Ann Hynes

Ann Hynes asked about the reasons for lowering the long-term margin profile of each segment, specifically what changed for Medicaid, Medicare, and Commercial within health benefits, and if the CarelonRx margin adjustment is solely due to membership losses or other factors.

Answer

Mark Kaye, CFO, clarified that the underlying margin expectations for individual lines of business within health benefits have not changed. The recalibration of the health benefit segment margin to mid-single-digits reflects the current portfolio mix, where commercial growth has been more measured and individual ACA represents a larger share. Pete Haytaian, President of Carelon, explained that CarelonRx margin adjustment is due to growth and diversification, including more large upmarket jumbo accounts and the build-out of the specialty business, which come with different, often lower, margin profiles, as well as prudence regarding policy perspectives. Gail Boudreaux, President and CEO, added a brief closing remark.

Ann Hynes asked about the changes to long-term margin targets for Medicaid, Medicare, and Commercial within the healthcare benefits segment, and whether the lowering of the CarelonRx target is primarily due to membership losses or other factors.

Answer

Mark Kaye, CFO, Elevance Health, clarified that the underlying margin expectations for individual lines of business within health benefits have not changed. The recalibration of the health benefit segment margin to mid-single-digits reflects the current portfolio mix, where commercial growth has been more measured and individual ACA represents a larger share. Pete Haytaian, President of Carelon, Elevance Health, explained that CarelonRx margins are being adjusted due to growth in large upmarket jumbo accounts (which have a different margin profile), the build-out of the specialty business, and prudence regarding the longer-term policy perspective.

Ann Hynes focused on 2026 membership growth, asking if Medicaid membership and revenue are expected to decline. She also inquired about the impact of anticipated Medicaid and ACA membership declines on Carelon Services and CarelonRx, and if one segment is disproportionately affected.

Answer

Mark Kaye, CFO, projected modestly lower average Medicaid membership in 2026 compared to 2025 due to redeterminations and state program changes, with churn expected to be manageable. Pete Haytaian, President of Carelon, acknowledged that significant Elevance Health membership impacts would affect Carelon but viewed it as a short-term, time-bound effect, with strong external growth momentum and diversification supporting continued growth.

Ann Hynes asked about expected Medicaid membership decline and revenue growth for 2026, and how Medicaid and ACA membership losses would impact Carelon Services and CarelonRx.

Answer

Mark Kaye (CFO and EVP, Elevance Health) stated that 2026 average Medicaid membership is expected to be modestly lower than 2025 due to continued normalization, state program changes, and RFP outcomes, though the disenrollment pace is manageable. Pete Haytaian (President of Carelon, Elevance Health) acknowledged that significant Elevance Health membership impacts would affect Carelon short-term, but strong external growth and diversification would enable continued growth.

Ann Hynes requested elaboration on the issue of increased provider coding, asking if it was widespread and how the company views and underwrites for the risk of providers using AI to enhance coding.

Answer

CEO Gail Boudreaux clarified the issue is concentrated in isolated pockets, not widespread. She differentiated between misuse of the IDR process and some hospitals using AI tools to inflate documented acuity. She stated Elevance supports responsible AI for improving documentation but uses its own analytics to identify and take swift action against aberrant patterns that simply inflate revenue without improving care.

Ann Hynes requested clarification on the Medicare trend assumptions embedded in the company's full-year guidance, asking whether it assumes high-single-digit or mid-single-digit growth compared to 2024 levels.

Answer

Mark Kaye, CFO, responded by focusing on the margin perspective, stating that the company feels good about its positioning in Medicare. He reiterated the expectation for stable margins in 2025, driven by strong retention, disciplined cost management, and improved recognition of member acuity following recent elevated utilization trends.

Ann Hynes of Mizuho requested more detail on utilization trends, asking which specific areas like inpatient, outpatient, or pharmacy were experiencing costs higher than expectations.

Answer

CFO Mark Kaye specified that Medicare trends were slightly elevated but manageable, reflecting pressure from the Two-Midnight Rule and a late summer COVID surge. For Medicaid, he identified behavioral health as the most notable area of elevated trend, confirming that margins in both government businesses would remain pressured.

Ann Hynes inquired about the details of HCA Healthcare's $400 million resiliency programs designed to offset the $200 million-$500 million net negative headwind from ACA subsidies, asking for specifics on the programs and confidence in their execution and timing.

Answer

CFO Mike Marks explained that the resiliency program is multi-faceted, focusing on revenue integrity, variable and fixed cost efficiencies, and capacity management, leveraging benchmarking, AI, and shared service platforms. He expressed confidence in achieving the $400 million incremental cost savings in 2026. Regarding the health insurance exchange (HIX) impact, he noted the $600 million-$900 million adverse impact estimate includes administrative reforms and EPTC expiration, contemplating a 15%-20% decline in HIX volumes, with migration to employer-sponsored insurance or uninsured status, and a 30% decline in utilization for the uninsured.

Ann Hynes inquired about HCA Healthcare's underlying assumptions for expense items like salaries, wages, and benefits (SWB), supplies, other operating expenses, and professional fees embedded in the 2026 guidance, seeking clarity on potential margin improvement opportunities. She also asked for more details on the $400 million resiliency programs designed to offset the $200 million-$500 million net negative headwind from ACA subsidies, including execution confidence and expected timing of volume loss.

Answer

CFO Mike Marks indicated expectations for stable margins in 2026, with mostly stable operating costs but continued physician cost pressures in the high single digits. He noted contract labor as a percentage of SWB was around 4.2% in Q4 2025. Marks detailed the multi-year resiliency program, focusing on revenue integrity, variable/fixed cost efficiencies, and capacity management, leveraging benchmarking, AI/automation, and shared services. He explained the estimated $600 million-$900 million adverse EBITDA impact from health insurance exchanges (HIX), representing 8% of admissions and 10% of 2025 revenue, projecting a 15%-20% decline in HIX volumes, with most migrating to uninsured. Timing of impact depends on premium payments and metal tier shifts.

