for coming in today, guys. We've got Jim Head, the new CFO, John Kao, CEO of Alignment. I'm happy to have you guys here today. Maybe just at a high level, John, you have been able to successfully sidestep a lot of the challenges presented to the industry in the last, you know, two years. I've called this the deep cleansing. You continue to perform really well in both growth and margins and profitability. What do you attribute those factors to?
The strategy all along has been do MA the way it was designed to be done, which is, provide high quality at a low cost. I think Dr. McClellan kind of focused the industry on this in 2004 with the Medicare Modernization Act. The whole thesis is if you provide high quality at a low cost, you create high value, and those competitors that can create value should be advantaged to grow. It's kind of pretty basic. We really designed the strategy in a way to just do that. We specifically did not want to focus on high quality, low cost, and high RAF. That's what we didn't do.
Strategically, it was all about how do you make sure you have a care model that can scale and produce great clinical outcomes and bend the cost curve? That's what we've done. When you do that, you become the most affordable producer of care at a high quality, and that has been a smart strategy for us. The other thing I would say is, I think over the last 15 years or so, a lot of the competitors took a path of financial engineering of, and I would say not, you know, exceeding the law, but certainly going up to the line of the law in coding. They're aggressive on coding. I think it was legal, if not the intent of, CMS.
They did a lot of global capitation, which is transfer risk into different provider entities or this whole value-based CAP model or global CAP model, and it's basically again, risk transference to a different P&L, and then denials. People were focused on prior auth denials. None of which I think are going to be acceptable going forward. I think the market is coming to us. I think we're doing things the way it should be done. To your point, the strategy was whether rates go up, we'll win. If rates go down, we'll win more, basically is how we think about it.
I thought the answer was you hired Dawn.
Well, that too. Stay out of her way. It's like, "Dawn, you run it, and I'll stay out of your way.
Pretty successful AEP this year. If you could just maybe spend a minute talking about the growth, retention, plan growth from switchers. You had a lot of D-SNP this year.
Yeah. It was 31% year-over-year growth. A lot of that was attributable to a really good retention. Like, our disenrollment rate was, like, down to 6%. People like us. People like our product. People like our service delivery. Switchers is about 83%, consistent with what we've done in prior years. We made a very conscious decision to not grow at all cost. We were very mindful of a couple things. Get good growth, which we wanted about 30%. We did not engage in opportunities that we did not think were durable. What I mean by that is it's very public that United exited a lot of products and a lot of provider groups, and those provider groups were looking for alternative payers.
They had certain rate expectations that we were not prepared to meet because we didn't think they were durable, and we didn't think they were gonna be accretive. We just stuck to our model of profitable, consistent growth. I mean, I think we could have grown 50%-60% if we wanted to, and we chose not to. Part of that logic also was in 2027. I think a lot of our larger competitors are still gonna be more margin-focused. I think that's probably not too much of a surprise to anybody. Some of the smaller and private or not-for-profit organizations were very aggressive in 2026. I think are going to be experiencing some indigestion heading into 2027.
That, I think, gives us that much more of an opportunity to grow in 2027, consistent probably with what we did in 2025. Again, the public, you know, line that we're saying is we expect to grow at least by 20%, so we're gonna stick to that. I think the opportunity set for us in 2027 is very, very good.
You've got your premium payments for January, February, so you've seen the MMR file. Any surprises in any inconsistencies in RAF or anything?
No, I think, you know, when we put out the guide for 2026, we had a very good January and February point of view. I would just back up to say that we came into the year, I think in retrospect, the bids were spot on, in terms of what we expected. So that rolled into a very, you know, good level of visibility into 2026. On the cost side, we did a good job. There was really no surprises as we got through that. Newbies are always a challenge to predict, but on our loyals, we're very accurate. Across the board, pretty good.
Yeah. Maybe talk a little bit about member engagement in year one, Care Anywhere, how many members you've kind of gotten into the system, anything you've learned, and maybe how it compares to prior years.
We're still around 65% engagement, and what Whit's talking about is once we enroll members, we stratify the members, and we look at different markers, and we look at their lab data, their pharmacy data, encounter data, their hospitalization history. We look at claims, authorizations, et cetera. We even try to get history from them on a fee-for-service basis from some of the clearing houses. We try to get as much data as we can on these folks. We stratify them to determine whether they're eligible to be in our quote-unquote Care Anywhere program, which is designed to take care of that 10% of the population that account for 75%-80% of the spend in your healthcare costs.
Once you have the list of, gee, these are the people that we want, it's typically 10%, and we have to engage them. It doesn't automatically just happen. We have to engage them. We have to outbound call them. We have to tell them, you know, what the program is about. The most common feedback we get is, "We don't believe it. It's too good to be true." Like, our health plan. "No, no health plan does this." We say, "No, we do that. We have thousands of people we serve on this area." It's still about 65%, which is not bad. It's not a bad industry-wide number. We want that to be closer to 75%, if not 80%.
