Craig Jones

Craig Jones asked for Brandon Sim's opinion on what the national average rate for the final Medicare Advantage rate notice should have been, considering industry comments suggesting a higher trend than CMS's 5% estimate, and what CMS might ultimately decide.

Answer

Brandon Sim, President and Chief Executive Officer of Astrana Health, stated that while it's difficult to predict CMS's final decision, Astrana agrees with the industry consensus that the effective growth rate should be in the high single digits. He expressed support for efforts to reduce risk coding as a competitive advantage, favoring clinical efficacy and efficiency over risk model gamification, and is broadly supportive of changes to make the playing field more equitable.

Craig Jones asked for Astrana Health's opinion on what the national average rate for the final Medicare Advantage rate notice should have been, given industry comments suggesting higher trends, and what CMS might ultimately decide.

Answer

Brandon Sim, President and Chief Executive Officer of Astrana Health, stated that while it's difficult to predict CMS's final decision, Astrana Health agrees with the industry consensus that the effective growth rate should be in the high single digits. He expressed support for efforts to reduce risk coding as a competitive advantage, favoring clinical efficacy and efficiency over risk model gamification.

Craig Jones questioned the trend in Medicaid rates for 2025, referencing the previous year's mismatch between rates and cost trends, and asked about the expected timeline for restoring Medicaid margins to their target levels.

Answer

President & CEO Brandon Sim explained that the Medicaid environment remains volatile and that while a rate update has not yet occurred in California, they are in active negotiations with payers to address the rate-acuity mismatch. He noted that a conservative view is already baked into guidance and the 2027 outlook.

Craig Jones asked about the trend in Medicaid rates for 2025, noting the rate versus trend mismatch from the previous year. He also inquired about the expected timeline for the Medicaid business to return to its target margin levels.

Answer

President & CEO Brandon Sim explained that Medicaid remains a volatile area and there has not yet been a rate update in California. He mentioned that Astrana is in active negotiations with payers to resolve the rate and acuity mismatch but has not factored any potential positive outcomes into its current guidance or its 2027 financial bridge, thereby maintaining a conservative outlook.

Craig Jones asked about the Medicaid business, focusing on how rates have trended in 2025 relative to medical costs and how long it might take for the Medicaid segment to return to its target margin profile.

Answer

President & CEO Brandon Sim described the Medicaid environment as volatile and confirmed that in California, a key market, there has not yet been a rate update. He mentioned that Astrana is in active negotiations with payers to address the rate and acuity mismatch. Sim emphasized that the company's guidance and long-term targets have already baked in a conservative view that does not depend on a favorable outcome from these negotiations.

Craig Jones followed up on the 2027 final rate notice, referencing John Kao's comment that CMS would 'do the right thing' on rates. He noted United's expectation of 9-10% growth versus the 5% in the advance notice and asked for John Kao's view on what the growth rate should be and what CMS is likely to implement.

Answer

Founder and CEO John Kao acknowledged the industry's disappointment with the 0.9% net advance rate notice, attributing it partly to the impact of skin substitutes offsetting utilization trends. He expressed skepticism that the final rate would reach 9-10% but hoped for a reasonable increase, potentially 200-300 basis points, bringing it to 3-5%. Mr. Kao emphasized that Alignment Healthcare's high-quality, low-cost model positions it to succeed regardless of the rate environment, as it is not dependent on external medical management and reinvests margins into benefits and practitioner support.

Craig Jones followed up on the 2027 final rate notice, asking for Alignment Healthcare's expected growth rate and what CMS might 'do the right thing' on, contrasting it with industry expectations of 9-10% growth versus the 5% in the advance notice.

Answer

CEO John Kao noted the industry's disappointment with the 0.9% net advance rate, particularly concerning the impact of skin substitutes. He suggested a potential increase to around 5% in the final notice, but still believes it might be insufficient to fully meet trend. He expressed hope for a reasonable outcome to prevent further benefit degradation, recalling similar issues from the BBA era.

Craig Jones of Bank of America inquired about the yield on marketing dollars and customer acquisition costs, particularly whether Alignment has seen increased efficiency as competitors pull back on benefits.

