Scott Fidel

Scott Fidel requested a deeper dive into Part D dynamics, specifically regarding LIS vs. non-LIS populations, market trends, risk scores, and economics post-IRA, and how Centene positioned for profitability in 2025 and 2026.

Answer

CFO Drew Asher explained that the 2025 expanded risk corridor helped navigate non-LIS specialty trend post-$2,000 MOOP, with 2026 bids incorporating IRA impacts. He noted membership growth from 8.1M to 8.7M across LIS and non-LIS, with revenue growth driven by yield increase due to direct subsidy. He highlighted the $26B product's good margin, strong underwriting, and value proposition.

Scott Fidel asked for a detailed breakdown of Part D dynamics, focusing on LIS versus non-LIS populations, market trends, underlying inputs like risk scores and economics post-IRA, and how Centene positioned for growth and profitability in 2025 and 2026.

Answer

CFO Drew Asher explained that the expanded 2025 risk corridor helped navigate severe non-LIS specialty trend when the maximum out-of-pocket dropped to $2,000. He noted 2026 bids incorporated IRA impact, and Centene is growing membership from 8.1 million to 8.7 million across both LIS and non-LIS populations. Revenue growth is largely driven by a yield increase due to the direct subsidy increase, with the $26 billion product maintaining a good margin.

Scott Fidel requested more detail on 2025 operating cash flow expectations and the company's updated outlook on share buybacks for the year, including pacing.

Answer

CFO Andrew Asher explained that while quarterly operating cash flow can be volatile, the multi-year average is a better indicator, typically 1.3 to 1.4 times adjusted net income. He confirmed there is no change to the plan for approximately $2 billion in share repurchases in 2025, which is already embedded in guidance, and noted that 2024's cash flow statement did not impede buyback activity.

Scott Fidel asked for the drivers behind the mid-single-digit Marketplace growth forecast for 2025 and inquired about any retroactive Medicaid rate adjustments in California.

Answer

CEO Sarah London attributed the moderated growth outlook to the end of redetermination-driven enrollment and the reintroduction of program integrity policies like agent-of-record lock and income verification. CFO Andrew Asher confirmed that a negative retroactive rate adjustment for California was booked in the second quarter's results.

Scott Fidel inquired about Molina's strategy for underwriting and new business development, encompassing both organic contract wins and M&A. He specifically asked about the rationale behind pursuing the Florida CMS contract and the performance of the M&A book acquired over the last couple of years relative to ongoing operations.

Answer

President and CEO Joe Zubretsky affirmed active pursuit of new contracts, highlighting an 80% win rate and $20 billion in run rate revenue from new contracts, including the valuable Florida Kids contract. He clarified that the initial $1.50 drag on 2026 earnings from Florida is due to prep costs, new program dynamics, and reserve building, not indicative of its long-term earnings power. CFO Mark Keim added that the drag is an anomaly of one quarter of new business and G&A prep. Joe Zubretsky described the current environment as ideal for M&A, targeting single-state payers facing challenges, aiming to acquire revenue at book value and manage it to target margins within two to three years, emphasizing confidence in the long-term veracity of the business.

Scott Fidel inquired about Molina's underwriting approach for new business development, including organic contracts like the Florida CMS contract and M&A, and how the overall book of M&A from recent years has performed relative to ongoing operations.

Answer

President and CEO Joe Zubretsky affirmed active pursuit of new contracts, citing an 80% win rate and $20 billion in run rate revenue, including the Florida Kids contract. He explained the $1.50 drag on 2026 earnings for Florida Kids is due to pre-revenue expenses, new program startup costs, and reserve building, not indicative of its long-term earnings power, which is projected at $3 per share. He described the current environment as ideal for M&A, with actionable opportunities from troubled single-state payers, aiming to acquire revenue at book value and manage to target margins within 2-3 years. CFO Mark Keim added that new properties typically take two years to reach target margins, and the initial quarter's margins are exaggerated by one-time items and G&A prep.

Scott Fidel asked for a breakdown of Molina Healthcare's Medicare performance for the current year, distinguishing between traditional Medicare Advantage (MA) and the Bright Assets acquisition in California, and how these influence the 2026 break-even margin view.

Answer

CEO Joseph Zubretsky and CFO Mark Keim noted that Medicare is undergoing a rejuvenation focused on the dual-eligible segment, with $2 billion in MMP revenue (44,000 members) converting to FIDEs and HIDEs, plus 20,000 new members. The Bright acquisition, now in its third full year, is expected to show improvement. While cautious about the profitability of MMP conversions due to the new product chassis, they aim for break-even. The Medicare portfolio is roughly 1/3 MAPD, 1/3 MMP, and 1/3 D-SNP, with slight margin erosion from MMP to FIDEs/HIDEs being offset by Bright's improvement, leading to a margin-neutral start for next year.

