Sarah James

Sarah James asked for further observations from broadly turning on insurance last week, specifically clarifying if the 33% reduction in customer acquisition costs (CAC) was due to lower costs for insured customers or a significant mix shift. She also inquired about the potential impact of the new consumer-facing app and website on cross-selling ability.

Answer

CEO Justin Schreiber explained that the observation demonstrates a strong patient desire to use insurance for healthcare, leading to more people completing the intake process via the insurance route and benefiting from lower price points. He described the 33% CAC reduction as super encouraging, noting it occurred without significant optimization, and highlighted the potential for Medicare coverage and direct medication shipping from their pharmacy. Schreiber stated that the new app and website are expected to have a "massive" impact on cross-selling, potentially generating 50-100 cross-care consults per day initially, which would significantly change the business's profile, lifetime value (LTV), and retention rates due to improved technology and brand experience.

Sarah James from Cantor Fitzgerald asked for more detail on the increased customer acquisition costs (CAC) for the RexMD business, seeking to understand the cause and how management has resolved the issue.

Answer

CFO Marc Benathen stated that RexMD CACs were temporarily up 15-25% sequentially due to competitive spending, which prompted a pullback in marketing volume. He confirmed that proactive adjustments have returned CACs to historical levels. CEO Justin Schreiber added that the team's intense focus on the weight management business transition contributed to a slower response but affirmed his confidence in RexMD's long-term trajectory.

Sarah James requested a breakdown of the drivers behind the $15 million year-over-year increase in adjusted EBITDA guidance. She also asked about the assumed revenue contribution from new insured lives (Commercial and Medicare) in 2025 and its potential growth trajectory.

Answer

CFO Marc Benathen detailed that the EBITDA guidance consists of approximately $20 million from telehealth and $10-12 million from WorkSimpli, with the increase driven primarily by revenue growth and operating leverage in both segments, not one-time cost removals. He noted that revenue from new insured lives is expected to be a small, mid-single-digit percentage of total revenue in 2025 as the company focuses on building scale. However, he projected it could grow to represent 30-50% of revenue within the next 3-4 years as the LifeMD+ offering and subscriber base expand.

Sarah James asked for details on the drivers behind the strong Q3 telehealth margins, the expected trend for these margins going forward, and the company's strategy for recruiting clinical staff as it expands into new products and payer networks.

Answer

CFO Marc Benathen attributed the Q3 margin strength to strong retention, upselling longer subscriptions, and a higher mix of service-based revenue from weight management. He expects margins to remain stable with potential improvements from the new pharmacy. Executive Justin Schreiber added that the company is strategically adding FTEs but is comfortable with current staffing levels, citing a strong culture and potential partnerships to augment their provider group if needed.

Sarah James asked for an explanation of the primary drivers behind the first-quarter earnings upside and whether those factors were sustainable for the rest of the year. She also requested a status update on the launch timeline for LifeMD's compounding pharmacy.

Answer

CFO Marc Benathen attributed the earnings beat primarily to stronger-than-expected retention revenue from existing patients, which he noted is largely sustainable. He also mentioned a small, Q1-specific benefit from pent-up demand in weight management acquisitions. CEO Justin Schreiber confirmed the compounding pharmacy is on track to be licensed in the summer and available in most states by year-end, while the existing mail-order pharmacy is scaling well, averaging nearly 1,000 prescriptions daily.

Sarah James from Cantor Fitzgerald inquired about the scale and pacing of savings from efficiency initiatives and the impact of the OB3 bill on client budgeting.

Answer

CFO Vinay Bassi explained that current cost efficiencies are more complex than previous efforts, focusing on areas like client support modernization, with savings expected to materialize in Q4. President and CEO Chris Fowler added that while the OB3 bill created uncertainty in the first half of the year, clients are now in the planning phase. He noted a potential short-term headwind on sales but sees a long-term opportunity for TruBridge to help clients navigate the new landscape.

Sarah James of Cantor Fitzgerald inquired about the potential scale and pacing of savings from efficiency initiatives and asked how the passage of the 'One Big Beautiful Bill' (OB3) might affect client budgeting and the pace of contract signings.

