Well, it's my pleasure to have Thomas Freeman from Alignment Healthcare today. John couldn't make it. He was stuck in the airport, he claims, for seven hours, but,
I think it was eight.
Eight? Well, I'll, I'll tell him he can't text me, and I'll have to respond back to him in a, in an email. But, anyway, I just wanted to, maybe start the conversation for those a little bit more unfamiliar with the organization, a little bit more on the background, kind of the vision, the strategy, how the business sort of developed, and, with a kind of a core provider platform. Then you wrapped it around with an MA plan over time, grown significantly in California, beginning to move into the new some new states. So kind of a little bit of the evolution of the organization.
Yeah, yeah, happy to start there. Appreciate you having us, and good morning, everyone. So, you know, Alignment's been around for a little over 10 years now and was really built on a couple of rather simple ideas and premises but are also rather difficult to execute. I think that's what's really differentiated us over the last few years. And so, the first kind of premise is really how CMS designed the Medicare Advantage program.
And so the way they structured the bid process is essentially if you are high quality, i.e., high stars, you should get more revenue, more funding, and if you are low cost, i.e., you do a better job providing care, and are able to take those lower savings to invest in richer benefits, you should win in MA long term, i.e., you should grow in a very sustainable and durable way. And with that premise in mind, you know, the founding team at Alignment 10 years ago had a variety of experiences together in the past, and they were some of the first in the country to really stumble across this notion of the 20/80 Rule, and today, that's very widespread and common knowledge, but back then, it was a novel concept.
And so the team had developed different care models designed around that, that we have since evolved into where we are with Alignment today. And we'll talk more about it, I'm sure, but, it really is this notion of visibility and control. And what I mean by that is we spent 10 years developing what we refer to as AVA, which is our central command center, control center, and that really gives us visibility into what is happening with our population, who is in need of care, who is highest risk, and where we need to point our care resources.
Care Anywhere is our care program that we designed to see members in the home and virtually, really the top 5%-10% of members who drive 80%-90% of healthcare costs, and it's a very capital-efficient model, and so if you know who the people are, and you know what to do with them, you can ultimately bend the cost curve. So over the last 10+ years now, we've grown the business to about 165,000 lives at the end of the first quarter, and I think we're experiencing one of these natural inflection points in the business where we actually grew 50% year-over-year.
I'm sure we'll talk more about that in the 2025 outlook, but the net of it is the macro changes happening with Medicare Advantage, whether it's utilization pressures from competitors, whether it's reimbursement headwinds on risk adjustment or stars, all these things are playing to our advantage right now that are allowing us to grow above market rates while still managing the cost as we deliver that growth. I mean, the last thing I'd say is you kind of mentioned this, but you know, we like to think of ourselves as a great health plan. We have great health plan capabilities, but the heart of the company and the unique competencies are very much that of care delivery.
We talk about it every quarter in every one of our all-employee meetings, our director and above meetings, which is: How would you want to treat your mom or dad? If you think about the senior, not just as the member or the consumer, but also in many cases, as the patient, I think that's really the natural, sort of, you know, differentiating element of our experience that has allowed us to achieve the kind of growth we've achieved.
Yeah. We talk about this every single quarter, and it kind of stuns me, but you guys consistently reporting, you know, days per thousand, that is declining, and that seems in stark contrast to the prevailing-
Sure
... trends across the industry. How much of that decline do you attribute to Southern California-specific factors versus your care delivery, versus AVA, Care Anywhere, all, all of the different, you know, initiatives you guys have been building over the years?
Yeah. So, you know, in terms of California, we hear that sometimes, and I think it's because California is known to be a more savvy managed care marketplace. But I think what oftentimes folks forget is that the most savvy providers, those who are taking global cap over the last 10, 20 years in California, most of those were bought by some of the large provider consolidator organizations over the last 10 or 15 years. And so today, you know, a little over two-thirds of our network is either a direct contract to a PCP or in a shared risk contract, which is where we're taking the institutional risk, and then we're sharing in the savings that we create. And, you know, these are a lot of the providers that weren't bought by some of these large consolidators-
Right.