Scott Fidel asked for a breakdown of Molina's Medicare performance in 2025 between its traditional D-SNP/MOH book of business and the Bright acquisition in California, and how these categories influence the 2026 break-even margin view.

Answer

CEO Joseph Zubretsky explained that Medicare is undergoing rejuvenation, particularly with MMPs ($2 billion revenue, 44,000 members) converting to FIDEs and HIDEs, and new D-SNP RFP wins. He expects the Bright acquisition (third full year) to show improvement. For 2026, Molina is cautious on MMP conversions due to the new product chassis, despite serving the same members in the same geographies. The overall view is break-even, with Bright improving and MMP conversions being cautiously managed. CFO Mark Keim detailed Medicare's composition (1/3 MAPD, 1/3 MMP, 1/3 D-SNP) and noted slight margin erosion from MMP to FIDE/HIDE conversions, offset by Bright's improvement, leading to a margin-neutral start for 2026.

Scott Fidel of Stephens asked for a bridge to the 6% Marketplace pretax margin guidance for 2025, given that most members were retained and same-store pricing was flat-to-down. He also requested the 2025 guidance figures for investment income and operating cash flow.

Answer

CEO Joe Zubretsky explained the margin target was a conscious decision to reinvest two years of excess profits into pricing to drive growth and avoid minimum MLR rebates. CFO Mark Keim added that they are purposefully targeting a 79% MCR (vs. 75% in 2024) by setting rate increases 'a couple of hundred basis points' below trend. Keim guided to ~$400 million in 2025 investment income and expects operating cash flow to normalize to a level above net income after being impacted by risk corridor payment timing in 2024.

Scott Fidel from Stephens asked for a sequence of Molina's risk corridor position, wanting to understand the cushion at the start and end of Q3, and the expected remaining cushion at year-end to gauge the buffer heading into 2025.

Answer

President and CEO Joe Zubretsky cautioned that averages can be misleading as corridor protection is state-specific. CFO Mark Keim elaborated that the company started the year with an approximate 200 basis point corridor cushion embedded in its MLR. He expects to have used about half of that during 2024, leaving roughly 100 basis points of cushion on a full-year basis. He noted that the replenishment of this corridor in 2025 depends on the new rate cycle.

Scott Fidel inquired if Cigna's PBM model is now fully aligned with regulatory and policymaker expectations, and asked Brian Evanko about the expected ramp-up and percentage of PBM clients adopting the new pricing model between 2026 and 2028.

Answer

David Cordani expressed confidence that the new model aligns with regulatory pushes for affordability, predictability, and transparency. Brian Evanko confirmed that the entire Cigna Healthcare fully insured book will adopt the new model in 2027, and at least 50% of the Evernorth business is expected to adopt it by year-end 2028, with core value creators remaining consistent despite a shift in compensation structure.

Scott Fidel inquired whether Cigna's PBM model is now fully aligned with regulatory and policymaker expectations following recent industry developments. He also asked Brian Evanko for an updated view on the expected ramp and percentage of PBM clients adopting the new pricing model from 2026 through 2028.

Answer

David Cordani, Chairman and CEO, expressed confidence that their new PBM model aligns with regulatory pushes for affordability and transparency. Brian Evanko, President and COO, stated that Cigna Healthcare's fully insured book will adopt the new model in 2027, and at least 50% of Evernorth's business is expected to adopt it by year-end 2028, with early positive feedback from clients.

Scott Fidel inquired about the key building blocks supporting Cigna Healthcare's expected 2026 growth at the higher end of its long-term algorithm, specifically asking about the performance and outlook for the Stop-Loss business and individual exchange business pricing and enrollment expectations.

Answer

David Cordani, Chairman and CEO, confirmed Cigna Healthcare is on track for its 2026 growth outlook. Brian Evanko, President and COO, detailed tailwinds from Stop-Loss repricing and headwinds from non-recurring 2025 benefits. He noted Stop-Loss is tracking well with its two-year margin recovery plan. Ann Dennison, CFO, added that Stop-Loss MCR and rate execution are in line with expectations, reinforced by enhanced analytics. Evanko also mentioned flat to slightly declining national accounts, continued growth in the Select segment, and an expected decline in individual exchange membership commensurate with industry trends.

Scott Fidel of Stephens Inc. asked if industry-wide stop-loss pressures could benefit Cigna's client persistency during its repricing efforts. He also requested details on the renewal cycle and the opportunity to reprice the book of business for 2025.

Answer

CFO Brian Evanko explained that being an integrated carrier provides an advantage over standalone competitors, as stop-loss is only one part of a broader client relationship. He clarified that the renewal cycle is weighted toward the beginning of the year, with about two-thirds of stop-loss premiums renewing in Q1. This timing limited the ability to fully reprice for 2025, underpinning the timeline for margin recovery in 2026 and 2027.

Scott Fidel asked for an update on inpatient cost trends and Cigna's perspective on the competitive environment for the ACA exchanges in 2025, noting that some competitors have filed negative rate increases.