Answer

Chief Financial Officer Vinay Bassi explained that current initiatives are more complex than previous ones, targeting areas like client support modernization, and are expected to yield low single-digit million run-rate savings starting in Q4, contributing to the long-term goal of mid-twenties EBITDA margins. President and CEO Chris Fowler addressed the OB3 bill, noting that client uncertainty has shifted to active planning. While there could be a slight headwind to sales in the second half of the year, he views it as a long-term opportunity for TruBridge to help clients navigate the new landscape.

Sarah James of Cantor Fitzgerald inquired about the scale and pacing of TruBridge's savings and efficiency initiatives, and also asked about the impact of the 'One Big Beautiful Bill' on client budgeting and contract signings.

Answer

Chief Financial Officer Vinay Bassi detailed that current efficiency initiatives are more complex than prior efforts, focusing on areas like client support modernization, with savings expected in Q4. He reiterated the goal of reaching mid-twenties EBITDA margins. President and CEO Chris Fowler addressed the legislative impact, noting that while there was a pause due to uncertainty, clients are now planning. He acknowledged a potential short-term headwind to sales but sees a long-term opportunity to help clients navigate the new healthcare landscape.

Sarah James of Cantor Fitzgerald inquired about the scale and pacing of the company's savings and efficiency initiatives and asked about the impact of the 'One Big Beautiful Bill' on client budgeting and contract signings.

Answer

Chief Financial Officer Vinay Bassi explained that current efficiency initiatives are more complex than previous ones and are expected to yield low single-digit millions in run-rate savings, starting in Q4, with a long-term goal of reaching mid-twenties EBITDA margins. President and CEO Chris Fowler addressed the legislative impact, noting that while there could be a short-term headwind on sales as hospitals plan, he sees a long-term opportunity for TruBridge to help clients navigate the new environment.

Gabrielle Ingoglia, on behalf of Sarah James, asked if the expiration of enhanced premium subsidies for the ACA marketplace has become a point of concern in discussions with provider clients.

Answer

CEO Dan Burton confirmed that the potential expiration of subsidies is another financial concern for their health system clients, adding to pressures from Medicaid and research funding cuts. He emphasized that Health Catalyst is positioned to help clients navigate these challenges with its application portfolio, which includes solutions for revenue cycle management (Vitalware) and cost management (PowerCosting).

Sarah James of Cantor Fitzgerald asked for the mix of migrating clients who pocket savings versus reinvesting in new products, and how this dynamic bridges to the company's overall 103% dollar-based retention guidance.

Answer

CEO Dan Burton explained that while the company strives to upsell applications to migrating clients, the 103% dollar-based retention target for 2025 already accounts for the full impact of these migrations. He specified that the guidance incorporates a 'couple of points of headwind' from clients who opt to realize the cost savings from Ignite's more efficient platform. He cautioned that a significant negative macro event could potentially increase this headwind.

Sarah James of Cantor Fitzgerald questioned if the higher revenue on lower lives from early sales wins was due to higher utilization or a broader product purchase. She also asked about demand trends among mid-sized employers.

Answer

CEO Peter Anevski confirmed the dynamic was due to higher expected utilization rates based on the industry mix of the early client wins. He also stated that demand for Progyny's benefits continues to increase across companies of all sizes, consistent with trends seen in prior years.

Sarah James of Cantor Fitzgerald followed up on the gross margin discussion, asking for more detail on the sizable investments planned for the rest of the year. She also asked if potential tariffs could impact the timing of drug shipments.

Answer

CEO Peter Anevski reiterated that the company plans for roughly $15 million in incremental P&L investments this year related to its platform, product expansion, and recent acquisitions, but declined to provide a specific breakdown between hiring and other costs. Regarding tariffs, he stated that he does not anticipate an impact on the timing of drug shipments and could not speculate further.

Sarah James asked if there was any evidence of pull-forward demand from the departing client's employees in Q4 or assumed in H1 2025, and how the new ancillary services should be modeled financially.

Answer

CEO Peter Anevski confirmed there was no demand pull-forward in Q4 and none is assumed for 2025, as the transition program is limited to members already in treatment. Both he and CFO Mark Livingston noted the financial impact of new services is currently too small to model separately but pledged to provide more detail once it becomes material.

