantify the specific magnitude, but obviously it was it was a decent amount
Ryan Langston: and that your second question was, what was the second question? I didn't pick up on that.
Maestro Enzato Basarabate.
something. So I just want to say thank you.
I'm wondering what that doubt is.
Ryan Langston: Oh, yeah. So, Ryan, I think what you're asking about is we show you...
Ryan Langston: from 24 to 25, we adjust 24 cost trend from 6.8 to 6.3 to reflect the two midnight rule that was asked about earlier. We then say 25 is roughly at that same level. And then there is a 100 basis point reduction from 6.3 to 5.3, which is reflective of the change in the payer bids.
Ryan Langston: that Jeff talked about earlier, and we saw a reduction from a revenue perspective of 100 base points and a cost perspective of 100 base points. So at the mid-margin line, we're not really reflecting a pickup around that, but it does reflect in the overall cost trend.
Okay, thank you very much.
Yep.
Thank you.
Speaker Change: Our next question comes from Amir Farahani with Bernstein. Your line is open, please go ahead.
Amir Farahani: Hi, good afternoon. Thanks for taking my question. In the last quarter, we mentioned you can pull some additional levers to improve working capital, and sounds like that helped you in Q4.
Amir Farahani: It would be great if you could talk a little bit about those factors and what you expect that to help you in 2025, sounds like you kind of expect some of those to reverse. So if you can kind of put some numbers on that, it would be very helpful. Thank you.
Thank you very much.
Speaker Change: Amira, thanks for the question. Let me just say, I think this is something that we're proud of. We were really focused on discipline and cash management. We called it out last time we talked.
Speaker Change: both in terms of working with our payer partners and in terms of working capital. And Jeff can dimension the improvement relative to what we projected.
Jeff Schwaneke: Yeah, a couple things just to walk you through the numbers, right? So we ended the year with 440 million of cash and that includes the ACO cash
that we have as well, so a total of 440.
Jeff Schwaneke: And, you know, we expect to use $110 million, if you think about 2025, so that means we'd end...
2025 at roughly $330 million. That's really $75 million better.
Jeff Schwaneke: than our previous expectations. And as Steve mentioned, by November, we had these cash flow levers that we were focused on. And it was really, you know, the first and foremost is around the partnership exits.
Jeff Schwaneke: think about receivables on the books that we have the ability to go and collect.
from vendors and others.
Jeff Schwaneke: And then last but not least is payer contract negotiations where
Jeff Schwaneke: A lot of our payers pay a percentage of our POP up front, of our premium up front, and those are varying. And we were successful across a few of those, which is really driving the cash flow outperformance.
Jeff Schwaneke: We're we're not done. There's still more opportunity and we're still focused on it You know to quantify the timing and volume of when that's going to happen I think that's really challenging because they they kind of come when you get them negotiated But our view is there's still opportunity here and we're working on it and hope to have a better update
Thank you so much.
Speaker Change: We now turn to J. Landreth Singh with Truist. Your line is open, please go ahead.
Speaker Change: Thank you and thanks for taking my questions. So I want to go back to this medical margin bridge. 50 million initiatives you called out
Speaker Change: various drivers. I was curious how much visibility do you have at this point? Are there any initiatives that still need to be executed? Just trying to get a better sense of range of outcomes there because you clearly need to offset some pretty large delta of 90 million on revenue and cost trend.
Speaker Change: Yeah, thanks, Jalendra. I really appreciate it. So, I think we talked about we feel like we are differentiating in terms of cost trends relative to a benchmark and in terms of our quality performance. When we talk about specifically our initiatives for next year, it reflects that. Roughly half of those initiatives are around quality performance.
Speaker Change: delivering greater than four stars, in some case four and a quarter, some even will give us an additional incentive up at four and a half. This is something that a payer is not able to do with their fee-for-service network.
And so as I talked about
Speaker Change: 40% of our membership being renewed and one of the areas we saw improvement in was not just percentage of premium but also around these incentives for quality, that is a much larger number for this coming year. And so we need to execute the way we have.
Speaker Change: But it is something that's clearly within our control. We've been successful with our payer partners in terms of having them reward us for that because it is in this environment.
