Thank you, everybody, for joining us here. It's the 45th annual TD Cowen Health Care Conference. My name is Ryan Langston. I'm the senior analyst covering health care services and managed care. Happy to have agilon health with us. We have Steve Sell, Chief Executive Officer, and Jeff Schwaneke, Chief Financial Officer, and the IR team, of course. Real quick, agilon health is a physician-oriented, value-based care company providing capitated physician services to Medicare Advantage health plans, has over 500,000 MA members along with over 130,000 ACO REACH, generating about $6 billion of annual revenues in 2024. Thanks for being here, guys. Appreciate it.
Thanks. Thanks, Ryan. Great to be here.
Good. I know you reported recently, but I think it might be helpful just to give us a minute, kind of reflect on 2024, kind of an interesting year, to say the least. Maybe just give us a minute, kind of your thoughts as we're into 2025 now and what 2024 means as sort of a jump off, and then we'll get into 2025 from there.
Yeah, I mean, I think that we talked about last week on our call, 2025 is the third year of a challenge cycle in Medicare Advantage. I think we've talked about 2025 as a transition year, relatively flat off of 2024. Clearly, we made some important decisions in 2024 to be disciplined based on that challenging environment. We talked about exiting a couple of partnerships.
We are much more measured in terms of our growth with the Class of 2025 relative to the Class of 2024. I think we tried to close 2024 with really a solid step off into 2025 and then provide a 2025 guide that's roughly flat year over year, given the dynamics overall in terms of spread, but being focused on the important things that are going to position us well for 2026.
Yeah. We'll get into 2025 guidance pieces in a second. You touched on it, Steve, just this sort of maybe change a little bit on the Class of 2025 and this more glide path approach. I think it was a little less than 20,000 members, some portion of that. Just maybe what sort of was the impetus for that? As we think about it, how do we think about maybe the Class of 2026, 2027? I do not want to get too far ahead of ourselves, but is that maybe sort of a blueprint potentially going forward of just taking more of a step approach to risk?
I really appreciate the question. I think growth for us is something that we believe is really controlled. I would start with, you know, we partner with primary care doctors. We move them into a new business model. The demand from the primary care physician side is greater than we've ever seen. The challenges of fee- for- service just continue to grow with Medicare fee schedule changes, with the aging population. As we look out there, the alternatives for primary care doctors to partner with are fewer and fewer. From a relative standpoint, I think we're that much more attractive to those physicians out there.
Specifically to your question, Class of 2024, largest class that we've had to date, performed very well, even in a challenging environment at the high side of our typical year one medical margin profile.
Class of 2025 came in at 20,000 versus north of 130,000 in that Class of 2024. It was a much smaller class. That was a conscious decision driven by the environment, looking at the underwriting with payers. Only three partners in terms of new partner and new market that were included in that. Specific to your question about how we're approaching that year one, we think of it, we call it a glide path. It's really a transition to full risk.
Given the environment, given the challenge of the spread that I talked about, we will take on a new partner and for one, maybe two years, do a no-downside care management fee that covers the costs of the quality programs, the burden of illness programs, which the payers are very interested in us working on, but then transition into full risk. In a 20-year partnership, 18, 19 years of it will be in global risk. This starting point will sort of be in this no-downside care coordination fee. Jeff always talks about, if you think about this from a revenue perspective, you're really sort of building a backlog of future full risk lives that will transition into risk. It was really environmental.
I think it's not a change in strategy. We're totally into global risk, but it is an arrow in our quiver that we can use given the environment when needed.
You talked about payers being interested in this. I assume one of the reasons is they want you to be successful, right?
Absolutely. I mean, I think we talked about the demand from the primary care side. From the payer side, the demand is greater than ever. They have aggressive goals for getting more senior patients into value-based care programs, really driven by things like the Stars cut points going up. They look at the relative performance of their fee for service network against our performance as a value-based care provider. You see things like with our contracts this year getting far more quality incentives. Half of the initiatives that we talked about last week for 2025 are tied around quality incentives and hitting four or four and a quarter Stars, which is increasingly valuable to them.
Yeah. Is there, you know, maybe the way I think about it, is there potentially an opportunity for this to actually be sort of a tailwind maybe on membership, where if you take that sort of year one glide path, if you will, maybe that opens up actually more lives that you can sort of bring onto the platform maybe than you would have historically in terms of you might only bring 50,000 in full risk, but you could bring on more in first year because you're only taking that partial risk?