Answer

CFO Brian Evanko reported that inpatient costs were broadly in line with expectations, with some deceleration in surgical activity offset by the previously mentioned uptick in specialty drug utilization. Regarding the exchanges, he said 2024 was focused on margin expansion and that for 2025, Cigna's low-double-digit rate increase is on the higher end, but performance will depend on geographic mix and competitor behavior.

Scott Fidel requested an update on Elevance Health's capital deployment priorities for 2026, specifically regarding the appetite for M&A given the dynamic backdrop, and whether acquiring risk-based platforms for Carelon Services remains a priority versus focusing on integration.

Answer

Mark Kaye, CFO, stated that near-term capital allocation reflects a more conservative posture, prioritizing balance sheet strength, funding targeted investments for margin stabilization and Carelon's growth, and opportunistic share repurchases. The long-term capital allocation framework remains unchanged. For M&A, the near-term priority is integration and execution, fully scaling recent acquisitions, with a lower level of M&A activity expected in the first half of 2026 and a greater emphasis on opportunistic share repurchases. Gail Boudreaux, President and CEO, added a brief closing remark.

Scott Fidel requested an update on capital deployment priorities for 2026, specifically regarding the appetite for M&A given the dynamic backdrop, and whether acquiring risk-based platforms for Carelon Services remains a priority or if the focus is on integration.

Answer

Mark Kaye, CFO, Elevance Health, stated that near-term capital allocation reflects a more conservative posture, prioritizing balance sheet strength, funding targeted investments for margin stabilization and Carelon's growth, and opportunistic share repurchases. The long-term capital allocation framework remains unchanged. For M&A, the near-term priority is integration and fully realizing value from recent acquisitions, with a lower level of M&A activity expected in the first half of 2026 and a greater emphasis on opportunistic share repurchases.

Scott Fidel requested an update on Elevance Health's DSNIP positioning for 2026, considering the competitive landscape, and the longer-term strategic view on PPO products, noting past cycles of expansion and pullback.

Answer

Felicia Norwood, President of Government Health Benefits, expressed satisfaction with early AEP positioning in HMO and DSNP products, which align with Medicaid and Carelon's complex care management. She noted PPO has not been a traditional focus for Elevance, and the current strategy emphasizes disciplined, sustainable performance, aiming for a 3-5% long-term target in Medicare. Gail Boudreaux, President and CEO, reiterated the strategic alignment of HMO weighting with value-based care and risk-taking.

Scott Fidel asked for updates on D-SNP positioning for 2026, given more insight into the competitive landscape, and the longer-term view on PPO products in Medicare, considering past cycles of expansion and pullback.

Answer

Felicia Norwood (President of Government Health Benefits, Elevance Health) stated satisfaction with D-SNP and HMO positioning for 2026, aligning with the Medicaid footprint and Carelon's ability to manage complex conditions. She noted PPO has not been a strong focus for Elevance Health, with a decline in footprint, as HMO and D-SNP better support effective member condition management and value-based care strategy. Gail Boudreaux (President and CEO, Elevance Health) reiterated the heavier weighting on HMO products aligns with value-based care and risk-taking.

Scott Fidel of Stephens sought clarification on whether the long-term margin targets for the Health Benefits segment remain intact for 2027, similar to the discussion on Carelon. He also asked for a breakdown of the commercial risk enrollment growth guidance between group and exchange plans.

Answer

CFO Mark Kaye reiterated that the long-term vision and margin objectives for the Health Benefits business have not changed, but the company is being prudent about the pace of achieving them given the evolving business mix. He promised more details at the next investor conference. The company did not provide a specific breakdown of the commercial risk enrollment growth in the response.

Scott Fidel of Stephens inquired about the downstream impacts of the challenging Medicaid environment on the Carelon businesses, given their exposure to Medicaid members.

Answer

Peter Haytaian, President of Carelon, acknowledged that Carelon is experiencing some of the same behavioral health trends in its full-risk products. He explained that the short-term margin profile is impacted by these trends and by the initial margin compression from accelerating the deployment of new risk arrangements, which improve as they mature.

Scott Fidel asked about HCA Healthcare's expectations for growth in specific specialties and procedures in 2026, inquiring about areas anticipating outsized growth due to investments or market trends.

Answer

CEO Sam Hazen explained that HCA's diversified geography and service lines mean no single division or service line generates more than 10-15% of profits/revenue, so no disproportionate growth is expected. He noted reasonable demand for cardiac services, partly technology-driven in electrophysiology, expected to persist. HCA is investing in emergency room services for community health and network importance. He also highlighted that HCA's case mix continues to grow, driven by the acuity of patients in medical space, leading to more acute care requirements.

Scott Fidel inquired about HCA's expectations for growth in terms of specialties and procedures in 2026, asking about areas anticipating outsized procedure growth, particularly in categories where the company has been investing, and underlying market trends.