Sarah James of Cantor Fitzgerald questioned a perceived discrepancy in client count figures, asking about account losses. She also asked if Progyny sees market demand for plans with moderated utilization and if the company would offer such a product.

Answer

CEO Pete Anevski clarified the client math, stating there were only 5 client losses during the year and that some new clients had already gone live. He firmly stated that Progyny does not believe in or offer plans with arbitrary restrictions like dollar maximums, as they create a poor member experience and lead to suboptimal clinical decisions driven by 'economic scarcity.'

Sarah James of Cantor Fitzgerald asked for help in sizing the potential opportunity from the proposed removal of the inpatient-only list, including potential revenue per case and the impact on surgeons' ability to move their full book of business to Surgery Partners' facilities.

Answer

CEO Eric Evans stated that while it is too early to precisely quantify the opportunity, the proposal is a significant positive. He emphasized that removing procedural barriers for physicians is powerful, as it simplifies their workflow and encourages them to bring more commercial cases, similar to the trend seen after total joints were approved for ASCs. He noted these are higher-acuity procedures and part of a favorable long-term tailwind.

Sarah James from Cantor Fitzgerald requested an update on the GI case mix as a percentage of total volume and the quantitative impact this mix shift has on revenue per case.

Answer

CFO David Doherty explained that while GI volume growth was strong and contributed to rate pressure, the impact on the overall mix was marginal in basis points. He cautioned against overanalyzing a single quarter due to calendar effects and reiterated the full-year outlook for balanced growth. CEO J. Evans added that the core GI business remains a strong and valued growth driver for the company alongside orthopedics and ophthalmology.

Sarah James asked about the company's net debt-to-EBITDA target, questioning how high the metric might temporarily go to fund growth and whether the goal of reaching the mid-3x range by 2025 is still valid.

Answer

CEO J. Evans reiterated the company's focus on deleveraging and confirmed the goal to reach the 3x range remains, though short-term M&A activity could cause temporary pressure. CFO David Doherty affirmed that the 5-year model shows no need to access capital markets to fund growth. He expects the leverage ratio to continue its downward trajectory through 2025 and beyond, despite potential short-term ticks up from acquisitions, ultimately reaching the mid-3s and better.

Sarah James of Cantor Fitzgerald asked if the sustainable level of free cash flow needed to self-fund growth is higher than previously thought to account for lumpiness. She also asked for clarification on the factors that impacted revenue per case during the quarter.

Answer

CFO David Doherty asserted that the company has no concerns about its ability to fund future M&A, stating their five-year model shows sufficient liquidity to meet growth targets while keeping leverage below 3.0x. He explained that the Q3 same-facility rate was impacted by a predictable calendar shift favoring higher volumes of lower-acuity procedures like GI and ophthalmology, which mathematically pressures the rate metric despite strong underlying growth in high-acuity total joints.

Sarah James of Cantor Fitzgerald requested clarification on the components of the raised guidance, asking if it was primarily due to run-rating CenterWell's outperformance and if that strength is sustainable.

Answer

CFO Celeste Mellet confirmed that the guidance boost reflects the continuation of CenterWell's strong patient growth and pharmacy momentum, as well as better-than-expected MA membership retention. She noted that these trends are expected to continue, while certain one-time favorable items from Q1 are not being run-rated.

Sarah James inquired about the amount of investment spending that shifted out of Q1 2025, its timing, and whether the quarter's performance was in line with expectations excluding this shift.

Answer

Chief Financial Officer Celeste Mellet clarified that while the full-year investment forecast remains the same, the timing has shifted. Only about 10 basis points of the incremental investment impact flowed through the MLR in Q1, as many Stars-related investments ramped up later in the quarter. A higher impact is now expected in Q2 through Q4.

Sarah James questioned the path to achieving a 3% margin in Individual MA, asking if it requires Stars improvement, how it balances with cost and pricing actions, whether the membership book needs to shrink further, and if the progress would be ratable or back-end loaded.