Ann Hynes with Mizuho Securities inquired about the status of pending state applications for grandfathered Medicaid supplemental payment programs and the potential for incremental revenue.

Answer

CFO Mike Marks identified Florida, Georgia, and Virginia as states with pending grandfathered applications, noting active reviews by CMS despite the shutdown. He reiterated that current guidance does not include potential impacts from these pending approvals.

Ann Hynes asked about the status of Medicaid supplemental payment (DPP) programs, specifically inquiring about pending states for grandfathered program approvals and any potential incremental financial quantification.

Answer

CFO Mike Marks stated that several states, including Florida, Georgia, and Virginia, have applied for grandfathering provisions, with reviews active despite government shutdown. He noted that the updated guidance does not include potential impacts from these pending applications and did not quantify them.

Ann Hynes from Mizuho Financial Group asked for details on HCA's resiliency programs aimed at offsetting the potential expiration of enhanced premium tax credits (EPTCs) and whether any benefits from these programs are included in 2025 guidance.

Answer

CFO Mike Marks stated that resiliency efforts should offset the near-term impacts of the 'One Big Beautiful Bill Act' and that HCA can manage longer-term impacts without material harm to its long-term guidance. Regarding EPTCs, he confirmed programs are being developed to offset adverse impacts, with more details to be shared on the Q4 2025 earnings call. These efforts include benchmarking, automation, and digital transformation.

Ann Hynes inquired about any changes to HCA's full-year guidance assumptions and whether the mixed surgical volume performance in Q1 was anticipated or weaker than expected.

Answer

CFO Mike Marks confirmed that HCA reaffirmed its 2025 guidance, viewing the current ranges as appropriate. He noted that while outpatient surgery case volumes saw a slight decline, driven by lower acuity cases and the leap year effect, overall outpatient revenue growth was strong. CEO Sam Hazen added that surgical volumes were slightly softer than expected but emphasized that overall volume activity was solid and broad-based, with strong growth in areas like cardiac procedures and rehabilitation admissions.

Ann Hynes asked about the impact of the Medicare Two-Midnight Rule on 2024 inpatient admissions, its expected continuation, and the statistical gap between Medicare Advantage and traditional Medicare observation rates.

Answer

CFO Mike Marks estimated the Two-Midnight Rule contributed about 50 basis points to 2024 admission growth, a benefit he does not expect to increase in 2025. He noted that the Medicare Advantage observation rate is approximately 20% higher than traditional Medicare, but he doesn't anticipate material changes as the focus is now on collections and appeals.

Ann Hynes from Mizuho Securities asked about 2025 pricing assumptions, questioning if it would be a tough comparison year due to 2024 benefits from the two-midnight rule and favorable payer mix shifts, and inquired about any assumed benefits from new DPPs.

Answer

CFO Mike Marks indicated it was too early for detailed 2025 guidance but provided a preliminary expectation for cash net revenue per adjusted admission to grow 2% to 3%. He also updated that HCA has completed 80% of its 2025 commercial payer contracting, securing mid-single-digit rate updates.

Ann Hynes asked for a breakdown of the 10% medical trend expectation for 2026 across Medicare, Medicaid, and Commercial segments. She also inquired about how 2025 trends concluded and any differences from initial expectations.

Answer

Tim Noel, CEO of UnitedHealthcare, clarified that the 10% trend is for Medicare utilization, which closed 2025 around 7.5%, in line with reset expectations. He noted that commercial trend is approaching 11% and that Medicaid, while not given a specific point estimate, shares similar themes of elevated trends persisting into 2026 across all businesses.

Ann Hynes requested a breakdown of UnitedHealth Group's 2026 10% trend expectation across Medicare, Medicaid, and Commercial segments. She also asked how 2025 medical trends concluded compared to the company's earlier expectations.

Answer

Tim Noel, CEO of UnitedHealthcare Medicare & Retirement, confirmed that the 10% trend expectation specifically reflects utilization assumptions within Medicare. He noted that 2025 closed around 7.5% for Medicare, aligning with the company's reset expectations from mid-year. For the Commercial segment, he indicated that trends were approaching 11%. While not providing a specific point estimate for Medicaid due to its nuances, he stated that the overarching theme of elevated medical trends observed in early 2025 is expected to persist into 2026 across all businesses.

Ann Hynes asked if the previously stated Medicaid margin expectation of -1% to -1.5% for 2025 remains accurate and whether any factors could impede Medicaid margin recovery in 2027 and 2028.

Answer

Mike Cotton, CEO of Medicaid, UnitedHealth Group, confirmed that the view for Medicaid has not changed, expecting breakeven in 2025. He anticipates margin degradation in 2026 due to premium funding dislocation and elevated medical cost trends, driven by specialty pharmacy, behavioral health, and home health services. He projects 2026 as the trough, with a return to rated margins of around 2% over an 18-24 month period through collaboration with states.

Ann Hynes asked for confirmation on the Medicaid margin expectation of negative 1% to negative 1.5% and whether anything would prevent a path to Medicaid margin recovery in 2027 and 2028.

Answer

Mike Cotton (CEO of Medicaid, UnitedHealth Group) confirmed that the view for Medicaid has not changed, expecting break-even in 2025 and some margin degradation in 2026 due to premium funding dislocation and elevated medical cost trends. He sees 2026 as the trough, with elevated trends driven by specialty pharmacy, behavioral health, and home health services. He anticipates a return to rated margins of around 2% over an 18-24 month period through collaboration with states.

