All right. Good afternoon, everybody. Thank you for joining us in person online. My name is Elizabeth Anderson. I'm the Health Care Services Analyst here at Evercore. I'm very happy to be joined by Jeff Schwaneke, CFO of agilon health. And thanks for the time today.
Yeah, glad to be here.
So, you know, as we sit here sort of at the end of 2025, the business has been undergoing transitions for a couple of years at this point. You know, I've been talking to Evan, and he's telling me, you know, it's three years, takes three years to come back on the contracts, you know, watch the space. So can you maybe, for people who are not quite as in the weeds on these things, like, help us to understand what is it about the sort of slowness of some of these contracts? I know I think people are familiar with some of the Part D carve-outs that you've done and things like that, but maybe as we sort of think more holistically about the contracting cycle and how to think about that.
Yeah, I would say it is two things. It is a long-cycle business, number one. So the first thing is our contracts, we had 50% of our contracts open for this year. Some of those were multi-year contracts. You can't get it all in one chunk. It will, it's going to take a few years before you touch every contract. The second thing is if you just think about risk adjustment and quality, obviously those have longer tails in the Medicare Advantage business. And so I would say with those two things, you know, a lot of the improvements you make this year don't hit the P&L until next year. And so I just say broadly, it's a longer economic cycle around the industry that we participate in.
As you think about contracting specifically, what we've really been focused on is getting the appropriate economics for the value that we're delivering to our payer partners. We've taken a disciplined approach this year. And then obviously we're also trying to eliminate variability. So you mentioned Part D. And I guess what I would say is we had 60% of our contracts with Part D risk in 2024, 30% with Part D risk in 2025. And we expect to even do better than that as we get into 2026. Now, we're not entirely complete with our contracting cycle at this point in time. We're kind of midstream. The majority of that will wrap up as we get towards the end of December. I'm sure some will filter into January. But ultimately, removing those things from our contracts that we don't feel like we control the performance.
Part D is one of them, narrowing the risk on supplemental benefits. We've been successful at getting caps or corridors for supplemental benefits, which is good, not all contracts. But we started with Part D first because it was a large driver of our variability that we had in our performance over the last several years. And so again, we've taken a disciplined approach, very methodical. And this year, I would say we highlighted on our third quarter earnings call that, you know, there may be contracts where we don't reach economic terms with the payer. And that's okay. Ultimately, what we could see is a slight reduction in membership year- over- year, but ultimately driving better profit, more profitability in the business. And so we've acknowledged that, that we're taking a disciplined approach and we're really pricing for profitability.
And some of these contracts, they may fall back to a care coordination fee. So it's not necessarily like we lose the care for the member. And then you fast forward a year from now and the contract's open and you see what you can do at that point in time.
Got it. Okay, that's very helpful. So maybe a couple of things to pivot on off of that. You know, if we think about sort of maybe some of the supplementals that you were mentioning, sort of how do we think about like the part that you're sort of carving out or doing versus, you know, there's obviously a lot of changes that the payers are making in their supplemental benefit offerings as well. So like how did those sort of changing dynamics on both sides come in?
Yeah, sure. I would say broadly across our portfolio, and we mentioned this in our third quarter call, payer bidding has been generally pricing for margin. And so there's two real components of that. The first would be we all know the benchmark rate is roughly 9%. That excludes the impact of the model change. And, you know, payers are bidding what I would say is either close to or slightly above the benchmark rate. So that's step number one. That's a tailwind for us heading into next year. The other thing, to your point, is around supplemental benefits or maximum out of pocket. We've seen, I would say broadly across our network, decreases in supplemental benefit offerings as well as increases in maximum out of pocket.
Both of those dynamics, now they help on the medical cost side, not necessarily on the premium side, but both of those dynamics we think will be tailwinds for us as we head into next year.
Okay. And then from the care's management fee that you were just mentioning in your previous comment, do you mind if that is, that's what it flips to? Is that like a, is that a better in some ways financially shorter term? Like, I know it's ideally not where you want to be, but like in a shorter term, does that?