Answer

CEO James Rechtin confirmed that reaching the 3% margin target necessitates a competitive Stars position, a normalized rate environment, and optimal operating performance. He described the path as a 'steady march.' CFO Celeste Mellet added that this requires better multi-year planning and ruthlessly prioritizing initiatives that drive value to create investment capacity.

Sarah James inquired about the potential for using plan crosswalks in 2026 as a mitigation strategy if Stars ratings do not improve, and also asked for clarification on the MA margin implied in the 2025 guidance.

Answer

George Renaudin, President of the Insurance segment, explained that crosswalking is one of several levers being evaluated for Stars mitigation. CFO Susan Diamond stated that no specific 2025 MA margin guidance has been given. She noted that any margin progression was expected to come from exiting unprofitable plans, but this is now being balanced against new investment needs.

Sarah James from Cantor Fitzgerald questioned the change in expectations for BetterHelp, which was previously guided to exit the year flat, and asked if it is expected to return to growth in 2026.

Answer

CFO Mala Murthy explained that Q2 saw incremental pressure in the U.S. cash business from higher churn and fewer gross adds, which she attributed to more consumers using insurance. The updated guidance assumes these trends continue. As a result, the high end of the Q4 guidance no longer implies a return to flat year-over-year growth. The 2026 outlook depends on how effectively the new insurance offering can scale to offset these cash-pay headwinds.

Sarah James asked for clarification on several moving pieces to establish a jumping-off point for 2025 forecasts. She questioned how much of the 125 basis point Q4 investment would be ongoing, the potential benefit from moving past an election year's ad spend environment, and the key factors influencing the guide for flat margins in 2025.

Answer

Chief Financial Officer Mala Murthy indicated that detailed 2025 guidance would be provided in February. She stated that the company has provided a 'ZIP code' for 2025 Integrated Care revenue growth and margins, along with color on BetterHelp's trajectory, but declined to provide more granular detail on the specific components at this time.

Sarah James asked for clarity on the key variables for the 2025 outlook, including the persistence of the 125 basis point investment spend, the potential impact of the election year ending, and the magnitude of factors influencing the flat margin guidance.

Answer

CFO Mala Murthy deferred providing granular details, stating that the company would offer more comprehensive 2025 guidance in February. She indicated that the current commentary provides a general 'ZIP code' for full-year revenue growth and adjusted EBITDA margins for the Integrated Care segment.

Sarah James of Cantor Fitzgerald & Co. questioned if the 2.5% to 3% adjusted admission growth target for behavioral health is still appropriate given the mix shift to outpatient and the year-to-date performance. She also asked how inpatient behavioral volumes have performed against expectations.

Answer

Executive VP & CFO Steve Filton acknowledged the 2.5-3% target has been 'elusive' partly because the company has not captured its fair share of the shift to outpatient care. However, he affirmed that with a renewed and intense focus on growing outpatient services, the company believes this long-term growth target remains reasonable as the underlying demand exists. He noted sequential improvement from Q1 to Q2 in outpatient growth.

Sought clarification on whether the full-year behavioral volume guidance implies an above-range growth rate for the rest of the year, and asked for details on the Nevada DPP payment, specifically how many months it covered.

Answer

The company confirmed that achieving the full-year behavioral volume target mathematically requires an acceleration for the rest of the year. The $82 million Nevada DPP payment was for Q1 only and was a gross figure, not net of provider taxes, which are paid regularly.

Sarah James inquired about Universal Health Services' expansion strategy for its behavioral portfolio, asking about the focus on areas like outpatient services and opioid treatment, and the expected timeline for these initiatives to become material.

Answer

Executive Steve Filton explained the strategy is to build out the continuum of care, with a specific focus on expanding freestanding outpatient facilities and entering the opioid use disorder space as part of an integrated care model. He projected adding 10-12 freestanding facilities annually, while noting the opioid treatment pipeline has a longer, less predictable development timeline.

Sarah James of Cantor Fitzgerald & Co. asked about UHS's expansion strategy for its behavioral portfolio, specifically inquiring about interest in outpatient services and opioid use disorder (OUD) treatment, and the timeline for these initiatives to become material.

