Well, thanks everybody for joining us here on day one of TD Healthcare Conference in Boston. Appreciate it. My name is Charles Rhyee. I'm the healthcare services analyst here. I'm pleased to be joined by agilon health. We have the Chief Financial Officer up here with me, Jeff Schwaneke, Matthew Smith from Investor Relations in the audience. Real quick, agilon health is a trusted partner to physician groups, health systems, supporting around 2,200 PCPs and a little over 500,000 MA members to transition to value-based care through a purpose-built platform and deep operational support. Jeff, Matthew, thanks for thanks for being here.
Yeah.
I guess we'll just jump right in. I guess, you know, just reported fourth quarter results few days ago, late last week. Maybe just walk us through, don't walk us through everything. Maybe just kind of the quick highlights and maybe some of the building blocks, how you get to that midpoint adjusted EBITDA guidance for 2026.
Yeah, certainly. Fourth quarter, we recorded our cost trends up on a year-over-year basis. We were in the mid-5% before the fourth quarter, when we get to the end of the year, we moved that up to 6.5%, really driven by, I'd say, cost trends in the third quarter. Our cost trend for the third quarter was in the low 6s, now it's at 7.2%. We had, I'd say inpatient cases, so we had several unique inpatient cases totaling over $6.5 million in the third quarter. That just caused us to really increase the fourth quarter cost trend estimate into the 7% range.
For the full year, we ended it at 6.5%. As you think about the stepping off point, we believe we've got a solid foundation heading into 2026. You know, the building blocks for next year and getting to a break-even EBITDA number at the midpoint are really driven by several things. First is, the final benchmark rate was, you know, 9-plus% on the effective growth rate, and how payers bid relative to that rate. Across our entire network, what we've seen is that payers were bidding for profitability. The payer bids were slightly above the benchmark rate of 9-plus%. That's obviously a meaningful increase. The second thing is really related to contracting.
We took a very disciplined approach to contracting this year, really focused on profitability. There are contracts in each individual markets with each of our payers. We touched 80% of the contracts this year, and there were certain payer partner combinations that we just couldn't get to an economic arrangement that we felt reimbursed us and paid us for the value that we deliver. We decided not to have a contract with that payer in that market. Now, we're contracted with other payers in the market, but maybe not with that specific payer. So that was in our guidance last week, there was 50,000 members where we didn't come to terms effectively on a full-risk capitated deal in some of those markets.
The value of that contracting effort was over $125 million in medical margin improvement on a year-over-year basis. As we think about next year, we have, you know, half our book open for 2027. We're gonna take that same lens as we think about contracting into next year. Another piece is the burden of illness program really around coding and risk adjustment. Obviously, we implemented a lot of clinical pathways, specifically heart failure was our most mature in 2025. Those clinical pathways in our BOI program, we think will give 40 basis points of year-over-year improvement in risk adjustment. Recall, this is above and beyond the last year of V28.
For us, the impact of V28 was roughly around the Medicare average, between 3% and 3.5% per year. What we're saying is, for 2026, we believe we can get a 40 basis point net lift in risk adjustment in the RAF scores for 2026. The other thing that gives us confidence in the 40 basis points is the data model. We implement the data model. We actually have capabilities this year that we didn't have a year ago, is the ability to calculate member-level risk score.
We pretty, we feel pretty comfortable that the 40 basis points year-over-year, lift, is a good number. Last but not least, you have overhead costs. We took action on administrative costs, $35 million of improvement, as we head into 2026. Those are the rough building blocks of how you get from our performance in 25 to, you know, break-even EBITDA in 26. A busy year, really transformational effort, and, we're excited to see how it shakes out.
You know, you mentioned on the call, you just mentioned too, these several inpatient cases that kinda drove a fairly high trend. I don't remember if you called it out on the call, but were those oncology event type cases? Anything else to call out there in those particular high-cost inpatient stays?
Yeah. A couple things. The most expensive was in gene therapy, we do know that. I would say generally, we have seen not an increase in number of admissions. It's really the acuity or the unit cost of these admissions. Either they're more complex cases or higher acuity admissions. That's what we really saw in the third quarter. We've seen both inpatient and Part B have been cost drivers over the last 15 to 18 months. The cost trend on both inpatient and Part B drugs has been in the 10+% range over the 15 to 18 months. On Part B specifically, it's around oncology.