I don't know if that necessarily catalyzes the growth opportunity. I think the bigger thing is the demand from the primary care doctors and the demand from the payers. As I think about growth as a controllable, there's multiple ways we grow. One is new market, new partner. We talked about kind of calibrating that to the environment. The other is in our existing geographies, adding physicians in three, four, five PCP practices and senior patients around that. There is a tremendous opportunity.
There's a lot of dislocation within the markets we serve. We're in 12 states. We're in 30 communities. That in-market TAM that we've got in front of us is dramatically increased relative to what we would have seen a few years ago. Maybe our mix of growth is going to change a little bit as we have more that sits within that existing footprint. I think it's a controllable. As we get this environment to a place where we feel good about, we have the ability to really turn it on.
We'll get into 2025 in a second. On that point, you know, the demand is there, of course, from the enrollment side. One question we get, and not just for agilon health, is how many of these groups are still out there to actually partner with these large integrated groups or these large primary care groups? You just see the news flow of this group got acquired or this group's partnering with that group. What do you see out in the market, maybe even two years out when you're having these initial conversations? Is there still a large opportunity of these groups out there? Are we sort of starting to bump into each other in market at this point?
I think there is a large opportunity is what I would say. One would be the headline. I think there's primary care-only groups, multi-specialty groups, you know, IPA groups, which there's a tremendous number of, and then health systems. We've got groups in each of those four categories that are successful for us today. We've got a criteria that sits around that. When you look across that, there is a rich opportunity. There's probably fewer scaled single TIN, single EMR primary care-only groups versus a few years ago. I think that that is valid within the context. Overall, I think there is, you know, substantial new market, new partner opportunity.
Again, what I would augment is the in-market opportunity for these smaller practices and the dislocation that they're feeling is significant. We are the alternative to acquisition by a health system, acquisition by a health insurance company or an affiliate of a health insurance company. This mantra of keeping the independent docs independent is something that really resonates and I think is an opportunity for us.
On the opportunity point, we saw February MA enrollment finally, right after they put out January in the poll that, you know, I think if you just run the math out through the year, it really implies less than 3% of growth. Stunning might be strong, but surprising to say the least, given IRA changes and some other things. How do you view that? Was that surprising to you in terms of what it implies? We still have the whole year to go. We'll see what happens. Just any thoughts on that? Maybe does that mean, is this the new normal? Are we going to settle in at a low single-digit growth? Does that affect the business model at all? Or maybe that TAM that you talked about?
Yeah. Our same-geo growth that we forecasted for 2025 is 3%. That is the lowest same-geo growth that we've had since the company started. Typically we look at, you know, 1.3, 1.5x, whatever the market norm is. We booked this year at 1.0. We're trying to be really, again, it's a controllable. We're trying to be really measured around that. There's both disruption, given some of the payer contract changes that we've had, as well as just the tighter attribution management that we do with payers around that. I think when you have big periods of change like this, it's normal, you know, human nature for people to sort of pull back.
Benefit changes significant from payers. We talked about that on our call last week. Then the IRA coming in. I just, I think it's probably not that surprising that you would see a little bit of a slowdown. Is that the norm as you go forward? I think it's really going to depend a little bit on this macro and then how payers bid. I think the, you know, as we talk about notices for 2026, for 2027, the more attractive those are, probably the more you're going to see payers bid back into that. That might bump that number up.
Got it. Jeff, on 2025 guidance, obviously, you know, you guys give a good amount of information. I appreciate the way you lay it out in your presentations. I think it's easy to understand. Maybe just give us not all the pieces, but maybe sort of in those swing factors, where do you have maybe, I'll say, conservatism built in, maybe some, you know, I don't want to say not so conservative, but some of those biggest swing factors that can help you get to that guidance that you kind of laid out in 2025?
Yeah, certainly. I think that just broadly, I would say we have roughly a 4% growth in revenue, really driven by, you know, 2% coming from the bids and initiatives and then another 2% net of risk adjustment. That's after the impact of V28. As you think broadly, you have a 4% increase in revenue, and then we have a cost trend assumption of 5.3%. Part of what is, you know, offsetting that spread are the exits that we had in 2024, which substantially improved the profitability of the business. You know, as I look at the swing factors, obviously medical cost trends would be the largest. You know, our view on 5.3% is really it's on par with what we experienced in 2024. We ended 2024 at 6.8%.