Answer

Executive Steve Filton detailed a strategy focused on expanding the outpatient continuum of care, including developing more freestanding facilities. He confirmed expansion into the OUD space, emphasizing an integrated care model rather than standalone clinics. He projected adding 10-12 freestanding outpatient facilities annually, noting the OUD pipeline would develop more slowly.

Sarah James of Cantor Fitzgerald inquired about the comparison of fee schedules and collection rates across commercial, exchange, and self-pay patients, and asked about strategies to improve collections from self-pay.

Answer

CFO Mike Marks noted that collection rates on traditional commercial plans are stable, while exchange collections are slightly lower. CEO Sam Hazen clarified that for the truly uninsured (self-pay), most patients qualify for charity care or significant discounts under HCA's patient protection policy, resulting in minimal revenue being produced or collected from this population.

Sarah James asked how HCA is using its capital expenditures to support growth in cardiac services and how it allocates spending between high-acuity inpatient and lower-acuity outpatient settings.

Answer

CEO Sam Hazen explained that HCA's capital allocation strategy remains consistent, with a significant portion of its $6.2 billion active project pipeline dedicated to increasing inpatient capacity. He clarified that capital also supports outpatient facilities, emergency rooms, cath labs, and clinical technology. Hazen stated he does not anticipate a material change in the allocation of capital across these categories, as the company continues to invest to meet high levels of occupancy and demand.

Sarah James sought to clarify the bridge for equivalent admissions growth from 4.5% in 2024 to the 3-4% guided for 2025, asking about hurricane offsets, leap year impact, and potential conservatism.

Answer

CFO Mike Marks explained the moderation in volume growth guidance for 2025 is driven by several factors. The primary driver is slower growth expected from healthcare exchanges compared to the surge in 2024. Other factors include the non-repeating benefit from the Two-Midnight Rule and the flattening out of Medicaid redeterminations. He affirmed that 3-4% growth is still strong and above their long-term trend.

Sarah James of Cantor Fitzgerald asked why outpatient surgical trends remained negative, whether a recovery is assumed in the 2025 outlook, and requested clarification on the level of business interruption insurance HCA carries.

Answer

CEO Sam Hazen explained that the decline in outpatient surgery volume was concentrated in lower-paying Medicaid and uninsured cases, which has resulted in higher revenue per case and improved profitability for the service line. He does not anticipate a significant change in this trend for 2025. CFO Mike Marks added that while HCA has business interruption coverage, they are not in a position to disclose policy limits or potential recovery amounts.

Sarah James of Cantor Fitzgerald asked about the progression of the Exchange business throughout the second quarter, specifically whether there was an acceleration in claims or a noticeable deterioration in the market risk pool in June.

Answer

CEO Sarah London responded that the company saw broad-based utilization across categories rather than a specific intra-quarter acceleration. She hypothesized that heightened media coverage about potential coverage loss drove preemptive demand from members, which was compounded by aggressive provider coding. She confirmed that the back-half forecast prudently accounts for this trend continuing.

Sarah James of Cantor Fitzgerald inquired about the progression of the exchange business during the second quarter, asking if there was an acceleration in claims trends or a noticeable deterioration in the market risk pool in June compared to earlier months.

Answer

CEO Sarah London responded that while the primary driver was the overall morbidity shift, there was also broad-based utilization throughout the quarter. She did not note a specific acceleration within the quarter but explained that the company has baked in an assumption of continued elevated trend in the second half, partly due to members potentially seeking care before the possible expiration of enhanced APTCs.

Sarah James asked for clarification on why new exchange lives were coming on at a higher MLR, questioning if it was a normal ramp-up or due to higher acuity. She also inquired about the effectuation rate and the year-end enrollment forecast for the exchanges.

Answer

CEO Sarah London explained that new members are showing utilization consistent with care that informs acuity (like PCP visits), but the company is taking a prudent posture until risk adjustment data is available. She noted that effectuation was strong, renewal rates were meaningfully higher, and the year-end membership projection is now in the high 4 million range, up from mid-4s, due to the strong Q1 starting point.

Sarah James asked for a bridge from the old to new guidance, questioning why EPS guidance remained unchanged despite a $4 billion revenue increase, and inquired about margin expectations for the Marketplace and Part D businesses.