Asked for the company's target margin for the Medicaid business, its margin expectation for 2026, and the expected compounded premium increase for 2026 given that 80% of premiums reprice.

Answer

Mike Cotton stated they expect breakeven performance for core Medicaid in 2025 and contemplate negative margins of -1% to -1.7% in 2026 due to the lag in state rating cycles. Timothy Noel clarified the long-term target margin for core Medicaid is around 2%. For 2026 premium increases, Dan Schumacher indicated double-digit increases for commercial, a rate comparable to 2025's 6% for Medicaid, and Medicare increases tracking with CMS adjustments.

Ann Hynes inquired about Humana's diversification strategy, specifically the progress in shifting members out of the H5216 contract.

Answer

Jim Rechtin, President and CEO, clarified that the primary goal is to deconsolidate H5216 to reduce risk and create a balanced portfolio of contracts. He stated that Humana is making good progress by leveraging 4 and 4.5 Star contracts, with incremental steps expected over the next two to three product cycles.

Ann Hynes inquired about Humana's diversification strategy, specifically the progress in shifting members out of the H5216 contract.

Answer

Jim Rechtin, President and CEO, clarified that the diversification strategy aims to deconsolidate H5216 and create a balanced portfolio of contracts, particularly those with four and four-and-a-half STARS. He indicated good progress in this direction during the initial weeks of AEP.

Ann Hynes of Mizuho Financial Group inquired about which cost trends were performing better than expectations and asked for an update on the Medicaid business, given that some peers have reported challenges.

Answer

CFO Celeste Mellet clarified that revenue drivers like CenterWell Pharmacy and MA membership were better than expected, while medical costs were in line. George Renaudin, President of Insurance, added that Humana's Medicaid business is performing as expected and is differentiated by its focus on LTSS populations, favorable state footprints, and a value-based care network structure, making peer comparisons difficult.

Ann Hynes asked for the specific V28 risk model headwind expected in 2026 MA rates, seeking a comparison to the 160 basis point impact disclosed for 2025.

Answer

George Renaudin, President of the Insurance Segment, reiterated that V28 is a three-year phase-in and that its impact is developing as previously guided. He confirmed the 2025 impact for Humana was about 160 basis points higher than the industry average but did not provide a specific headwind figure for 2026.

Ann Hynes inquired about the specific drivers for the 2025 Medical Loss Ratio (MLR) guidance, asking for a breakdown of the base assumption, overall cost trend, the impact from the Inflation Reduction Act (IRA), and the effect of D-SNP membership losses.

Answer

Chief Financial Officer Celeste Mellet explained the factors improving the ratio, such as MA plan exits and favorable calendar effects, and the factors creating a drag, including the business mix shift to Medicaid and the IRA impact. Mellet noted that the drivers mentioned in prepared remarks were listed by magnitude but declined to provide specific quantitative breakdowns.

Ann Hynes inquired if medical loss ratio (MLR) trends were stable sequentially and what this stability implies for the company's 2025 bids, asking if they are tracking in line with or better than expectations.

Answer

CFO Susan Diamond confirmed that Q3 claims for the MA business developed as expected in total, though with some shifts between inpatient and non-inpatient categories. She stated that management remains confident in the trend assumptions used for 2025 pricing and that the projected loss of a few hundred thousand members remains a reasonable assumption.

Ann Hynes asked if Encompass Health's Q3 earnings met expectations and if there were any significant surprises during the quarter. She also requested an update on the Washington regulatory outlook and any closely watched developments.

Answer

President and CEO Mark Tarr indicated no major surprises in Q3, aside from retroactive provider tax payments and a property tax assessment. He highlighted good labor management, decreased premium labor spend, and stable bad debt. EVP and COO Pat Tuer added that Q3 saw the best same-store net hiring since Q3 2023, with turnover at pre-pandemic levels. Mark Tarr also noted no near-term concerns from Washington, with CMS resuming operations.

Ann Hynes asked if Encompass Health's Q3 2025 earnings met expectations or if there were any surprises, and requested an update on the Washington regulatory outlook, including any closely monitored developments.

Answer

CFO Doug Coltharp indicated no major surprises in the quarter, aside from the timing and magnitude of retroactive provider tax revenue and a property tax assessment. He highlighted strong labor management, decreased premium labor spend, and stable bad debt. President and CEO Mark Tarr stated that the company sees nothing near-term of concern from Washington, with CMS resuming operations. EVP and COO Pat Tuer added that Q3 saw the best same-store net hiring since Q3 2023, with turnover at pre-pandemic levels and contract labor at its lowest since Q1 2021.

Ann Hynes from Mizuho Securities asked for an update on states potentially relaxing Certificate of Need (CON) laws and how Encompass is using AI for coding and documentation.

Answer

CEO Mark Tarr identified North Carolina, where CON laws will subside in 2027, as a significant growth opportunity. EVP & CFO Doug Coltharp and CEO Mark Tarr detailed their use of AI with partner Palantir to reduce administrative burdens, such as cutting patient evaluation documentation time for nurse liaisons by 20 minutes.

Ann Hynes of Mizuho Securities asked about the potential to accelerate the de novo growth strategy given high occupancy rates and whether the raised guidance was conservative following the strong Q1 performance.

Answer

CFO Douglas Coltharp responded that they are already accelerating growth through bed expansions, which is a more direct response to occupancy pressures. He noted that de novo acceleration is constrained by a 3-year lead time and staffing needs. Regarding guidance, he acknowledged the Q1 outperformance but cited uncertainty around the sustainability of favorable payer mix and labor leverage, as well as the potential for lumpy TPE audit activity, as reasons for their current outlook.