- and that's created a real natural opportunity for us to have these win-win relationships where we can help them, they can help us, and we can both grow together. In terms of the kind of capability, I think, question, you know, when we really started this program, you know, some of the actuarial firms would say that really well-managed organizations run about 200 admissions per thousand, inpatient admissions per thousand.
Traditional Medicare ran, you know, $240, $250, and so for us to have run about $155-$165 for the last six years in a row while growing from about 20,000 members to last year, we had about 120,000 members, I think is a testament to the, the care model in and of itself. And the reason this, this KPI is so important, and we talk about it extensively, is the inpatient setting represents about 50% of our total institutional costs. And if you think about it as a leading indicator for other kind of sites of care, about 90% of our inpatient volume comes through the ER, a lot of which comes from an ambulance. Post-discharge, 2/3 of it goes into either skilled nursing or home health.
So if you're actively engaging your sickest members in preventative care, and you're avoiding what could be avoided or unnecessary admissions, you're also impacting not just the inpatient spend, but spend across the care continuum. You know, that's really been one of our primary objectives, is to envelop members in the right care upfront.
Yeah.
From a financial trade-off standpoint, you know, we spend about $400 and change when a nurse goes to a member's home. But an average hospitalization costs over $20,000, and so you can invest a lot of proactive upfront care in the home or virtually, and as long as you're avoiding those avoidable admissions, you can make the math work to really drive down total cost of care and MLR.
Yeah. Can we spend just a minute on Care Anywhere?
Yeah.
Just to unpack a little bit more because I think it's really important. It's really important this year because you've got a record level of membership coming in the door, and so you need to go out and gather all your new members and engage them into this, this process. So, talk-
Yeah
... more about the clinical model inside of it.
So we employ today a few hundred doctors, nurses, case managers, social workers, behavioral health coaches, you know, pharmacy experts, that sort of thing. And again, what we're trying to do is identify the top 5%-10% of our population that we think is highest risk, highest acuity, you know, greatest number of chronic conditions, and we're trying to basically deploy those care teams in a really targeted way in the home and virtually. And one of the things that I think we learned early on is the bricks-and-mortar capital intensive strategy of owning all the PCPs yourself is really tough. And it does create control, that's one of the advantages of it, is you can influence what happens in those four walls really well.
But what happens outside of those four walls becomes more challenging, and you have to have a lot of seniors in these centers in order to break even on the bricks and mortar. So we designed this primarily home and virtual model, and essentially, the way it works is, you know, every day, every week, every month, we're looking at who the members are that we think are in need of care. We have a full workflow of outbound, basically, care coordinators and call teams who are trying to reach these members. We go through their PCP, we talk to their broker, we try to get them involved in the care program, and then once they have their first appointment to our engagement rate, is really high.
We have about, I think, 60% of our overall eligibles are engaged in Care Anywhere because it's a free program to them. They're getting better, more comprehensive care than they can usually get in their average specialist or PCPs office. Not because the PCP or specialist doesn't care, it's 'cause they often don't have the time, and these are 15-minute visits that really need to be an hour to properly address the situation. And so by investing those resources in that care, like I said, we're able to drive down total cost of care over time.
And maybe one other just data point is, I would contrast that with some of the legacy players in the industry where, you know, for the last five or 10 years, it's been an actuarial risk management exercise where reimbursement was high, and you had enough funding to essentially not have to worry as much about the cost of care, the care management aspects of our business. And global capitation, you know, for the last five or 10 years, it's been a lot of organizations that are trying to push the risk off on downstream providers to guarantee their short-term margins.
That's not a bad strategy in the short term, but we think that long term, that can actually commoditize the plan and senior relationship, which is why we wanna be directly involved in the overall, care experience and care delivery.
Any update as to, kind of where you are in the process through the second quarter? I don't think this is that material, but in getting those new members inside of Care Anywhere.
Yeah. So for the new member, you're, you're spot on. So it's, it's always a challenge in the early part of the year, and this year is no different, particularly given the 50% membership growth we had in Q1. And so the way we're sorta able to combat that is, again, visibility, control. Visibility, meaning on January first, January second, I mean, that first week of January, we're looking at heads in beds, who's in the hospital?
Mm-hmm.
