Benjamin Hendrix

Benjamin Hendrix from RBC Capital Markets asked about PACS Group's positioning for changes in the value-based purchasing program for skilled nursing, specifically regarding new staffing and infection prevention measures. He also inquired about the impact of the Transforming Episode Accountability Model (TEAM model) on PACS facilities and referral sources in their markets.

Answer

Josh Derksen, President and COO of PACS Group, expressed confidence in the company's ability to benefit from clinical quality being tied to reimbursement, citing their model's focus on high-quality care, rehospitalization rates, staffing to acuity, and staff investment. He believes PACS is well-positioned for these changes, viewing them as a net positive. Regarding the TEAM model, Mr. Derksen noted it's in early stages but reiterated that PACS Group's status as a top clinical provider and its bed density from acquisitions position them as a primary choice for hospitals and health plans, improving access to care and quality.

Benjamin Hendrix from RBC Capital Markets asked about PACS Group's positioning for changes in the value-based purchasing (VBP) program for skilled nursing, specifically regarding new staffing and infection prevention measures. He also inquired about the impact of the Transforming Episode Accountability Model (TEAM) on PACS Group's facilities and referral sources.

Answer

Josh Derksen, President and COO, expressed confidence in PACS Group's ability to benefit from VBP changes, citing their model's focus on high-quality care, rehospitalization rates, staffing to acuity, and investment in staff and facilities. He believes these factors position them for a net positive financial outcome. Regarding the TEAM model, Derksen noted it's in early stages but reiterated that PACS Group's platform, clinical quality, and bed density make them a preferred provider for hospitals and health plans, improving access to care for upstream providers.

Benjamin Hendrix asked if PACS intends to increase its ownership in its real estate joint venture over time and inquired about the existing provider relationships and opportunities in the four new states the company recently entered.

Answer

Executive Derick Apt stated there are no current plans to alter the ownership structure of the JV, noting they evaluate maximizing returns once facilities stabilize. President and COO Joshua Jergensen explained that in the new states, they will leverage and build upon some beneficial, pre-existing hospital relationships. Their strategy involves investing in people, systems, and the physical plants to build community confidence and drive quality care, which is their standard approach for new market integration.

Benjamin Hendrix asked if PACS intends to increase its ownership in its real estate joint venture over time and inquired about the existing provider relationships and opportunities in the four new states the company recently entered.

Answer

Executive Derick Apt stated there are no immediate plans to alter the ownership of the real estate JV, noting they will evaluate options once the underlying properties stabilize. President and COO Josh Jergensen explained that in the new states, they are leveraging some beneficial, pre-existing hospital relationships from the acquired operator. He emphasized their strategy of building community confidence through investment in people, systems, and physical plants to establish themselves as a preferred provider.

Benjamin Hendrix requested a breakdown of the drivers behind the 11% growth in Medicare Advantage revenue per day, questioning the specific contributions from skilled mix, contracting, and new facilities. He also asked about the key swing factors that would determine performance at the high versus low end of the full-year EBITDA guidance.

Answer

President and COO Josh Jergensen attributed the revenue growth to the company's model, which excels at caring for higher acuity patients, supported by quality improvements that lead to better contracts and rates. Executive Derick Apt explained that the main variable in the EBITDA guidance is the performance of the 10 newest acquisitions. If they mature faster than average, the company will trend toward the high end of the range.

Benjamin Hendrix of RBC Capital Markets asked for a breakdown of the drivers behind the 11% Medicare Advantage revenue growth, questioning the impact of skilled mix, contracting, and new facilities. He also requested insight into the swing factors for the full-year EBITDA guidance range.

Answer

President and COO Joshua Jergensen attributed the revenue growth to the company's model of caring for higher acuity patients, which improves skilled mix and leads to better contracts and rates. Executive Derick Apt identified the primary swing factor for guidance as the performance of the 10 newly acquired facilities; faster maturation would push results to the high end of the range.

Ben Hendrix asked for more details on Humana's Stars recovery efforts, focusing on specific measures or categories where tangible progress has been made, particularly concerning H5216's performance.

Answer

Jim Rechtin, President and CEO, stated that current year operations are focused on HEDIS and patient safety metrics, showing strong, broad progress. George Renaudin, President of Insurance, added that benefit stability will also contribute positively to termination rates and member perception (CAHPS scores).

Ben Hendrix inquired about Humana's STARS recovery efforts, specifically where the company has made the most tangible progress in measures like member experience and chronic conditions, given that recent scores didn't fully reflect improvements.

Answer

Jim Rechtin, President and CEO, reported strong progress across HEDIS and patient safety metrics in the current measurement year. George Renaudin, President of Insurance, added that product stability and improved termination rates are also contributing positively to CAHPS scores.

Ben Hendrix of RBC Capital Markets questioned whether Humana's conservative MA benefit designs for 2024 and 2025 could negatively impact member experience and STARS, and what was being done to mitigate this.

Answer

President and CEO James Rechtin acknowledged the potential for abrasion but pointed to the high rate of 'bounce back' members as proof their offsetting operational actions are working. George Renaudin, President of Insurance, added that they monitor NPS and CAHPS surveys closely with no concerning trends and highlighted investments in member experience, like the Epic MyChart integration.

Benjamin Hendrix asked for an update on Humana's path to its 3% Medicare Advantage margin target, considering the pending Stars ruling and the better-than-expected 2026 MA rate update.

Answer

President and CEO Jim Rechtin stated that the company remains focused on achieving a 3% margin, but affirmed that the exact timing is contingent on the outcome of the Stars litigation. He emphasized that there has been no significant change to the company's previously communicated strategy or outlook on this matter.

Benjamin Hendrix requested more detail on the higher-than-expected D-SNP attrition and how this trend is informing or impacting the MCR guidance range for 2025.

Answer

George Renaudin, President of the Insurance Segment, acknowledged lower-than-expected D-SNP retention but emphasized the overall AEP strategy was successful in shifting the member mix toward long-term value. CFO Celeste Mellet added that while the D-SNP losses help the margin, the primary driver of MLR improvement was the intentional exit of other unprofitable plans. She also noted that 30,000 of the D-SNP losses were due to Medicaid redeterminations.

Benjamin Hendrix asked about the drivers of higher specialty drug costs, specifically if it was a pull-forward ahead of 2025 Part D changes, and whether this was priced into 2025 bids or should be considered a headwind.

Answer

CFO Susan Diamond clarified that the higher oncology costs were primarily due to new treatments and label expansions, not a pull-forward related to the IRA. However, she confirmed that Humana does anticipate an uptick in 2025 from IRA changes (e.g., lower out-of-pocket maximums) and has incorporated 'induced utilization' assumptions into its 2025 pricing.

Ben Hendrix with RBC Capital Markets asked about the remaining growth potential for skilled mix within the same-store portfolio, inquiring about sustainable fully-ramped skilled mix levels observed in high-performing facilities like Beacon Harbor. He also asked about the managed care contracting environment in newer markets such as Alabama and the effort required to align it with more mature markets.