Yeah, ideally that's not what the, you know, what we're, you know, we are empowering physicians to take total cost of care risk for their members. That's the value proposition that we bring to the table. We're improving, you know, quality, we're improving cost and taking just overall better care of the members. So that's our real value proposition. So is that a structure that we would like to be in? I would say it's okay. It's fine as a backstop for we're not going to sign bad deals. And so that's the real crux of the issue is we just can't get to economic terms that we think are rewarding us for the value that we're delivering. And so ultimately falling back to that care management fee construct is okay. And part of that is because of the long cycle nature of the business.
If we stop the work today, it just makes it more challenging tomorrow, for example, on burden of illness identification, taking care of the member, et cetera, et cetera.
Okay, that makes sense. So, you know, the regulatory landscape changes every day, it seems like, right? So how do you kind of foresee as we stand now the regulatory and reimbursement risk evolving? So maybe MA rate setting or risk adjustment audits or downside risk for providers. And like, you know, at this point in time, like how responsive can your business model be if we get, you know, some sort of change, another change in the near term?
Yeah, yeah, certainly. And so I think, you know, that's what we've been doing over the last year is really, really narrowing the risk that we're taking and really focusing on those things that we can impact, so we already mentioned reducing risk for items outside of our control, such as the Part D and supplemental benefits. The second piece is expanding the dollars that are available in quality, so we talked a little bit about contracting, and from a quality perspective, there's really two components of quality, and one is associated with the STAR scores, which payers get on their H contracts, which has a long delay, but then there's dollars that we can earn in year for our own quality performance that the health plans are measuring us against, and for example, this year we had $25 million of opportunity to earn on quality performance for 2025.
We think those dollars are going to double as we head into 2026, which is important because from our perspective, we want to get compensated for the value we're delivering. And those dollars are, as you can imagine, they're structured to there's more incentive the higher you go in the STAR's performance. So four, four and a quarter, four and a half. So there's extra incentive there, and which is good for us because we've delivered superior performance in the past. We've already mentioned improved contracting, both focused on percentage of premium. And we're also looking for other contract changes such as material adverse change clauses. If the payer does something that materially impacts us, we have the ability to open the contract up and sit down at the table and discuss. And then also around data requirements. So we're trying to get data faster.
And so we're kind of building some of that into the contract. We're focused on data visibility. So how we're, you know, operating in this regulatory environment, we implemented our data pipeline into this first quarter. That's been a large step forward for us on visibility into member level premiums and cost of detail. So that's certainly helping us deal with variability in the ecosystem. And then last but not least, we've streamlined our organization. You know, we really doubled growth in 2023 and 2024. We doubled the size of the company each of those years. And we had planned growth for 2025 and 2026. So we really staffed up. And what we've done is we're rebaselining our cost structure to the level of membership that we have today. We think that's $30 million of benefit as we head into next year on an EBITDA perspective.
Run rate for 2026.
Yeah, for 2026.
Okay, got it.
And then, you know, listen, if you participate in government-sponsored healthcare, there's always going to be regulatory changes. Really what matters is how fast you can pivot. I think a perfect example of this is in the ACO REACH program where, you know, the government made changes to the REACH program for 2026. Unfortunately, those penalize the highest performers, and we are the largest scale, highest performing ACO. And so it obviously hurt our margins for 2026. And we quickly made a decision to pivot some of those ACOs into MSSP for next year. And so I think you just have to be nimble and pivot whenever those changes happen in order to preserve the margin.
Okay, that makes sense. And speaking of exciting regulatory changes for 2026, we have our last year of full phase-in of V28. So, you know, how do we think about that transition into that last full year and then, you know, moving on to 2027? And, you know, how do you think about the performance of the business and environment where risk payments could be small, you know, smaller than before?
Yeah, I would say the first thing I would highlight is that we have more than offset the impact of V28 for the first two years. And the impact of V28 for us was around the Medicare average. It was roughly, I think CMS quoted something around 10% spread over a three-year period. At that time, Agilon was coded around the Medicare average. And so for us, it was, you know, pretty much the same number, you know, roughly a little over 3% a year. And so as we think about next, as we think about the first two years of that, we have more than offset the impact of that for V28. As we think about next year and what that means, we've already commented about the enhanced financial data pipeline. It gives us the ability to actually calculate member level risk scores.
