Q1 2025 agilon health inc Earnings Call

Elliot: Hello everybody and welcome to the Agilon Health First Quarter 2025 earnings conference call. My name is Elliot and I'll be a coordinator today. If you would like to register a question during stage event, please press star one on the telephone keypad.

Speaker Change: Our knight for hand over to Evan Smith, Senior Vice President, Invest the Relations, 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 the Q&A session. Before we begin, I would like to remind you that our remarks and responses to questions may include forward-looking

Speaker Change: Actual results may differ materially from those stated or implied by forward-looking statement due to risks and uncertainties associated with their business. These risks and uncertainties are discussed in our SEC filing.

Speaker Change: Please note that we assume no obligation to update any forward-looking statements. [inaudible]

Speaker Change: Additionally, certain financial measures we will discuss in this call are non-GAAP financial measures. 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. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is available in the earnings press release and form 8K filed with the SEC. Thank you for your time.

Steve Sell: And with that, let me turn the call over to Steve, Steve.

Thanks, Evan, good afternoon and thank you for joining us

We are pleased with our first quarter results.

Steve Sell: Demonstrated both the resilience and growth potential of our business model.

Steve Sell: For the quarter, we reported membership, revenue, medical margin, and adjusted EBITDA in line with our Q1 guidance range, and we remain on track to deliver in line with our full year 2025 guidance.

Steve Sell: These collective results reflect the benefit of our previously disclosed partnership and payerexids, continued execution on quality and clinical initiatives, and better payere contracting terms to reduce Medicare Part D exposure and improve percentage of premium rates.

Steve Sell: As expected, these results were tempered by a continued elevated cost trend in the quarter.

Steve Sell: In terms of membership, I want to underscore that our Q1 membership of 491,000.

Steve Sell: is relatively flat year over year. And these are essentially the same members we have on the platform in 24, net of partnership and pay your plan exits and irrespective of plan changes. [inaudible]

To remind you, given underlying market dynamics [inaudible]

Steve Sell: We have taken a prudent and more cautious stance to 2025 member growth.

with essentially no underwriting risk. [inaudible]

Steve Sell: on a reduced class of 25, and measured same geography growth of approximately 3%.

Steve Sell: As with prior years, we do expect some retroactive membership assignments in Q2 as we finalize contracting and attribution with payers.

Steve Sell: With these actions, essentially all of our Q1 membership where we take financial risk.

Steve Sell: sits in year two plus markets with a consistent and long-standing PCP patient relationship rooted in prevention, early detection and active intervention.

Steve Sell: Well, delivering results in line with expectations, we continue to make significant progress this quarter in strengthening our network and enhancing our platform through advancements in technology, clinical pathways, and operating efficiency.

Steve Sell: Our partnerships with leading physician groups continue to drive value for all stakeholders while enhancing our competitive position in a Medicare advantage and Medicare fee for service market that continues to migrate towards full risk value driven models.

Steve Sell: As the year progresses, we expect to continue our disciplined approach to performance.

Steve Sell: The reduced exposure to cost outside of our control, measured growth aligned with current market dynamics. Thanks.

Steve Sell: Strengthened Clinical and Operational Capabilities to Enhance Quality and Reduce Variability and Maintained Operating Cost Discipline.

Steve Sell: We expect these initiatives will build a stronger foundation to drive additional operating leverage and long term performance.

Steve Sell: Looking to 2026, we are pleased to see an increase of 280 basis points in the final rate notice from CMS, which begins to meaningfully address the high cost and utilization trends experienced in recent years.

Steve Sell: We have been encouraged by supportive comments from administration officials on the topics of value-based care and addressing the burden of chronic disease.

Steve Sell: As you will recall, early identification, diagnosis, and evidence-based treatment of chronic disease is a strong focus of our model.

Steve Sell: As we look toward the remainder of 2025, we expect to see clearer signals from Congress and the administration on broader elements of Medicare policy, including Medicare Advantage.

Steve Sell: For ACO Reach, we are encouraged that CMMI maintain the model despite efforts to narrow its portfolio.

Steve Sell: They are commentary that all remaining models are expected to produce savings and or quality improvement, aligns with our experience in the reach program, and we continue advocating for a full-risk pathway beyond 2026.

Steve Sell: We expect to learn more on this topic as we progress through the year.

Steve Sell: Now, let me provide you with our current viewpoint on underlying market trends and an update on the initiatives we are actively pursuing to reduce variability and drive improved performance.

Steve Sell: Jeff will then provide additional color on our first quarter financial results and our outlook for the second quarter.

Steve Sell: From a utilization perspective, overall market trends in 2025 remain consistent with the prior year and in line with our initial outlook of a 5.3% full-year trend.

Steve Sell: Inpatient medical admissions were up in part driven by the flu, primary care utilization and annual wellness visit volume was flat, and overall medical cost trend was within our expected range.

in turns of growth trends. [inaudible]

The Medicare Advantage Market continues to expand.

Steve Sell: with CMS data showing trends of 3.9% year-over-year and 1.9% year-to-day. In addition, demand from payers and TCTs for full-risk, value-based care partners that can deliver on quality and cost metrics is also expanding.

Steve Sell: Against this backdrop, we see growth as a controllable lever given our consistent ability to demonstrate utilization performance 20 to 30% better than the local fee for service benchmark.

Steve Sell: and Quality Scores approaching or greater than 4.25 stars. As such, our focus remains on profitable growth in current markets and new geographies.

Steve Sell: As I have stated in the past, our ability to weather this down cycle in MA and differentiate on medical cost and quality outcomes should position us well with health plans and physicians as the macro rate and cost spread ultimately corrects.

Steve Sell: As a starting point, the recent favorable trends in payer bids and the 2026 final notice from CMS make us optimistic we will see a more favorable overall environment in 26 and beyond.

Steve Sell: As I outlined in our last call, we believe we have made significant progress in reducing operating variability and exposure in areas like Part D.