I think that'll come as we mature our operations, which we're going through right now, which includes the clinical operations area, and our nurse practitioners, better training, better workforce management, better tools to help them make their engagement easier. You know, we're working on it, but right now it's still about 65%.
Yeah. Maybe for those in the room or listening that may not know as much about your organization and the investments that you've made into the backbone technology infrastructure around AVA, maybe cite a few examples for, you know, how that system works and how you're able to engage with those members and have, you know, care interventions and ultimately lower cost.
Yeah. It starts with what we call a unified data architecture. A lot of the data is coming into a system, a data lake if you will, that requires us to have predefined metrics and predefined definitions. An example would be a bed day. There's like 20 different definitions of a bed day that you could actually take, and so we define it clearly. A membership. Is it membership as of 1/1? Is it membership as of 12/1? Is it membership as of 3/1? Is it average membership? Et cetera, et cetera. We have all the metrics predefined, so when the data is ingested, it is clearly defined, and then it is accessed by different parts of the company internally and to some of our provider partners externally have visibility to it.
What that does is it cuts down on latency. A lot of the legacy payers out there have back-end systems on claims, eligibility, provider warehousing, et cetera, and all of that has to get reconciled. It takes 30-45 days. That's a step that we had the benefit of designing up front from a clean slate of paper that eliminates that latency. When you have the data available to you, it becomes more actionable. The whole concept between that is then you have visibility and control of your business. Dawn and her team, Dawn's the president of the company, they're looking at data every single day, every single morning. They're going through metrics.
To the extent there's any kind of anomaly or negative variance, if you will, on the cost side or a utilization metric or anything that seems out of whack, we have boots on the ground that do something about it, and we deal with it every single day. It's this kind of notion of a maniacal attention to detail bolstered by actionable data that I think is allowing us to manage trend differently than anybody else.
That's helpful. Historically, you guys have always said year one MLR is sort of in the low 90s. I don't know if there'd be any reason that it would be that different this year. When you do the math, you can kind of work backwards, and it does imply making some adjustments that, you know. MLR on the legacy i s going down. Would any reason that relationship wouldn't carry forward?
Yeah, I'll take that, John. We've said MLRs for new members are typically in the high 80s, low 90s. That really hasn't changed, and then they kind of mature as they go, as the years pass into a mid-80s and maybe even lower type of MLR.
The only thing that is different is we've had to absorb all three phases of V28 against it.
Yeah.
The cohorts are doing just fine underneath it, but, you know, the RAF adjustments in V28 is what we've had to work through. As we think about our 2026 guide, the two big elements that were prevalent there were the fact that V28 final phase came through, and we had a cohort that was perhaps a little bit more intense in a mix basis than we've had in the past. That was intentional. That that's been a little bit of a governor on our ability to drive MLR down quickly. But over time, there's a lot of embedded value. That thesis is absolutely intact.
Yeah. That's right. A lot of duals too, and--
Yeah. Dual eligible--
Some payment last year. Like small things that add to this collection of MLR.
Yep.
Which of the non-California markets are you the most excited about this year? If you could maybe talk a little bit about the broker strategy, the mind share, market share.
Yeah. No, I would say all, literally all of them. I'm very proud of the teams. Nevada's over 22,000 members, Texas is 10,000, Arizona's 10,000, North Carolina I think is over 15,000. You know, just you know, being in the game in each of these markets, we've said it takes about five years to get to 10,000 members, but it's easier to get from 10,000 to 50,000 than it is to get from 0 to 10,000. You have credibility. We have the Star Ratings. We're five stars in North Carolina, two five stars in Nevada, 4.5 stars in Texas, four stars in Arizona. You start with the stars, that's number one.
The other thing is the portability of the care model, as reflected in our admissions per thousand, is almost as good outside of California as it is inside California. The care model is portable. You take those two things, and then you add to the mix, the ability to have very competitive benefits, and then you push that against the market backdrop where you have the legacy players taking a step back on benefits, which opens the door for we to engage in brokers differently than we did the first couple of years of entering each of these markets. Their receptivity is much greater. Our reputation in terms of a quality plan is much higher. The providers like us because of the alignment and the ways that we engage with the providers.
I think you're gonna see, you know, more profitable growth coming from these markets. I'll just remind everybody, I think it should be easier for we to get the kind of margin profile we want and growth outside of California, partially because we don't have a lot of the intermediaries outside of California that we have inside California. We effectively are the IPA. We're the ones building the networks, managing the networks. That's why we've been able to get five stars in all these ex-California markets.