Ann Hynes asked if gaining market share from skilled nursing facilities (SNFs) continues to be a tailwind for Encompass Health. She also inquired if any other states besides Florida are on the company's radar for potential CON law changes and expansion.

Answer

CEO Mark Tarr confirmed that gaining share from SNFs remains a tailwind, as referral patterns have become 'sticky' due to their superior outcomes with high-acuity patients. CFO Douglas Coltharp supported this by pointing to ten straight quarters of strong same-store growth. For expansion, Tarr identified North Carolina as a very attractive state for growth, which Coltharp added is a key destination for retiring seniors and is currently underbedded.

Ann Hynes asked about Centene's assumed trend for 2026 in each of its main businesses: Medicaid, Medicare, and Health Insurance Marketplace. She also requested initial thoughts on the composite rate increase for Medicaid in 2026.

Answer

CFO Drew Asher stated that for Medicare, trend assumptions for 2026 are high single-digit to 10%+, with bids reflecting low double-digit composite trend. For Marketplace, the mid-30s average rate increase for 2026 includes fundamental trend, but risk pool shifts from program integrity and EAPTC sunset are more significant. For Medicaid, Asher noted that the 2025 HBR is up about 120 basis points from 2024 with mid-5% rates. For 2026, they expect stability in the HBR relative to the 93.7% forecast for 2025, driven by various cost management levers.

Ann Hynes asked about Centene's assumed trend for Medicaid, Medicare, and Health Exchanges in its initial 2026 outlook, and for initial thoughts on the 2026 Medicaid composite rate increase.

Answer

Drew Asher, Executive Vice President and Chief Financial Officer, stated that Medicare trend is assumed to continue at high single-digit to 10%+ for 2026. For Marketplace, the mid-30s average rate increase for 2026 incorporates fundamental trend, but risk pool shifts are a more significant factor. For Medicaid, he noted that the 2025 HBR is up about 120 basis points from 2024 with mid-5% rates. The initial 2026 outlook assumes HBR stability around 93.7%, building on 2025's performance and ongoing cost management levers like high-cost drug carve-outs and behavioral health management.

Ann Hynes from Mizuho Financial Group asked about the increased morbidity driven by provider coding, seeking details on which states and provider types were involved and how Centene underwrites for such behavioral changes.

Answer

CEO Sarah London described the coding intensity as an extrapolation based on observed trends, likely driven by hospital revenue cycle activities, rather than an issue in specific geographies. She explained that Centene is countering this by investing in its own AI-driven payment integrity systems. She views this as part of establishing a clearer baseline morbidity for the Marketplace population and is confident in the company's ability to manage it.

Ann Hynes of Mizuho Financial Group asked for more detail on the increased morbidity driven by provider coding, inquiring about the specific states and provider types involved and how Centene underwrites for this risk.

Answer

CEO Sarah London clarified that the observation on coding intensity is more of a speculative extrapolation than hard empirical data, though it is likely more prevalent among large hospital systems with sophisticated revenue cycle management. She stated that Centene is actively using AI in its payment integrity functions to keep pace and views this as part of establishing a clearer baseline morbidity for the evolving Marketplace population.

Ann Hynes asked if the original guidance for a 2.5% Medicaid rate increase in the second half of the year still holds and about visibility into those negotiations. She also inquired if any Medicaid cost categories, besides the flu, were running higher than expected.

Answer

CEO Sarah London updated the full-year composite rate expectation to mid-4s and noted constructive momentum in state negotiations, with more visibility on the 7/1 rate cycle expected later in Q2. EVP and CFO Andrew Asher added that besides the flu, cost pressures are being seen in behavioral health, pockets of home health, and high-cost specialty drugs like Elevidys.

Ann Hynes asked about any noteworthy developments on the Washington front, particularly concerning a potential healthcare bill in Congress by the end of December, and its implications for BrightSpring.

Answer

CEO Jon Rousseau stated there's nothing too noteworthy. He mentioned the upcoming home health rule, expecting mitigation of proposed cuts, noting any cut would not meaningfully impact BrightSpring due to the business's current revenue and EBITDA percentage. On the IRA front, he was pleased CMS directed payers to account for it in 2026 pricing and highlighted advocacy efforts for LTC pharmacies, expressing confidence in internal mitigation plans and the breadth of the enterprise regardless of legislative outcomes.

Ann Hynes asked about any noteworthy developments on the Washington front, particularly concerning a potential healthcare bill, the home health rule, and the Inflation Reduction Act (IRA).

Answer

CEO Jon Rousseau indicated nothing too noteworthy. He mentioned the home health rule is expected soon, with potential mitigation of proposed cuts due to industry advocacy, and any cut would not materially impact BrightSpring due to the business's small percentage of revenue and EBITDA. Regarding the IRA, Mr. Rousseau was pleased that CMS directed payers to account for it in 2026 pricing and highlighted ongoing advocacy for LTC pharmacies on Capitol Hill. He expressed confidence in internal mitigation plans and the breadth of the enterprise regardless of legislative outcomes.

Ann Hynes asked if BrightSpring's guidance accounts for a potential acceleration in utilization due to behavioral changes from patients and physicians under the IRA, or if this represents potential upside.

Answer

CEO Jon Rousseau responded that the company does not see the IRA as a meaningful swing factor for the business next year, either positively or negatively. He emphasized the company's broader strengths, including its high-quality metrics, home and community focus, and a nine-year track record of mid-teens revenue and EBITDA growth, which he expects to continue regardless of the IRA's final outcome.

Ann Hynes from Mizuho asked for a preview of the key headwinds and tailwinds BrightSpring might face heading into 2025, acknowledging that formal guidance was not yet being provided.