We might not have the same degree of pharmacy data, lab data, et cetera, that we'll have 45 or 60 days later, but you know who's in the hospital. And so we start to quickly identify who those people are, what their profile looks like, assign our, you know, case managers, and nurse teams, and doctors to those individual cases. Then we start to manage it really the first week of January, even though we don't have a lot of the data yet. And that does a pretty good job, I would say, for the first, probably 30 or 45 days.
By the time you get through midway through the first quarter, kinda the back half of February, now we've got enough lab data, pharmacy data, auth data, to where our algorithms are starting to fire to say: These are the people we think are eligible, that are really the ones we should be going after for Care Anywhere. As that starts to happen, then the outbound call campaign begins, and the outbound provider engagement, kind of program begins.
Right.
So at the end of the first quarter, while our, I said earlier, you know, 60% or so is really where our returning members are, what we had last year, our new members are actually below that, not surprisingly. That's one of the major opportunities for us over the coming few quarters, is to continue to advance the ball on engagement between Q1, Q2, Q3, Q4. That's a normal part of our cycle in any given year. It's just that much more important, and frankly, that much more of an MLR opportunity over the next three quarters because the year one membership represents such a large percentage of the total book of business this year.
Yeah. The 50% growth this year, can you maybe talk about how that compared to internal expectations? I think, it, you know, the-
Yeah
... the end result was a little bit higher, and then we all get a little bit nervous as we love growth, but you don't want too much growth. And so how do you guys feel about how you're tracking?
So I would say, you know, this past year we were shooting for something greater than 20. So we weren't necessarily surprised by some of the result. It was maybe a little more than we expected, but, I think, you know, we really felt really strongly that the competitive tailwinds were shifting in our favor, starting with V28 phase in, and the Star Ratings reductions that happened for calendar year 2024.
Right.
... In terms of the how we're kind of managing it question, though, I mean, look, I think we've been asked this question for 2025, even where we feel really excited and optimistic about our ability to hit a 20% or greater growth target in 2025. And people have said, "Well, you know, what if it ends up being more, you get 30 or, you know, some number greater than 20%? Is that a good thing or a bad thing?" And I think our view is there's really maybe in other than rare circumstances, there's really no such thing as bad risk, and it's all about your ability to manage it. And so when we think about our Q1 results, which were, I think, pretty good and set a nice foundation for the year, we had a couple of hotspots.
I mean, that's just part of the growth cycle of the business. And so the question is: what do you do with it? And so, you know, one of these pockets of members, it's a handful of zip codes in a certain county. They were in 300 admits per K, you know, the first few weeks of January. I mean, it was a hotspot, but we knew about it. And as I said, we can start directing our clinical resources towards those seniors, very, very quickly. And it went from 300 to 250 to, like, 175, and I think we're now down in, like, the 150 range. And frankly, that population should probably actually be running even lower than that based on their overall, kind of risk profile.
But you have to know where that is happening in order to actually intervene. And so I think our ability to manage another year of growth in 2025 is, I think, being proven out by what we're doing right now in 2024.
All right. We still have funding or rate pressures incrementally for the industry. One more year of phasing in the 28. You've got, across many of your markets, some competitors feeling larger Star headwinds. I mean, is there anything that feels like it's less favorable for you than this prior year? It seems like it may even be more favorable.
I think the setup is more favorable. So from a star standpoint, there are already some of our competitors that have fallen below four stars for 2024. But for 2025, you know, we now have really only one major competitor left. That's four stars. Everybody else has fallen to either 3.5-star or 3-stars, and in some cases, even 2.5-star. And just to put that in context, difference between 4-star and 3.5-star reimbursement is about 5% of revenue PMPM. And if you fall from four to 3- stars, it's about 10% of revenue PMPM. So in the margin profile business we're in, that's a pretty massive short-term headwind for a lot of these competitors. When you layer on V28, where we are, like everyone else, navigating that, we have some pressure.
But I think relatively speaking, we feel pretty confident that we are not as exposed to it as many of our competitors in California, which, like Texas and Florida, tends to be a slightly higher risk adjustment market in general. We feel really good about that relative dynamic.
Mm-hmm.