We did not have that ability sitting here a year ago today. And so based on the data that we have today, we feel pretty confident that we can offset the final year of V28, which is obviously meaningful. And how are we doing that? A couple of things. We revamped our BOI, our burden of illness process back in 2024. We've streamlined our coding operations. We're using advanced AI and analytic capabilities. And then we have new clinical programs, which you've probably heard about with heart failure, COPD, dementia that we're rolling out to really identify disease burden earlier and get those members in for treatment. And then ultimately that reduces overall, you know, utilization and inpatient stays. And so we've made a lot of changes to that program, which we think are going to drive enhanced outcome.
Okay, that makes sense. Was that okay? So, okay, you pointed and I thought there was one more point. Okay, great. So in terms of how we're thinking about utilization, you know, obviously that's been very strong, you know, across the board. I don't think that's a surprise to anyone here. But how do we think about how that's tracking in 4Q and sort of anything given the current set of changes that you're expecting that would change that going into 2026?
Yeah, I think it's a little early for us to, in the fourth, to talk about fourth quarter. We don't have a lot of paid claims data yet sitting here today. But I'll just comment on the first half. So the first half for us, 5.7%, and it's continued to restate favorably down to the 5.7%. So for the first half, we recorded a little bit over 6% for the third quarter. And then we have a full year estimate of roughly 5.5%. And so I think, you know, I would say it's consistent with what others in the industry have said. It's remained high. Utilization continues to remain elevated, but stable is what I would say. And as we think about 2026, we're not ready to pin a number to that yet sitting here today. I think we need a little bit more time for 2025 to run out.
But ultimately it would be, I would say tied to the 2025 number and what our expectations are on payer bidding and the impact of payer bidding on the 2026 medical cost number.
Okay, and you're going to, your current plan is to guide on the 4Q call for.
In the 4Q call. Yeah, that's in late February.
Okay, that makes sense. So how do you think about broadly the value-based care industry growth over the next few years? You know, some peers have talked about exiting some markets and obviously, you know, there are different dynamics with MA enrollment growth in 2026 and beyond. But, you know, as you're sitting here with your crystal ball, you know, what would you say are sort of the major puts and takes in terms of how you're at least planning for what you can plan for?
Yeah, I think the first thing is I'll just kind of bifurcate Agilon specific versus overall market. I mean, obviously we remain focused on our model and delivering the value that we deliver to our primary care physicians and our payers on reduced quality or improved quality and reduced cost. But Agilon specific, we made the conscious decision to pause on growth for both 2025 and 2026, really focused on improving the profitability of the business. And so we actually had opportunity, we had partners signed up to go live in 2026. We have deferred those and pushed those out. But specifically as we think about next year, we have markets that we exited at the end of 2024. That represents roughly 29,000 members. Those members were rolled off at the end of 2025. And so those members will be out of our risk arrangements.
And then the second piece is what I mentioned before, this disciplined approach to contracting may reduce overall membership as we think about 2026. So I would say we would, we're going to see a step down in membership, but again, focused on improved profitability. And so I guess what I would say is from the macro perspective, the demand remains strong. So we still have a lot of primary care partners who want to partner with us. And it's really about us, I would say turning on the growth when we have a solid foundation to grow from.
Okay. Any thoughts in terms of how you're thinking about overall MA enrollment growth in 2026? Or obviously we're still in the middle of AEP as it goes. So hard to say, but anything that sort of strikes you as interesting on that front? And I won't hold you to the whole market. I'm just curious on your perspective.
Yeah, I mean, you know, I think the unique thing about our model is a lot of our members have an average relationship with our primary care doctors of, you know, 10 plus years. And so I would say generally what we've seen in the past is our growth has slightly outpaced the overall market growth. So I wouldn't see anything different as I think about 2026 other than what I mentioned on the exited markets plus the disciplined contracting effort is what I'd say.