There was 50 basis points associated with the Two-Midnight Rule. Then we had the payer bid changes, which we've talked a little bit about here, which was really a cost shift to the members. Our view is that cost trend is kind of equivalent to what 2024 was at a continued elevated rate. As I think about the variability, it's really on the medical cost trend side. You know, to the extent trends are lower, obviously that would flow through our P&L.
On the path to profitability over the next couple of years, you know, what needs to happen both macro and internally to really hit those marks in 2027? I guess the question is, we get it in different ways, but if trend stays higher than sort of historically we're used to, does that affect that trajectory to get to profitability? Or can you manage that as we go forward if it was sustained for, say, the next two years?
Yeah, I mean, I just think broadly, you know, we've been managing through it now, right? We're here in a three-year cycle. You know, we come back to like the three pillars of contracting, cost, and cash. That's what we've been focused on. We're doing our part. Certainly it would help to have, I guess, premiums that align with medical cost trends. I think the Advance Notice is obviously an early indication that they're starting to recognize that the last three years' cost trends have been outpacing the premium lift. It really depends on the magnitude. I mean, we've been certainly managing through the last three years here on cost trends that have been very high.
We're hopeful that, you know, the Advance Notice and maybe the Final Notice will, I would say, you know, change that spread the other way.
Yeah.
I think in your scenario, just the one thing I would add to it is if you had utilization remaining really high and you were still upside down, I think you would see an even more pronounced bidding effort from the payers to pull back on those benefits. You know, I think that's a big question in terms of what that spread looks like on a go-forward basis. If you go back to 2019, I mean, where these MA benefit levels are relative to them are very rich. There is a lot of room to move back on that. I think that's a little bit of the balancing item. That would probably slow that same-geo growth rate that you talked about. There are levers that we've got. You know, Jeff talked about contracting, cost, and cash.
That contracting dynamic with the payers is very much around what are you seeing in the environment. By the time they do their bid, you're going to know where the Final Notice lands. You're going to know what the utilization assumption is that they're using within that. Those become super important elements. A lot of, you know, robust discussions kind of late summer, September, as you get ready for AEP. What are you going to take risk on? What does that look like? That ties to some of this disruption that we saw this year, right, in terms of some of those payer contracts that we chose to exit out of.
Yeah. On point on exiting. Part D, right? I think I told you this on our callback. I was very impressed. I think you went from 70% exposure down to 30% on Part D. Obviously, that's a tailwind. You also called out that you assume you're going to double the PMPM loss on that part. I guess the first question is kind of remind us, how do you get to that assumption of double the PMPM loss? I guess just going forward, where do we think Part D exposure for agilon health? You can't crystal ball it, but over the next couple of years, assume that continues to come down?
Yeah. I'll cover the first piece here, which just go back in time. I think in the, you know, obviously Part D has been a challenging area for us. We have limited visibility. We've talked about all those reasons why we wanted to reduce our exposure to that. In the third quarter of last year, we said, you know, our goal was 50%. Ultimately, came in less than 30% with the strong work of our contracting team. I would say as we closed out 2024, obviously we enlisted the services of external actuaries to really review, you know, where do we think we're coming out on Part D. In the fourth quarter, you noted that we added costs.
That was one of the reasons we came into the low end of the guide. We added costs driven by that analysis for the Part D risk. Heading into 2025, we just took a stance that said, listen, we know because of the Inflation Reduction Act, the dollars, the magnitude of the dollars are increasing substantially. For those contracts where we're retaining the risk, the 30%, we took the PMPM costs and just doubled that. Just a reminder, we record Part D net in revenue. It is recorded net in the revenue line. Just to give you a magnitude of that, it is between $65 million-$75 million of a loss that is recorded net in our revenue line.
You know, I would like to say there is a lot of science around that. We did use external actuaries to inform our guide for 2025. Generally, we knew the dollars were increasing. Our suspect was that the loss was going to increase as well.
I think going forward, this is an area where we continue to have higher on our priority list to continue to take it below 30%.
Yeah, Ryan, what I would just add to what Jeff said is I think the success getting to below 30% when the target was to be just below 50% really reflects kind of the value of the scale that we've got. Also, the value that payers are placing on, you said earlier, our success, I would say yes, but also having more members in a PCP-driven model, given the way quality thresholds are being set at higher levels. Increasingly, this is about to deliver a cost trend below benchmark, right? I think those things led to that.