Answer

CEO Sam Hazen stated that HCA's diversified geography and service lines mean no single division generates more than 10% of profits, and no service line generates more than 15% of revenue. He noted reasonable demand for cardiac services, particularly in electrophysiology, expected to persist into 2026. Hazen also highlighted continued investment in emergency room services and observed that case mix continues to grow, driven by the acuity of medical patients requiring more intensive care.

Scott Fidel requested a breakdown of Medicare volumes (Medicare Advantage vs. fee-for-service) year-over-year and sequentially, along with observations on case mix or acuity trends.

Answer

CFO Mike Marks stated that Medicare Advantage was up 4.8% year-over-year, and traditional Medicare was up 90%. Traditional Medicare case mix index was up slightly, while Medicare Advantage was flat. He noted overall Medicare adjusted admissions were up 3.4%.

Scott Fidel from Goldman Sachs asked for a breakdown of Medicare volumes in the quarter between Medicare Advantage and fee-for-service, along with observations on case mix and acuity trends within these categories.

Answer

CFO Mike Marks reported Medicare Advantage volumes were up 4.8% year-over-year, while traditional Medicare was up 90%. He noted traditional Medicare's case mix index was slightly up, and Medicare Advantage's was relatively flat. Overall, Medicare combined adjusted admissions increased 3.4%.

Scott Fidel asked for preliminary analysis on the potential impact of the new administration's tariff proposals and recent executive orders related to foreign workers and immigration on HCA's labor or demand environment.

Answer

CFO Mike Marks explained that HCA's purchasing organization has long-standing tariff mitigation strategies and that 70% of 2025 supplies are under firm pricing. More details are needed to estimate the impact. Regarding immigration, he stated HCA does not hire undocumented workers and is monitoring any potential impact on the broader labor supply and demand.

Scott Fidel from Stephens Inc. asked for an update on the contracting environment with Medicare Advantage plans, separate from the two-midnight rule issue, and inquired about the potential cadence of EBITDA in 2025 given hurricane recovery timing.

Answer

CFO Mike Marks reported that HCA is largely contracted with its major Medicare Advantage payer partners and has been successful in its 2024 renewal cycle. He deferred providing any detail on the quarterly cadence of 2025 earnings until the formal guidance is issued in January.

Scott Fidel asked for a breakdown of the expected 1.3-1.4 million commercial risk lives decline in 2026, specifically between commercial group and exchange businesses. He also inquired about the margin progression for both commercial group and exchange segments in 2026, considering the planned rebate of exchange profits.

Answer

Company representative Dan explained that the largest share of the risk-based decline is from the exchange business (over 500,000 members), with the remainder from general market decline, pricing posture, and migration to self-funded offerings. He projected exchange margins to be around 1% in 2026. For the commercial group business, he expects to close more than half of the gap to historical margin ranges in 2026, aiming for full achievement in 2027.

Scott Fidel requested an update on the dividend policy and the company's view looking forward. He also asked for a framing of potential portfolio rationalizations in Optum Health and other businesses, philosophically and in terms of revenue or asset base, as the company pursues its new approach.

Answer

Wayne DeVeydt (CFO, UnitedHealth Group) stated there are no changes to historical dividend practices and none are expected, with the dividend being maintained. Stephen Hemsley (Chairman and CEO, UnitedHealth Group) explained that Optum Health is being reshaped to its original conception for maximum impact and value, taking steps to bring it back into a disciplined model for growth. Krista Nelson (COO of Optum Health) added that the portfolio rationalization considers clinical quality, operating cost performance, engagement, and the integrated model's ability to deliver outcomes. This involves a market focus, looking at rooftops, populations, risk, and products, which will lead to actions in the near term for long-term success, including likely withdrawals from some geographic markets and reshaping practices.

Scott Fidel requested an update on the company's dividend policy and sought clarification on the scope and philosophical approach to portfolio rationalizations within Optum Health and other businesses, including potential revenue impacts.

Answer

Wayne DeVeydt, CFO, confirmed no changes to historical dividend practices, with the dividend maintained. Stephen Hemsley, Chairman and CEO, explained that Optum Health is being reshaped to its original disciplined model for greater impact and value. Krista Nelson, COO of Optum Health, added that rationalization considers clinical quality, operating cost performance, and engagement across value-based and fee-for-service assets, focusing on market footprint, populations, risk, and products to optimize the integrated model. Patrick Conway, CEO of Optum, emphasized delivering better quality, experience, and lower cost care through value-based systems.

Scott Fidel of Stephens Inc. asked for commentary on the expected quarterly sequencing of EPS and MLR in 2025, given the unusual patterns observed in 2024.

Answer

Executive John Rex guided to a 'relatively balanced' earnings progression between the first and second half of 2025. For the MLR, he stated the full-year midpoint is 86.5% and the quarterly pattern will be familiar: the first quarter will be below the midpoint and the fourth quarter will be above, with the slope of the trend slightly impacted by known Part D changes.