Steve Sell: In addition, we have negotiated improved economic terms with payers, while improving our efficiency through market exits, cost discipline and advancements in technology. But there is more work to be done.

Steve Sell: and we are actively pursuing additional opportunities to strengthen performance through contracting, cost optimization, and cash management.

Steve Sell: with approximately 50% of our membership up for renewal on January 1st, 2026. Pair negotiations this year present a further opportunity to improve economic terms and predictability of performance.

Steve Sell: We have several focus areas, including one, a further reduction in party exposure, two, an expansion of quality incentives.

Steve Sell: Three improved economic terms from Part C and four, a continued narrowing of risk from supplemental benefits, through better information and more rational payer bidding.

Steve Sell: We expect the first three areas will have the greatest impact on our business moving forward.

Steve Sell: With respect to the fourth area, it is important to frame that our historical supplemental benefit headwind over the past two years was materially less than part D.

Steve Sell: and is anticipated to have an even lower impact in 2025. As recent payer benefit design changes, reduced exposure across approximately 97% of our membership.

Steve Sell: In addition, given our financial data pipeline is running across a majority of our payer partners as of Q1, we now have greater visibility into detailed revenue and claims information, including Part D.

Steve Sell: As renewal discussions are ongoing with players, we will provide more detail on our progress as we move through the year. We see our investment in technology driving a key competitive advantage, going forward, being proved automation, inefficiency, and ultimately better quality and clinical outcomes. We will provide more detail on our progress, we will provide more detail on our progress as we move forward.

and Matthew Gillmor. Thank you. Thank you.

Steve Sell: Our enhanced data and AI capabilities will enable us to improve our execution and day-to-day operating visibility.

Steve Sell: As an example, in 2023, we acquired MPHRX, enhancing our ability to gather and process data and derive insights across healthcare delivery networks.

Steve Sell: Since then, we've improved integration with health information exchanges, labs, EMRs and payers to speed up onboarding of Agilon partners and integrate clinical data quickly, benefiting patients

Steve Sell: Using AI and advanced technology, we ensure accurate identification and documentation of patients' health conditions aiming for high quality cost effective senior care

Steve Sell: We believe our documentation practices strengthen clinical accuracy and support our value-based care model, ensuring timely care for patients.

Steve Sell: Our investment in technology also allows improved efficiency, faster insights, and real-time feedback for continuous improvement.

Steve Sell: Performance visibility across markets, payers, and EMRs. Let us spot patterns and highlight best practices nationwide to facilitate PCP learning.

Steve Sell: These capabilities enable early primary care physician interventions to prevent disease progression, alleviate symptoms, and avoid unnecessary ER visits and hospital stays.

Steve Sell: Our recently launched heart failure program is a good example with two very pragmatic quality opportunities.

Steve Sell: Many of our partnerships are in the early stages of implementing the heart failure pathway, and we look forward to reporting updates on our progress and clinical outcomes later in the year or early in 2026.

Steve Sell: With respect to our palliative program, we are now live across most of our markets.

Steve Sell: This program relies on the trust between a senior patient and their primary care doctor and offers significant quality of life benefits to patients and family members.

Steve Sell: For patients electing to enroll in the program, we have seen a significant reduction in hospital admissions per thousand. And in the first quarter, we saw a material increase in patients choosing to receive advanced illness management via our program.

Steve Sell: given the positive clinical and business impacts date. We're focused on additional expansion across partnerships and geographies in 2025, which we expect will create additional value in 2026.

Steve Sell: Finally, 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.

Steve Sell: In closing, we see 2025 as both a transition year financially and an inflection year in terms of quality and clinical programs, payer underwriting, and cost discipline, which we expect will create a stronger foundation for growth and financial performance.

Steve Sell: As we look to 2026, we are encouraged by the recent final notice and positive comments from administration officials in support of value-based care models.

Steve Sell: As the macro shows some promising signs, our investments in technology and clinical programs are starting to bear fruit, giving us confidence in our ability to accelerate performance and speed to value for our stakeholders. With that, let me turn the call over to Jeff.

Jeff Schwaneke: Thanks, Steve, and good afternoon. For today's discussion, I will cover three key areas. First, I will walk through our financial performance for the first quarter. Second, I'll provide an update on cost trends and the steps we are taking to manage risk and improve medical margin.

Jeff Schwaneke: and finally, I'll discuss our Q2 Outlook in full year 2025 guidance, including our expectations for membership, revenue, and adjusted even done.

starting with membership. [inaudible]

Jeff Schwaneke: Medicare Advantage Membership at the end of Q1 2025 was 491,000 members compared to 523,000 members in Q1 2024.

Jeff Schwaneke: As we discussed last quarter, our decision to take a measured approach to membership growth has resulted in a slight year over year decline driven by previously disclosed partner exits in a smaller 2025 class.

Jeff Schwaneke: We continue to expect our overall same geography growth rate to be in line with the broader industry for 2025.

Jeff Schwaneke: Additionally, our force quarter membership came in at the low end of our guidance range due to the timing of contract signings for the 2025 class.

Jeff Schwaneke: As a reminder, the 2025 class contracts are on a glide path approach and as such are not driving a meaningful variance in our financial results.

Jeff Schwaneke: Our ACO Reach membership for Q1 was 114,000 members compared to 131,000 members in Q1 2024. This decrease primarily reflects the strategic decision to exit and underperforming in the SSP partnership as we've previously discussed.

Jeff Schwaneke: Turning to revenue, total revenue for Q1 2025 was 1.53 billion compared to 1.6 billion in Q1 2024.

Jeff Schwaneke: The primary drivers of your over-year revenue decrease include the market and partnership exits we have previously discussed, partially offset by the 2025 class and premium growth.

Jeff Schwaneke: Additionally, during the first quarter of 2025, we recognized $10 million of revenue and $10 million of medical expense associated with retroactively assigned members from 2024.

