A.J. Rice

A.J. Rice asked about the assumed cost trend across Elevance Health's major lines of business for 2026, specifically inquiring if it's similar to 2025 or if any segments are expected to worsen or improve.

Answer

Mark Kaye, CFO, explained that Q4 medical cost performance was generally in line or slightly better than expected. For 2026, commercial large group is expected to see elevated but stable trends, ACA anticipates accelerating trends due to healthier members exiting, Medicaid expects continued pressure with mid-single-digit trend (moderation vs. 2025), and Medicare anticipates higher reported trends driven by membership mix, particularly D-SNPs. Gail Boudreaux, President and CEO, added a brief closing remark.

A.J. Rice asked about the assumed cost trend across major lines of business (commercial, Medicaid, Medicare, and exchanges) for 2026, specifically whether it's similar to 2025 or if there are expectations for it to worsen or improve.

Answer

Mark Kaye, CFO, Elevance Health, stated that Q4 medical cost performance was generally in line or slightly better than expected. For 2026, commercial large group cost patterns and margins are expected to be consistent with 2025 (elevated but stable trend). ACA is expected to see accelerating cost trends due to expiring subsidies and a more acute risk pool. Medicaid cost pressure will remain, reflecting elevated utilization and rate misalignment, but with some moderation versus 2025, moving into the mid-single-digit range. Medicare anticipates higher reported cost trends driven by membership mix, particularly D-SNPs.

A.J. Rice asked about the Medicaid segment, specifically the projected 125 basis point margin decline for 2026, inquiring if states acknowledge these trends, the nature of cost pressures (cost trend vs. rate updates), and if contemplated benefit design changes could offer upside.

Answer

Mark Kaye (CFO and EVP, Elevance Health) explained that the 2026 Medicaid trend assumption is anchored to the expected Q4 exit rate, with the full-year 2025 Medicaid operating margin expected to be modestly below breakeven (-50 bps). He noted that state rate updates are expected to be modestly above historical levels but will still trail trend, positioning 2026 as the trough. Felicia Norwood (President of Government Health Benefits, Elevance Health) added that conversations with states are constructive, with states recognizing affordability challenges and being receptive to program changes to reduce overall costs and utilization, such as in ABA and GLP-1s. Gail Boudreaux (President and CEO, Elevance Health) reinforced the prudent approach, assuming entry into 2026 at the 2025 exit rate.

A.J. Rice asked about Elevance Health's Medicaid outlook, specifically the projected 125 basis point margin decline for 2026, inquiring if states acknowledge this trend, the unique position of Elevance, and the impact of cost trends versus rate updates and potential benefit design changes.

Answer

Mark Kaye, CFO, explained the 2026 outlook is anchored to expected Q4 exit rates and preliminary 2025 Medicaid operating margin of approximately negative 50 basis points, with rates expected to modestly exceed historical levels but still trail trend. Felicia Norwood, President of Government Health Benefits, highlighted constructive state dialogues, states' receptivity to cost reduction levers like ABA and GLP-1s, and a shared focus on program sustainability. Gail Boudreaux, President and CEO, reinforced the prudent approach.

A.J. Rice asked about HCA Healthcare's underlying assumptions for expense items like SWB, supplies, other operating expenses, and professional fees embedded in the 2026 guidance, inquiring about potential margin improvement opportunities and the stability of contract and general labor costs.

Answer

CFO Mike Marks stated that the midpoint of revenue and Adjusted EBITDA guidance suggests stable margins for 2026, with mostly stable operating cost trends, but noted expected high single-digit growth in physician cost pressures. He confirmed that contract labor as a percentage of SWB is expected to remain around 4.2% and highlighted the resiliency plan's role in offsetting exchange headwinds through strong cost and operating leverage.

A.J. Rice asked about UnitedHealth Group's long-term growth trajectory, specifically if the company still expects to achieve low double-digit earnings growth in 2027 and traditional growth rates in 2028, considering the impact of the recent MA rate notice and the underlying assumptions for gradual margin improvement across businesses.