Answer

Chairman and CEO Barry Port highlighted consistent skilled mix growth over several years, driven by adding services to meet acute and managed care partner needs. President and COO Spencer Burton noted that even mature facilities like Beacon still have substantial upside in skilled mix and overall census. CFO Suzanne Snapper added that only 31.7% of same-store days are currently skilled, indicating significant organic growth potential. Regarding new markets, Suzanne Snapper explained that establishing managed care contracts is a process, leveraging existing relationships but requiring time to ensure readiness for patients and build clinical care sets.

Ben Hendrix asked about the potential for continued skilled mix growth within Ensign's same-store portfolio, inquiring about sustainable fully-ramped skilled mix levels in high-performing facilities like Beacon Harbor. He also followed up on the managed care contracting environment in newer markets such as Alabama and the effort required to align it with more mature markets.

Answer

Chairman and CEO Barry Port highlighted consistent skilled mix growth over several years, driven by adapting services to acute providers and managed care partners. President and COO Spencer Burton noted that even mature facilities like Beacon Harbor still have substantial upside in skilled mix and overall occupancy. CFO Suzanne Snapper added that only 31.7% of same-store days are currently skilled, indicating significant growth opportunity, and explained that establishing managed care contracts in new states is a time-consuming process involving clinical readiness and partnership building.

Benjamin Hendrix inquired about The Ensign Group's strategy with managed care contracts, particularly regarding narrowing networks and value-based agreements, and how this contributes to the confidence behind the raised guidance. He also asked for the company's latest perspective on potential policy changes from Washington, specifically concerning supplemental Medicaid funding.

Answer

Suzanne Snapper, EVP and Chief Financial Officer, explained that Ensign has a long history of embracing managed care through local leadership partnerships with MCOs, focusing on clinical outcomes to drive financial success. CEO Barry Port added that a sophisticated back-office providing real-time metrics is crucial to these partnerships. Regarding policy, Mr. Port detailed their active advocacy efforts to educate Congress, noting that recent discussions seem focused on the Medicaid expansion population, which has a lesser impact on Ensign. Ms. Snapper confirmed that Ensign was not a major beneficiary of the expansion population, which positions them well if that remains the focus.

Benjamin Hendrix inquired about the current Medicaid reimbursement environment, potential risks from a new administration, and the specific market dynamics in Tennessee following recent acquisitions.

Answer

CEO Barry Port stated that while it's hard to predict legislative priorities, the company is prepared through its industry associations to educate Congress. He noted the Trump administration's public commitment to Medicaid and senior care. CFO Suzanne Snapper added that Republican control often brings lighter regulation, providing operational flexibility, and highlighted the company's deep involvement at the state level. Regarding Tennessee, Suzanne explained that the supplemental payment program is approved through July 1, 2025, and efforts are underway to extend it. She also emphasized that their long-standing local relationships are key to building preferred provider networks.

Benjamin Hendrix asked about the structural factors driving the recent acceleration in M&A tuck-in acquisitions and whether the profile of target acquisitions is shifting towards higher acuity services like LTACs or dialysis capabilities.

Answer

Executive Chad Keetch attributed the M&A pace to smaller operator exhaustion, post-COVID stability creating a good selling environment, and distressed opportunities from over-leveraged real estate. He stated the acquisition profile remains consistent, focusing on skilled nursing, with acuity enhancements occurring post-acquisition. He also noted that Ensign's capacity to acquire grows as the company scales.

Ben Hendrix of RBC Capital Markets inquired about the specific demand and cost trends in both VITAS and Roto-Rooter segments that provide confidence in bridging third-quarter results to the reaffirmed full-year guidance midpoint for the fourth quarter. He also asked about elevated receivables and cash collection progress.

Answer

CFO Mike Witzeman explained that the difference is primarily seasonal, with Q4 historically being stronger for both segments due to new VITAS rates and Roto-Rooter weather impacts. He noted expected continued margin improvements at Roto-Rooter from addressing discounting and commissions, while VITAS is "steady as she goes" with efficiency gains offsetting marginal compression from hospital-based admissions. CEO Kevin McNamara added that moderation in VITAS's hospital admissions ratio could yield more profitable, longer-stay patients. Mike Witzeman clarified that elevated receivables are a timing issue, mainly at VITAS due to slower Medicaid payments, not a collection deterioration.

Ben Hendrix of RBC Capital Markets inquired about the company's confidence in reaffirming its full-year guidance, particularly how both segments plan to bridge to the guidance midpoint in the fourth quarter, considering demand, cost trends, and CFO perspectives. He also asked about elevated receivables and cash collection progress.

Answer

CFO Mike Witzeman explained that Q4 is seasonally stronger for both VITAS Healthcare (due to new rates) and Roto-Rooter (due to weather impacts), anticipating sequential margin improvements for Roto-Rooter from operational initiatives. President and CEO Kevin McNamara added that a moderation in VITAS's hospital admissions ratio would yield more profitable, longer-stay patients. Joel Wherley, President and CEO of VITAS Healthcare, highlighted internal efficiency gains in labor management. Mike Witzeman clarified that elevated DSOs were a timing issue related to slower Medicaid payments, not a collection deterioration.

Ben Hendrix asked about the rationale behind assuming the Florida rate-to-cap spread will not persist, the potential link between local management initiatives and Roto-Rooter's recent recovery, and the reason for the Q2 tax rate favorability.

Answer

CEO Kevin McNamara explained that while a higher Florida rate is beneficial, they will manage the business assuming a rate increase at the national average, reserving any excess to prevent future cap issues. On Roto-Rooter, EVP & CFO Michael Witzeman stated that management poaching issues have abated. McNamara identified the main challenges as a one-time spike in insurance costs and, more critically, lower lead volume, which he attributed to changes in Google's search monetization. Witzeman also explained the lower tax rate was due to fewer stock option exercises during the quarter.

Benjamin Hendrix inquired about Chemed's long-term strategy for managing the VITAS Medicare cap, its evolution with rate-setting cycles, and the outlook for cap pressure. He also asked for details on cash flow dynamics and the reasons for the increase in accounts receivable.

Answer

CEO Kevin McNamara, VITAS CEO Nick Westfall, and CFO Mike Witzeman collectively addressed the questions. On the Medicare cap, they explained it is a normal and deliberate part of business management, designed to balance growth with regulatory limits. Nick Westfall noted that the strategy involves increasing shorter-stay hospital admissions to create cap cushion, which moderates revenue and margin growth but ensures long-term sustainability. Mike Witzeman added that the growth seen in 2023-2024 was higher than sustainable long-term due to the cap, and 2025's metrics represent a more normalized trajectory. Regarding cash flow, Mike Witzeman clarified that the Q1 accounts receivable increase was due to two timing issues: the reclassification of a $48 million refund received on April 1 and a delayed $57 million Periodic Interim Payment (PIP) that also arrived after the quarter closed. He confirmed these were not indicative of collection issues.