Answer

CEO Jon Rousseau expressed confidence in maintaining the company's historical double-digit revenue and EBITDA growth trajectory. He highlighted several tailwinds for 2025, including strong momentum in specialty pharmacy from new launches and generics, margin improvement from investments in the infusion business, continued double-digit volume growth in home health and hospice, and ongoing expansion in rehab and LTC pharmacy.

Ann Hynes asked about the sustainability of the favorable labor environment into 2026 and any other inflationary pressures Tenet Healthcare anticipates for the upcoming year.

Answer

CFO Sun Park stated that while not commenting specifically on 2026, the current labor environment (full-time, contract, pro fees) has been strong and conducive, with no meaningful changes expected. Regarding other inflationary pressures, she mentioned tariffs, noting that the company has managed them well in 2025 through sourcing optimization and GPO efforts, and expects to manage them for a couple more cycles due to contract structure.

Ann Hynes asked about the expected continuation of the favorable labor environment into 2026 and inquired about any other inflationary pressures that should be considered for financial modeling.

Answer

Executive Vice President and CFO Sun Park stated that the labor environment has been strong and conducive to operations, with no meaningful changes anticipated currently. Regarding other inflationary pressures, she mentioned tariffs, noting that Tenet has effectively managed them in 2025 through sourcing optimization and GPO efforts, with confidence in managing them for a couple more cycles.

Ann Hynes asked for the main driver that surprised management in the significant Q1 beat and questioned if there was any evidence of patients front-loading volumes due to fears of a recession and potential job loss.

Answer

Sun Park, EVP and CFO, identified the 35% growth in exchange admissions as a key factor that exceeded expectations. Saumya Sutaria, Chairman and CEO, addressed the second question by stating there is no clear data, such as changes in cancellation rates, to affirmatively suggest that patients are front-loading care out of fear of losing coverage, but acknowledged it's something to consider tracking.

Ann Hynes inquired about Tenet's appetite for large-scale M&A in the surgery center market, given its deleveraged balance sheet.

Answer

Dr. Saum Sutaria, Chairman and CEO, declined to comment on specific deals but affirmed they are aware of market opportunities and have proven their ability to execute large acquisitions successfully. He emphasized that Tenet remains disciplined and has significant flexibility to deploy capital for shareholder benefit through various avenues.

Ann Hynes asked for the amount of supplemental Medicaid payments in Q3, confirmation that Tenet can overcome 2025 EBITDA headwinds, and the potential for incremental Medicaid payments next year.

Answer

EVP and CFO Sun Park provided the year-to-date supplemental payment figure of nearly $900 million. He confirmed the company's current expectation is to "more than offset" the $187 million in headwinds from divestitures and prior-period payments in 2025. He noted it was too early to specify 2025 supplemental payments but said they are monitoring potential new programs.

Ann Hynes of Mizuho Financial Group inquired about how EBITDA performance by segment compared to internal expectations, particularly for the critical illness division, and asked about any shifts within the reaffirmed full-year guidance. She also questioned Select Medical's strategy for states potentially lifting Certificate of Need (CON) laws for inpatient rehab.

Answer

Robert Ortenzio, Co-Founder & Executive Chairman, responded that the critical illness segment was slightly below expectations, but this was offset by the inpatient rehab division exceeding expectations, leading to confidence in the reaffirmed guidance. He clarified that even if states like North Carolina remove CON laws, Select Medical will adhere to its joint venture strategy with major health systems rather than pursuing independent development.

Ann Hynes from Mizuho asked if Select Medical plans to further accelerate growth in its IRF division to diversify away from LTAC regulatory challenges and inquired about the company's advocacy efforts with CMS to address industry pressures.

Answer

Executive Robert Ortenzio confirmed that the company is accelerating IRF growth more than what was detailed in prepared remarks to drive more robust expansion. Regarding CMS, he noted that while the new administration is recently installed, Select Medical is optimistic about engaging with them on policy issues, though acknowledging it's very early in their tenure.

Ann Hynes from Mizuho Financial Group asked for an update on the legislative and regulatory outlook, focusing on the risk of PAMA cuts in 2026, the potential impact of expiring ACA subsidies, and LabCorp's Medicaid exposure.

Answer

President, CEO, and Chairman Adam Schechter stated that while the company is working on legislative solutions for PAMA, their base case assumes the approximate $100 million negative impact will occur next year, and they are actively working to offset it. He characterized other legislative headwinds, like the ACA subsidy expiration, as manageable, with a potential 30 basis point impact. EVP & CFO Julia Wang added that recent tax legislation is not expected to materially affect their projected 23% tax rate.

Ann Hynes from Mizuho Financial Group asked for an update on the legislative and regulatory outlook, focusing on the risk of PAMA cuts in 2026, the impact of expiring ACA subsidies, and LabCorp's Medicaid exposure.

Answer

President, CEO, and Chairman Adam Schechter stated that while LabCorp is working on a legislative fix for PAMA, their base case assumes it will occur next year with a ~$100 million impact, which they are actively working to offset. He characterized other legislative headwinds as manageable, estimating a potential 30 basis point impact from ACA subsidy expirations. EVP & CFO Julia Wang added that major tax legislation is not expected to materially affect their 23% tax rate.

Ann Hynes asked about the recent inclusion of tariffs in the company's guidance, seeking to understand the magnitude of the impact and whether it implies stronger-than-expected underlying operations.

Answer

Chairman and CEO Adam Schechter confirmed that guidance now includes likely tariff scenarios. He noted Labcorp is well-positioned due to flexible supply chains, with over 80% of spend under contract and minimal direct imports from affected regions. Schechter expressed confidence that the company can offset potential tariff impacts through operational focus, which supported the decision to maintain revenue guidance and raise the EPS midpoint.