Jeff Schwaneke: Medical margin for Q1 2025 was $128 million compared to $157 million in Q1 2024.

Jeff Schwaneke: Medical costs for the first quarter of 2025 were in line with expectations and driven by continued elevated utilization.

Steve Sell: Incremental Flu related costs and negative prior period development. As Steve mentioned, during the first quarter our AWV and PCP visits were in line with expectations and medical costs continue to be driven by inpatient cases and part B drug spend.

Steve Sell: The first quarter, 2025 results included negative prior period development of $22 million, of which $7 million was associated with exited markets.

Steve Sell: The remaining development was tied specifically to one payer, including $10 million from 2023 dates of service and additional claims in the third quarter of 2024.

Steve Sell: I want to highlight that we went live on our new financial data pipeline in the first quarter that covers a significant number of our membership. We now have greater visibility and detail for both revenue and claims as we move forward, which we expect to enhance our forecasting capabilities.

Steve Sell: Our margin performance reflects a discipline cost management, improvements in payer terms, and ongoing investments in clinical initiatives. While medical cost trends remained elevated, we are beginning to see the impact of our strategic actions to partially mitigate these pressures.

Steve Sell: The year over year movement reflects continued elevated cost trends offset by lower geography entry cost and operating cost initiatives.

Steve Sell: Geography entry costs were lower in the first quarter of 2025, reflecting the timing of capital funding needs related to new market entries for 2026.

Steve Sell: Adjusted EBITDA related to ACO reach was $20 million in the first quarter of 2025.

Steve Sell: Managing medical cost trends remains a top priority for Q1 2025, our year to plus markets medical cost trend was five 5% compared to six 7% in Q1 2024 as.

Steve Sell: As a reminder, we expect cost trends in 2025 to run approximately 150 basis points lower than 2024 due to the effect of payer bidding and the two midnight rule.

For the first quarter of 2025, we continue to take a conservative approach in our assumptions given ongoing utilization pressures in areas such as inpatient services and part B drugs in combination with the negative prior period development a component of the negative prior period development was associated with the third quarter of 2024.

Steve Sell: <unk>, which has an updated cost trend of nine 6% year over year.

Steve Sell: As part of our strategy to manage risk we have successfully reduced our exposure to Medicare part D with less than 30% of our membership carrying part derisked in 2025. Additionally.

Steve Sell: Additionally, we are working closely with our payer partners to refine benefit designs and improve alignment on medical cost management.

Steve Sell: Now I would like to provide a few highlights for our Q2 and full year 2025 guidance.

Steve Sell: Looking ahead, we remain focused on disciplined execution and financial improvement for Q2, we expect Medicare advantage membership in the range of 485000 to 515000 with ACO model membership projected between 105 to 115000.

Steve Sell: For the full year, our guidance for Medicare advantage members remains unchanged at 490000 to 520000.

Steve Sell: For the second quarter revenues are expected to be between $1 44 billion to $1. Five 1 billion. While full year 2025 revenue is expected to be in the range of $5 85 billion to $6 3 billion, reflecting the impact of membership shifts and improve revenue yield from payer contracts.

Steve Sell: The bottom end of our full year guidance range has been increased to reflect the retroactive membership assignment and corresponding revenue recognized in the first quarter for the <unk>.

Steve Sell: Second quarter medical margin is expected to be between $50 million and $70 million and full year medical margins are projected to be between 275 million to $325 million driven by targeted initiatives in our VOI program clinical initiatives and operating performance as a reminder, the class of 2020.

Steve Sell: <unk> will have a lower revenue and margin <unk> due to our measured glide path approach you mentioned last quarter.

Steve Sell: <unk> quarter 2025, adjusted EBITDA is expected to be between negative $35 million to negative $20 million. Our full year 2025, adjusted EBITDA guidance range remains unchanged at negative $95 million to negative $55 million consistent with our plan to achieve financial stability, while investing in long term growth.

Steve Sell: On the balance sheet, we ended the quarter with $369 million in cash and marketable securities and another $25 million of off balance sheet cash held by our ACO entities, we expect to use approximately $110 million of cash in 2025, and we continue to maintain a disciplined approach to capital.

Steve Sell: Little allocation, ensuring we have the resources needed to support our business objectives, while progressing toward our goal of cash flow breakeven in 2027.

Steve Sell: In summary, while we continue to operate in a challenging environment. The actions, we are taking to refine our strategy improve operational execution and financial visibility and strengthen our financial position are evident in our first quarter performance. We remain confident in our ability to navigate the near term headwinds and to position <unk> for <unk>.

Steve Sell: <unk> long term success.

Speaker Change: With that operator, let's move to the Q&A portion of the call.

Steve Sell: Okay.

Steve Sell: Thank you.

Steve Sell: I 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.

Steve Sell: When preparing to ask a question. Please ensure your devices on mute locally.

Steve Sell: And today, we ask you limit yourself to one question. Thank you.

Speaker Change: First question comes from Stephen Baxter with Wells Fargo. Your line is open. Please go ahead.

Steve Sell: Yes, hi, thanks for the question I.

Steve Sell: I guess, maybe starting with a bigger picture one obviously, there's been a lot of focus on the impact that that would be 28 risk model transition on value based care companies for this quarter in particular and whether there was anything about the transition thats proving potentially more difficult than might have been expected for various reasons. So I think it would probably be helpful. Because it give us a quick update I guess on the companys thinking around <unk>.

Steve Sell: Eight the impact specifically on 2025, and whether there's anything different to consider relative to the impact you faced in 2024, and then whether there's anything to think about from here in terms of your expectations for the pacing of the remainder of 2008 based on thank you.

Steve Sell: Sure Steven.

Steve Sell: For the question I think the headline is that from a risk adjustment perspective, and 25 were in line with our expectations, 2% net increase year over year inclusive of about a 3% headwind from the 28.