Answer

Stephen Hemsley, Chairman and CEO of UnitedHealth Group, stated that while it's too early to discuss 2027 specifics, the business is significantly stronger than a few months prior, with a clear agenda to strengthen further in 2026. He expressed strong confidence in operating within the long-term growth rate margins of 13%-16%. Hemsley highlighted the enormous potential of AI-driven productivity, innovation, value-based care, thoughtful capital stewardship, and expansion into value-added markets as compelling drivers for the enterprise's long-term growth, contingent on strong execution.

A.J. Rice inquired about Optum Insight's competitive position, the necessary investment areas, and the expected timeframe for re-accelerating growth.

Answer

Stephen Hemsley (Chairman and CEO, UnitedHealth Group) affirmed Optum Insight's strong competitive position and greater potential. Sandeep Dadlani (CEO of Optum Insight) highlighted new AI-first products like Optum Real (real-time claims/reimbursements), Optum Integrity One (AI auto-coding with significant productivity gains), and Crimson AI (clinical analytics with high ROI). He emphasized the need to evolve traditional services to AI-first, products, and platforms, along with investing in an AI-first workforce, expressing excitement for future possibilities.

A.J. Rice inquired about Optum Insight's competitive position, the specific areas requiring investment, and the expected timeframe for a re-acceleration of growth within the segment.

Answer

Stephen Hemsley, Chairman and CEO, stated that Optum Insight's competitive position is strong with significant growth potential. Sandeep Dadlani, CEO of Optum Insight, highlighted new AI-first products like Optum Real and Optum Integrity One, showcasing their impact on claims processing and coding productivity. He emphasized the evolution to AI-first services and platforms, and investment in an AI-first workforce, expressing excitement for future growth.

Asked for clarification on OptumHealth's margin outlook, specifically whether the repricing on the UnitedHealthcare side would flow through as a benefit to OptumHealth's capitation rates, and if they are seeing similar pricing discipline from other health plans they contract with.

Answer

Patrick Conway confirmed that pricing adjustments from UHC and other payers will flow into OptumHealth's capitation rates, acting as a tailwind. This, combined with benefit reductions and better payer dialogue, is expected to mitigate about 50% of the V'28 headwind in 2026. The other 50% will be addressed through operating cost reductions and improved patient cohort management. They expect to maintain the 1% margin level in 2026.

A.J. Rice asked about Encompass Health's development pipeline, specifically if there's pressure from potential partners to accelerate new hospital openings and how the competitive landscape for joint ventures compares in terms of development timelines. He also sought an update on the company's efforts to expand its prefabrication capabilities and the potential geographic and cost benefits.

Answer

CFO Doug Coltharp noted 14 announced projects and an active pipeline of over 40, confirming the ability to meet the 6-10 de novo target. He stated that partners typically move slower than Encompass Health due to its experience and streamlined processes, and that high barriers to entry limit competition despite other players' stated expansion plans. Doug Coltharp also explained that the company is evaluating changes to module configuration for rail transport or a second manufacturing site to expand prefab geography, while noting that the cost advantage of full prefab is diminishing as componentized prefab becomes standard in conventional construction.

A.J. Rice asked about the pipeline for de novo development, specifically the 6-10 hospitals per year trajectory, and if there's pressure from partners to move faster or competition from other players. He also sought an update on expanding prefab construction capabilities and its potential impact on geography and efficiency.

Answer

CFO Doug Coltharp stated that 14 projects were announced and underway at the end of Q3, with an active pipeline of over 40 projects, supporting the 6-10 de novo target. He noted that Encompass Health typically moves faster than partners due to experience and streamlined processes, and high barriers to entry limit competition. President and CEO Mark Tarr highlighted strong alignment with partners like Piedmont. Doug Coltharp also discussed evaluating changes to module configuration for rail transport or a second manufacturing site to expand prefab geography, noting that the cost differential between prefab and hybrid conventional construction is decreasing.

A.J. Rice inquired about the pacing of BrightSpring's new drug launches, specifically if the 16-18 launches over 12-18 months indicate an acceleration or a consistent robust pipeline, and sought clarification on the Amedisys and LHC Branch acquisitions, including any changes in scope and expected accretion for 2026.