Benjamin Hendrix of RBC Capital Markets inquired about VITAS's long-term census growth expectations, particularly concerning its community access strategy and any regional factors like Medicare Cap limits. He also asked about the new marketing initiatives at Roto-Rooter, seeking details on near-term benchmarks or performance milestones for both the residential and commercial segments.

Answer

Nicholas Westfall, CEO of VITAS, stated that long-term volume growth will exceed the historical 4-6% pre-pandemic range, driven by strong demand and a continued focus on all referral sources, including hospitals. He confirmed that Medicare Cap management remains effective. Regarding Roto-Rooter, CEO Kevin McNamara and CFO Michael Witzeman explained that they don't expect immediate breakthroughs but are focused on improving call volume, which they identified as the key success metric. They noted that while conversion rates are strong, the new marketing agency is tasked with regaining dominance in a competitive online environment, with near-term improvements more likely on the commercial side.

Ben Hendrix asked for more color on surgical trends, both inpatient and outpatient, and how case mix is contributing to overall volume growth in the acute care hospital segment.

Answer

CFO Steve Filton noted outpatient surgical trends increased slightly year-over-year, an improvement from the first half of 2025, indicating surgical volumes are returning to more normal levels after anniversarying COVID-deferred procedures. He added that case mix was up slightly, contributing about 30 basis points.

Ben Hendrix asked for more color on surgical trends, both inpatient and outpatient, and how case mix is contributing to overall volume growth for the acute care hospital segment.

Answer

CFO Steve Filton noted that outpatient surgical trends increased slightly year-over-year in Q3, an improvement from the first half of the year, suggesting a return to more normal levels after anniversarying COVID-related deferred procedures. Case mix was up slightly by about 30 basis points but was not a significant driver of improvement.

Inquired about the drivers of the strong 5.8% rate growth in the behavioral segment, asking about the influence of payer mix, case mix, and when the rate might normalize to a long-term steady state.

Answer

The strong rate growth is primarily driven by better contractual pricing, particularly from managed Medicaid payers, rather than payer or case mix changes. While this growth rate is moderating, it is doing so more slowly than anticipated, which could help offset any volume shortfalls.

Asked for clarification on the projected decrease in Directed Payment Program (DPP) funds for the upcoming year and inquired about the current adequacy of malpractice reserves.

Answer

The decrease in DPP is primarily due to the recognition of prior-period payments in 2024, not a decline in ongoing programs. Malpractice reserves have been set more conservatively at the higher end of the actuarial range to provide a cushion, with the hope of avoiding another increase in 2025.

Benjamin Hendrix asked for clarification on the forecasted decrease in Directed Payment Program (DPP) payments for the upcoming year and inquired about the current adequacy of malpractice reserves.

Answer

Executive Steve Filton explained that the primary reason for the DPP revenue decline is the non-recurrence of prior-period payments that were recognized in 2024. Regarding malpractice reserves, Filton stated that the company has moved towards the higher end of its third-party actuary's recommended range to build in conservatism, hoping to avoid another significant increase in 2025.

Benjamin Hendrix of RBC Capital Markets asked for clarity on the forecasted decrease in Directed Payment Program (DPP) revenue and inquired about the adequacy of the company's malpractice reserves following recent increases.

Answer

Executive Steve Filton explained the DPP revenue decline is primarily due to the non-recurrence of prior-period payments received in 2024. Regarding malpractice reserves, Filton stated that UHS has prudently set reserves at the higher end of their actuary's recommended range to build in a cushion for 2025.

Ben Hendrix from RBC Capital Markets asked for updated thoughts on strategic initiatives in residential psych, given liability trends, and potential for consolidation.

Answer

Steve Filton explained that the behavioral strategy focuses on an expanding care continuum, with a greater role for outpatient services and telehealth. He also highlighted growth in services for military members and addiction treatment. He did not frame the strategy as a shift between acute and residential but rather as an expansion into growing service lines.

Ben Hendrix asked Kevin Hammons and Jason Johnson about their early observations in their new roles, including any surprises or new initiatives in operations or balance sheet management. He also followed up on the sequential surgical trend from Q2 to Q3 and its implications for Q4 elective seasonality.

Answer

Kevin Hammons, President and Interim CEO, expressed excitement about the company's direction, confidence in strategies, and momentum, emphasizing focus on quality of care, patient/physician experience, employee satisfaction, and free cash flow. Jason Johnson, Interim CFO, affirmed continuity with the focus on adjusted free cash flow, ERP optimization, and efficient use of divestiture proceeds. Mr. Hammons noted that the improved payer mix in Q3 provides confidence for a more normal Q4 seasonal recovery, reducing concerns about patients delaying procedures.

Ben Hendrix asked Kevin Hammons and Jason Johnson about their early observations in their new leadership roles, including any surprises or new initiatives in operations or balance sheet management. He also sought clarification on how the sequential surgical trend from Q2 to Q3 might impact typical Q4 elective seasonality.

Answer

Kevin Hammons, President and Interim CEO, expressed excitement about the company's direction, emphasizing focus on quality of care, patient/physician experience, employee satisfaction, and free cash flow. Jason Johnson, Interim CFO, reiterated the focus on adjusted free cash flow, ERP optimization, and efficient use of divestiture proceeds. Mr. Hammons noted that improved Q3 payer mix suggests Q4 could see a more normal seasonal recovery for elective procedures.

Ben Hendrix of RBC Capital Markets requested a detailed bridge for the revised 2025 EBITDA guidance, an explanation of payer mix trends, particularly commercial elective weakness, and an assessment of the potential benefits from the Rural Health Transformation Program.

Answer

President & CFO Kevin Hammons provided the EBITDA bridge, starting with the previous midpoint and adjusting for new DPP revenue (+$140M), the Cedar Park divestiture (-$20-25M), the Q2 miss (~-$70M), and other revisions. He attributed commercial volume weakness to consumer financial pressures impacting high-deductible patients. Regarding the rural program, he stated it's too early to quantify the benefit but estimated about 40% of CHS beds could qualify.

Benjamin Hendrix questioned the $40 million benefit from the New Mexico Directed Payment Program (DPP) in Q4, asking why it was higher than anticipated. He also sought clarity on the company's cautious stance of excluding DPP funds from 2025 guidance and their assessment of program risk under the new administration.

Answer

Kevin Hammons, President and CFO, clarified that the $40 million represented two quarters of the New Mexico program, which was recognized in Q4 upon approval. He explained that both the New Mexico and Tennessee programs were excluded from 2025 guidance out of prudence pending final CMS approvals. Tim Hingtgen, CEO, added that the company believes the programs are durable due to their critical role in funding Medicaid services and strong bipartisan support, which they are reinforcing through lobbying efforts.

Benjamin Hendrix of RBC Capital Markets requested a more precise breakdown of the anticipated $22 million Q4 EBITDA headwind between hurricane impacts and claim denials. He also asked for clarification on the drivers of softer patient acuity and whether this trend is expected to continue.

Answer

President and CFO Kevin Hammons attributed more than half of the Q4 EBITDA headwind to hurricane impacts, with the remainder reflecting continued claim denial pressures similar to Q3. CEO Tim Hingtgen clarified that the acuity softness was specific to inpatient surgery, driven by a site-of-care shift for joint replacements to ASCs and a temporary dip in elective spine and cardiovascular cases, which he expects to rebound in Q4.