Oncology drug spend has been really the driver of a lot of that increase, and that's been consistent over the last 15-18 months.
Yeah. On that point, jumping ahead a little bit, but do you think that sort of double-digit increase you talked about specifically on Part B, is that like a new norm, a new structural thing that The Street should look at? You're not the only one saying this, by the way. Just how are you thinking about that evolving past 2026 maybe?
Yeah, well, I hope it's not the new norm. But, you know, time will tell. You know, one of our, you know, clinical strategies is obviously to put programs around the utilization of oncology spend, and we're working on that. Hopefully we can bend the curve a little bit. You know, I would just say what we're assuming in the guide is a continuation of elevated cost trends, and that would be a component. If you think about 2026, we've assumed a 7.5% gross cost trend, 7% net. That 50 basis, the payer bidding, you know, cost shifting through maximum dollars, lower supplemental bene- 7% cost trend, I would say the inpatient Part B are just opponents of...
If you, if you think of the 7% in context to the last several years, you know, six and a half percent in 2025, 7% in 2024, 7% in 2023, we think that's a good starting point. We're certainly not predicting in our guidance that there'll be some, you know, significant reduction in Part B or the inpatient costs that we've seen in the last 15 to 18 months.
You mentioned ability now to be able to generate member-level risk scores, which is good. You've also talked in the past about a data pipeline, and I think you had made some comments on the fourth quarter call about sort of your experience in the fourth quarter and maybe when you might have sort of a better view of that. How do maybe all those components kinda come together to kinda shorten that sort of look-back view, so you can have kind of a good idea on what's going on as we move through the quarters?
Yeah. Yeah. Real quick on the, on the data pipeline, just to give some historical context, we went live on the data pipeline in Q1 of 2025. That's in April, right? Because we're closing the books for the first quarter, so it's really in April of 2025. The data pipeline provides, you know, bifurcated premium revenue and line-level cost detail, on the medical expense. That was a new capability that we didn't have before. It reconciles to the government data, the MAO, the MMR, all the, all the information that payers receive from the government. We get through them, and we reconcile that. Right now, we've got 85% of our members on this enhanced, data pipeline.
What that means for us is, you know, capabilities that I mentioned before that we didn't have a year ago, we can actually calculate risk scores. A year ago, we were using operational metrics. Now we can actually calculate member-level risk scores. It ties to the MAO-004 data. We can actually calculate our January paid premium for these members. We did not have that capability a year ago. Obviously, the detailed medical expense and bifurcation helps if you're talking about analyzing cost trends, et cetera. We're still on a little bit of a delay from payers.
For example, when we closed the year, our visibility into the fourth quarter, we had a relatively low amount of actual paid claim dollars, and that's why, from our standpoint, we just recorded the medical cost trend up similar to Q3 'cause, you know, we don't have a lot of paid claim dollars to go off of. Again, we believe that sets a solid foundation as you think about 2026. Where do we go in the data pipeline for here? We are continuing to implement payers. We started with the largest payers, and we're working down the list. There's a lot more payers at the bottom of the list that have incremental value. We're currently have plans to implement that. Do we get all the way to 100%? Probably not.
I don't think that's our objective because there are some payers that have small quantities of members, and we don't really get any enhanced visibility with that because of it takes, you know, 1 inpatient case to throw off the returns there. But I think low to mid-nineties is what we're shooting for on the data pipeline, we're continuing to progress down the road.
Okay, one thing you mentioned was sort of the cash position of the business. Obviously, I think you exited 2025 a little bit better than maybe you had kinda thought, gave some targets for 2026. Maybe just generally speaking, how should investors be thinking about sort of the cadence of cash and the cash balances kinda exiting the year?
Certainly, at the end of the year, we ended up a little bit better than we anticipated, you know, roughly $60+ million. Half was really permanent, half was timing. We provided the end-of-year cash balance of $125 million at the end of 2026. Our old number was $100 million. That previous guide was $100, we're really reflecting that permanent improvement in cash. As we think about 2026, we're obviously focused on, you know, any working capital items, advanced payments from payers, et cetera, that any contract changes that we can do to improve our cash position. The majority of our cash flow in 2026 is really based on performance in 2025. We just reconcile with the payers in the third quarter.