Speaker Change: It is worth so much to them because it is so difficult to do that.
Cut points are up.
Speaker Change: and a PCP model with a tight relationship with the patient has the ability to close those care gaps and deliver that. So that is a huge component of it. The other part is really around our clinical management activities. Palliative, that I called out, is an area that we've done very well on in terms of reducing the admission rates, in terms of reducing the total cost of care. And so that is a significant component of that.
Speaker Change: I would say there is high visibility around that, and I think we have confidence around that number.
okay that's helpful and a quick follow-up
Speaker Change: Steve, you talked about 2026 MA advance notice clearly showing some nice improvement, but curious from your point of view, from Agilent point of view and geographical presence, any puts and takes we should be aware as we think about the update there in 2026?
Speaker Change: Any, sorry, any what updates? Any color from Agilent point of view in particular with respect to the advance notice for 2026 on MA?
Speaker Change: Well, I mean, I think like everyone, we were encouraged by the advance notice.
Speaker Change: I think my color would be, as we look towards the final notice...
Speaker Change: to catch up with the utilization that we've seen over the last couple of years in the program. So, like everyone, we would like to see an increase from the advance notice to the final notice.
Speaker Change: and we obviously won't know that for a little while here, but that will be a key indicator. That's not something we can control, so we're super focused on our controllables.
in 2026.
Thank you.
Thank you.
Thank you.
Speaker Change: Our next question comes from Michael Ha with Baird. Your line is open, please go ahead.
Michael Ha: Thank you. Just two questions. Firstly, I know you mentioned certain new partners in the 25 glide path approach.
Michael Ha: with no downside in year one. I think you mentioned it applies to the vast majority of your.
20,000 lives at Fitch, great.
Speaker Change: and doing more of these sort of no downside year one arrangements. Is it basically a temporary type arrangement to help you guys navigate near-term trends or could this be something new like structural pair arrangement going forward that you could extend to future partners and new markets?
Speaker Change: So Michael, it's a great question. I think from a macro perspective, we've made a lot of progress with our payer partners, whether it's around the cash that Jeff talked about, whether it's around reducing our Part D risk.
Thank you.
Speaker Change: As we think about these year one contracts, this is the first year that we've done that. I think our payer partners were receptive to that. Ultimately, they would obviously like to see this move to full risk.
Speaker Change: But that's really going to be predicated around kind of market dynamics and just the dynamics with them overall. So I think this is something that's available to us.
Speaker Change: but it's really going to be dictated by the environment. We have not done it in prior years, and as I said, the class of 24 on full-risk contracts performed very well. So I think it's gonna be situational, but it's a quiver that we've got that we can work with.
Speaker Change: Our next question comes from Andrew Mock with Barclays. Your line is open, please go ahead.
Speaker Change: Hi, this is Thomas on for Andrew. Could you share the latest 2024 national trend you received from CMS for ACO reach? I believe you last shared through September it stood around 7 or 8 percent.
Speaker Change: Yeah, I think it's 7.8% is the latest that we've seen published, I think. In terms of the reference population for 2024, but that that will be updated again, and I think there's some discussion and people expecting that that number will end up being larger than that, but that is the latest number that we've got.
Thank you.
Thank you. Thank you.
Speaker Change: Our next question comes from Elizabeth Anderson with Evercore. Your line is open, please go ahead.
Elizabeth Anderson: Hi guys, thanks so much for the question. I was wondering if you could talk about, you talked about sort of the repricing of membership growth across, you repriced 40% of the contracts. Can you just maybe tell us sort of like, do you feel like that was like the full catch up? Or you sort of see that as something that could go, you know,
Elizabeth Anderson: Can you talk about the evolution of that as you sort of think about 2025 and how to sort of think about that on a go-forward rate on that and also anything to call out on the medical cost cadence across the course of 2025. Thank you.
Thank you.
Steven Baxter: So, I'll take the first one, and Jeff, you can talk about kind of the seasonality and the progression across time. So, Elizabeth, thanks for the question.
Speaker Change: You know, I mean, just to back up, we repriced 40% of our membership for 1-125 and we've got another 50% for 1-126.