Steve Sell: I think a couple of things to consider as you think about our model is one the continuity that are primary care physicians have with their patients or patients have bandwidth. Their PCP is on average for 10 plus years each year, they're doing annual wellness visit assessments with them.

Steve Sell: And so we were able to really do that work in 2024, that's reflected in what we're expecting for 'twenty five paid the second is that as I called out in my prepared remarks, our membership in 'twenty five is essentially the membership we had in 2000 and for its really part of our disciplined growth.

Steve Sell: <unk> is obviously is net of those payer.

Steve Sell: And partnership exits that we've talked about previously and so I think the takeaway overall, it's in line with our expectation. We did the work last year to really reflect that it's early but we're encouraged by what we're seeing Jeff anything you'd add to that.

Steve Sell: Yes.

Speaker Change: We now turn to Elizabeth Anderson with Evercore ISI. Your line is open. Please go ahead.

Elizabeth Anderson: Hi, guys. Thanks, so much for the question.

Elizabeth Anderson: I'm wondering if you could talk a little bit more about anything in terms of contribution from previously exited areas or other sort of lingering impacts that you are sort of at least aware of now are sort of expecting for the rest of the year just to sort of help us clean out.

Elizabeth Anderson: The.

Elizabeth Anderson: Current run rate performance of the business versus system of those legacy issues that you've dealt with.

Elizabeth Anderson: Yes. This is Jeff I mean that certainly the $7 million that we called out for unfavorable development for the exited markets.

Would be something that kind of stays in 2024 and doesn't have an impact on 2000 22025, obviously, we still have some some are less of those data service, but to this point, it's pretty minimal so.

Elizabeth Anderson: That would be the only thing that I think I would.

Steve Sell: Highlight Steve anything else, Yes, I think just Elizabeth we talked about the step up.

Steve Sell: Last year from exiting those markets, which was reflected in our in our bridge that we shared with you on our previous call.

Steve Sell: But outside of that no I don't have anything else.

Okay, Great that's super helpful and nice to see that start to come down for tomorrow.

Speaker Change: We now turn to jail interesting with <unk> Securities. Your line is open. Please go ahead.

Speaker Change: Okay. Thank you and thanks for taking my questions. So following up on your comments on 2026 and May filing rate notice, which came in better than advanced notice can you help us understand how we should think about this going to add on you guys have previously talked about 40% membership being repriced for Jan one.

Speaker Change: 25, do those contracts get any sort of guaranteed flow through from CMS rate update or are they completely dependent on how payers approached a bidding process and related to that at what point will you have clarity on your data for 2026.

Speaker Change: Yes. Thanks for the question <unk>. So you are correct, we repriced, 40% of our membership for January one of 'twenty five those are percentage of premium increases. So if you talk about an average 9% increase across the network or nationally.

Speaker Change: That would flow through on that that baseline that youre going to take a percentage of premium on so so that we will get the benefit of that obviously there is the impact from risk adjustment and stars quality on that.

Speaker Change: As it relates to the 26 renewals as I called out in my prepared remarks, we've got 50% of our membership up for renewal. So between the two years, you're talking about the vast majority of membership being re priced we are just starting through that progress right. Now there is a set of price.

Speaker Change: <unk> is that we've got against that the first is reducing part D exposure, we talked to you for 25 getting that below 30%. While it's early we already have one small regional payer for 2006 that is going to carve that out so further progress.

Speaker Change: On part D. Additional.

Speaker Change: Additional quality incentives is a key focus for us that's half of our.

Speaker Change: Programs or initiatives that are loaded and our plan for this year, we see an opportunity to increase that because we are consistently above that four four and a quarter star performance perspective.

Speaker Change: Those are really big ones further economic terms that we've got on that and then supplemental benefits is kind of a fourth in our list. We've got a lot of work going on with payers in terms of improving our information around that and reducing our risk overall through through their payer bidding, but those are the areas that will work through.

Speaker Change: That will run our normal cycle. So we'll be updating you on future calls in terms of our overall progress.

Great. Thanks, guys.

Speaker Change: Okay.

Speaker Change: Now turning to Justin Lake with Wolfe Research. Your line is open. Please go ahead.

Speaker Change: Thanks.

Speaker Change: Evening.

Speaker Change: Wanted to follow up on the <unk>.

Speaker Change: And of course through our risk scores two things one you have.

Speaker Change: Mentioned.

Speaker Change: Yes.

Speaker Change: Youre talking about pricing up 2% I want to make sure is that on a patient basis.

Speaker Change: <unk> by <unk> 28.

Speaker Change: It's a pretty mediocre rate increases there I think a lot of people think of them in the 1% range give or take for 2025.

Speaker Change: That number stands.

Speaker Change: As being pretty strong.

Speaker Change: Just want to make sure. It's a member and then secondly, one of your peers mentioned.

Speaker Change: Bunch of new paid some bouncing around because of all the disruption talked about.

Speaker Change: A bunch of the new members that they got big on coded.

Speaker Change: Versus 2024, just curious if you saw any of that.

Speaker Change: Yes, Justin Thanks for both of those questions. So in terms of year over year improvement from a risk adjustment perspective that is on a same member basis members that we had last year that get our continued this year that the net 2% increase.

Speaker Change: Is the effect of that it's 5% growth, it's 2% net from a risk adjustment perspective on that I think I'd just remind you that we've gone into markets that have historically have been heavy fee for service, we start from a lower risk score and so the ability to get a larger lift over a year.

Speaker Change: <unk> year over year is sort of part of our approach and what we expect to see in the early years with in these markets and if you remember, 50% or nearly 50% of our membership sits in the class of 23% and 24. So we're very early in that cycle.

Speaker Change: On your second question in terms of disruption and a lot of movement. There was more movement between Payors in 'twenty five in some of our markets than we have seen in past years, but not necessarily everywhere, but as I sort of shared in response to Stephen's question I think the distinction here is the primary.

Speaker Change: Care physician.