You're really talking about a handful of payers that are left. You have one national payer that has not carved this out as of yet. Obviously, pretty active dialogue with them around that. That's a big focus for us.
Past Part D, obviously built into the guidance, I think of some operational improvements. Maybe run us through a couple of these, I'll call them action plans, but things you've been working on, you know, what have you actually been successful at? And I'm interested to hear sort of a corollary to that about, obviously you have a lot of different relationships with different groups, but have you learned anything from some of those more mature, better operating groups that maybe you can take to some of those other groups that maybe aren't as, you know, operationally efficient?
Yeah, I mean, it's a good two-part question. I mean, I would say in terms of the action plans, the headline on all of those is improve financial performance and reduce beta. You know, the areas we're looking are around contracting, around cost and cash. If you just think about what we've done from a contracting perspective, Part D, we took it from 70% down to 30%, that reduces beta. We increased POP on 40% of the book that we renewed for 2025. That was reflected in our revenue increase. It was 4% overall. Jeff kind of broke down the dimensions around that. Quality incentives, literally half of our initiatives for this year is around quality incentives.
Now, we didn't have most of those incentives in 2024. I think that that's a big area for us. Obviously, cash, the good success that we had in Q4 coming in better was advanced payments from those payers' side. On the cost side, it is about this PCP model and kind of education and coaching. When we are able to run below the benchmark, it is really around impacting inpatient, admits per thousand, readmits, utilization, particularly with our high-risk patients. When we talk about our palliative program or high-risk touchpoint program, those things really impact that. I think we have had good success around that.
Just operating efficiency overall, being able to maintain that at 3% with the changes that are there. When you look at the characteristics of the groups that really perform well and helps us really think about our criteria, I think they have got strong governance that you are able to leverage as you roll out the ABCs of your model. They've got a strong comp formula that aligns sort of outcomes with sort of their physician compensation. These are entrepreneurial physicians, very focused on the clinical side of that, but having that alignment is really critical.
I think, you know, single EMR allows you to go faster. If you look at, you know, the folks that we laid out in the Q4 call that were in that low bucket, they had all of those elements I just talked about, but they had a few things structurally are going to take a little bit longer. Some payer dynamics that take a little bit longer, new to risk, multiple EMRs. I think that's sort of the calibration as we look at. As I said earlier, that could be in a primary care only model. It could be in a, you know, multi-TIN IPA-like model or even a health system.
What's the feedback been from your physician partners? I mean, you've obviously been implementing a lot of goals, changing some things around. I know you've been working on physician engagement now for a while. You know, what's the feedback from them? Given the fact, like you said, they're entrepreneurial, they want to be successful. You want them to be successful. What's the feedback been? I mean, I'm sure there's been growing pains, but I'm sure there's some positive reactions. Just some thoughts that you're getting back from your partners.
I think our alignment with the leadership of our partners is stronger than it's ever been. They are leaders in their community. They need this value-based care senior business to be very successful for them. It has been, but it's seen the pullback with the macro that's there. I think they have really embraced the clinical nature of what we're doing in terms of thinking about like our burden of illness as a clinical program. They're really proud of the fact that the PCP is at the center of doing that assessment. We're providing the information with them. They're going through to ultimately determine the condition the senior has and then what that care pathway is for them.
I think those are really powerful validations of what we're trying to do. There are adjustments that we've made as we tweak these programs and we kind of work our way through it. You know, we've invested much more in terms of our medical directors that are on the ground. Interestingly enough, all of our regional medical directors are practicing physicians from our partners who first learned the value-based care model in their own practice. Then were leaders within their groups and now are still seeing patients, but also spending, you know, a few days a week working regionally with their peers.
That physician-to-physician connectivity is huge for us. I think part of our learning is investing more around that is something that we think is really smart.
On the model, maybe to that point, you know, we get questions about if you look at California, that seems to be a fairly integrated model already. I'll say it's easier to run a value-based care business there. I'm sure it's not easy, but maybe easier. Are there geographies, because you have been spread out across the country, that you've just realized maybe it's a difficult market, maybe the payers don't have enough sophistication or the physicians just aren't used to taking risk? Are there other places where it's just not that easy to run a value-based care business?