Speaker Change: So, we appreciate that we're in this period in which it's a challenging environment, but we do have that pricing lever to address it.
Speaker Change: I think from a percentage of premium standpoint, we felt good about our ability to get the increases that we were looking for around that.
Speaker Change: A big priority for us was also the reduction in Part D, and in some cases there was an adjustment in Part C trend depending upon how that payer treated that.
Speaker Change: But in aggregate, we saw an improvement in the percentage of premium for C. We saw a reduction in Part D risk.
Speaker Change: In about 30% of our, 30 of the 40%, we saw language come in that was sort of standard language that we believe is really going to help protect us as we go forward. So I think that was a very good start.
Speaker Change: I think the work in 25 for 2026 on these renewals is a
Speaker Change: is a real opportunity for us as we think about those elements that I just talked about. So repricing is, we think, a tailwind as we move into 2026 and as we look forward.
Speaker Change: in this business where there's more medical margin or lower medical costs in the first half of this year, higher medical costs in the back half of this year. And I think we've talked.
Speaker Change: specifically about, you know, the fourth quarter generally being the highest medical expense quarter of the year just based on the way that the plans are designed.
Speaker Change: Our next question comes from Adam Ron with Bank of America. Your line is open, please go ahead.
Adam Ron: Hey, thanks for the question. So I'm not sure if I'm getting confused with that by the way you're talking about it, but with the 1% impact on trend from payers.
Adam Ron: repricing or changing their bids. Presumably that is because they're lowering their rebates and lowering benefits for their members because they're under pressure, but I thought that that would have been a tailwind for you from a medical margin perspective, and I thought you had talked about that when I was first talking about cutting benefits.
Adam Ron: And so just want to clarify if you're saying that payers cutting benefits is not a net tailwind to your medical margins, and if so, is that just because it wasn't cut that dramatically in 25 and that you expect it to be more in 2026? So more follow around that would be helpful. Thanks.
Adam Ron: Yeah, sure, sure. This is Jeff. I guess what I would say is when you think about the two components, you have the revenue component, which is based on the bid information,
Adam Ron: And then you have the cost trend component. And what we've done here is we've
Adam Ron: We've said, listen, embedded in the bids is really, you're exactly right, a member cost share reduction or increase to the member, if you will.
Adam Ron: And so that was taken out of our revenue, but we also think it's going to obviously reduce our medical expense as well. And so that's how we get from the 6.8 to the 5.3. You have the 50 basis points of
Adam Ron: to Midnight that we talked about, and then from 6.3 to 5.3 is really the benefit of, I would say, you know, those costs, you know, being pushed to the member.
We now turn to Ryan Dunn, who is William's player.
Thank you all.
Adam Ron: We now turn to Ryan Daniels or to William Blair. Your line is open, please go ahead.
Speaker Change: And I guess it's multifold. Is that paid by your provider partners to you or from the payers? Number one. Number two, is there actual upside potential after those fees if there's residual shared savings?
Speaker Change: And then number three, can you speak to how you can move that to full risk over time? Is there a trigger? Is it an annual contract? Just want to give a little more color on that. Thanks.
Thanks for the question, Ryan. So, first,
Speaker Change: with our physician partners. So it's paid it's paid directly there. Two is there are upside incentives.
in these contracts.
Speaker Change: for outperformance and in particular around some of the areas that we do well and are important to our partners like the quality incentives that I mentioned.
The expectation is that you do move to full risk.
Speaker Change: across time, maybe as quickly as you move to to year two. And so that is the discussion that you have as you approach the back half of year one. And that's why we describe it as a glide path. I think you're ultimately moving towards
Speaker Change: that full risk model, but you're doing it in a more protected, kind of lower beta type of way.
Thank you. Thank you.
Speaker Change: We now turn to Witt Mayo with Lerink Partners. Your line is open, please go ahead.
Witt Mayo: Hey, thanks. Steve, I'm just wondering how you guys are internally planning for the fork in the road here with ACO Reach with your physician groups. I'm not sure what...