Speaker Change: Stays with that patient all along if you move from health plan to help plan B. It doesn't change anything in the total care model and so the prevention early detection. The assessments that went on in 'twenty four well. They are withheld aid that gets reflected as a carry into 'twenty five and so that's just a function.

Speaker Change: Of the model.

Speaker Change: That we built around then there is the choices that we've made on disciplined growth and so our membership is essentially flat year over year and those members that we had in 'twenty four we've gotten in 'twenty five.

Speaker Change: The members that we did add in the class of <unk> 25, as Jeff called out. It's 20000 in total as we get them on the platform smallest class we've had in a while there is no underwriting risk on those members because their care coordination no downside contracts for 2025, so that's <unk>.

Speaker Change: Think some of the distinctions and what we're seeing year over year.

Speaker Change: Okay.

Speaker Change: We announced on May <unk> with Bernstein. Your line is open. Please go ahead.

Speaker Change: Hi, good afternoon, Thanks for taking my question.

Speaker Change: I was wondering if you can talk a little bit about your expectation for the.

Speaker Change: 26 that may bid cycle in terms of pricing benefit to any potential impact.

Speaker Change: On your business and as a quick follow up if I may.

Speaker Change: But your EBITDA guide I believe and incorporates the $50 million lift from operating initiatives and clinical expense management, you called that I guess, it will be great to get some idea of how that striking and how much of that you estimate you achieved in Q1. Thank you.

Speaker Change: Yeah. Thanks, Sameer that's a good question. So I think as we said in our prepared remarks, we are optimistic about 2006, we're obviously encouraged by the final rate notice. We're encouraged by the bids that payers submitted 425.

Speaker Change: And I think our commentary or our discussions with them and their public commentary reinforces that theyre going to be pretty measured as we as they go into 'twenty six but we're right in that cycle right now and they would be putting the finishing touches on those bids here in the next couple of weeks. So we can update more.

Speaker Change: As we get to the next call.

Speaker Change: Your second question was $50 million and our operating initiatives, it's $25 million in terms of those quality incentives and it's $25 billion in terms of clinical and cost saving initiatives.

Speaker Change: Let me take the second one first the biggest part of the clinical initiatives is our palliative program.

Speaker Change: I highlighted that in my prepared remarks, we saw an acceleration in enrollment in Q1 most of the savings. This year is going to come from people who were enrolled last year and were enrolled in Q1, just because of the nature of of the cycle and what happens across the last 12.

Speaker Change: At the end of life, and so that's sort of where we're at we're tracking well on that and then the second piece is in year incentives around quality scores delivering depending upon the payer four or four in a quarter and even some upside if you get to four and a half and we are.

Speaker Change: Well on that we are docs do an excellent job in terms of managing quality in terms of closing their care gaps the technology that I talked about is very focused on getting them the information around that and so while it's early in the year, we feel like we're off to a good start and tracking well across both our.

Speaker Change: <unk> initiatives and our clinical initiatives.

Speaker Change: Now to answer Lisa Gill with Jpmorgan. Your line is open. Please go ahead.

Lisa Gill: Hi, Thanks, very much good afternoon, Jeff.

Lisa Gill: Just wanted to follow up Steve on the comments that were made around the medical cost trend, obviously coming in higher than expected in this quarter and I think you called out in patients as well as part B can you maybe just talk about a couple of things one the level of visibility you currently have for completed claims and then secondly.

Lisa Gill: How are these trends progressing as you were exiting the quarter and then just lastly, I know part D. You said is less than 30% of your book, but with the changes to part D. I am curious if youre seeing an increase in utilization there with the maximum out of pocket cost shifting pretty materially.

Lisa Gill: Thank you.

Lisa Gill: Sure there is a lot Matt question Lisa so.

Lisa Gill: Let's see so medical cost trends in the quarter, maybe just to reset were in line with our expectations. Our expectations were that they were going to be at elevated levels and they came in at that level. So we had guided and forecasted.

Speaker Change: At plus 5% as Jeff called out and they came in at that level within the quarter.

Lisa Gill: In terms of visibility.

Lisa Gill: We've worked really hard over the past few calls we've updated you on our on our financial pipeline. We brought that live this quarter that is a big milestone for us. It gives us detailed member level revenue and claims data that really allows us to better understand the total revenue and cost.

Speaker Change: Profile of those members.

Speaker Change: So thats encouraging as a step further to go but a big milestone for US you asked about the quarterly progression I think I think exiting the quarter. So the census data well two areas that drove the elevated levels of utilization in line with our expectation was inpatient and part b as in boy.

Speaker Change: Inpatient or census data says January and February were higher came down in March as we as we move through the quarter and so that that's sort of tracking in line overall flu as I said in my prepared remarks had an impact on those inpatient admissions.

Speaker Change: And then finally in terms of part D. I think we're down to 30% I called out we've got another payer thats going to carve it out for 'twenty six smaller regional payers, so not not a huge impact in terms of our overall total but a good trend line for us and Jeff you can talk a little bit about utilization there as far as.

Speaker Change: Part D concern just a reminder, that we recorded that net in our in our financial statements and the revenue line and so and then given the magnitude as Steve mentioned below 30%, it's really not having a significant I would say driver as far as the shifting.

Speaker Change: And the utilization pattern on our financial statements.

Speaker Change: Okay, great. Thank you.

Speaker Change: Our next question comes from Ryan Langston with TD Securities. Your line is open. Please go ahead.

Speaker Change: Thanks, maybe on part D. I guess just bigger picture. If you are unable to kind of carve out maybe the rest of that.

Speaker Change: The regional payers that you mentioned I mean, Steve I know you said, 50% of your memberships up for renewal I guess is there a potential we could see sort of more material membership reduction of the 26 that you just can't see sort of a longer term acceptable margin profile and just real quick could you remind us what your membership proportionate is from group.

Speaker Change: May I know in the past you've referenced it but having a little trouble finding recent reference to that thank you.