Answer

CEO Sarah London stated it was too early in the year to change EPS guidance but confirmed the company is still targeting a 1% margin for the PDP business and expects to be well within the 5% to 7.5% range for Marketplace. CFO Andrew Asher added that the higher revenue represents future earnings power, but its exact impact in 2025 is not yet certain.

Sarah James asked for the ability to size the impact of pent-up demand from rejoiners versus acuity mix, and also questioned the trend pressure from GLP-1 drugs and whether rates are adjusted accordingly.

Answer

CEO Sarah London explained that the slowing of the 'rejoiner' trend, who return with high initial utilization, should provide a natural tailwind into 2025. CFO Andrew Asher added that for GLP-1s, Centene uses data from states with existing coverage to inform rate discussions with states considering adding the drugs, ensuring uptake is factored into pricing.

Sarah James of Cantor Fitzgerald asked about the timeline for the Connecticut Care acquisition to reach target margins and for an update on the year-end ACA exchange membership forecast, questioning if recent growth contributed to MLR pressure.

Answer

CEO Joseph Zubretsky stated the original model for the Connecticut acquisition anticipated reaching target margins by 2027. CFO Mark Keim updated the year-end Marketplace membership forecast to approximately 650,000, up slightly due to strong SEP enrollment. He clarified that this subtle membership increase was not a primary driver of MLR pressure, as the new members' acuity profile was similar to the existing book's.

Sarah James asked for clarification on whether the increased Medicaid cost trend was due to conservatism or observed data, and if member mix or benefit design could alter the typical MLR seasonality for the Marketplace business.

Answer

CEO Joseph Zubretsky confirmed the Medicaid trend increase was "entirely due to early in the year of conservatism" and not based on Q1 data. CFO Mark Keim explained the Marketplace MLR trajectory would be flatter than usual due to a higher mix of new members, the gradual improvement of the ConnectiCare book, and a lower mix of more seasonal products.

Sarah James of Cantor Fitzgerald asked for clarification on the 2025 Medicaid cost trend assumption of 4.5%, questioning what drove the expected moderation from recent levels. She also asked if knowing 75% of 2025 rates meant Molina could achieve its long-term margin targets for the full year.

Answer

CEO Joe Zubretsky clarified that the 2024 trend of 6.5% included a significant one-time acuity shift from redeterminations; the 2025 forecast of 4.5% represents a higher 'core' utilization trend than seen in 2023. CFO Mark Keim added this 4.5% trend is matched by a 4.5% rate increase assumption. Regarding margins, Zubretsky stated that achieving the long-term target in 2025 would require the remaining 25% of unknown rates to come in above their conservative 2.5% estimate, or through un-forecasted retroactive rate adjustments.

Sarah James of Cantor Fitzgerald requested clarification on a clean jumping-off point for Q3 results, asking about the size of a one-time vendor credit and whether any of the pressure on the core Medicaid MLR was from out-of-period items.

Answer

President and CEO Joe Zubretsky emphasized that Molina is comfortably operating its Medicaid business at a 90% MCR. CFO Mark Keim provided a bridge from the Q3 reported 90.5% MCR to an expected 89% in Q4. He explained that the clean Q3 jumping-off point is 90% after excluding the 50 bps California retro adjustment. The Q4 improvement is driven by the non-recurrence of the California item, known rate increases, and continued improvement in new store performance. He also guided to a full-year G&A ratio of 6.8%.

Sarah James from Cantor Fitzgerald followed up on the hospital volume guidance reduction, asking what specifically changed during the quarter or in the company's outlook for the remainder of the year.

Answer

Chairman & CEO Saum Sutaria responded by highlighting that the most significant factor in the quarter was the continued and successful execution of Tenet's multi-year high-acuity strategy. He emphasized that this strategy is consistently delivering strong revenue and earnings growth across the hospital portfolio.

Sarah James noted that USPI's 2024 guidance shifted to favor revenue per case over volume and asked if this mix should be expected going forward. She also requested the allocation of directed payment program (DPP) revenue between the ambulatory and hospital segments.