To your point on benchmarks, you know, this can go both ways a little bit, but, you know, our, our effective growth rate of our benchmarks for 2025, so excluding stars and excluding risk adjustment, just the kind of pure benchmark itself is up about 5% next year. That compares to the national average of about 2.4%, so we're a little over 2x the national average. And that's in part because we're experiencing some unit cost pressures in 2024, that essentially CMS is catching up for us in our 2025 benchmarks. So I think that's a, that's a net positive for us.
It does help a little bit of our competitors, but given how sizable a 5% or 10%, you know, stars reduction is or the V28 reduction is, I think many of them are still gonna have to be, you know, very mindful of, you know, basically benefit reductions in 2025.
Right. You get your final bids in?
We do not.
You do not.
We do, but I'm still not gonna talk about it. But give me, like, what's today, the 29th or something? Give me, like, a week and a half.
Yeah, well, I mean, any local market intelligence that would confirm, and we hear CVS and-
Yeah
...Humana and everyone.
Sure
... saying everything that they're saying. I can't imagine they're gonna act any differently. I think United suggested today that they were gonna likely pull back some on bids. That might have surprised people a little bit, but anything that you're hearing sort of inconsistent with those, you know, comments that the companies have made?
No. You know, look, I think, we go market by market, and we have these basically war game simulations, looking at what's everyone's estimated value that they're delivering to the beneficiary today.
Yeah.
We look at what their star change is, what the benchmark change is for that market. If we have intel on their RAF score, we kind of take that into consideration. And we also think about what they've said publicly, and then what we kinda hear through the grapevine from the broker community or otherwise. And we do it market by market, product by product, and that kinda helps us land the plane. I think in general, like I said, you know, most competitors of ours are gonna be pressured. I think TBC will be a challenge for some of them in terms of benefit reductions, particularly in Southern California, because that's where the benchmarks are increasing the most is in Southern California.
So I think that will limit some of the competitors' abilities to kinda really cut there. But, you know, look, I think at the same time, we've seen other cycles in the past where any one plan on any one day can do something that is short-sighted or aggressive or, you know, unpredictable. So we don't take the star setup-
Right
... or the risk adjustment, I think, relative advantage for, you know, for granted. You know, it's one of the factors, but every year it's tough. That's just the way it goes, you know, and this year was definitely our year. I think next year could be our year too. But I think our goal is to try to deliver that 20% consistently each year, year in, year out.
Okay, your comments on benchmarks going up in Southern California, making the reduction in TBC a little bit more challenging.
Mm-hmm.
Sorry, explain that a little bit to me.
So,
I should get this.
Yes, so simply put, if you have a benchmark going up faster than the national average, it essentially lowers the amount TBC can do.
Yes.
What CMS is saying is, we're giving you more benchmark funding, don't go cut benefits on the seniors-
Yeah. Yeah.
and just take it to the bottom line.
Totally got it.
So where Southern California has the higher benchmarks, that changes the TBC calculation for everyone.
What are you hearing from the broker channel? And the corollary to this question really is some of the changes that we're likely to see with-
Sure
... brokers and agent commission. I Google this stuff almost every single day, and you can certainly see, like, the FMO community is pushing back. Maybe there is an effort to maybe delay an implementation of the broker changes, but I don't know, any insight?
You know, I think this is one where we view it as maybe a slight positive, neutral to positive for us. And what I mean by that is, you know, some of the big players who have the larger pocketbooks can basically afford more funding for marketing co-op dollars or, you know, other incentives that align themselves with some of these agencies. In a certain places, some of the plans have bought some of these FMOs-
Right
... and IMOs, and MOs, and stuff. So I think from our standpoint, as you know, I say the small guy, we're not so small in California anymore, but we're starting to become, you know, pretty significant. But nonetheless, still not just with the overall purchasing power of some of the larger players. I think some of those changes could be a net positive. And, you know, in terms of how the specifics play out, I think we're awaiting some kind of clarity from CMS here over the coming weeks, and, you know, we'll see what it says. But we've been kind of thinking through what we hear are the most, you know, common interpretations of what they have said so far, and thinking about kind of our strategies either way.
We'll see you in the next couple of weeks or so, I think is the short answer.
Okay. Stay tuned.
Stay tuned.
Back on stars for a second, I mean, it is so important, given the concentration that you have with one contract, and you do sit at... You're close on some of the cut points, or at least this past year.
Yeah, sure.