I do not think there is a geographic constraint. I think there is significant opportunity. I think we are in 12 states and 30 markets. We feel like those are markets that we are thriving or we can thrive in the very not too distant future. We talked about the pipeline ahead. California is a whole different entity, right? Kaiser basically plowed the road. I mean, I spent decades there. Value-based care is kind of what everybody understands and the norm around that. HMO-heavy model, people have a primary care physician that they understand. That model does not translate as well to other areas.
That is why we have tried to plow the road and bring risk to these markets. I think the bigger thing is that markets that fit the criteria that we talked about, which is really critical, which is you look at, you know, the benchmark rates. There are some of the markets we pull back on where we saw decreases in benchmark rates two or three years in a row. It is just not sufficient around that. That payer mix, is there something structurally there with payers that is going to make that more difficult?
The elements I talked about around partners, whether it is governance, whether it is around comp formula, or really how much they value value-based care, tapping into that entrepreneurial spirit and their desire to grow their leadership position and really transform their community is key.
Yeah. What do we think about the new administration's stance towards MA? And maybe we just do not know yet. I mean, we do not have a CMS administrator currently. You know, just where do we think about it? Because classically, you would think a Republican administration is more positive for MA. I think the incoming administrator has had some positive comments in the past. You know, OMB director has had some positive comments about MA. But just where is your head's at these days with what that might mean for the next couple of years?
I think you're right. Traditionally, Republican administrations are more supportive of MA. I think the comments that have been out there are certainly supportive of not just MA, but value-based care and full risk for physicians. I would extend that not just to MA, but to REACH, right? As you think about what happens post 2026, you know, we talked on the call about we believe there's a very high likelihood that there is going to be a full risk vehicle in Medicare fee for service post 2026, because today REACH is that only vehicle.
I think if you look at the people who are in the chairs and, you know, will likely be in the chairs on a go-forward basis, they are supportive overall of MA and of value-based care.
Must be looking at my question list.
Oh, it is.
Only a couple of minutes left, but maybe to that point, right? The 2026 Advance Notice, a little bit more positive than I think what some folks were expecting. Obviously, you know, it's been pointed out by us and others that the REACH data would tell you that, you know, some of the components CMS used to build that rate might have even undersold it. Hopefully expect it, you know, first part of April. Where do you think the Advance Notice goes from here, given maybe you see more updated data from, say, the REACH side than maybe we can see on the street?
Yeah. I mean, I think the latest REACH data we had was a 7.8% cost trend. I think there's, you know, external Milliman and others who think it could go higher. I think, you know, the Advance Notice is a good start, obviously from what we've seen in the past three years. Could it go higher? I think the expectation is it could go, you know, based on history, 70-100 basis points higher. Is that enough even after that? I don't think so. I don't think we think so or the industry thinks so given what's happened in the last three years. We'll have to see where that lands. We're hopeful that it's going to be another positive.
On reach data, on the benchmark being that high, you know, I think typically sort of the street thinks about when it's high, it actually makes it, I'll say, somewhat easier to beat. And therefore, you can be successful and you have been successful in that program. Is that sort of how we should think if trend continues to run sort of hot, if you will, that ACO REACH, all things equal, is probably still going to be a pretty successful program for you?
I think it has been a success story. I think it will continue to be. I mean, the key in that program is you deliver top-tier quality and you beat the benchmark. We've beaten the benchmark every year. We've beaten it when it's moderate in a 3-4% range. We've beaten it when it's high in that, you know, 7-8% range. You know, our expectation for 2025 is we're going to do that again. We'll see kind of what happens, because this year will be the answer to the question, what happens post 2026?
We're basically out of time, but I'll ask you the same thing I've asked everybody else. What are you most proud of at your time during your time at agilon health?
You know, I think there's probably two things. I'm really proud of what we built. I think this physician network is, you know, 12 states, 30 communities, 2,200 PCPs. I think the platform that takes these groups into risk for the full time and really has these key levers. I think the outcomes that we've seen clinically. The second thing I would say is just the resilience of our team. You know, there's kind of two books that we talk a lot about, Andy Grove, Only the Paranoid Survive, Jim Collins' Good to Great, right? In 2025, you need a bit of constructive paranoia just about the environment.
Collins talks about great companies look at brutal facts all the time about where we're at. We do that all the time. The team is just in it. Our partners are in it. At the same time, he talks about relentless optimism. We are super optimistic about the future of value-based care and what it means for a primary care-driven model.
That's great. We'll have to leave it there. Steve, Jeff, really appreciate.