Answer

Chairman and CEO Dr. Saum Sutaria clarified the guidance was for the remainder of 2024 and highlighted that the strong revenue per case growth was achieved even after acquiring a large, lower-acuity portfolio of centers. EVP and CFO Sun Park stated that "virtually all" of the DPP revenue relates to the hospital segment due to patient and payment mix differences.

Sarah James asked how Carelon's margins are tracking against expectations and when the growth-related margin pressures in CarelonRx and Carelon Services might normalize.

Answer

Peter Haytaian, President of Carelon, stated that Services margins were within expectations but slightly down due to the CareBridge integration and expansion of risk-based arrangements. He explained that Rx margins were lower despite improved operating performance because of significant investment to support strong growth, particularly with large new accounts. This is viewed as a strategic investment in future growth.

Sarah James sought details on RAF score availability for new Medicare Advantage members, asking how the portion of new members onboarding with existing RAF scores compared to historical averages and what the typical step-up in RAF score capture is between a member's first and second year.

Answer

Mark Kaye, CFO, responded by stating that risk adjustment is a critical component for aligning benefits with member needs. He acknowledged the recent reimbursement changes to the program but emphasized that the company remains disciplined in its approach to benefit design and coding. He noted the focus is on accurately documenting member conditions to support their clinical needs and ensure a stable marketplace. Gail Boudreaux, President and CEO, added that member acuity is aligned with the expectations the company has set.

Gaby on behalf of Sarah James from Cantor Fitzgerald requested more detail on commercial cost trends observed in Q4 and for the full year 2024, including breakdowns by inpatient and outpatient services, and asked what is assumed for these trends in the 2025 guidance.

Answer

CFO Mark Kaye provided a concise response, stating that commercial performance was strong and trends, while elevated, were stable and fully accounted for in pricing. He mentioned inpatient medical and outpatient ER as drivers but noted that trends developed as expected. He indicated the 2025 outlook is similar, with a continued focus on pricing and margin expansion through product mix.

Sarah James of Cantor Fitzgerald asked if the 2024 Medicaid profitability was consistent across all states and whether the strong 2023 results could affect the ability to pursue retroactive rate increases under actuarial soundness principles.

Answer

CFO Mark Kaye declined to comment on individual state profitability but reiterated that margins will compress significantly this year due to the industry-wide rate and acuity mismatch. He expressed confidence that rates will appropriately reflect acuity over time, allowing the company to achieve its long-term targets, but did not directly address the impact of 2023 results on retroactive adjustments.

Sarah James returned to the tariff topic, asking if Inflation Reduction Act (IRA) penalties are sufficient to protect from price pass-through on Medicare and if bids must be submitted assuming tariffs are in place.

Answer

Andrew Witty, an executive, reiterated that while the outcome is unknown, the company is protected by a 'mesh of protection.' This includes government regulations like IRA inflation caps and Medicaid best price rules, as well as OptumRx's own contractual price protections. He assured that the company would be very thoughtful in its bidding process, taking these layers of protection into account.

Sarah James from Cantor Fitzgerald requested a bridge from the 2024 MLR to the 2025 MLR, asking to size the impacts of key components like core trend, the IRA, and any offsetting factors.

Answer

Executive John Rex outlined the bridge, citing IRA impacts, a business mix shift toward public sector plans, and the second year of CMS funding cuts as upward pressures on the 2025 MLR. These are partially offset by the non-recurrence of 2024's cyber and South America impacts (approx. 30 bps) and various affordability initiatives.

Sarah James of Cantor Fitzgerald requested a bridge for the MLR from 2024 to 2025, asking for the quantified impact of components like core trend, IRA effects, and any offsets such as rate changes or non-repeating items.

Answer

Executive John Rex explained the ~100 basis point increase in the 2025 MLR is driven by IRA impacts, a continued mix shift toward public sector plans, and the second year of CMS funding cuts. He noted that non-repeating negative impacts from 2024, such as the cyberattack and South America business impacts, provided a partial offset, quantifying their combined 2024 effect at about 30 basis points.

Sarah James asked for an update on OptumInsight, seeking color on the sales pipeline and margins for the core business excluding Change, and for Change specifically, its earnings impact and revenue trajectory into 2025.