Witt Mayo: happens next year, if it gets extended or not. I'm not smart enough to know, but when do you guys say like, hey, we need to move on this, we need to evaluate MSSP, or we need to pull the plug? Just wondering kind of how you guys are thinking about the decision tree here.
Speaker Change: Yeah, listen, thanks for the question. It's a really good one, one that we've spent a lot of time on. Obviously, ACO reach has been a clear area of strength.
Speaker Change: As we call that, we're consistently beating the benchmark, we're superior from a quality performance perspective, medical margin equivalent is roughly north of 100 bucks PMPM. So all of those are very encouraging for us. I think
Speaker Change: Our sense is we're more optimistic about the post-26 outlook, whether that is an extension of REACH, whether that is a new program in Medicare fee-for-service that...
Speaker Change: have more of those discussions, but certainly by early next year, you need to know what's going on with that. And that kind of lines up with the timeline in which, if you're doing something like MSSP or others, you'd have to be enrolling in that.
Speaker Change: You know, more to come. It's going to be a pretty dynamic discussion, but I think if versus six months ago, our optimism level about a follow-on program or extension is increased.
Thank you.
Speaker Change: Our next question comes from Daniel Crosslight with City. Your line is open, please go ahead.
Daniel Crosslight: Hi, thanks for taking the question. Just a couple quick ones on the glide path, not to beat it to death, but I'm still a little confused on who actually decides to move that to full risk. Is it the partnership? Is it the payer? Is it done in conjunction? You both have to agree to move?
Daniel Crosslight: to full risk? Is there any kind of timeline where you have to, there's a drop dead where you must move to full risk?
Daniel Crosslight: And then as we think about the 2026 class, the letters of intent that you have, are they as well on the glide path, or is it TBD on 2026, how you're thinking about that? Thanks.
Thank you.
Thank you very much.
Daniel Crosslight: Daniel, thanks for the question. I think the timeline on the glide path is we would mutually work it out with the payer at the end of this year, just like we worked out Part D, which was off-cycle on a lot of things, just like we worked out accelerations on cash payments that Jeff talked about off-cycle. I think payers are going through the same world that we're going through.
Daniel Crosslight: And just like physicians have a real need for an alternative business model, payers have a real need for a primary care centric model that's great on quality and great on medical cost management.
Daniel Crosslight: So, we have payers who have more flexibility in terms of working with us than we did, you know, 6, 9, 12 months ago, and I would put this in that bucket.
Daniel Crosslight: As we think about the class of 2026, it will be situational in terms of the markets.
Daniel Crosslight: and the payers that we're working with there. Obviously, the things we talked about around advance notice, final notice, the traction we've got around the controllable items, around quality and medical cost management will all factor into that. And then finally, how payers bid for.
Daniel Crosslight: for 2026. So I think it's in front of us, I think it's an option that we've got available to us, but we're going to be making those decisions as we approach it.
Good night.
David Larson: We now turn to David Larson with BTIG. Your line is open, please go ahead.
Thank you.
Speaker Change: in the first three quarters of the year. And I heard a bunch of cost trend numbers reported on the call here. What was your final trend for 2024? And what do you expect it to be for 2025, please? Thank you.
Speaker Change: Yeah, so real quick, the final for at least how we have it recorded today as we close the year for 2024 is 6.8%.
Speaker Change: And then what we said for next year that we have in the budget is the 5.3, but there's a slide that we put out there that kind of bridges you from 6.8% as we ended 2024.
Speaker Change: and 5.3. The two midnight rule is 50 basis points, so that gets you down to 6.3. And then from 6.3 to 5.3 is the 1% really impact on payer bids and the cost sharing that we mentioned earlier.
Speaker Change: So in our view, I guess the way I would frame it, in our view we believe we have the same level of cost trend from 24 to 25.
Thank you.
Thank you. Thank you. Thank you.
Speaker Change: We now turn to George Hill with Deutsche Bank. Your line is open, please go ahead.
George Hill: Hey, good evening guys and thanks for sneaking me in here. Jeff, I kind of have a numbers question. You had indicated that you guys had
George Hill: carved Part D out of about 70% or greater than 70% of the membership for 2025.
