Craig Jones

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 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.

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 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 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.