Scott Fidel of Stephens Inc. asked for commentary on the expected sequencing of EPS and the medical loss ratio (MLR) in 2025, given the unusual patterns observed in 2024.

Answer

Executive John Rex projected a 'relatively balanced' earnings progression between the first and second halves of 2025. For the MLR, he described a familiar quarterly pattern: Q1 would be below the full-year midpoint of 86.5%, trending up through mid-year, with Q4 being above the midpoint. The slope will be slightly impacted by Part D changes.

Scott Fidel asked how the previously mentioned cost pressures are affecting the commercial business (both group and individual) and how this informs the company's pricing strategy for 2025 exchange products.

Answer

Brian Thompson, CEO of UnitedHealthcare, clarified that the three major pressure points discussed (Medicaid redeterminations, inpatient coding, specialty Rx) are not significant factors in the commercial business. Daniel Kueter, CEO of UnitedHealthcare Commercial, affirmed that 2025 pricing for exchange and group products respects a consistent trend outlook driven by provider unit costs, pharmacy costs, and expanded behavioral health access, not the issues impacting government programs.

Scott Fidel requested initial insights on the product mix (PPO, HMO, D-SNP) for new sales and observations regarding LIS PDP growth, including competitor exits.

Answer

David Dintenfass, President of Enterprise Growth, stated it's too early for detailed product mix projections but noted healthy, even growth across all segments and geographies. George Renaudin, President of Insurance, added that strong PDP growth is expected from basic and value plans, with significant auto-enrollees and competitor reassignments due to Humana being below the benchmark in more states for basic (low-income) plans.

Scott Fidel asked for insights into the product mix of new sales (PPO, HMO, DSNP) and observations on LIS PDP growth, including whether it's driven by competitor exits or existing plans.

Answer

David Dintenfass, President of Enterprise Growth, stated it's too early to project product mix details but noted healthy, even growth across all segments and geographies. George Renaudin, President of Insurance, added that strong growth in PDP is expected, particularly from basic and value plans, with significant pickup in auto-enrollees due to being below the benchmark in more states for low-income subsidies.

Scott Fidel requested more insight into the Medicaid margin trajectory from 2024 into 2025 and also asked for an update on specialty Rx trends observed in the fourth quarter, particularly for oncology drugs.

Answer

George Renaudin, President of the Insurance Segment, noted that Medicaid will see modest margin improvement in 2025 but is still affected by the 'J-curve' of new state contracts. He cited Florida as a proof point of a mature state achieving target margins. CEO James Rechtin added that specialty drug spend remains elevated but stable, consistent with the company's forecasts and pricing assumptions.

Scott Fidel asked for more details on Tenet Healthcare's increased CapEx guidance for the year, specifically the allocation of the additional capital and the key larger investments being made.

Answer

CEO Saum Sutaria explained that the increased capital expenditure is primarily for program and clinical program infrastructure, service line support, and growth strategies in hospitals, beyond the Port St. Lucie Hospital. Investments are focused on high-acuity strategies like cardiac care, ICU, cath labs, high-end imaging, and surgical programs, driven by healthy demand observed through Q3.

Scott Fidel inquired about the increased capital expenditure (CapEx) guidance for the year, seeking details on the specific allocation of the additional capital and the key larger investments planned for the full year.

Answer

Chairman and CEO Saum Sutaria explained that the increased CapEx is primarily directed towards enhancing clinical program infrastructure, service line support, and various growth strategies within hospitals. These investments focus on high-acuity services such as cardiac care units, intensive care units, cath labs, high-end imaging, and surgical programs.

Scott Fidel from Stephens pressed for commentary on specific Medicaid reform proposals and asked for a breakdown of the PDS revenue guidance between rate and volume, and further between state and MCO drivers.

Answer

CEO Jeff Shaner declined to speculate on specific legislation, reiterating that Aveanna's core value of being a cost-saver for the healthcare system positions it as an opportunity, not a risk. CFO Matt Buckhalter guided to 3-5% PDS revenue growth, noting Q4's rate was inflated by a one-time item. Shaner added an internal goal to grow preferred payer contracts from 22 to 30 in 2025, which will continue to drive favorable rate and volume mix.

Scott Fidel inquired about the company's ability to reduce labor costs in response to a lower volume outlook and whether such actions were included in guidance. He also asked for the strategic approach to the new share repurchase program, including leverage considerations.

Answer

CFO Heather Dixon confirmed that cost-saving measures are factored into the 2025 guidance, which is reflected in the full-year $20 million headwind from underperforming facilities being less severe on a run-rate basis than the Q4 2024 impact. Regarding the buyback, CEO Chris Hunter affirmed the intent to use the authorization. CFO Heather Dixon added that the company expects to delever naturally with EBITDA growth and would be comfortable using leverage for repurchases, given the business's strong future cash flow potential.

Raj Kumar, on behalf of Scott Fidel, asked for an update on the remaining Desert Hills cases and inquired about the company's broader legal strategy regarding settlements versus contesting claims.