Ann Hynes inquired about notable headwinds and tailwinds for 2025 and questioned how Labcorp's Central Lab business is performing strongly while some of its late-stage customers are reportedly struggling.

Answer

Chairman and CEO Adam Schechter expressed confidence in 2025 momentum, highlighting strength in Diagnostics and Central Labs, with Early Development expected to return to growth. He noted that while Central Lab's 9% growth benefited from an easy prior-year comparison, its future growth is supported by solid orders and a client base skewed towards large pharma, making it less susceptible to volatility in the smaller biotech sector.

Ann Hynes of Mizuho Financial Group inquired about Medpace's booking expectations for the second half of 2025 and their implications for 2026 revenue growth, also requesting details on the Q2 cancellation rate compared to prior quarters.

Answer

CEO August Troendle stated there is a "reasonable chance" for the book-to-bill ratio to exceed 1.15, which would imply a significant increase in bookings, contingent on cancellations remaining low. He noted that Q2 cancellations were at the lower end of the normal range, a marked improvement from the "terribly high" levels in the previous quarter, but declined to provide a specific rate.

Ann Hynes from Mizuho sought more details on trial cancellations, asking about the specific rate compared to historical levels and the nature of the canceled trials. She also questioned what would prompt Medpace to become more aggressive with its share repurchase program.

Answer

CEO August Troendle explained that Medpace does not disclose its specific cancellation rate but characterized recent cancellations as broad-based and primarily driven by client funding issues rather than being concentrated in any specific therapeutic area. CFO Kevin Brady stated that the company will continue to take an opportunistic approach to share repurchases, highlighting the recently increased board authorization.

Ann Hynes from Mizuho asked if the 2025 revenue guidance adequately captures market uncertainty and what factors could drive upside or downside. She also inquired if any recent trial cancellations were surprising or if there were notable changes in the competitive landscape.

Answer

CEO August Troendle confirmed the guidance reflects their current assumptions but acknowledged substantial upside/downside risk, with cancellations being the biggest variable. He stated there were no notable changes in the competitive environment and that recent cancellations have been overwhelmingly driven by client funding issues, consistent with recent trends.

Ann Hynes requested directional guidance for 2025, particularly on the margin outlook in a potential mid-single-digit revenue growth environment. She also asked if recent cost savings could be sustained and sought to clarify if gross bookings were positive, with net bookings being dragged down solely by cancellations.

Answer

CFO Kevin Brady declined to provide 2025 guidance, stating the company would wait for the Q4 call due to uncertainty around cancellations. He noted that while cost savings can continue, margins depend on multiple factors like utilization and reimbursables, which are currently at optimal levels. CEO August Troendle clarified that gross bookings were also low in the quarter, a direct result of cancellations of pipeline work from previous quarters, which depleted the pool of awards ready for backlog recognition.

Ann Hynes from Mizuho Financial Group asked about the specific sources of client uncertainty, such as MFN pricing or tariffs, and whether the current bookings environment supports consensus revenue growth estimates for R&D in 2026.

Answer

CEO & Chairman Ari Bousbib identified the sources of uncertainty as 'all of the above,' including stabilizing agency policies, 'extremely complicated' MFN pricing discussions, and tariffs. EVP & CFO Ron Bruehlman addressed the 2026 outlook by pointing to the strong next-twelve-month revenue from backlog and robust RFP flow, but refrained from giving specific 2026 guidance.

Ann Hynes asked if Q4 cancellations met the high expectations of around $1 billion and questioned the pricing dynamics on the successful renewal of all major strategic partnerships.

Answer

Ari Bousbib, Chairman and CEO, clarified that while he never gave a specific $1 billion figure, Q4 cancellations were indeed very high and close to that level. He noted that for the full year, cancellations were nearly 50% above the historical average. Regarding pricing, he acknowledged the competitive pressure but stated that IQVIA was on the 'winning side' of client vendor consolidation exercises.

Ann Hynes of BofA Securities inquired about IQVIA's preliminary outlook for 2025, asking if high single-digit growth is achievable given the challenging industry backdrop.

Answer

Chairman and CEO Ari Bousbib stated that while formal guidance is pending, he expects 2025 growth to be similar to 2024's mid-single-digit rate. He projected the Technology & Analytics Solutions (TAS) segment to grow around 6% and R&D Solutions (R&DS) around 5%+, emphasizing these are early expectations. More details are planned for the December 10th Investor Day.

Ann Hynes of Mizuho Financial Group inquired about the potential impact of the 'one big beautiful bill' on Quest's volumes due to rising uninsured rates, and also asked for an update on the status of PAMA reform heading into 2026.

Answer

CEO James Davis contextualized the bill's impact as minor, while CFO Sam Samad quantified the potential 2026 volume headwind from ACA exchange changes at approximately 30 basis points, with an immaterial impact from Medicaid. Regarding PAMA, Mr. Davis explained Quest is pursuing a dual strategy: advocating for legislative reform, which has bipartisan support and is expected to become a bill this summer, while also preparing to push for another delay in cuts as an alternative.

Ann Hynes inquired about Quest Diagnostics' organic growth profile for 2025 and whether there were any changes to the financial assumptions for the Haystack MRD test.

Answer

CEO Jim Davis projected 2025 organic growth at approximately 3%, driven by strong utilization. He confirmed Haystack's dilution would be less in 2025 than the current year's level. CFO Sam Samad added that Haystack's total dilution for 2024 is $0.35-$0.40 per share and that the assay is on track for a national launch in Q4.

Ann Hynes of Mizuho asked for specifics on Ardent's supply chain opportunities that could drive significant margin expansion and also questioned what drove strong underlying admission growth beyond the flu season.