Ben Hendrix from RBC Capital Markets sought clarification on the STP guidance, specifically the recognized amounts for Tennessee and Texas in Q3 and within the full-year guidance.

Answer

CFO Mike Marks confirmed Tennessee was the largest Q3 net benefit driver, with cash received and accruals initiated. He noted Texas's grandfathered application approval provided one month of impact in Q3, while Kansas's approval, a calendar year program, had nine months of impact recorded in Q3.

Ben Hendrix sought clarification on STP (State Supplemental Payment) guidance, specifically the amounts recognized in Q3 for Tennessee, Texas, and Kansas.

Answer

CFO Mike Marks detailed that Tennessee was the largest driver of Q3 net benefit, with cash received and accruals started. Texas's grandfathered application approval had one month of impact in Q3, and Kansas's approval, a calendar year program, had nine months of impact recorded in Q3.

Ben Hendrix of RBC Capital Markets questioned HCA's commercial volume trends, asking if the company is observing waning consumer confidence and if it anticipates a pre-emptive rise in procedures before a potential EPTC expiration.

Answer

CFO Mike Marks reported that year-to-date managed care and exchange admissions were up 4%, in line with expectations, driven by a 15.8% increase in exchange volumes. CEO Sam Hazen commented that healthcare demand has historically been inelastic and it's difficult to attribute trends to consumer confidence. He noted volume declines were concentrated in government-sponsored or non-payer business lines.

Ben Hendrix inquired about the historical responsiveness of the nursing labor market to recessionary pressures and whether HCA has adjusted its wage inflation forecast for 2025.

Answer

CEO Sam Hazen acknowledged that recessions can ease labor markets but noted the recent environment was uniquely intense. He stated that while wage inflation has moderated significantly from its peak, it is too early to forecast any further impact from a potential recession. He confirmed that HCA's guidance for 2025 wage trends remains unchanged at this time.

Ben Hendrix inquired about the progression of commercial mix following strong state exchange enrollment, its impact on Florida and Texas, and the company's view on the potential fate of enhanced subsidies under a new administration.

Answer

CEO Sam Hazen acknowledged the strong exchange enrollment growth and expressed a belief that the positive outcomes for families present a political opportunity for the new administration to sustain the program. He confirmed HCA is actively engaged in advocacy efforts. CFO Mike Marks added that exchanges now represent 7.5% of equivalent admissions and 9% of revenues.

Benjamin Hendrix of RBC Capital Markets inquired about trends in claim denial activity, the specific impact from the two-midnight rule on Medicare Advantage claims, and the outlook for when payer behavior might change.

Answer

CFO Mike Marks stated that while payer denial intensity is high, HCA's mitigation strategies have moderated the impact. He noted the two-midnight rule contributed about 2 percentage points to the 11% Medicare Advantage admission growth. However, he highlighted that a few large MA payers remain significant outliers in denials and creating discharge delays, and HCA is pursuing these issues through a lengthy dispute resolution process.

Ben Hendrix asked about the 150,000 Medicare Advantage members impacted by plan exits and changes, inquiring if these members are simply no longer being competed for or if a subset could be recaptured, and about retention broadly in continuing markets given better STAR ratings.

Answer

Felicia Norwood (President of Government Health Benefits, Elevance Health) emphasized retention as a key strategy, with 2026 reflecting a disciplined focus on sustainable performance. Exits were intentional in areas without long-term sustainable performance. Elevance Health is working with impacted individuals to find new plans. She expressed confidence in the 2026 strategy, footprint, and products to improve Medicare Advantage performance towards the 3%-5% target.

Ben Hendrix inquired about the 150,000 Medicare Advantage members impacted by Elevance Health's plan exits and changes, asking if these members are no longer being competed for or could be recaptured. He also asked about broad retention in continuing markets, especially given improved STAR ratings.

Answer

Felicia Norwood, President of Government Health Benefits, stated the strategy reflects a disciplined focus on sustainable performance, intentionally exiting select plans/service areas. Elevance is working closely with impacted individuals to find suitable plans. She expressed confidence in the focused strategy, footprint, and products for 2026, aiming to improve Medicare Advantage performance.

Ben Hendrix inquired if the current environment is altering the company's capital allocation strategy, particularly the 50/50 split between reinvestment and shareholder returns, and the balance between M&A and internal projects.

Answer

CFO Mark Kaye explained that while Q2 share repurchases were paced for flexibility, the company intends to be opportunistic going forward. He anticipates lower M&A activity in 2025, with a greater focus on integrating past acquisitions and opportunistic buybacks. The long-term capital deployment algorithm of a 50/50 split remains unchanged.

Benjamin Hendrix inquired about the company's visibility into the remainder of the year, specifically asking about the new member engagement strategy in Medicare Advantage, how many new members have been engaged, and how this might translate to primary care activity and referrals later in the year.

Answer

Felicia Norwood, President of Government Health Benefits, explained that the company focuses on engaging new members early to conduct health risk assessments and schedule annual wellness visits, which helps in developing a coordinated care plan. Gail Boudreaux, President and CEO, added that the company's strategy is reinforced by its heavily HMO product mix and a growing shift toward value-based care arrangements, where providers are incentivized to engage with patients early and actively manage their health.

Benjamin Hendrix of RBC Capital Markets asked about the expected pacing for Medicaid rates to catch up with member acuity and whether any specific state renegotiations could act as catalysts for an accelerated recovery.

Answer

CEO Gail Boudreaux highlighted the unprecedented nature of the membership mix shift. CFO Mark Kaye added that while they couldn't point to specific catalysts, they expect the mismatch between rates and acuity to narrow throughout 2025 as state rate updates increasingly reflect the current, higher-acuity membership base.

Ben Hendrix of RBC Capital Markets inquired about the margin progression for the Healthcare Services segment, specifically the path to target margins for seasoned SelectRx members and the dynamics of fixed versus variable costs at scale. He also asked if a specific level of EBITDA from this segment could accelerate the company's securitization program.

Answer

President Robert Grant explained that margins are expected to improve meaningfully through increased scale, a higher mix of tenured members, and reduced variable costs from operational optimizations and new technology. CFO Ryan Clement added that while there is no specific EBITDA threshold, the projected contribution of over $50 million from Healthcare Services in fiscal 2026 significantly enhances capital structure options, including securitization, and supports the company's goal of generating positive operating cash flow.

Ben Hendrix inquired about the margin progression for the Healthcare Services segment, specifically the path to target margins for seasoned SelectRx members and the associated fixed versus variable cost dynamics. He also asked if a certain level of EBITDA from this business could act as a catalyst to accelerate the company's securitization program.