Answer

CEO Christopher Hunter declined to comment on specific cases but confirmed that all material litigation is disclosed in SEC filings. He noted that the company has retained Kirkland & Ellis as outside counsel for the broader investigations but is limited in what can be discussed publicly about ongoing matters.

Scott Fidel inquired about the 2025 outlook, asking for a breakdown of same-store revenue growth expectations by segment, the company's exposure to potential legislative funding changes in Washington, and the anticipated earnings ramp throughout the year, including projections for operating cash flow and CapEx.

Answer

CFO Lynette Walbom projected a 7% same-store revenue increase for the portfolio. President and COO John Gochnour added that home health and hospice could exceed this, while also detailing that about 15% of total revenue has Medicaid exposure, which he believes is relatively safe from cuts. CEO Brent Guerisoli confirmed the earnings ramp would be similar to past years but potentially more aggressive in the back half due to recent large acquisitions. Lynette Walbom projected mid-to-high $40 million in operating cash flow with CapEx levels similar to 2024 in absolute dollars.

Scott Fidel from Stephens Inc. asked about capital allocation for M&A between segments, the drivers behind the sequential jump in home care revenue, and the company's ability to maintain home health margins given the net neutral rate update for 2025.

Answer

CEO Brent Guerisoli addressed M&A, stating that growth is opportunistic and driven by leadership availability and market strength, with recent senior living deals reflecting that segment's robust performance. President and COO John Gochnour explained the home care revenue increase was due to revenue reallocation for clarity, growth in provider services, and the inclusion of the Hartford management fee. Regarding margins, Mr. Gochnour expressed confidence that their local-leader operating model can offset rate pressures through efficiency, strong clinical outcomes, and better managed care rates.

Scott Fidel asked for an analysis of the 2025 adjusted EBITDA guidance, inquiring about the key variables that could drive results to the high versus low end of the range. He also requested a breakdown of expected 2025 membership growth between California and non-California markets, and any early indicators of new member engagement.

Answer

Executive Robert Freeman explained that the low end of the EBITDA range incorporates more conservatism around the Inflation Reduction Act's impact on Part D. Other variables include utilization trends and cohort maturation. For membership, he noted that while ex-California markets will grow faster percentage-wise, California is expected to contribute over 50% of net member growth. Freeman confirmed that the care model is replicating well, with ex-California admissions per 1,000 at 144, which is better than the consolidated enterprise.

Requested the split of supplemental payments between acute and behavioral health, asked for drivers of the insurance revenue growth, and sought an update on legal accruals for behavioral litigation.

Answer

Supplemental payments are split relatively evenly between the acute and BH segments, with a similar split expected in 2025. Insurance revenue growth is driven by subscriber gains in both MA and commercial plans. There are no specific reserves for the large litigation cases; they are accounted for within the overall actuarially-determined malpractice reserves.

Scott Fidel requested the split of 2024 net supplemental payments between the acute and behavioral health segments and asked for an update on legal accruals for behavioral litigation.

Answer

Executive Steve Filton estimated the supplemental payments were split relatively evenly between the two segments and did not expect the split to change significantly in 2025. On legal matters, he referred to the 10-K for details on specific cases and clarified that overall reserves are determined by a third-party actuary's comprehensive analysis, not specific case-by-case accruals for matters on appeal.

Scott Fidel of Stephens Inc. asked for the acute versus behavioral health split of supplemental payments, the drivers of the projected $200 million increase in insurance revenue, and an update on balance sheet accruals for behavioral litigation.

Answer

Executive Steve Filton stated that supplemental payments are split relatively evenly between segments and expects a similar split in 2025. He attributed the insurance revenue growth to subscriber gains in both its Medicare Advantage and commercial plans. Regarding litigation, he directed investors to the 10-K, noting that while no specific reserves exist for two large appealed cases, they are factored into the overall actuarial calculations for liability reserves.

Scott Fidel asked for an update on the joint venture pipeline, the potential effects of legislative funding reform on JV discussions, and guidance for 2025 operating cash flow and CapEx seasonality.

Answer

CEO Marty Bonick described the M&A pipeline as building and suggested that funding pressures on academic institutions from legislative changes could be a tailwind for JV partnerships. CFO Alfred Lumsdaine provided a broad estimate for 2025 operating cash flow in the 'upper $400 million range' and noted that CapEx would likely be back-half loaded, though less skewed than in 2024.

An analyst from Stephens Inc. inquired about the Medicare Advantage contracting environment for 2025, asking about expected rate trends and the level of payer denials given the margin pressures faced by MA plans.

Answer

CEO Marty Bonick stated that Ardent is approximately 85% contracted for 2025, securing mid-single-digit rate increases, though slightly moderated from prior years. CFO Alfred Lumsdaine added that while the environment is more 'contentious' and denial activity remains high, it has not accelerated sequentially.