Answer

CEO Martin Bonick detailed that opportunities exist in improving supply utilization and managing physician preference items, not just GPO contracting. He attributed strong admission growth to operational improvements in regionalized transfer centers and service line rationalization. CFO Alfred Lumsdaine added that the underlying growth of their markets is also a key factor.

Ann Hynes inquired about the current trend in physician expense pressure and asked for the specific drivers of the company's long-term goal to improve baseline margins by 100-200 basis points, excluding DPP benefits.

Answer

CEO Marty Bonick stated that physician subsidy growth moderated from 2023 but is expected to continue at a similar rate in 2025, still slightly above inflation. CFO Alfred Lumsdaine outlined that the long-term margin improvement will be driven by a combination of labor initiatives, supply chain efficiencies, G&A leverage, service line optimization, and technology enhancements.

Ann Hynes questioned how the recent FDA changes might affect Charles River's long-term growth algorithm and asked for a comparison of the current pricing environment to the one experienced during the Great Recession.

Answer

CEO James Foster stated that the company will refresh its long-term growth targets at a future Investor Day. CFO Flavia Pease explained that the current pricing environment is much more stable than during the Great Recession due to better industry capacity management. She added that Q1 pricing benefited from a favorable mix of longer, specialty studies, while spot pricing remained stable.

Ann Hynes asked how the current biopharma downturn compares to past cycles, whether the recovery will differ, and if the company's previously stated long-term growth rates remain intact. She also requested elaboration on the assumed growth from biotech clients in 2025.

Answer

Chair, President & CEO James Foster explained this downturn is different from the 2008-era slowdown due to a larger biotech presence, leaner pharma clients, and less industry excess capacity. He believes there is significant pent-up demand. He also noted that the company saw a slight uptick in biotech in Q4 and anticipates a modest improvement in 2025, though not enough to offset large pharma stability.

Ann Hynes asked about Cigna's capital deployment strategy, confirming if bolt-on M&A is still a priority and whether the company perceives any capability gaps in its Health Insurance or Evernorth segments.

Answer

Chairman and CEO David Cordani affirmed that the capital deployment strategy is consistent, prioritizing organic growth, CapEx, and then returning capital to shareholders or pursuing attractive bolt-on M&A (up to single-digit billions). He stated that Cigna does not believe it has any necessary capability gaps to fill, expressing confidence in the current high-performing, modular portfolio of Evernorth and Cigna Healthcare.

Ann Hynes from Mizuho Securities sought more clarity on the 2025 outlook, asking for a bridge between the calculated financial impact of the stop-loss miss and the larger-than-expected variance in the 2025 Cigna Healthcare earnings guidance versus consensus.

Answer

CFO Brian Evanko explained the bridge by highlighting several factors. He noted the stop-loss MCR is expected to be slightly higher in 2025 on a larger premium base due to the repricing lag. Additionally, the 2025 guidance does not forecast a recurrence of the favorable prior year development seen in 2024, and it includes a portion of the new $150 million enterprise investment initiative, which will impact the Cigna Healthcare P&L.

Ann Hynes requested more detail on the company's cautious commentary regarding the flu season, asking what was driving the concern and whether it applied only to flu or the entire vaccine portfolio.

Answer

President and CEO David Joyner clarified the concern was for the broader immunization program. Prem Shah, EVP and Chief Pharmacy Officer, specified that the company is monitoring consumer sentiment and potential changes in protocols, primarily for COVID vaccines. The main uncertainty relates to the total market size for COVID vaccines, pending recommendations from a committee that meets mid-year.

Ann Hynes asked about the headwind to growth from the first year of the CostVantage model implementation, when it might turn positive, and whether it is expected to eventually impact Medicare contracts.

Answer

President and CEO David Joyner positioned CostVantage as a key initiative for market transparency. Executive Prem Shah explained the model aligns reimbursement with costs and ensures more stable pharmacy margins. He confirmed 100% adoption in the commercial market for 2025 and stated the company is actively working to move its Medicare and Medicaid books to a CostVantage-like model for January 1, 2026.

Questioned the performance of behavioral same-store patient days in late 2024 and the drivers for the guided acceleration in 2025. Also asked about Medicaid rate assumptions for the behavioral segment.

Answer

The late 2024 dip in behavioral patient days was attributed to temporary factors like holidays and winter weather. The 2025 guidance assumes a return to 2.5-3% growth. For 2025, behavioral revenue growth is projected at 6-8%, driven by 2.5-3% volume and 3-4% core price growth, with the pricing assumption noted as potentially conservative.

Ann Hynes of Mizuho Securities USA LLC inquired about the drivers for behavioral same-store patient day trends, noting a slowdown in late 2024 and a forecasted acceleration in 2025. She also asked about Medicaid rate assumptions for the behavioral segment.

Answer

Executive Steve Filton attributed the late 2024 behavioral volume softness to holiday timing but expressed confidence in achieving 2.5% to 3% growth in 2025. For 2025, he noted that guidance includes core pricing growth of 3% to 4%, which he suggested could be conservative compared to recent historical trends.

Ann Hynes questioned the drivers behind the lower-than-expected behavioral same-store patient days in late 2024 and the expected acceleration in 2025. She also asked for details on Medicaid rate assumptions for the behavioral segment.

Answer

Executive Steve Filton attributed the late 2024 volume softness to holiday timing and the early 2025 weakness to severe winter weather, viewing both as transient. For 2025 guidance, he noted an assumption of 6-8% same-store behavioral revenue growth, comprised of 2.5-3% volume and 3-4% core pricing, adding that there is potential conservatism on the pricing side given recent trends.

Ann Hynes from Mizuho asked about the major headwinds and tailwinds for 2025 and any potential incremental provider relief funds to anticipate.