Answer

CEO Tim Danker initiated the response, with an executive named Bob detailing the margin progression. Bob explained that as the business scales, increased tenure of members and optimizations in variable costs, such as cost of goods sold, will drive margin expansion. He noted significant potential from new technology and the new Kansas City facility. CFO Ryan Clement added that while there's no specific EBITDA threshold, the significant and growing cash flow from Healthcare Services (projected over $50 million in FY26) opens up multiple paths for improving the capital structure and will lead to positive operating cash flow for the foreseeable future.

Benjamin Hendrix of RBC Capital Markets questioned the perceived conservatism in the updated guidance, inquired about planned investments for the remainder of the fiscal year, and asked for more detail on the long-term synergies and market opportunity for SelectRx. He also followed up on how the new preferred equity investment from Bain Capital and others would affect the pace of future asset securitizations.

Answer

CEO Tim Danker and CFO Ryan Clement explained that while proud of the strong AEP results, they remain mindful of the unique season and have planned investments in the Healthcare Services segment for the second half of the year. Clement projected Senior segment margins in the low-to-mid 20s for the back half. Regarding the new capital, an executive noted the structure provides stability and strengthens the company's position to pursue further deleveraging actions, making continued securitization of MA receivables a 'very viable option.'

Benjamin Hendrix asked about balancing higher agent productivity with the need for longer, more educational calls during a dynamic AEP. He also inquired how the SelectRx offering is integrated into the sales process and whether recent performance affects the timeline for the next debt securitization.

Answer

CEO Tim Danker and President Robert Grant explained that while calls are longer, higher close rates from tenured agents are actually increasing overall efficiency. Grant clarified that the SelectRx sale is a separate, post-MA sale process that does not add time for sales agents. CFO Ryan Clement noted that while the first securitization was successful, the market typically slows in late Q4, and they see a path for a subsequent transaction in the first half of calendar 2025.

Ben Hendrix of RBC Capital Markets questioned the recent increase in labor costs relative to RevPAR growth and asked about the future outlook for the spread between revenue and expense growth.

Answer

President & CEO Brandon Ribar acknowledged a targeted wage increase for nursing staff to improve retention and stability, which he does not expect to be a recurring quarterly event. He stated that this investment is being offset by achieving record-high rate levels, driven by strong occupancy. Ribar affirmed the company's goal is for revenue growth to continue outpacing expense inflation, creating opportunities for margin expansion in the second half of the year.

Ben Hendrix from RBC Capital Markets questioned the relationship between the increase in labor costs and same-store RevPAR growth, asking for the outlook on the spread between revenue and expense per occupied room (RevPOR vs. ExPOR) going forward.

Answer

President & CEO Brandon Ribar explained that the labor cost increase was a targeted investment in nursing wages to improve staff stability and retention, which is already reducing employee turnover. He noted this investment supports higher resident rates, evidenced by record RevPAR. Ribar stated the company expects top-line revenue growth to continue outpacing expense inflation, leading to margin expansion in the second half of the year and beyond.

Ben Hendrix of RBC Capital Markets asked for clarification on industry mix dynamics within the business and inquired about the expected run-rate for G&A and cost of service margins after the Nova and Pivot integrations and the separation from Select Medical are complete.

Answer

CEO Keith Newton clarified that contrary to the question's premise, the company has not seen significant shifts in its diversified industry mix, which remains stable. President & CFO Matthew DiCanio addressed the margin question by pointing to the full-year 2025 guidance, which implies an EBITDA margin similar to the prior year despite significant acquisition and separation activities. He deferred specific 2026 run-rate margin guidance to future quarters.

Benjamin Hendrix asked about the uniformity of workers' compensation rate increases across states during high inflation and sought more detail on the labor efficiencies that improved the cost of service percentage.

Answer

Executive William Newton explained that workers' compensation fee schedules historically incorporate inflationary adjustments, typically using metrics like CPI or MEI, with most updates occurring in the first quarter, making them fairly reflective of recent inflation. Executive Matthew DiCanio attributed the cost of service improvements to strong revenue and rate gains, as well as operational efficiencies from better staffing management, more stable visit volumes, and technology initiatives that have improved key metrics like patient satisfaction and turnaround times.

Ben Hendrix of RBC Capital Markets inquired about Concentra's strategy for integrating large acquisitions like Nova, the specific integration costs included in the 2025 forecast, and the company's deleveraging plan following the transaction.

Answer

Executive William Newton highlighted Concentra's successful history with large-scale integrations, noting that Nova's overlapping footprint with existing infrastructure simplifies the process. Executive Matthew DiCanio added that a detailed integration playbook has been in development for over six months. Regarding leverage, DiCanio confirmed the goal is to reduce the pro forma 3.9x net leverage to approximately 3.5x by year-end 2025 and target 3.0x within 18-24 months, driven by EBITDA growth and strong cash flow, which Newton noted typically accelerates in the second half of the year.

Benjamin Hendrix of RBC Capital Markets inquired about the impact of Hurricane Milton factored into the full-year guidance and whether hurricane disruptions are impeding the company's expansion strategy, particularly in Florida.

Answer

Executive Matthew DiCanio clarified that Hurricane Milton's impact was not material and is included in the full-year 2024 guidance. Executive William Newton asserted that weather events have not slowed M&A or development efforts in Florida and noted that post-hurricane rebuilding activities could potentially create a positive impact on future visit volumes.

Ben Hendrix of RBC Capital Markets inquired about The Pennant Group's perspective on the Tennessee market following the Amedisys divestiture, the influence of the Ensign relationship on the deal, and the potential for the proposed home health clawback to impact capitated managed care contracts.

Answer

John Gochnour, President & COO, explained that Tennessee is an attractive market with a strong talent pool and that Ensign's recent entry provides an opportunity to build a care continuum. He also confirmed that while Medicare rate adjustments affect both fee-for-service and capitated contracts, Pennant has multiple levers to offset the impact, including its diversified business lines in hospice and senior living.

Benjamin Hendrix inquired about the Senior Living segment, asking about the progress of initiatives to optimize resident mix and drive rate growth, and how these efforts might influence future M&A strategy.

Answer

CEO Brent Guerisoli described the company as being in the "early stages" of its revenue quality and rate optimization efforts. He noted that while this focus slightly plateaued occupancy growth in 2024, it has positioned the segment for continued occupancy ramp-up in 2025, supported by investments in facilities and technology. He expressed confidence, citing that many operations already achieve occupancy in the high 80s or low 90s.

Benjamin Hendrix of RBC Capital Markets inquired about The Pennant Group's perspective on the potential regulatory environment for its home health and hospice segments under different presidential administrations, contrasting the first Trump term with the current one.

Answer

John Gochnour, President and COO, responded that while the company remains politically agnostic, they observed a significant increase in regulatory enforcement recently compared to the previous Trump administration. He also noted that reimbursement patterns were more favorable and aligned with inflation during that prior term. Mr. Gochnour emphasized that the company's core strategy is to focus on controllable factors like patient care, operational excellence, and strategic growth regardless of the political climate.

Ben Hendrix of RBC Capital Markets asked about the positioning of Home and Community-Based Services (HCBS) amid state budget headwinds from Medicaid cuts. He also inquired about the potential for proposed Medicare Home Health cuts to affect episodic rates with preferred payers.