Scott Fidel of Stephens inquired about the M&A pipeline for personal care assets, whether legislative uncertainty would pause activity, the full-year margin outlook for 2025, and a potential target for debt paydown.

Answer

CEO R. Allison confirmed that Addus is not pausing its M&A strategy due to legislative discussions and is actively pursuing deals to meet its 10% annual growth target. CFO Brian Poff outlined a normal seasonal margin progression for 2025, with Q1 as the low point and Q4 as the high point. Poff also estimated a potential for $115-$120 million in free cash flow for 2025, which, absent M&A, would be directed toward debt reduction.

Scott Fidel of Stephens Inc. requested a walkthrough of the key moving parts for modeling Q4 operating cash flow, particularly the reversal of a Q3 benefit. He also asked about the 2025 outlook for preferred payer contracts in home health and whether Addus is experiencing increased friction with managed care payers regarding prior authorizations and denials.

Answer

CFO Brian Poff confirmed the primary Q4 cash flow headwind will be the reversal of a $9.7 million working capital benefit from Q3, with no other unusual items expected. President and COO Brad Bickham stated that while they are having success increasing per-visit rates with home health payers, moving to episodic payments remains a goal. He added that the company has not seen any noticeable changes or increased friction in payer relationships or prior authorizations.

Scott Fidel asked for the key drivers of the implied EBITDA margin contraction in the 2025 guidance and potential upside factors. He also inquired about construction inflation trends and any potential tariff impacts on the company's prefabrication model.

Answer

CFO Douglas Coltharp detailed approximately $30 million in headwinds explaining the margin comparison, including non-recurring insurance benefits and provider tax impacts from 2024, plus higher 2025 start-up costs. On construction, he noted costs have stabilized around $1.2 million per bed, with the prefab model offering a 25% speed-to-market advantage at a similar cost. He sees low near-term tariff risk due to using U.S. steel and typical exemptions for medical supplies.

Scott Fidel asked for an early look at key headwinds and tailwinds for 2025 and requested quantitative details on the efficiencies and cost savings from prefabricated hospital construction.

Answer

CFO Douglas Coltharp projected 2025 headwinds to include 3-3.5% SWB inflation and noted that $4-5 million in 2024's out-of-period provider tax benefits are unlikely to repeat. On prefabs, he stated the Houston project's construction took ~5 months versus 11-12 for conventional builds. While Houston was cost-neutral, the company targets a 15% cost saving on future projects as the process is refined.

Scott Fidel asked how recent election results might impact the legislative strategy for addressing IRA headwinds, inquired about the trend of serving higher acuity residents, and questioned if higher branded drug utilization was driven by manufacturer strategies or the COVID effect.

Answer

Fred Burke, an executive, stated that key congressional supporters remain in place, giving him confidence in moving forward with legislative solutions for the IRA. He confirmed the higher acuity trend aligns with broader healthcare, driving more prescriptions, and attributed the branded drug spike primarily to COVID therapies like Paxlovid, not manufacturer strategies. David Morris, an executive, also confirmed the branded drug utilization was due to the COVID effect.

Scott Fidel asked for specific figures on the 2025 revenue headwind in the RPM segment from Medicare Advantage changes and the targeted Personal Care (PCS) margin exit rate for 2024. He also inquired about the financial contribution of New York's CDPAP program and the expected NEMT revenue mix between FFS and full-risk contracts.

Answer

CEO L. Sampson projected the PCS segment would exit 2024 with margins near the 10% target. He acknowledged RPM faces MA headwinds but expects offsetting growth from the Medicaid LTSS business. Sampson quantified the potential CDPAP EBITDA downside at $3-5 million if the business were lost entirely, which is not the expected outcome. He confirmed the NEMT business will ultimately shift to a 60% FFS and 40% full-risk mix, with FFS contracts ideally including quality and cost kickers.

Scott Fidel from Stephens requested a margin bridge for the NEMT and PCS segments for the remainder of 2024, inquired about the 2025 outlook for the Medicare Advantage book of business, and asked for a summary of key headwinds and tailwinds for 2025.

Answer

CEO Heath Sampson projected NEMT margins would improve by approximately 100 basis points by year-end, while PCS margins would see a significant step-up in Q3 and approach 10% by year-end due to rate increases. He noted that while MA pricing pressure is anticipated and baked into forecasts, the company is shifting its RPM focus to outcomes-based models. Key 2025 tailwinds include the market shift to in-home care and completed internal transformations, with reimbursement pressure being the primary headwind.

Scott Fidel asked for modeling considerations for the fourth quarter, including P&L and cash flow dynamics, and inquired about Ensign's perspective on the industry trend of increased insurer claims denials in managed care and Medicare Advantage.

Answer

CFO Suzanne Snapper outlined Q4 expectations, including the impact of the new Medicare rate, steady Medicaid rates, consistent margins, and a large settlement payment affecting cash flow. CEO Barry Port addressed insurer relations, stating that while the issue is real, Ensign's strategy of building trust based on strong clinical outcomes mitigates the impact. He viewed the increased public dialogue on the topic as healthy for the industry.