Answer

CEO Jon Rousseau confirmed the pipeline remains robust and unchanged, with a strong year for brand wins slightly ahead of expectations, but without affecting future pacing. He clarified that the Amedisys and LHC Branch acquisition universe increased slightly due to FTC agreements, with the transaction expected to close this quarter, and confirmed it would be accretive in 2026.

A.J. Rice asked about the pacing of new drug launches, specifically if the 16-18 launches over 18 months guidance has changed, if the pace is accelerating, and the robustness of the pipeline. He also inquired about any changes or increased size in the Amedisys and LHC Home Health Branch acquisitions and their expected accretion for 2026.

Answer

CEO Jon Rousseau confirmed the pipeline remains robust and unchanged in magnitude, with a strong year for brand wins and some therapies launching sooner, but without affecting future pace. He still expects 15-18 launches over the next 12-18 months. Regarding acquisitions, Mr. Rousseau clarified that while Amedisys represents the significant majority, the universe of divested LHC branches increased slightly due to FTC agreements, and the transaction is expected to close this quarter. He affirmed that accretion for 2026 is a fair comment.

A.J. Rice inquired about specific expense management opportunities for 2026, including labor, supplies, and the potential deployment of AI initiatives.

Answer

CEO Saum Sutaria stated that an ongoing business transformation initiative is looking for short- and long-term opportunities across all aspects of labor costs, including right-sizing corporate structure, leveraging advanced analytics, automation, and scaling the global business center. He also mentioned continued active investment in Conifer for more efficient collections and comprehensive review of supply costs.

A.J. Rice inquired about specific expense management opportunities for 2026, including labor, supplies, and other areas, and whether AI deployment is a focus for achieving incremental savings.

Answer

Chairman and CEO Saum Sutaria detailed an ongoing business transformation initiative designed to identify short- and long-term opportunities across labor costs, leveraging advanced analytics, automation, and the global business center. He also mentioned continued investments in Conifer Health Solutions for more efficient collections and noted that supply management efforts were previously discussed.

A.J. Rice inquired about Community Health Systems' projected free cash flow positive status for full year 2025 and how this might influence capital deployment, CapEx, and tuck-in deals. He also asked about potential headwinds and tailwinds for 2026 budgeting.

Answer

Kevin Hammons, President and Interim CEO, stated that achieving positive free cash flow provides optionality for further deleveraging or strategic capital deployment, including tuck-in deals and growth investments. For 2026, Mr. Hammons highlighted factors such as completed 2025 divestitures, prior year state-directed payments from Tennessee, strong Medicare rate increases, and potential new state-directed payment programs in Georgia, Florida, and Indiana. Jason Johnson, Interim CFO, added that the $28 million legal settlement from Q3 2025 should be excluded when considering the 2025 jump-off point for 2026.

A.J. Rice inquired about Community Health Systems' projected free cash flow positive status for full-year 2025 and how this might influence capital deployment, CapEx, and potential tuck-in deals. He also asked about anticipated headwinds and tailwinds for 2026.

Answer

Kevin Hammons, President and Interim CEO, confirmed that positive free cash flow provides optionality for further deleveraging or strategic capital deployment, including tuck-in deals. For 2026, he highlighted tailwinds such as strong Medicare rate increases and potential state-directed payment programs, while Jason Johnson, Interim CFO, reminded to exclude the $28 million legal settlement from 2025's jump-off point.

Asked for the assumptions behind the estimated $50 million headwind if ACA exchange subsidies expire, and inquired about the impact of increased insurance revenue and new hospital openings on the 2025 guidance.

Answer

The $50M headwind is a 'guesstimate' based on losing coverage for about half of their exchange patients. The guidance includes a ~$200M increase in insurance revenue, which is a top-line item with minimal EBITDA impact. The two new hospitals are expected to be EBITDA positive in 2025 but will slightly depress same-store metrics due to some cannibalization.

Asked for comments on labor trends, the pace of new bed additions and JV pipeline in behavioral, and whether future free cash flow would be directed towards M&A or buybacks.

Answer

The executive noted that labor trends have stabilized, with lower wage inflation and diminished premium pay contributing to margin recovery. The company has restarted adding beds to its behavioral business in high-occupancy markets. Regarding capital deployment, the focus will likely remain on capital expenditures and share repurchases, as M&A opportunities have not been compelling.