Answer

Steve Filton identified the opening of two new hospitals in 2025 as a manageable expense, not a significant drag on EBITDA. He highlighted major potential tailwinds from new or expanded Medicaid supplemental programs in Tennessee, Washington D.C., and Nevada, with others in California and Florida in earlier stages.

Ann Hynes asked about competitive pricing trends in both the biotech and large pharma segments and whether ICON's recent strength in biotech was due to market share gains or a broader market recovery.

Answer

CEO Dr. Steve Cutler stated it was too early to claim market share gains in biotech, indicating more progress is needed. COO Barry Bell addressed pricing, noting that the environment remains competitive but has not fundamentally changed. He explained that in biotech, ICON competes on strategy and predictability, while in large pharma, significant price competition occurs during periodic preferred provider refreshes rather than on individual studies.

Ann Hynes asked if the long-term goals for 2027 set at the Investor Day are still achievable and whether ICON would use share repurchases to meet EPS targets if revenue growth falls short.

Answer

CEO Dr. Steve Cutler affirmed that ICON has not given up on its 2027 goals, though they may be achieved at the lower end of the range and closer to the end of the 2027 timeframe. He confirmed the company is prepared to utilize its balance sheet for both opportunistic share buybacks and strategic M&A to supplement growth and help achieve its long-term objectives.

Ann Hynes asked for clarity on the long-term timing for stabilizing free cash flow and adjusted operating income, and also inquired which subsegments within U.S. Healthcare drove the outperformance in the quarter.

Answer

CEO Tim Wentworth stated that while they are not giving multi-year guidance, stabilizing the balance sheet and generating sustained positive cash flow is a multi-year process and a top priority. He identified VillageMD and Shields as the primary drivers of the U.S. Healthcare segment's outperformance. VillageMD grew despite clinic closures, and Shields delivered strong revenue, profit growth, and high client renewal rates. CFO Manmohan Mahajan added that long-term cash flow will be influenced by improving operating performance, working capital, and a lower run rate of legal payments expected from fiscal '26 onwards.

Asked for more clarity on the long-term timeline for stabilizing free cash flow and which subsegments of the U.S. Healthcare business outperformed expectations.

Answer

The company will not provide multiyear cash flow guidance but stated it is a multiyear process and a top priority. The U.S. Healthcare outperformance was driven by VillageMD's growth and improved economics on a smaller footprint, and a 'terrific quarter' from Shields with strong revenue, profit, and client renewals. CareCentrix also had a good quarter.

Ann Hynes inquired about the timeline for adjusted operating income (AOI) to establish a new base for growth and requested an update on the progress of renegotiating key vendor contracts, such as the one for drug distribution.

Answer

CEO Tim Wentworth described fiscal 2025 as a "rebasing year" for a multi-year turnaround, without committing to a specific growth timeline. He noted constructive dialogue with Cencora. Global CFO Manmohan Mahajan detailed that about 60% of the FY25 EPS decline is from non-operational headwinds like tax rates and lower Cencora earnings, establishing a cleaner base for future growth.

Ann Hynes of Mizuho Group questioned the timing for when Walgreens expects to return to Adjusted Operating Income (AOI) growth following the 'rebasing' year of fiscal 2025. She also requested an update on the progress of renegotiating major supplier contracts, such as the one with Cencora.

Answer

CEO Tim Wentworth stated that FY25 is a rebasing year and the company is not providing multi-year guidance, but the goal is long-term growth. He confirmed constructive dialogues with Cencora on improving acquisition costs and operations. CFO Manmohan Mahajan detailed that FY25 AOI is impacted by non-cash headwinds like lower Cencora earnings and sale-leasebacks, making it a better quality base for future growth.

Ann Hynes of Mizuho Securities asked why prescription volume growth remains below pre-pandemic levels despite strong healthcare utilization, and questioned the potential timeline for stabilizing retail operating profit and free cash flow.

Answer

CEO Tim Wentworth acknowledged the goal is to stabilize and grow the core business over quarters, not necessarily multiple years. Rick Gates, Chief Pharmacy Officer, explained that the entire market's script growth is below pre-pandemic levels, citing the impact of Medicaid redeterminations where nearly 20 million individuals have lost coverage and have been slow to regain it.

Questioned why prescription volumes are lagging pre-pandemic levels despite strong healthcare utilization and asked for a potential timeline for stabilizing retail operating profit and free cash flow, suggesting 2026 as a possibility.

Answer

The slower prescription growth is a market-wide dynamic, not specific to Walgreens, driven largely by Medicaid redeterminations causing coverage gaps. Regarding stabilization, the company sees a clear path to growth that will take 'quarters, not months' but did not commit to a specific year, emphasizing they need to demonstrate the turnaround.

Ann Hynes questioned why prescription volume is below pre-pandemic levels despite strong healthcare utilization and asked for a potential timeline for stabilizing retail operating profit and free cash flow.

Answer

CEO Tim Wentworth stated that stabilizing the business will take 'quarters, not months' but expressed strong conviction in the turnaround plan. SVP & Chief Pharmacy Officer Rick Gates explained that lower script volume is a market-wide issue, with overall market growth running below pre-pandemic levels, partly due to Medicaid redeterminations causing coverage gaps and lower utilization.

Ann Hynes of Mizuho asked about any major headwinds or tailwinds for 2025 that should be considered in models and inquired if any other states besides Florida are in the pipeline for significant rate increases.

Answer

Executive Matthew DiCanio stated there are no new significant factors for 2025 beyond what was previously discussed, highlighting consistent visit trends and the Florida rate increase. Executive William Newton added that the separation from Select Medical is proceeding as planned with no material changes to cost estimates. Regarding rates, Newton said no other major state increases are expected, but the company feels confident about its overall rate outlook.