Talk to me about, like, where you guys are on trying to expand that spread.
Yeah, yeah. So, you know, stars for us is something that's always been a strength. So we've been, you know, four or 4.5 stars now for about six years, I want to say, in a row on that specific California HMO contract, which represents, you know, 90%+ of our members. And, yeah, so this past year, you're right, it was a little closer than we would have liked. I think that was a function of two things. One is some of these kind of last-minute Tukey changes that I think hurt a lot of players in the industry, and the second area for us has been caps. And that's been something that, specifically in California, most plans do struggle with.
You know, we spend a lot of time thinking about what we can do differently in order to try to improve, you know, our overall member experience. So, from a HEDIS Part D, and a measure standpoint, I mean, we're generally 4.5-5 stars, and I think we're still continuing to feel very confident in our momentum there as we think about the October 2024 release. In terms of the caps part, you know, that's where we insourced our member experience function last year.
Right.
You know, we changed out one of our, our vendors that was doing, fulfillment for our Black Card, which is kind of like our flex card. And as a result, we've seen member satisfaction really continue to improve. The results have been excellent. And in fact, I think it was one of the reasons why our retention during AEP for this past January improved by a few hundred basis points. So we're, we're feeling, you know, pretty, pretty optimistic about how, how that effort is making, an investment really, is making a positive impact. But I think net-net, you know, we feel pretty good about our ability to maintain 4- stars on that California contract.
Definitely better today than where we were a year ago, which is really a testament to the team's efforts to make sure we were one step ahead this year, versus last year, where we're kind of still working through some of those Tukey changes.
Just since you brought up Tukey, this isn't the first time that CMS has evaluated using that as a statistical piece of the calculation. They've delayed it a year or two-
Mm-hmm, mm-hmm
... and then, then they did it. Obviously, it disadvantaged—no one was advantaged, really, within the industry from the implementation of Tukey. Beyond the statistical argument for having it in an equation and knock out the outliers and improve the integrity of that average, was there, in your mind, maybe a, a, another policy reason or political reason-
Mm
... that it was chosen to be implemented? I mean, we all acknowledge that this administration has not been maybe the nicest, you know, to the industry in the last few years. Just a thought I had.
Yeah, well, I wouldn't quite characterize it that way, but we think, you know, we think CMS, in many ways, is getting back to its original intent and vision of this notion of high quality and low cost. When you think about the past few years, you know, what we saw for a period of time was pretty strong benchmark rate updates that were favorable for MA plans.
Right.
You know, they put the COVID guardrails in place on stars, which was helping some organizations maintain, you know, 4-star, 5-star ratings that otherwise should have been much lower.
Right.
They've taken those back now. And then risk adjustment, I think there's been a lot of organizations who have, you know, been very good at doing a good job at optimizing risk adjustment scores.
Mm-hmm.
And I think CMS kind of looked at all that and just said, "You know, we want to kind of level the playing field a bit." And so by not having some of the benchmark rate updates as strong as they've been in past years, by implementing V28 and kind of leveling the playing field on risk adjustment a bit for those who had gotten just more aggressive, you know, better at it, and getting rid of some of those COVID guardrails on stars, implementing Tukey, I mean, some of those kind of changes. You know, I think it's really, first of all, it's in Alignment's best interest for that to happen 'cause I think it's very much what we were designed to do.
I also think it's, it's consistent with CMS's, you know, just vision for wanting to provide a better quality experience for all seniors.
Yeah.
They've done the same thing with the sales and marketing channel as well, where they've gotten rid of some of the agents who were, you know, basically call center churners for beneficiaries, and they were selling 10 different plans, benefits as one thing, and they were confusing seniors, and CMS shut all that down, too. I think the integrity of the program is really important, and the more CMS does to weed out any bad actors is a net positive for us, in the short term and long term.
Yeah, I guess it shouldn't be unexpected that, like, once you eclipse the 50% penetration mark, that naturally policymakers are gonna look at this and say, "Let's make sure that the integrity around the design of this program is what it needs to be.
Yeah. Well, and you know, at the same time, I think you know, we, we're still very, very strong believers and advocates for Medicare Advantage as a whole. We think it does provide a better quality outcome for the senior. And the, the value to the senior in terms of richer benefits and coverage is really meaningful to a lot of these, these seniors who are on fixed incomes. And so I, I think it's, it's a program that is gonna continue to go up. You know, we hear 65%-70% MA penetration down the road.