Ultimately, we have pretty good visibility to the level of cash flow, so we feel pretty good about the $125 million. Again, we believe our current liquidity position gives us the flexibility we need to obviously navigate this challenging period while maintaining our focus on factors that are gonna drive, you know, real profitability. I mean, ultimately, what we're shooting for is to be, you know, EBITDA positive. That will obviously help cash flow. So that's what we're looking at. Last but not least, a quick note, we did renew our credit facility, kicked it out another 2 years, so that's an important piece for us as well.
You know, obviously, the MA advance note is huge topic in the industry, a bit of a surprise, I think, for many or all of us. You mentioned on the call, somebody asked it, I think for 2025, the ACO REACH or the fee for service trend, if you will, was around 8.1%. It's pretty close to what CMS had at 8%. Maybe not gonna get some relief there on the EGR. Assuming that they're not gonna get relief there, the chart review and the model recalibration piece, which we'll get into in a second, assuming those are maintained, do we have sort of kind of a baseline where you would think the rate's gonna end up at this point?
You know, listen, the last 10 years, the rates have improved by over 100 basis points, right? We're not, we're not predicting, you know, where they're going to land. I think the important piece for us is, you know, we're designing and running the company as though what is already out there is what sticks, right? As we think about 2027, we think we can continue to improve profitability. The base case that we're using is what's already out there. I know there's, you know, some people talking about skin substitutes, the coefficient changes. Are those spread out over 3 years? There's a potential for all of those things to happen. You know, we can't control that, obviously.
From our perspective, we're operating the business and thinking about 2027 based on what we have in hand. Then anything additional to that would be great.
On the two pieces, the unlinked chart review piece and the model recalibration, I guess, should we think about either of those impacting more or less than sort of what CMS has put out as the baseline average? I'm just thinking, especially in the unlinked chart review piece, is there an opportunity for you to add maybe a little bit more value to your upstream payer partners there?
Yeah. A couple of things. On our guide call last week, one of the things we talked about was our ability to offset the impact of the coefficient and demographic factor change. Of course, there's normalization, you know, roughly 150 basis points of normalization in there. I think, number one, we've done the math on the coefficient changes and the normalization. I think our math on our side says we're roughly in line with the Medicare average. However, we do expect that we can offset that with our burden of illness programs, specifically our clinical programs and BOI that we've already talked about. Again, the way I would view it is it's almost another year of V-28. We've shown the ability to offset the impact of V-28 in the past.
We have, obviously, a guide that says we're gonna do 40 basis points better than the impact of V28. We think that there's still more opportunity for us to even offset the HCC and demographic change. The way we're looking at it is really the benchmark effective rate, the cost trend rate is kind of what we view as the meaningful piece of the rate adjustment. The second piece is the unlinked charts. You're exactly right. In our model, we're primary care physician-centric. Our doctors are meeting with the patients, and so, we've done the analysis on our side and there's just a minimal amount of unlinked charts that we have.
I think it does go to the value of our model to payers, which is we don't have any of these unlinked charts, and our model really relies on the primary care physician's interaction with the patient.
Got it. In February, MA enrollment kinda suggests, if you extrapolate it out based on history, probably another low single-digit growth. I think we'd say it's the fifth year of sequential year-over-year deceleration. It looks like the market is potentially structurally slowing. I guess, one, do you sort of agree with that assessment? If we get a flat rate update or close to flat, 9 basis, I guess, what do you think that means for 2027 and beyond?
Yeah. Yeah. you know, certainly, I think what's going on here obviously is payers are responding to the environment that we're in, right? They certainly have the bid design and things that to improve their margins. They're responding and what that is doing is it's slowing the take-up rate in MA. If you just step back, I think from a demographic perspective, Medicare Advantage is going to, or just Medicare generally, broadly, is going to continue to grow, right, 10,000 a day aging in. Long term, I think the rates and the margins get sorted out in the long term, either through improved reimbursement from the government or payers take action on the rates, but, you know, long-term normalized margins.
Members seem to want to be in Medicare Advantage. They seem to appreciate and like the product. I would say, yes, we're going through some short-term disruption, really driven by the macro environment that we're participating in. I think long term, it's still gonna be, there's still gonna be growth in Medicare Advantage.
All right. Maybe just thinking sort of high level last few years, obviously, you mentioned V28, some slowdown in enrollment, a lot of things kinda going on in the market. You know, some years, big plans invest, they cut, just a lot of kinda changes. I guess, how do your members and physicians deal with this? Do they know that? Maybe, like, what do you think, if anything at all, that's done to both physician and your member behavior?