Speaker Change: Yes, Thanks, Ryan two good questions I think part D. One we continue to make progress.

Speaker Change: Reducing that remaining 30% is at the top of our list and we're off to a good start as I called out.

Speaker Change: If youre not able to carve it out you can you can corridor at you.

Speaker Change: You also can be reflected an increased percentage of premium basically you can pay pay for it more.

Speaker Change: So I think as we go through these renewals on 50% of the membership there is a lot of ways.

Speaker Change: Get there, but I don't think that element would necessarily lead to a reduction in membership for 2026.

Speaker Change: I think we're going to be disciplined and measured on our growth.

Speaker Change: In paper market growth sort of as our target this year and we'll see as we go into next year and what things look like overall, but I don't think that would necessarily drive a reduction in membership.

Speaker Change: Your second question was on group.

Speaker Change: Our group MA penetration is really in line with the overall industry average nationally we said about 18%. So like 17, 818% as industry average in the markets. We serve we are actually underweight. So those markets have a little bit higher percentage in terms of group.

Speaker Change: But we come in at <unk> 18, So we're about 3% under the market average there are trends you didn't ask this but our trends in group are in line with what we see in individuals so not material changes there and I think maybe a key part of it is sort of what I said in response to Jeff.

Speaker Change: And Steven is we've got the same members on the platform in 2005 that we had in 'twenty four that's true for group that's true for individual but specifically on group the trend and the utilization that was experienced in 2000 and that's in our baseline. So we're not seeing a big movement.

Speaker Change: And utilization and there with the same primary care physician that they had last year.

Speaker Change: Great. Thank you very much.

We now turn to Joanna <unk> with Bank of America. Your line is open. Please go ahead.

Speaker Change: Hi, Thanks for taking the question so I guess, a big picture question.

Speaker Change: Follow up I guess to the comments on 2026 rate notice, which came in better.

Speaker Change: So your comments when we had the preliminary notice right.

Speaker Change: You guided to breakeven free cash flow in 2007.

Speaker Change: So now with the final rate notice being better.

Speaker Change: How much of this additional call it 100 basis points or so improvement in.

Speaker Change: The final this is preliminary how much of that.

Speaker Change: It's fair to assume that it would.

Speaker Change: On a full to that.

Speaker Change: Improvement in free cash flow today. Thank you.

Speaker Change: Yeah. Thanks, Thanks for the question Joanna I mean, as we said listen we're encouraged by the final rate notice I think it starts to catch up on a period of higher utilization that we've seen for a while but doesn't get us all of the way there.

Speaker Change: As we think about 2026, we're not giving guidance on that today, but that final notice is clearly a tailwind I think our disciplined growth is another tailwind that we see around that the potential for additional quality incentives and our and our clinical work.

Speaker Change: As material <unk> 28 last year, a full implementation I mean, thats going to be a headwind. So there's going to be another step up of another 3% or so on that and then the big question is kind of macro utilization what happens as you move into 2026, and so conceptually if you hold.

Speaker Change: Everything constant the incremental 280 basis points that should flow through but thats a big if so you've got to you got to work through those other elements and as we get better visibility on payer bids as we progress through the year and see what utilization and other things look like I think we'll be able.

Speaker Change: To inform that more.

Speaker Change: Yes.

Speaker Change: Okay makes sense. Thank you.

Speaker Change: We now turn to Ryan Daniels with William Blair. Your line is open. Please go ahead.

Speaker Change: Hey, guys. Thanks for taking the questions maybe another big picture one for you Steve as we think about the dynamics of the marketplace kind of a hangover with higher utilization and some pressures, but then better rates and 26 in kind of a new revenue model, where you have less risk and more visibility both with your data and with care.

Speaker Change: Coordination fees, how are you thinking about the pipeline and partnership growth as we think of 'twenty, six 'twenty, seven and beyond and with the balance there might look like.

Speaker Change: Yeah.

Speaker Change: Thanks Ryan.

Speaker Change: Great questions.

Speaker Change: For 2006, I think were in line with what we said on our last call. We think we're going to be in that 30 to 45000 members I will probably wait a little bit more to the existing geography or same geography growth within that just because the beta on that is is.

Speaker Change: Lower.

Speaker Change: And we've got the opportunity to sort of increase that if we want to but most of the focus right now Ryan is on 27, and so that class of 2007.

Speaker Change: It's a rich pipeline as I said in my prepared remarks, the demand from groups that are looking for partners that are experienced and moving them to value taking on global risk doing the basics around risk adjustment and utilization clinical programs is highly strong and so that's that's.

Speaker Change: <unk> and I think you could see that across basically all types of groups primary care only multi specialty health systems et cetera, and so I think it's pretty robust, we still are being pretty disciplined and measured as we wait to see how this shapes overall, but I think as the macro starts.

Speaker Change: Correct, there is an opportunity to lean into that demand and increase that growth, but that would probably be more for 'twenty. Seven then it would be for 2006.

Lisa Gill: Okay. That's helpful. If I can squeeze in one quick financial one for Jeff just almost certainly if there was a negative $1 2 million charge for implementing in new geographies did you get a payment from a payer a reverse something that concept.

Lisa Gill: Yes, yes, it's a true up of some of our annual wellness visits. So it was a reversal of an accrual so yes that would that happened in the quarter.

Lisa Gill: Okay. Thank you thanks guys.

Speaker Change: Our next question comes from Michael <unk> with Baird. Your line is open. Please go ahead.

Michael: Thank you. So I understand you expect a more favorable 2000 fixed environment, especially with the final rate notice being so strong.

Speaker Change: And if you were to hold everything constant things should go well, but with one of your largest payers humana casing.

Speaker Change: Really very material star ratings decline next year I was wondering if you could speak to how youre thinking about the directional net impact of both factors to agile on how you're thinking about the benefit of the rate notice netted against potential decline, both member growth financial flow through and the loss of quality bonus and rebates.