Answer

CEO Jeff Shaner stated that despite budget pressures, states continue to value HCBS for its cost-effectiveness, noting 10 states granted rate increases this year. Regarding the proposed Medicare rule, Shaner expressed strong disappointment, calling it 'bad policy' but assured that Aviana's diverse, Medicaid-heavy payer mix insulates the company from significant direct impact. CFO Matt Buckhalter added that the company will continue to advocate for its patients and partner with payers.

Benjamin Hendrix from RBC Capital Markets asked about the magnitude of the five Q1 rate enhancements, the outlook for larger rate increases, and how much PDS volume could shift into preferred payer relationships.

Answer

CEO Jeff Shaner clarified that new government rate wins are expected to be in the single-digit percentage range, not at the material levels seen previously, and that part of the Q1 benefit was from retroactive rate catch-ups. He confirmed that preferred payer agreements now account for 54% of PDS MCO volume. CEO Jeff Shaner projected this percentage would reach the mid-to-high 50s by year-end as they work toward their goal of 30 total agreements.

Benjamin Hendrix inquired about the progress of Aveanna's preferred payer strategy within the Home Health segment, the long-term outlook for episodic volume growth, and the company's perspective on the final Home Health rules from CMS.

Answer

CEO Jeff Shaner described the preferred payer strategy in Home Health as being in its later stages, aiming for a 70-75% episodic mix and a 3%+ organic growth rate. While expressing disappointment with CMS's failure to address the PGM clawback in the final rule, Shaner affirmed that Aveanna's business model is structured to be successful and thrive under the current reimbursement rates, which were slightly positive for the company.

Ben Hendrix inquired about the 10 basis point spread between RevPOR and ExPOR, asking if this is a near-term target, and also asked about progress on reducing controllable move-outs.

Answer

EVP & CFO Dawn Kussow stated that they expect the margin spread to widen, particularly into 2026, and noted some current expense noise. EVP & General Counsel Chad White added that long-term industry fundamentals support pricing power outpacing expense inflation. Regarding move-outs, Kussow mentioned seeing favorability in attrition and that the marketing team is developing a resident retention program, as keeping residents is more cost-effective than acquiring new ones.

Benjamin Hendrix from Jefferies asked for more details on Brookdale's pricing strategy, including the new pricing promotions, the guardrails to protect profitability, and the expected timeline for the 'first impressions' investment initiative to impact rates and RevPOR.

Answer

EVP & CFO Dawn Kussow explained that pricing discipline is strong, with same-store RevPOR growth of 2.8% outpacing ExPOR growth of 1.6%. She clarified that new promotions are targeted pilots to boost occupancy in specific communities, particularly those at or above the 80% threshold, to maximize flow-through. EVP & General Counsel Chad White added that the 'first impressions' program is primarily aimed at accelerating occupancy growth to remain competitive, rather than directly driving immediate rate increases.

Benjamin Hendrix asked about the drivers for the fourth quarter's move-in activity being weighted toward lower acuity residents and how that trend might evolve in 2025. He also questioned whether the Ventas communities being exited had an above-average mix of Medicaid residents.

Answer

President & CEO Lucinda Baier explained that the lower acuity mix is a strategic result of programs like Brookdale HealthPlus and memory care pricing unbundling, which attract residents who may have a longer length of stay, rather than a change in referral sources. Regarding the Ventas portfolio, she noted that a CCRC with a higher government pay mix is being transitioned but did not provide a detailed Medicaid mix comparison for the entire group of exited assets.

Ben Hendrix of RBC Capital Markets asked about the drivers behind the strong inpatient surgical growth and how this trend influences capital allocation towards higher acuity services. He also sought clarification on the expected payer mix for backfilling volume after exiting certain exchange contracts.

Answer

President & CEO Marty Bonick attributed the 9.2% inpatient surgery growth to strength in orthopedics, cardiology, and general surgery, consistent with the company's service line rationalization strategy. He stated this frees up capacity for higher-margin procedures. Regarding backfill, Bonick expects it to come from other commercial business and physician outreach strategies targeting high-acuity cases. CFO Alfred Lumsdaine added that demand is strong across all payer categories, including core commercial and Medicaid.

Benjamin Hendrix of RBC Capital Markets requested an update on M&A expansion initiatives, asking about the tenor of conversations with potential sellers and their perspective on valuations amid policy uncertainty.

Answer

CEO Martin Bonick reported a growing M&A pipeline with increased inbound interest, particularly from academic partners. He believes that while some headline valuations are high, most deals will trade in a normal historical range. He emphasized that any acquisition must be accretive within 24 months and noted the company is hiring a Chief Development Officer to capitalize on these opportunities.

Benjamin Hendrix requested quantification of the professional fee headwind embedded in 2025 guidance and asked about the M&A pipeline for urgent care and other ambulatory assets.

Answer

CFO Alfred Lumsdaine indicated the professional fee headwind in 2025 is expected to be similar in magnitude to 2024's growth. CEO Marty Bonick confirmed a continued focus on urgent care expansion through M&A and de novo builds, while also expanding focus to include ambulatory surgery centers, imaging centers, and freestanding EDs.

Benjamin Hendrix of RBC Capital Markets asked for an update on the progress of Ardent's service line optimization, its effect on surgical case mix, and how these efforts are influencing the company's ambulatory M&A strategy.

Answer

CEO Marty Bonick explained that the rationalization of lower-margin surgeries is ongoing but its impact is beginning to lessen. He stated this aligns with the broader industry shift from inpatient to outpatient care, which directly informs Ardent's strategy to grow its Ambulatory Surgery Center (ASC) footprint in partnership with physicians.

Ben Hendrix asked for an update on smaller guidance headwinds mentioned previously, such as closed facilities and liability fees, and inquired about the strategic alternatives for the underperforming facilities.

Answer

CFO Heather Dixon confirmed there were no changes to the previously mentioned smaller guidance items. CEO Christopher Hunter explained that the company continuously evaluates its portfolio and will not hesitate to close or repurpose facilities that lack a clear path to viability, while also proactively engaging with referral sources to address headwinds.

Benjamin Hendrix requested an update on referral activity trends following negative press headlines from the previous year and asked how this might affect the pacing of same-store volume growth throughout 2025.

Answer

CEO Chris Hunter responded that the company's proactive outreach to referral sources to correct misunderstandings and highlight investments in quality and safety has been resonating well. He stated the referral issue is now less of a challenge across the portfolio. CFO Heather Dixon added that the headwinds are now concentrated in a small group of underperforming facilities and are not considered a widespread issue for the business.

Benjamin Hendrix asked if the October volume softness was concentrated in the acute segment or if there was also pressure in the RTC business. He also inquired about the slowdown in revenue per patient day.

Answer

CFO Heather Dixon responded that the volume pressure was consistent across both acute and specialty lines. She noted that RTCs typically operate near capacity, which can mask underlying trends. For revenue per patient day, she clarified that excluding the CTC business, growth was a stronger 4.9%, compared to the reported 3.6%.