Answer

CEO John Kao confirmed that they have seen a higher yield on marketing dollars but declined to quantify it ahead of the Annual Enrollment Period (AEP). He attributed much of the company's growth to word-of-mouth and strong broker partnerships focused on quality. Kao suggested that as the company scales, there is a future opportunity to invest more in brand development to accelerate growth further.

Craig Jones asked about the expected magnitude of MBR improvement as the large cohort of new 2024 members matures into its second year in 2025.

Answer

Executive Robert Freeman stated that historically, Alignment sees approximately 300 basis points of MBR improvement as members transition from their first to their second year. He highlighted this as a significant, multi-year embedded profit opportunity, underscoring the importance of the company's strong member retention.

Craig Jones asked for clarification on agilon health's chart review comments, specifically whether the impact would be closer to 0% or 1.5%, and how this impact is spread among their payer partners.

Answer

Jeff Schwaneke (EVP and CFO, agilon health) clarified that the removal of selected diagnoses has a minimal impact on agilon health due to their model, which is highly aligned with primary care physicians and involves in-office member visits, resulting in few unlinked conditions. He noted that this applies broadly across their operations, while Part C risk model changes would vary by market.

Craig Jones sought clarification on agilon's chart review comments regarding the Advance Notice, specifically whether the impact would be closer to 1.5% or 0%, and if this impact would be consistent or vary significantly among payer partners.

Answer

Jeff Schwaneke (EVP and CFO, agilon health) clarified that the removal of selected diagnoses has minimal impact for agilon due to its model's design and close alignment with primary care physicians, making it broad across the network. He noted that Part C risk model changes would, however, differ by market.

Craig Jones from Bank of America followed up on quality incentives, asking about the potential margin opportunity if these incentives were implemented across 100% of agilon's membership.

Answer

CFO Jeff Schwaneke clarified that such programs are already present in the majority of contracts. The significant change, he noted, is that the dollar value of these incentives is escalating as payers place a higher premium on quality performance, which benefits agilon's model.

Craig Jones asked about Oscar Health's guidance assumptions regarding the change in the percentage of zero utilizers between 2025 and 2026, and how it compares to 2019 levels. He also inquired about the 2025 MLR of the 400,000 members expected to roll off by the end of Q1 2026 and how that compares to historically churned members.

Answer

R. Scott Blackley, Oscar Health Chief Financial Officer, stated that Oscar Health does not comment on the specific portion of non-utilizers but noted that a younger membership doesn't necessarily imply lower non-utilization. He emphasized that MLR guidance incorporates all market morbidity changes, expected increases, and a higher trend. He declined to dimension the specific MLR of the 400,000 members expected to roll off, reiterating that the MLR difference between 2025 and 2026 is primarily driven by market morbidity changes.

Craig Jones of Bank of America asked where Oscar's requested 2026 rate increases are positioned relative to competitors in each state and sought clarification on the magnitude of the "double-digit" rate increases mentioned.

Answer

CFO Scott Blackley explained that Oscar's pricing is built from the ground up to cover all known risks, resulting in significant double-digit increases. He stated that on average, their price changes will be comparable to larger peers. He confirmed "double-digit" means 10% or more and that the increases would be "multiple times" what was seen in the prior year.

Craig Jones asked for guideposts on how much Privia's platform can improve a partner practice's margins, both initially and over the long term.

Answer

CEO Parth Mehrotra detailed a multi-faceted value proposition that grows over time. Initially, practices see expense savings and enhanced fee-for-service revenue from better payer contracts. This is followed by a 10-20% productivity lift. Over time, value is added through participation in value-based care programs with increasing levels of upside. He shared that case studies have shown Privia doubling the top and bottom lines of practices that have been partners for 7-10 years.

Craig Jones of Stifel asked about the normalized free cash flow conversion rate in a future state, once the company is a full cash taxpayer and without the benefit of working capital timing.

Answer

CFO David Mountcastle estimated that the normalized conversion rate would likely be close to the 80% guided for 2025. He further clarified that once all NOLs are exhausted and assuming no working capital adjustments, a final resting place for conversion would probably be in the 70% to 80% range.