Speaker Change: In prior years, you'd mentioned, you've gotten relief through incremental premium and other forms of premium, but just given the sheer magnitude of the decline.

Speaker Change: Humana stars how confident are you in being able to avoid this sort of headwind flow through.

Speaker Change: Yes, thanks for the question Michael.

Speaker Change: I think as we look at 26, and we net everything we are optimistic we see this opportunity for improvement coming off this transition year of of 25. The final notice is materially better as you called out we have one payer has got a material step down in terms of their star ratings.

Speaker Change: This is something that we've gotten used to.

Speaker Change: We've gone through this with multiple payers and so there are multiple mechanisms to correct for that it can be increased percentage of premium it can be lumpy.

Speaker Change: There's just a variety of ways that you can get there I think what we are seeing more is the value that we provide to these health plans around our quality scores. So the ability for us to deliver at four in a quarter or move towards four and a half could be really material in their overall networks.

Speaker Change: And getting them above that four and so we like the concept of incentives that reward us for that.

Speaker Change: In addition to some of the offsets or compensations for the step down overall in terms of five 5% from from stars.

Speaker Change: I think it's a combination Michael I think we have to go through and work that but what we're hearing today from all of our Payors is our strong quality performance is a real differentiator they'd like us to lean into it more we're working closely with them on that last mile and how we make sure that we get quality.

Speaker Change: <unk> third credit for all of that but that's sort of how we think about quality for 2026, and how we would manage that headwind.

Matthew Shea: We now turn to Matthew Shea with Needham. Your line is open. Please go ahead.

Matthew Shea: Hey, guys. Thanks for taking the questions.

Matthew Shea: The development of clinical program seems to be a rising theme, that's getting more attention and you called out heart health I think dementia in COPD or areas of interest as well I'd love to hear how those programs have done collectively or individually in relative to expectations and then if my understanding is correct. This year, it's more of an investment year for those newer programs.

Matthew Shea: And you expect to reap more of.

Matthew Shea: The benefits next year do I have that correct and if so how big of a factor of these programs and improving the medical margin in 2026, just versus the broader improvement in the M&A environment that you've called out.

Matthew Shea: Yeah. Thanks, Matthew I mean, great question. So you are right I mean, we are very focused on managing these high acuity chronic diseases and the majority of our costs come from patients with multiple chronic diseases. So doing this well is critical.

Matthew Shea: Not just for patient health and quality outcomes, but for having a successful risk business and risk partnership. So we are very focused on that.

Matthew Shea: It is early in the days in my prepared remarks, I talked about the rollout of heart failure, which is across the majority of our markets and that clinical pathway. The focus there is around early detection and preventing disease progression across time and preventing people unnecessarily from ending up in the ER.

Matthew Shea: Our or for an inpatient admission.

Matthew Shea: The early returns on that given the technology investments, we've made and the ability to provide that information for that primary care physician in the office is going pretty well the ability to identify a patient early through a PCP versus later through an acute event and the ER in inpatient is pretty <unk>.

Matthew Shea: <unk> now Theres a lag you identify that early there is actually a cost around identifying it early which is reflected in 25, but the benefit will progress across time as you step into 'twenty six 'twenty seven we're not dimensioning, what the magnitude of that lift is but.

Matthew Shea: Again, just like we think doing well on quality is a differentiator for us with payers and with CMS. We believe the same thing on managing chronic disease and so heart failure is up and running we'll work on these other conditions COPD dimension et cetera, as we progress and we will update you on that I think it is going to be.

Matthew Shea: A little while for us to talk about the results I did callout palliative you didn't ask about that but palliative is one that's been enrolling for a while and you're starting to see the impact its the biggest dollar impact in 'twenty five again, because there's a lag between when a patient enrolls.

Matthew Shea: And the impact overall, so that's sort of the progression that we're thinking about we think we're on the right path and it should be a nice tailwind for us as we step into 2006 to get some improvement from these chronic programs.

Speaker Change: You May now turn to Daniel Crossline with Citi. Your line is open. Please go ahead.

Daniel Crossline: Hi, Thanks for taking the question.

Daniel Crossline: I was wondering if the better than expected funnel right.

Daniel Crossline: In 2006 is informing.

Daniel Crossline: Or how it's informing your growth or for the class of 2006, you mentioned 30 to 45000, New member adds do you think.

Daniel Crossline: Those folks will be on the glide path for that class of 25, and then as we think about the class of 25, graduating into 'twenty six.

Are you going to be more receptive to moving those members off of the glide path and then lastly, I just wanted to confirm do you still expect to.

Daniel Crossline: Exit 'twenty 9000 members at the end of 'twenty five.

Daniel Crossline: Yep.

Speaker Change: Good question. So let me start with a last one yes, we plan to exit the 29000 members at the end of the year.

Speaker Change: For the class of 2006, I mean, I guess I would back up and say the headline is we'd like to get to risk as rapidly as possible.

Speaker Change: Assuming we have appropriate economic terms and so the final rate notice is material across all of our markets as it looks towards the class of 26, it's too early for us to say what that distribution would be but the final rate notice does obviously improve the economics overall around that so.

Speaker Change: We can update you on the next call on the class of 25. Similarly, those that are on the no downside care coordination fees this year and this dip.

Speaker Change: <unk> financial transition year.

Speaker Change: Same thing with the rate notice that improve the overall economics as we would look towards 26, we will update you on that in terms of what that looks like.

Speaker Change: If anything on that.

Steve Sell: Thanks, Steve.

Our next question comes from David Larsen with BTG. Your line is open. Please go ahead.

Steve Sell: Hi, This is Jenny Chen on for <unk>.

Speaker Change: The members, but youre still.

Speaker Change: On <unk> can you speak to some dynamic going on in drug pricing what your views on drug pricing are we saw the recent executive order that was on April 15.

Speaker Change: Is that.