Yeah. Yeah. The first thing is we have had really strong engagement from our primary care physician partners, as they work with us to obviously navigate the shifts in the player plan design and benefit design changes. You know, they understand the need that they need to partner with value-based care arrangements to address both the high cost, conditions and comorbidities in MA, and then obviously to help with the continued pressures on their fee-for-service basis. Our primary care physician retention remains high, roughly 95%. You know, they're really sitting down with us when we talk about just contracting. They're sitting down with us, you know, hand in hand when we think about contracting with payers and making the appropriate changes to improve the economics of the business.
I think as you think about members, I think one of the unique things about our model is our primary care physicians have, on average, a 10-year relationship with our members. This concept of adverse selection that I know a lot of people talk about from the payer perspective doesn't really apply to us because they're always our members. Our membership block, we have a 90%+ retention rate, and that includes, you know, agents and people moving away, plus expirations. It includes all of that. Really, our membership pool is very consistent year to year because our primary care doctors have been seeing these patients on average for 10 years. That relationship is important, but we know the care and the cost of these members that we have.
We think that our members, they appreciate the access to leading primary carers who are supported by the additional tools that we bring, such as the clinical programs. Our most mature clinical program is heart failure. We rolled this out beginning of 2025. Right now it's across 90% of our network. You know, I guess what the heart failure program does is it diagnoses heart failure conditions earlier before you show up in an inpatient setting. We've seen heart failure diagnoses that come from an inpatient go from 18% down to 5%. What this means is that we're diagnosing members earlier, getting them on guideline-directed medical therapy, so it's better for the patient and better for our overall cost as well. You know, our members have been consistent.
They've been with us a long time. I think that's just different than what you would experience from a payer lens.
Got it. Maybe a little bit more on that. You know, you mentioned that, you know, the legacy program, you know, started in 2025. Maybe any other sort of more recent clinical programs that you've actually implemented or maybe ones you're looking to implement and maybe even kinda broadly more like operational efficiency type things that you could kinda give the audience a flavor for.
We talked about a couple of these late last year, which is COPD and dementia. Those are two other clinical pathways that we're implementing. We started those up. Some were pilots last year, and we're rolling those out across the network in 2026. Again, I think what you're going to see is a continued evolution of, you know, where do we see the cost and disease burden of our membership, and how do we put clinical programs around that. I think that's what we've done with heart failure, and we're rolling out more programs in 2026 network-wide. We did pilots of them last year, rolling them out network-wide this year. I think on the cost side, we've obviously taken a lot of action on the cost side.
$35 million of cost takeout from last year to this year. Still more opportunity there. I mean, part of what we were doing is right-sizing from our membership base, right? We exited the year with over half a million members. Right now we're projecting 430,000. Some of those are, you know, 25,000 of those are on care coordination fees. We're really right-sizing our cost structure. There's additional opportunities certainly with the use of AI and generating other efficiencies in the business, and we're looking at that for both 2026 and as we think about 2027.
Got it. Maybe we used to talk about cohorts quite a bit by year. Don't so much recently. I guess any just general thoughts on maybe some of the legacy cohorts and where those are performing, you know, where you might have opportunities. Just trying to put it maybe through that lens where we used to talk about it quite a bit.
Yeah, sure. Yeah, cohort progression, I guess what I would say is, we're not so much as focused on is there a progression in cohorts, I think under a normalized rating environment? Yes, there is. I think the issue is given the environment that we're in, we're less focused on cohorts, and we're more focused on, is this contract that we have with the payer for this specific market, is it achieving the economic results that we thought it would, right? That's the discipline contracting that we've talked about, which is we're effectively looking at every single partner with every single payer contract and saying, "Is this meeting our economic returns?" It's less about cohort maturity, and it's more about are we making money here? Is this achieving our stated objectives or not?
We took a hard line on that for 2026. That's the same lens that we're going to use as we think about 2027.
To that end, you know, you've obviously talked about some exited markets, some exited payer contracts. I guess how much more opportunity might there be, whether it's in later in 2026 or into 2027, in terms of refining the portfolio where maybe you just don't see a sort of a clear path to profitability?