Ben Hendrix of RBC Capital Markets asked for more detail on the key learnings from the company's strategic review and how those insights are shaping future strategy regarding geographic footprint, the mix of ASCs versus short-stay hospitals, and partnership models.

Answer

CEO Eric Evans explained that the review reaffirmed the significant value creation opportunity in the short-stay surgical market. Key strategic takeaways include an increased focus on portfolio optimization to accelerate deleveraging and cash flow generation. This involves being more open to health system partnerships and selectively divesting assets, potentially including surgical hospitals, to provide more flexibility to self-fund growth in core ASC service lines.

Benjamin Hendrix from RBC Capital Markets inquired about the growth progression of cardiovascular procedures and how they fit into the company's recruiting and development strategy.

Answer

CEO J. Evans characterized cardiology as a long-term opportunity that is currently ramping slowly from a small base, partly due to state-level regulatory hurdles. However, he noted progress, with facilities adding CRM procedures and the recent opening of their first cardiac cath lab ASC. He framed it as a major future growth driver with significant cost-saving potential, similar to the trajectory of orthopedics.

Ben Hendrix of RBC Capital Markets asked for insight into the expected seasonality of LTAC margins given the more stable high-cost outlier environment. He also inquired about the amount of startup costs for the Inpatient Rehabilitation Facility (IRF) segment included in guidance for the second half of the year.

Answer

Robert Ortenzio, Co-Founder & Executive Chairman, explained that LTAC margin seasonality will remain consistent, with Q1 being the strongest and Q3 the most challenging, although overall margins are suppressed compared to 2024 levels. He also estimated that IRF startup costs for the remainder of the year are slightly less than $10 million.

Benjamin Hendrix from RBC Capital Markets asked about potential mitigation strategies for the high-cost outlier and transmittal rule headwinds in the LTAC division and whether the impact from the late flu season would ease in subsequent quarters.

Answer

Executive Martin Jackson explained that high-cost outlier impacts are typically highest in Q1 due to patient acuity and should decrease through the year. Executive Robert Ortenzio added that the company is actively engaging with the new CMS administration and legislators to propose policy changes that could mitigate the severe impacts of these rules.

Benjamin Hendrix from RBC Capital Markets inquired about Select Medical's go-forward leverage targets after the Concentra spin-off and the specific factors contributing to the lower-than-expected inpatient rehab margins during the quarter.

Answer

Executive Martin Jackson stated that leverage is expected to remain in the 3.0x to 3.1x range for 2025 due to high development activity, with a target of well below that in 2026. Executive Robert Ortenzio added that the inpatient rehab margin compression was caused by start-up losses from new facilities, integration costs from an acquisition, and a temporary, hurricane-related drop in referrals from a key partner, which has since normalized.

Benjamin Hendrix of RBC Capital Markets inquired about the occupancy trends in the Critical Illness Recovery Hospital (LTAC) division, seeking to clarify if recent performance was due to seasonality or staffing issues, and asked about the impact of outlier thresholds on the segment.

Answer

Martin Jackson, an executive at Select Medical, clarified that the Q3 LTAC occupancy rate was influenced by typical seasonality rather than staffing challenges, noting performance was better than the prior year's quarter. Jackson also stated that the company's operators have been effectively managing the high-cost outlier thresholds, minimizing their financial impact.

Ben Hendrix from RBC Capital Markets asked for more detail on the acuity trends, seeking to reconcile the strong revenue per admission with the reported decline in hospital inpatient surgeries and understand the drivers of the stronger case mix.

Answer

Chairman & CEO Saum Sutaria attributed the strong acuity to focused growth in cardiovascular, orthopedics, spine, neurosurgery, and robotics. He also highlighted the contributions from emergency-driven trauma cases and a successful patient transfer strategy, which brings in sicker patients requiring more complex care from outlying hospitals.

Benjamin Hendrix asked about the 9.1% ambulatory rate growth, seeking to understand its drivers beyond mix shift and M&A, and questioned how persistent this rate momentum could be over the next couple of years.

Answer

Saumya Sutaria, Chairman and CEO, acknowledged that guidance has been conservative compared to actual results. He attributed the strong rate growth to a combination of growing higher acuity services, actively creating capacity by moving out lower acuity business, and successful contracting strategies that leverage the ASC's lower-cost setting. He agreed that momentum on net revenue per case should continue for some time.

Benjamin Hendrix requested more detail on the 2025 outlook, specifically asking about the sustainability of strong same-store volume growth and whether it is expected to continue outpacing historical trends.

Answer

Chairman and CEO Dr. Saum Sutaria affirmed that Tenet continues to see a strong demand environment, which he believes is partly a sustained recovery from the early mortality impacts of COVID. He stated that the company is not forecasting a slowdown and is actively expanding capacity in a cost-efficient manner, supported by successful nurse recruiting, to meet this robust demand.

Benjamin Hendrix asked about the potential impact of Elevance Health's decision to remove its Medicare Advantage plans from online marketing platforms and whether this behavior was being observed from other major carriers.

Answer

Executive Steven Yi noted it was too early to tell if this would affect the upcoming Annual Enrollment Period (AEP), viewing it as a normal profitability adjustment in a challenging environment. He reaffirmed his long-term conviction in the Medicare vertical. Executive Patrick Thompson added that carrier actions vary and that the company's broker relationships in the Medicare space remain strong.

Benjamin Hendrix of RBC Capital Markets requested more detail on the Q1 guidance for the health vertical, asking about the drivers behind the expected high-teens decline in Transaction Value.

Answer

Executive Patrick Thompson confirmed the Q1 guidance for the health vertical is a high-teens year-over-year decline. He attributed this primarily to continued softening in the under-65 health business, which began in Q4. He noted that the headwinds in Medicare Advantage are expected to be similar to Q4 levels, and reiterated the long-term growth opportunity in that segment.

Benjamin Hendrix of RBC Capital Markets sought clarification on the guidance for lower year-over-year Transaction Value in the Health vertical for the upcoming AEP, particularly concerning Medicare Advantage.

Answer

CFO Patrick Thompson attributed the expected mid-single-digit decline in Health Transaction Value to well-documented headwinds for Medicare payers, such as higher service utilization and lower star ratings, leading some to tighten marketing budgets. He noted that while pricing trends are weak, consumer shopping volume is strong, and the company remains bullish on the long-term Medicare Advantage opportunity.

Benjamin Hendrix inquired about the potential impact of Elevance's decision to remove its Medicare Advantage plans from online marketing platforms.

Answer

CEO Fran Soistman explained that eHealth's strategy of offering significant choice with nearly 50 carrier relationships mitigates the impact of any single carrier's decision. He characterized the move as unusual for this time of year and expects the carrier to revisit its strategy before the next Annual Enrollment Period (AEP), given that Q2 and Q3 are seasonally low-volume quarters.

Benjamin Hendrix of RBC Capital Markets inquired about the fourth-quarter cadence considering the shift of D-SNP volume, and asked for the rationale behind the confidence in the Amplify platform's recovery, given carriers are on a multi-year path to improve their own margins.