Speaker Change: Some of those initiatives could be favorable in a tailwind to the industry and agile on just any of your thoughts on drug pricing would be helpful.

Speaker Change: Thank you.

Speaker Change: I think our headline overall is that we don't believe that we can materially manage part D risk because the majority of those prescriptions are not written by our primary care physicians and we obviously don't have control over formulary or visibility to manufacturer rebates and Thats why we have <unk>.

Speaker Change: Joseph to reduce that as much as possible we are below 30%.

Speaker Change: We've got one payer that has agreed to carve it out for 'twenty six smaller payer, but that that would reduce that number and our goal is to take that ultimately all the way down.

Speaker Change: I don't know that we have tremendous insight on the recent policy that you talked about and how that would impact us overall.

Speaker Change: But our our focus is on reducing that risk overall.

Speaker Change: We now turn to George Hill with Deutsche Bank. Your line is open. Please go ahead.

George Hill: Yeah. Good evening guys. Thanks for squeezing me in two quick ones. Steve is number one I'd love to hear you talk about your conversations on the provider side, one of your big peers talked about having to convert a sizable piece of business from risk back to fee for service. So I'd love to hear you talk about the comment like the appetite of providers and whether or not you feel like that stable. We didn't see any impact of the class of 2627 on the <unk>.

George Hill: Rider side, and then just as it relates to part B drug risks do you guys feel like Theres anything you can do to mitigate that or kind of improve outcomes, where we're talking about disease states like oncology, where the providers are kind of they have to deliver the carrier they have to deliver to closer to cost will have comments on those two areas. Please.

Yes. Thanks, George Good question, So I think what.

George Hill: I said overall in terms of the total addressable market and the interest in physician groups is there is a strong demand to move to value overall.

Speaker Change: Is there given what's happened overall in the market obviously, a discussion about help me understand what the economics look like in my market Walk me through a pro forma if I execute in line with your early markets around the basics of.

Speaker Change: Burden of illness quality clinical programs, yes, and so it is a more elongated discussion that it has been historically, but the challenge is the alternative of fee for service is not getting a whole lot better and this final rate notice.

Speaker Change: Very big change. So so that has changed the underwriting assumptions that you use within the model and Thats made some of those questions Eric conversations a whole lot easier.

Speaker Change: On part B as in boy drug. It is the biggest driver Jeff called this out in his script is around oncology.

Speaker Change: It is a.

Speaker Change: Challenging one to manage we do have some early initiatives that were probably not ready to talk about that are focused on that.

Speaker Change: And it is a it is a big area for us to manage as we go forward, we kind of look at oncology as a very deep area.

George Hill: And an opportunity for our primary care physicians to work more closely with the oncologist in their communities so more to come on that one George.

Speaker Change: Thank you.

Whit Mayo: Our next question comes from Whit Mayo with Leerink Partners. Your line is open. Please go ahead.

Whit Mayo: Hey, Thanks, any color on the negative <unk> that you took for 2023 in the quarter. It sounded like it was maybe one payer but was that something specific around supplemental benefits OTC flex or anything and then if you could just remind us what your estimated completion factor for 2024 is now thanks.

Whit Mayo: Yes, let me start and Jeff can kind of give you the details so so with.

Whit Mayo: Tried to call out a couple of times is we've talked a lot about on these calls the work we've done over the last year to improve our visibility.

Whit Mayo: Our financial data pipeline just went live in Q1, we are using it for the first time with the majority of our payers on that so that that's a big step forward very detailed member level revenue and cost information that we werent able to see a year ago and.

Whit Mayo: And that includes the detail on what Jeff will walk you through around this but that is a very big step forward I think that addresses the majority of this issue. We had this a year ago, we would have seen this and been able to identify it but jeff in the field.

Whit Mayo: Yes, just to fill in the numbers right. So we mentioned the $7 million really from exited markets total of 2020 or $22 million.

Whit Mayo: 10, $10 million was from 'twenty three in prior data service and I think Steve mentioned this financial data pipeline on a going forward basis kind of solve the visibility to that and then really a small amount related to 2024 days of service and we're roughly I would say, 90% complete on 2024 data service at this point.

Speaker Change: Okay. Thanks.

Speaker Change: And our final question today comes from Andrew Mok with Barclays. Your line is open. Please go ahead.

Speaker Change: Hi, This is Thomas Walsh on for Andrew.

Speaker Change: At your second quarter guidance, EBITDA seasonality appears a bit lower than prior years.

Speaker Change: You can provide any color on discrete items or expectations for <unk> and how you see the trajectory of medical margin and EBITDA across the year.

Speaker Change: Yes, certainly this is Jeff I think one of the hard parts about comparing to prior years as there was a substantial amount of development in the third quarter.

Speaker Change: As we prepare our budget for the next year, we use an incurred basis. So we put all of that development and the data service, where it belongs and so it's kind of hard to get the quarterly trajectory I wouldn't I wouldn't call out anything specific other than we're using kind of a restated income statements on an incurred basis to develop our seasonality here.

Speaker Change: And that's what really what we're targeting off of so nothing nothing unusual and I would think you would see a normal progression that you've seen in the past with.

Speaker Change: Higher profitability in the earlier quarters, and obviously Q4 generally being the.

Speaker Change: The highest amount of medical costs.

Speaker Change: Great. Thanks.

Speaker Change: This concludes our Q&A I'll now hand back to Steve for any final remarks.

Speaker Change: Alright, thanks, everyone for a good call.

Speaker Change: I think we're pleased with our first quarter results I think they reflect one the resilience of our business model into the solid progress that we've made on the action plan areas that we've called out to you.

Speaker Change: Towards the back half of last year, there's more for us to do and we look forward to updating you on that on the next call. Thanks everybody.

Speaker Change: Okay.

Speaker Change: Ladies and gentlemen, today's call is now concluded wed like to thank you for your participation you may now disconnect your lines.

Speaker Change: Okay.