George Hill: But the PMPM is indicated up, and I would have thought that the percent of premium that you guys receive would be down, kind of reflecting the carving out.
George Hill: of the Part D piece, but you guys also indicated that you've re-copyrighted about 40% of the members.
George Hill: I was just kind of wondering if you could talk about kind of the interplay of those pieces and like
George Hill: I don't know if it's an accounting issue or if it's a reg-rec issue. I just want to know how the revenue on a per-member basis changes when you guys do big carve-outs, whether it be supplemental or Part D. And my quick follow-up would be, am I doing the math right in the deck that the PYD in the quarter was about $8 million positive?
Thank you.
George Hill: Yeah, so first question is the Part D. So a couple things, just it's different here than other places, right, especially at the payers. We record Part D on a net basis. So revenue minus expense, we record that net in revenue.
George Hill: And so that's why you're not seeing the revenue line go up, because it's recorded net of cost in the revenue line. And what we said was, for those members that were continuing with risk in 2025, we took the 2024 PMPM on a net basis, and we doubled that.
George Hill: We doubled that cost for 2025 because of the impact of the Inflation Reduction Act.
George Hill: So second piece was PYD. So in the quarter, you know, we really had, I'd say, three million dollars of favorable prior year development.
George Hill: It doesn't show that way in the financial statements because we do have retroactively assigned...
George Hill: membership, which includes revenue and claims as well, and so you have to back that out, back that out of the numbers, and if you do that it's roughly three million positive development for the quarter, in the quarter, for prior years.
George Hill: And George, if I can just call out on that, I think Jeff and the team have done a really nice job in terms of stabilizing and providing predictable kind of medical cost trend forecasts.
George Hill: You see it in terms of what he just talked about, in terms of the favorable prior year.
George Hill: But as he also called out, Q1 and Q2 developed more favorably. And so that's the pattern that we're trying to get in and making sure that we're really doing that. Now, we've got further to go in terms of Part D and supplemental benefit. We're trying to reduce our exposure to that. For the remaining piece, we've got both in the quarter and in the guide for 2025.
We are forecasting that cautiously.
All right.
Matt Shea: Our final question comes from Matt Shea with Needham. Your line is open, please go ahead.
Matt Shea: Thanks for taking the questions and congratulations on getting Part D exposure below 30% nice beat relative to the 50% expectation, I guess.
Matt Shea: Anything to call out in terms of why you were more successful than anticipated on the Part D and maybe looking ahead, how are you thinking about the remainder of the book from here? Is the intention to remove all Part D risk over time? And if so, how long would an initiative like that take?
Thank you.
Thank you.
Matt Shea: Thanks for the question Matt. I mean the goal is ultimately to take that to zero as it is for our supplemental benefit.
Matt Shea: exposure, you know, getting to less than 30 based on less than 50, it's, these are
intermingled discussions around a lot of things and
You know, I think payers...
Matt Shea: understood the challenges coming with the Inflation Reduction Act, understood the beta that a primary care based model could have on a smaller pool.
Matt Shea: because this gets reconciled at each individual partnership level. I think the question was, how do they administer it and how do they work their way through it? And then how do you get the math to work that Jeff was talking about?
Matt Shea: That took a lot of work, a lot of kudos to our payer team. They really did an exceptional job. A lot of time with the senior management folks around how important this was to us. And they want us to be their value-based partner for the next decade and beyond.
Matt Shea: So this is, I think that's why ultimately we're able to get this success and the success on, you know, cash payments and other things, because in a world of fewer alternatives of primary care centric models,
Matt Shea: You know, being able to sustain that is important to the payer. And so I think that's the big part that really drove that overall success.
Thank you very much.
Speaker Change: This concludes our Q&A and I'll hand back to the management team for any final remarks.
Speaker Change: Well, thank you all for the call. I think, you know, we're managing through a dynamic and difficult environment, but we feel really good about the actions that we're taking. We laid things out at the end of last year. We've executed on all of those things. We see this year as a transition year, as we talked about, from a membership and a margin perspective, but it's also an inflection year, and as we look to 26, we talked about we're feeling optimistic. So, thanks everybody. Talk to you soon.
Thank you.
Speaker Change: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.