Answer

Roger Connor, CEO of OptumInsight, stated that the core business is performing well with momentum, driven by payer and provider needs for cost efficiency. Regarding Change Healthcare, he noted that while customer reconnections are progressing, volumes are not yet at pre-attack levels as clients seek vendor redundancy. This is causing some business disruption impact to carry over into 2025, but also creates an opportunity to win new business as an additional supplier for others.

Gaby, on behalf of Sarah James, asked for more detail on the $3.2 million in unanticipated self-insurance expenses that contributed to the Q4 EBITDA miss and sought assurance that this issue would not repeat. She also asked for clarification on whether the expected sequential decline in SG&A in 2025 would be on a dollar basis or as a percentage of revenue.

Answer

CFO Norman Rosenberg explained that as a self-insured entity, some fluctuation is inherent but that the company saves millions annually compared to traditional premiums. He noted that the reserving process becomes more accurate over time and this quarter's adjustment should help smooth costs going forward. He clarified that SG&A is expected to decline sequentially in absolute dollar terms throughout 2025, while as a percentage of revenue, it should improve from Q4 levels but may fluctuate quarterly before improving in the second half of the year.

Sarah James of Cantor Fitzgerald asked to bridge the previous directional guidance of 'more than 10% growth' to the new 2025 outlook, questioning if prior guidance already included some stop-loss pressure or the new $150 million investment.

Answer

CFO Brian Evanko clarified that the prior commentary was directional and that the full magnitude of the stop-loss pressure was not known at the time. He identified two key items that are new since that commentary: the greater-than-anticipated stop-loss pressure and the new $150 million investment plan. He noted that underlying business growth remains strong, with top-line growth expected around 6% ex-Medicare.

Sarah James sought clarification on whether the company has seen definitive proof that face-to-face meetings positively impact referral patterns. She also asked about typical patient-day seasonality during the fourth quarter.

Answer

CEO Christopher Hunter affirmed that direct engagement can be effective, though it's not always possible to meet every source face-to-face. CFO Heather Dixon explained Q4 seasonality, confirming October is typically the strongest month before volumes soften in November and December due to the holidays.

Inquired about the possibility of using business interruption insurance to cover costs related to the Change Healthcare outage, whether the new vendor relationships are permanent, and the seasonal impact on net operating revenue.

Answer

The company is pursuing insurance options but provided no specifics. The vendor changes are part of a new, permanent strategy to diversify and avoid being 'single-threaded' through any one technology partner for critical functions. The impact on net operating revenue will be a significant timing shift of $25-30 million from Q3 to Q4.

Sarah James asked if the higher margin potential of value-based care contracts influences clinical staff allocation among different payers and if it alters the decision-making process for using contract labor versus turning away volume.

Answer

President and CEO Chris Gerard explained that while they cannot discriminate based on payer, they do strategically manage clinical capacity, prioritizing referral partners with higher-value contracts. He affirmed that Amedisys will eventually terminate relationships with payers who refuse to offer fair reimbursement. The decision to use contract labor is based on a disciplined evaluation of cost versus the opportunity cost of lost volume.

Sarah James of Barclays sought to clarify whether the noted impact of telemedicine was on visits per episode or if it was causing certain patient types to shift entirely to telehealth for their care.

Answer

President and CEO Chris Gerard explained that the issue is an underutilization of the home health benefit itself, not a shift in how care is delivered. He stated that patients using telehealth for physician appointments are not receiving thorough physical assessments, leading doctors to miss opportunities to identify needs and refer patients for home health services.

Sarah James from Barclays Bank inquired whether staffing shortages at smaller competitors were creating market share opportunities for Amedisys. She also asked if the establishment of value-based care contracts has led to observable market share gains in specific regions.

Answer

CEO Chris Gerard confirmed that the company is gaining market share in most of its regions, partly by capitalizing on opportunities as smaller agencies struggle with staffing. Regarding value-based care, he explained that while their new case-rate model is not yet finalized, existing partnerships that include quality-based upside have already resulted in increased referral flow, indicating strong potential for future share shifts.