Okay. That makes sense. How do you think about, you know, in terms of as you're planning for next year, how do you think about the MA rate you're incorporating into your plans?
Yeah, so there's two components of that. The first is obviously most people know the benchmark rate increase, you know, 9% plus. But what you really have to look at is how the payers bid. So we get that bid detail from all of our payers and we assess that using our actuaries. And what I would say is broadly we have seen payers across our network bid slightly above the benchmark rate, which should be a tailwind for us as we think about next year. And then I've already mentioned kind of the other pieces of that bid, which are the benefit designs, which also should be a tailwind for us as we think about next year. And so what I would say is we feel pretty good about the payer bids heading into next year, bidding for margin.
And, you know, I think the benchmark rate is a good first step, but, you know, ultimately there probably needs to be more. And I think we commented on our third quarter call about where fee-for-service trends are in the ACO business, 8.5%. And obviously the MA rates for 2027, you know, start with the basis of the Medicare fee-for-service program. And so hopeful that there'll be a meaningful rate again in 2027, but it's just too early to tell.
Yeah, and that, as far as you know, is sort of on its normal cadence schedule. So we'll wait a couple of months to see what goes on there. You know, I think one of the things that maybe worries people a little bit is, you know, if the payers are bidding for margins, that they might push back against you guys in a different way. But, you know, you guys have talked about that in terms of, look, we have a partnership model and we're helping, you know, we're helping them. It's not necessarily as binary as that. You know, how would you, I guess, A, how would you sort of characterize the current state of that push and pull?
And B, any notable changes as we think about sort of some of the new contracts that you're renegotiating that give you sort of an opportunity for joint value creation?
Yeah, I would say the discussions with our payer partners have been constructive. And I would also say that our primary care physician leaders have been very engaged in that process.
Yep.
So it's been constructive this year. And again, on our third quarter call, we mentioned that overall we felt that contracting was going to be a positive, a tailwind for us in 2026. Again, focused on a lot of things that I've already highlighted, which is percentage of premium. Obviously, that's a big piece of our economics, reducing the volatility and getting contract terms, protections on things we don't control, like Part D and supplemental benefits. And then quality, we've already talked about and discussed the quality incentives that we have available next year, increasing, you know, almost double. And then any operational improvements such as data sharing and things like that.
And also we're focused on cash and liquidity. I think that's one piece people don't appreciate. Generally in our model, we get the payers reimburse us or advance us a percentage of the estimated margin. Not all payers do that. We're trying to get people on a more normal cycle and obviously increase that percentage. So we're working on that as well.
Have you guys publicly disclosed like what percentage do that now versus what the opportunity might be?
We have not, and I would say so far this year we've been successful on a couple, which are, you know, our meaning.
Incrementally the right way.
Incrementally heading in the right direction. But that's really an evolution that's probably going to happen over time because, you know, ultimately we're focused on economics and percent of premium is obviously at the top of that list.
Got it. So it's on your wish list, but not at the [crosstalk].
Yeah, it's in the ordering of things that we're looking for.
Okay. That makes sense. And you talked about in one of your prior comments sort of the quality metrics and those quality opportunities that you had to outperform. Were those, and I forgot to follow up and ask you, were those all tied to STARS, the $25 million that you talked about? Or like what specifically sort of is tied to that, you know, STARS part?
Yeah. And so yes, as I mentioned before, there are two pieces of the STARS component. One is the in-year performance that payers put dollars on. And yes, they are tied to STARS measures.
That's directly tied to STAR Ratings.
Yeah. So they are tied to STARS measures, but the unique part is it's in-year. So it's dollars available in 2025 for 2025 performance. That's different than how the payer gets impacted by STARS, which is usually a couple of years later.
Got it. Okay.
We've gotten a lot of questions certainly about how does that impact you. There are certain payers next year where their STARS are decreasing, their H contracts are going below four stars. How does that impact you? I would say what we've seen and what we've been able to do in the past is because we're driving superior quality performance, we've been able to, I would say, get relief if we are not contributing to the issue.
Okay.
Yeah. And either through percentage of premium or otherwise.