Answer

CEO Fran Soistman confirmed that the potential for increased D-SNP volume in Q4 is factored into their guidance. Regarding the Amplify platform, Soistman expressed confidence due to its early stage of evolution, strong performance on carrier partner metrics like conversion and quality, and its strategic value in diversifying revenue with lower capital investment. He stated that scaling the business by adding new partners will drive margin improvement over time.

Benjamin Hendrix from RBC Capital Markets inquired about Addus's exposure to Medicare Cap limitations in its hospice segment and whether specific high wage index regions require particularly careful management.

Answer

W. Bickham, President and COO, stated that Medicare Cap limitations have not been a material issue for Addus. He attributed this to maintaining a balanced referral mix in each market, an effort bolstered by new sales leadership. Bickham also confirmed that high wage index regions have not negatively impacted the company from a cap standpoint.

Benjamin Hendrix of RBC Capital Markets asked if there were opportunities to deploy capital for M&A in troubled Sleep markets to counter competitive pressures. He also inquired whether AdaptHealth or its suppliers were preemptively building inventory to manage potential tariff headwinds.

Answer

Executive Jason Clemens called the M&A question 'astute,' confirming the company has some deals under LOI in markets where it could improve, but reiterated that the capital allocation priority remains modest tuck-in activity. On the tariff question, he stated that from a supply perspective, it is 'business as usual' with no preemptive inventory building.

Benjamin Hendrix of RBC Capital Markets inquired about the progress of discussions for new capitated arrangements, the ability to leverage data from the Humana deal to attract more payers, and the outlook for working capital and cash flow improvements.

Answer

CEO Suzanne Foster confirmed a strong pipeline for new capitated deals and a positive, data-driven relationship with Humana. CFO Jason Clemens added that smaller capitated deals have been signed and the multi-year Humana extension signals success. Clemens also detailed working capital progress, expecting stable DSOs and continued inventory/CapEx discipline, while noting that 2024's significant payables improvements are unlikely to repeat at the same scale.

Benjamin Hendrix of RBC Capital Markets asked for an update on the payer channel shift between DME and pharmacy for diabetes products, specifically whether any payers were shifting back to the DME channel as previously discussed.

Answer

CFO Jason Clemens stated that there have been no material shifts back to the DME channel since the last quarter, aside from a minor advantageous policy change in two states' Medicaid programs. He noted that the company will have a clearer picture of the landscape for the upcoming year after the open enrollment season concludes and will provide updates in the next earnings call.

Benjamin Hendrix requested an update on Medicaid, specifically on state renewals through April and whether the company is still on track to close the rate-to-acuity gap by the end of the year.

Answer

Krista Nelson, an executive, confirmed that the gap between member acuity and rate funding is narrowing with each cycle, noting progress in late 2024 and early 2025. While it is too early to call the upcoming 7/1 rate cycle, she expressed optimism that collaborative relationships with states will ensure the gap continues to narrow throughout the year.

Benjamin Hendrix asked about the drivers behind GoHealth's strong margin performance, the sustainability of lower customer acquisition costs, and the potential risks and rewards for the 2025 Annual Enrollment Period (AEP).

Answer

CEO Vijay Kotte explained that revenue per sale fluctuates with product mix, so the company focuses on controllable cost efficiencies. He credited standardized processes via the PlanFit and Encompass platforms, along with enhanced marketing analytics, for the 27% year-over-year reduction in customer acquisition costs to $501. For the upcoming AEP, Kotte anticipates disruption from benefit degradation rather than plan exits, noting GoHealth's ability to target these specific geographies gives them a competitive advantage.

Benjamin Hendrix asked for details on the strong growth in internal captive agent submissions and its sustainability, as well as the company's plans for the declining GoPartner Solutions (GPS) channel. He also inquired about the drivers behind the significant turnaround in cash flow.

Answer

CEO Vijay Kotte attributed the 46% growth in internal agent submissions to data-driven optimizations, AI tools, and targeted marketing, which he believes is a sustainable trend. He stated the GPS decline was anticipated and that new partners have been recruited to contribute meaningfully in Q4. Regarding cash flow, Vijay Kotte clarified that while the agency/non-agency mix was a factor, the primary driver was significant operational efficiencies and technology deployment, which accounted for about two-thirds of the improvement.

Benjamin Hendrix requested more detail on the Q1 guidance for the health vertical, asking about the specific drivers for the expected high-teens decline and whether market conditions have deteriorated further since headwinds were first identified.

Answer

Executive Patrick Thompson confirmed the Q1 guidance for the health vertical is a high-teens year-over-year decline. He specified that while Medicare Advantage headwinds are continuing from Q4 into Q1 at a similar rate, the primary driver of the slowdown has been a softening in the under-65 health business, which began in Q4 and has continued into Q1. Despite near-term pressures, he reiterated the long-term opportunity in Medicare Advantage.

Benjamin Hendrix asked for an update on the managed care contracting environment and payer behavior regarding patient eligibility. He also inquired about the process of educating discharge planners on the IRF versus SNF value proposition in new markets.

Answer

CFO Douglas Coltharp reported a stable contracting environment with rate updates in the mid-to-high 2% range and no new pressures from payers. CEO Mark Tarr explained that educating discharge planners is a key priority that begins up to six months before a new hospital opens, involving extensive outreach by clinical and administrative staff to differentiate their intensive hospital-level care from SNF services.

Ben Hendrix from RBC Capital Markets requested more detail on the 2025 earnings cadence, asking why an elevated Q4 cost trend shouldn't be expected again given the multi-year recovery period for stop-loss margins.

Answer

CFO Brian Evanko explained that the Q4 2024 earnings were skewed because the full-year stop-loss pressure was identified and trued-up late in the year. For 2025, the earnings pattern is expected to normalize and resemble 2023, with a more level cadence for the stop-loss MCR throughout the year. Typical seasonality, with a lower MCR in the first half, is expected to be the primary driver of the 2025 earnings cadence.

Benjamin Hendrix from RBC Capital Markets asked about the intended use of proceeds from the personal care business divestiture and sought an update on the growth and potential impact of the personal care network.

Answer

EVP, CFO & Acting COO Scott Ginn stated the proceeds would likely fund the M&A pipeline first, given the company's low leverage, but a share buyback is also an option. Chairman and CEO Paul Kusserow explained the personal care network, with partners like Brightstar and WellSky, covers most of the U.S. and will be increasingly utilized, particularly for high-acuity Contessa patients and in the new palliative care business, to address social determinants of health.

Ben Hendrix inquired if the decline in fee-for-service visits per episode was primarily due to an increase in Low Utilization Payment Adjustments (LUPAs) caused by labor shortages, and its potential impact on future revenue comparisons.

Answer

President and CEO Chris Gerard responded that while the LUPA rate did increase slightly from about 10.5% to 11%, it was not significant enough to be the primary driver of the overall decline in visits per episode. He advised that he does not expect a material change in the LUPA rate for future modeling purposes. CFO Scott Ginn added that staffing constraints are more acutely felt in lower recertification rates.