So, you know, I think in spite of some of these changes, and you can look back at past reimbursement cycles where, you know, the industry went through some of this stuff, you know, 10 years ago, and, you know, it causes some short-term kind of confusion, but at the same time, the winners continue to take off in the following 5+ years. And we think we're at the start of another one of those cycles right now.
Let's spend a minute on some of the new market growth. You've entered into a handful of states, North Carolina, Nevada, Texas, among others. How do you feel about the product, how it's resonating, some of the work you've had to do with brokers and even some of the medical groups-
Mm-hmm.
And, you know, how you feel about your ability to scale into new markets?
Yeah. So, you know, when we think about sort of scaling or replicating, we often will bifurcate that into the clinical model, how is that evolving and replicating to new market expansions, and then how is the growth model evolving and working in new markets? And I think the clinical model is where we really saw some early data points of success, where, you know, our ex-California admissions per thousand actually ran better than California for the last couple of years. And I think we're doing a good job at, you know, the hiring, the training, the kind of getting them indoctrinated into our clinical philosophy. I mean, that kind of stuff is, I think, working.
What allows it to happen is having that common set of tools and kind of, you know, central command and control for us to actually see how people are performing in the field. That part, I think, is working pretty well. I think, to be fair, on the other hand, you know, the growth has probably been a year or two behind where we would have originally thought, probably four years ago, when we first started launching some of these markets, and a lot of that has to do with the broker community. You know, back to our earlier conversation, I think some of the brokers are just more, you know, influenced and aligned with some of our major competitors than we would have thought.
We've been doing a lot of work to kind of combat that, and I think, you know, getting stars up, as an example, is one way to help ensure that you are at the top of that broker's, you know, list of plans that they carry. And so I think we've done a decent job at making some headway there, and I think the beauty of it now is at least we're starting to get critical mass in some of these places. You get to 4,000 or 5,000 lives, you start to matter. You start to have enough, you know, seniors with a broker or a PCP to where their name is becoming more common, more familiar. When you're 500 or 1,000 members in the first year, it's just... it's tough. It's tough at first.
Right.
So I think we're starting to get some traction there. And I think, again, as we talked about, I think some of these broker comp rules could change, potentially favorably for us in some of these newer markets in particular.
Okay. Any questions from the audience? We've got about a minute left here. How do you feel about being able to take your HMO product into some of the new markets that have been much more heavy on the PPO side?
Yeah. So, you know, we've been doing a little bit of sort of, you know, piloting with PPO, I would say, in California. And our premise there is, as long as you have a decent network with a kind of decent underlying contract structure, decent unit cost, et cetera, the same principles that allow you to win in HMO should be the same principles that allow you to win in PPO, maybe at a slightly different price point, because usually PPOs have member premiums associated with them.
And so what I mean by that is, when you think about the engagement aspect of Care Anywhere from a cost management standpoint or from a quality standpoint with stars or risk adjustment, you know, those programs are the same ones that would allow us to win in PPO, but I think the way you do it, it's a little bit different. So what we've learned is, you know, to get Care Anywhere engagement in a PPO population, they're typically, for us at least, our experience has been, a younger senior, oftentimes a more affluent senior. They like digital communication more than they like voice calls. And so there's things like that, that I think we've been sort of learning and adapting over the last couple of years.
While I think our HMO approach, I think, can be a real winner in some of these ex-California markets, if you're aligned with the right delivery network, I think we also see that PPO could be an important part of our growth driver, not necessarily in the short term, but in the outer years. I think we're gonna continue to chip away at it and kind of, you know, build our lessons learned, but I think some of the other competitors got over their skis with PPO the last couple of years. It's probably been one of the areas of MLR pressure for the industry, is my guess.
Right.
I think you'll see some of those pull back on some of the benefits or increased premiums there, disproportionately relative to the HMO products in the future.
With that, we are just out of time. Thomas, thanks so much for joining us today.
Appreciate it.
Harrison, thanks for coming.
Thank you all.
Thanks, guys.
Thanks, Whit.