I forget whether it was last week because the weeks are blending together at this point, but the CMS announced that it was going to change some of the scores in terms of getting rid of some of those customer service scores that have been such a problem. Like, does that have any bearing on your business? Because you don't operate the call center. So like that doesn't seem like your core thing, but is that a positive for you? Are you indifferent? You know.
I think there were 12 measures if I recall. And I think there were a couple of measures in there that do relate to, I would say, you know, primary care type or healthcare type visits. I would say generally it's probably a small net positive for us. But I think the bigger thing seems to be that CMS is focusing on STARS measures around patient care. And that is the core of our business is enabling our primary care physicians to better care for the members to improve quality and lower overall costs. So it seems like the measures are moving into, you know, our business is what I would say.
Okay. No, that makes sense. And as we sort of think about the outlook going forward, you know, can you update us on how the CEO search is going for, you know, as you've gone through the process, what are you looking for in a new CEO? Maybe we'll start there.
Yeah, I think Ron did a good job commenting on this on the third quarter earnings call. Obviously, we're looking for a CEO with the skills, experience, and relationships to take over in a really transformative time in agilon's lifecycle. You know, I think at the appropriate time, you know, we'll give an update on that. But for now, I think the rest of the management team is just really focused on driving performance in the back half of 2025 and obviously driving material improvement in 2026.
Okay. And then, sort of, timeline perspective, no updates on that?
No update. I mean, it's an active process. And so, you know, I generally will probably take as much time as it needs to find the right candidate.
Okay. That seems very, very reasonable. And then how do you kind of think about strategic planning maybe for 2026 and then longer term given that sort of TBD nature? I mean, Ron's obviously very able to step into this role. So you're just kind of, is he sort of driving that strategy? How do we think about that?
You know, really the core management team is still intact. And, you know, I think Ron's been certainly very active as well as the rest of our board members. It's a very active board. And so I would say things are progressing like normal. So really no change other than, you know, a very strong change in the amount of discipline and rigor we're taking on finishing out 2025 and driving performance in 2026. You know, we have daily meetings with Ron to go through everything that's on the list of importance. And, you know, we're really focused on executing to drive the company to profitability.
Okay. That makes sense. Maybe talking a little bit more about some of your physician partners. What's turnover been like among that group of people?
Actually, turnover, we have a high retention rate. I would say well into the 90% range. So we aren't seeing a lot of physician turnover. And certainly we've grown the business with a large network over the last several years. But turnover has actually gone the other way. So our retention rate has actually gone even higher. And again, as I mentioned before, our physician partners are engaged in the process to drive improved economics.
Okay, and is that something that you guys have sort of effectuated in terms of that turnover rate? Or like what would you say the driver is of that?
I think it goes back to the long-term nature of the partnership. I mean, these are, you know, 20-year investments by the partners, you know, the physicians and us. And so we're in this partnership together for a long time. And I think they certainly understand the macroeconomic challenges that have happened over the past several years. But they have been very helpful in, I would say, partnering with us to drive the appropriate changes that we need in order to, you know, achieve the desired outcome, which is driving the company to profitability.
Okay. No, that makes sense. Have you seen as part of that change, their willingness to transition to value-based care arrangements change given the volatility of the market at all? Or is it sort of that doesn't really come in? Are they aware?
You're talking about new potential?
Oh yeah.
No, I think the demand is certainly there. I mean, if you think about physician reimbursement has continued to be challenging, and I think a lot of physician groups are still looking for who to partner with in value-based care, and, you know, we are, I think, a great solution. Certainly we've had some challenging macroeconomic times, but we feel like the company's position for success in 2026, and the demand has been there, and so we have a lot of opportunities for growth, but we have intentionally paused growth at this point in time trying to drive for profitability. You know, growth is not free, right?
Yeah.
A nd so we paused growth to set a solid foundation from which to grow from in 2027 and beyond, so the demand is there. It's about us getting to a point where we're comfortable turning it back on.
Got it. And as we think about that sort of maybe return in 2027, you know, are there certain opportunities that exist as some competitors of yours have pulled out of certain markets and shifted things around? Or is that really not a dynamic that you sort of see as a lever going forward?