Yeah. I mean, we touched 80% of our contracts this year. We have half our book open for next year. The math may not make sense, but we signed some shorter-term deals. We've kept our contracts with payers relatively short on purpose 'cause we're in a pretty volatile environment. Some of those ones that we signed this year come up for renewal next year. I still think there's more room to go. We didn't touch 20% of the contracts. Again, we're gonna take the same disciplined approach. Is this meeting our economic returns? Are we getting paid for the value that we're creating for both the payer and the partner?
I think that's the important piece, and, it's a one-by-one, contract, negotiation, and, we'll see how it plays out in 2027. I think there's more room to improve, for sure.
Just sort of broadly, I think I asked you this last year, but, you know, the payers are struggling. Some are improving margins this year. We'll see what happens in 2027 with the rate. Broadly speaking, like, you are a very pretty big value add to them. You do add a nice service taking that risk from them. It seems like the payers want you as value-based care providers to survive. How are those relationships with the payers? Like, given the context that they're kind of maybe struggling is maybe not the right word, but how are they approaching this with you? Are they more amenable to making sure that it's financially, you know, viable for you? Or are they just saying, "Look, we're struggling, and you gotta figure it out"?
No, I would say it's a very good partnership. I think evidence of that is, you know, across some of our payers this year, that, you know, there were Stars relief dollars. So, you know, our Stars performance across our entire network is roughly 4.2 Stars, so we're delivering superior quality performance. In addition, not only have we historically delivered high quality performance, the payers put more dollars on the table this year for 2026 for superior quality performance. So the amount of dollars on the table for us to earn in 2026 by delivering superior quality has doubled. So I think they recognize the importance of value-based care and what it can do. So the conversations have been very, very constructive. It's not adversarial at all. They're helpful.
They've been better at providing us the data we need to run the business. As we think about the data pipeline, the front end of that is our connection to the payer. It's been very good to get their commitment and delivering on the improved data that we have as well. The relationship has been good. You know, listen, they're contract negotiations, so that you don't... They're all unique. Ultimately, we came to a good place at the end of the day.
ACO REACH has been a bright spot, obviously. That gets replaced after this year with the LEAD program. Any sort of thoughts? You laid a, I think, a little bit out on the call, but maybe just a little bit more thoughts on the LEAD change and what that might do. I mean, I know we're early still, but just any high level.
Yeah, I think the financial components and, you know, those details need to be sorted out, you know, hopefully get those sometime at the end of March. I think the. You know, our view is we are very successful in the ACO program, which is a full capitated program for the fee for service population. We were one of the highest performers, largest scale, highest performer on the ACO REACH program. We delivered substantial savings for the government, and I think it's a positive for us that they're replacing that program with an even longer 10-year. I think that allows for continued investment from our perspective to be successful, so a 10-year full capitated model, right? We were very good in the full capitated model in the ACO REACH program.
We believe we can be very successful, in the LEAD program, but, you know, more details to come on the financials there.
Got it. Only a couple of minutes here. Any places where medical cost trend, any sort of categories maybe actually more favorable than maybe you had thought? I mean, I know cost trend in aggregate is high, any specific areas where maybe you're seeing a little bit of moderation maybe?
That's a good question. There's nothing that really stands out. I mean obviously on the. You know, we should spend a lot of time focusing on the higher cost drivers, 'cause those are what need management. Nothing really stands out. I mean, you know, I would say even on the primary care physician side, you know, we saw some reasonable increase in cost trends there, but that's because of our clinical program, so that was expected, and that's warranted, and ultimately, we're trying to get the members better care and keep them out of those acute care settings, right, which are more expensive.
Any updates on the CEO search?
Listen, the, you know, the board's going through a process. They have external search firm as well. You know, I'm not going to sit here and, you know, say there's, when the conclusion is going to happen. Obviously have a lot of high quality candidates and, you know, both internal and external. Ultimately, we'll have to see how that plays out. It's a, it's a thorough process, and the board's engaged and committed, and I know they're working through it as we speak.
Got it. Last thing. Any one key takeaway you'd wanna give the audience or investors in general?
I would say, listen, we're on a transformational path here. We've made a lot of progress in 1 year. If you just look at our earnings and how we ended 2025 to where we are in 2026, substantial amount of progress, but we're not done. There's still more opportunity to get where we need to go from a profitability perspective. We are executing on those initiatives in 2026, to drive further profitability as we think about 2027.
Great. Well, I think that's all we've got. W ell, thanks everybody. Jeff, Matthew, thank you for your time. Appreciate it.
Thank you. Appreciate it.
All right.