Asked about the quarterly EBITDA cadence implied by the full-year guidance, the updated embedded EBITDA opportunity from recent acquisitions, and the outlook for Medicaid rate growth for the remainder of the year.

Answer

The company expects stronger EBITDA in the latter half of the year, driven by existing facility performance rather than new acquisitions, with a seasonal pickup in winter. The new acquisitions add to the future embedded EBITDA opportunity, following a predictable ramp-up model. Medicaid rate growth has been stronger than modeled, with recent increases in key states, though future guidance remains conservatively modeled at 2-2.5%.

Scott Fidel asked for insights into the Q3 and Q4 EBITDA pacing implied by the updated guidance, the embedded EBITDA opportunity from recent acquisitions, and visibility on Medicaid rate trends for the second half of the year.

Answer

Executive Derick Apt explained that the updated EBITDA guidance is driven by strong performance in mature and ramping facilities, not new acquisitions which have a negligible initial impact. He anticipates stronger performance in Q4 due to winter seasonality. Apt reiterated the maturation model for acquisitions, moving from low-single-digit to low-teens EBITDA margins over 36 months. He also noted that stronger-than-expected Medicaid rate increases in states like Kentucky and Colorado contributed to the guidance lift.

Scott Fidel asked for insights into the Q3 and Q4 EBITDA pacing implied by the updated guidance, the embedded EBITDA opportunity from recent acquisitions, and visibility into Medicaid rate trends for the second half of the year.

Answer

Executive Derick Apt explained that the updated EBITDA guidance is driven by strong performance in mature and ramping facilities, not new acquisitions, which have a negligible initial impact. He noted that occupancy has remained strong without the typical summer seasonality and anticipates a stronger end to the year. Apt detailed the EBITDA margin progression from new (0-3%) to mature (low teens) facilities. He also highlighted that stronger-than-modeled Medicaid rate increases in states like Kentucky, Colorado, and Ohio contributed to the guidance lift.

Scott Fidel asked for an update on the progress toward realizing the company's $80 million to $100 million embedded EBITDA opportunity from acquired facilities. He also inquired about expected trends for EBITDA margins and operating cash flow conversion for the remainder of the year.

Answer

Executive Derick Apt clarified that while PACS is harvesting some of the embedded EBITDA, new Q1 acquisitions also contribute to the potential, keeping the $80M-$100M forward-looking range intact. He stated that margin fluctuations are driven by the pace of acquisitions, not seasonality, and that as facilities mature, both margins and free cash flow expand. He expects the strong cash flow conversion to remain steady or improve, absent lumpy M&A activity.

Scott Fidel of Stephens Inc. inquired about the progress made in Q1 toward the company's stated $80-$100 million embedded EBITDA opportunity. He also asked for commentary on EBITDA margin trends and the sustainability of the Q1 operating cash flow conversion rate for the full year.

Answer

Executive Derick Apt clarified that while some embedded EBITDA was realized, new Q1 acquisitions contribute to the future opportunity, keeping the total potential in the $80-$100 million range. He stated that margin fluctuations are driven by M&A timing, not seasonality, and that the strong Q1 free cash flow conversion should remain steady or expand, absent any large, lumpy acquisitions.

Scott Fidel of Stephens Inc. requested the expected full-year EBITDA loss for Contessa in 2023, its anticipated quarterly progression, and the company's guidance for operating cash flow.

Answer

EVP, CFO & Acting COO Scott Ginn projected the Contessa EBITDA loss to be around $30 million, similar to 2022, with about 54% of the loss occurring in the first half of the year. He guided for 2023 cash flow from operations to be in the range of $210 million to $215 million, noting the company's strong cash position and low leverage.

Scott Fidel requested an update on Contessa's 2022 revenue outlook versus the initial $56 million projection, its future growth path, and whether any Contessa services were included in the new CVS/Aetna contract.

Answer

President and CEO Chris Gerard confirmed the CVS/Aetna contract is currently for core home health only, but discussions are open for future expansion. Chief Strategy Officer Nick Muscato acknowledged that 2022 revenue will be below the initial projection due to longer sales cycles for more complex, comprehensive joint ventures. He anticipates a revenue increase from Q3 to Q4 but deferred providing a 2023 forecast until deal timing becomes clearer.

Scott Fidel of Stephens inquired about the recent increase in adjusted EBITDA add-backs and asked for an updated estimate on the full-year financial impact from Medicare Advantage conveners.

Answer

EVP and CFO Scott Ginn explained that Q2 add-backs were elevated due to acquisition-related costs and a legal contingency accrual, and he expects them to decline. Regarding conveners, he stated the annual impact is tracking 'significantly below' the initially guided $14 million due to better-than-expected rates and utilization, though there will be an incremental $2 million impact from Q2 to Q3.