We have, I mean, to say it's zero would be a misstatement, right? So we have had some inbound from others who have not been successful in other models. But again, we're kind of stacking those up against the other opportunities that we had from an organic perspective anyway and deciding on, you know, which ones to partner with in 2027 and beyond.
Okay. No, that makes sense. Anything in terms of specific geographies or partnerships that you're sort of being deprioritized or considered for exit as sort of you refine your market portfolio heading into 2026? Or is that just sort of those lives that you mentioned and sort of letting that fall as it may?
Yeah, I think to go back, you know, we grew relatively quickly in 2023 and in 2024. And at the end of 2024, I think we made the decision around markets. And really it was which markets do we think there's no near-term path to profitability? And we exited those markets at that time. I would say right now as it stands, it's really more on the payer economic side. So no real market exits on the table. It's really more about can we get the right economic agreement with a payer? And if we can't, you know, we can fall back to this care management fee construct or just not have a risk deal with that payer in that market.
Okay. That makes sense. And I know there have been a number of questions, it's probably slightly annoying about the cash outlook for 2026 and 2027. So can you just put a, you know, button on that definitively so then we can move on?
Yeah. Yeah, sure. We commented on the third quarter call, expect to end the year at $300 million in cash. We also indicated we expect to end 2026 at $100 million of cash, including the ACO entities. And we have pretty good visibility to that number because the way the cash flow works in our business is 2025 margin performance settles in 2026.
Yep.
And so it's really based on 2025 performance. And again, I think we believe we have enough capital to move through this transitory period. That's what we're focused on is really driving performance in 2026, which is really going to impact 2027 cash flow.
Got it. And if we think about, you know, obviously the whole industry has had a tough, you know, tough couple of years. If you're an investor and you're saying like, "Oh, I was excited, now I'm depressed and, you know, we're sitting here on this market," like what would you advise them at this point to sort of start doing more work on or start looking for sort of signs of to say like, "Okay, yes, Agilon is on the right track in terms of, you know, obviously 2026 is still a transition year, but sort of setting yourselves up correctly for success going forward?
Yeah, I think a couple of things. Obviously, just high-level benchmark rate makes a difference heading into next year. It doesn't go the full circle.
There's no change in how they calculated thus far. You know, there's been changes to many things, but so far it looks like it's just off the same way we think of it.
Yeah. And I'm talking about the 2026 one. So for sure that one goes in the right direction. You know, there was an investor deck that we provided at the end of the third quarter call. And I think if you go back and listen to that call and look at it, what you'll see is there are a lot of things on that page that we mentioned, specifically rates, contracting, payer bids, the OpEx reductions. There were a lot of items on that page that were the majority of those were all tailwinds.
Yep.
And so, you know, the big open question is what is medical cost trend next year to be determined? ACO REACH, we have a little bit of margin compression. But I would say overall in the last year, we have executed on a lot of actions that will drive improvement in profitability.
And if you go back and look at that slide and listen to our commentary, I think we're pretty bullish on a lot of those items. Risk adjustment was another one, more than offset the final year of V28, which we've done in the past two years. And so I think if you go back to that, we're positioning the company well. It's all about how we execute in 2025, the rest of 2025 and 2026.
Okay. Got it. And when we're sitting here in this seat in December 2026, what are you going to be most excited about at that point, do you think?
2027, probably. Yeah.
It's an easier question with you. I've been asking all the companies. I think it's an easier question for you than some.
Yeah. Yeah.
Yeah. No, and that's out of the return to growth and that visibility.
Absolutely.
So cool. In the next couple of minutes, any other key points that you think we haven't hit on that you want to make sure you mention in terms of how to think about?
No, no. I think I kind of encompassed that. We've executed on a lot of strategies in 2025 that we think are going to drive superior value in 2026. And, you know, we're not quite there yet. We have to finish out 2025 strong and ultimately look forward to giving the guide when we give our year-end earnings call.
That sounds great. Well, thank you very much, Jeff. It was a pleasure.
Thank you. Appreciate it.
Thanks, [Anderson].