How are you sharing risk with your physician partners on non-institutional cost trend? You know, what type of change in behavior do you see with physicians when you do have these risk-sharing relationships?
It's why we named the company Alignment Healthcare. It's creating alignment with the providers, not only financially, but operationally and clinically. With respect to the financial component, we are very flexible. We will work with PCPs and specialists and hospitals. We typically pay hospitals 100% of Medicare fee-for-service. We typically pay specialists 100% fee-for-service. There are some specialties that we will enter into value-based agreements in. PCPs, we'd like to pay them a guaranteed monthly payment and then have an arrangement with them that is like a partnership. We have a guaranteed monthly payment.
That's an important concept. It's different than a fee-for-service because if we have our Care Anywhere teams of people taking care of patients that are their patients, but we take care of them at the home, it's an extension of that practice. We don't want to lower their reimbursement. We want that reimbursement to them to be very consistent and reliable. The whole idea is, if we dedicate clinical resources to their practice as an extension of their practice, they make more money, they work less on that polychronic member, and collectively, we have better clinical outcomes, which in talking to all these doctors, the money's gotta make sense, the operations needs to be clean, but what they really care about and like is the care model.
They like the fact that it's a team approach with them as the captain, basically taking care of that 10% of the population at home. That risk dynamic is really a incentive dynamic. It's probably not risk per se. We're not asking them to take downside risk. We want them to be incentivized, and aligned with us.
Yeah. Participate in the surplus, I guess you could say.
Yeah. Exactly.
I believe you're taking some of the UM away from some of the IPAs, so maybe just to explain, like, what you were doing before and what you're doing now.
In California, you have a very saturated market with provider group intermediaries referred to as independent physician associations or IPAs. They were formed really, like, 30 to 40 years ago to contract on behalf of the individual doctor against the and negotiate against the plans. The capitation and the professional capitation is typically 35%-40% of premium, typically. In addition to the actual financial payment, there is a division of delegated responsibilities, so the administrative work. In California, just historically, the administrative work related to utilization management and kind of closing risk adjustment gaps as an example, and certain medical management was also delegated to these IPAs.
Our view was if an IPA is doing a great job and meeting our metrics and our quality standards, we have absolutely no problem delegating to them. It's fine. It's okay. What we found is we could do a better job with the utilization management, specifically for inpatient admissions, we could do a better job than they could. What has transpired is exactly that. We've done a more effective job, and the result is better MLRs for us, but more surpluses for them. Again, you're aligned with that medical group and that IPA. We de-delegated about starting a year or two ago, and the feedback has been very positive across the board by all the different IPAs 'cause they're making more money.
You know, it's not like a religious thing that they want to do UM. I mean, it's like they don't care. As long as their doctors are happy, as long as they're surplusing more, you get more alignment.
Right. It's gonna be a busy week in D.C. I guess there's no answer to this, but just the Advance Notice, final rate notice, conversations within CMS that you've had, anything that you care to share or not?
Well, we'll make sure we ask Chris tomorrow when we're in D.C. Yeah, I mean, I think if you just look at the historical differences between the Advance Notice and the final notice, there's usually a pretty meaningful gap, an uptick. You know, I don't have any more information than any of you have, but I weigh different objectives that I think the administration's considering, one of which is to ensure program integrity. I think they're very, very serious about that, mitigating fraud, waste, and abuse. I think they're very mindful of balancing that with just affordability, just cost.
You know, where's the money coming from to fund all these different programs? Also just frankly the politics of it, you know, this being a midterm election year. I think when you balance all that and you actually look at the actual numbers, I think the effective growth rate potentially can come up a little bit with additional claims data that they're getting. I think that's what will happen. In addition, I think they might be looking at cutting the takeaways also. There's some, you know, I think well-written analyst reports that suggest that there's a bit of a double dip between subtracting the skin substitute off of the effective growth rate and also hitting the recalibration of the HCC codes pretty aggressively.
I think if you think about that, there's potentially what most people that I've heard would say that, you know, 100 to 150 to 200 basis points increase is kind of the norm I'm hearing from people.
I think that when you take that and you add kind of the real effect of the HRA de-linking, is worth 1.5 points. I think the opportunity for a lot of people that might be a overly conservative number. When we have some inside, you know, Polymarket-type bets on this 'cause we don't know. I think it's like maybe 4%, which is higher than what most people would guess. Most people are saying, you know, 2%-3% is where they expect the net to land. That's what I'm hearing.
Yeah, I read a really interesting weekly report that they looked at all their clients and you could see, like, there are some individuals who are gonna see north of a 6%, you know, cut from the de-linked chart reviews. I think it's the very wide variation and stars.
Meaning an additional negative.
No, yeah.
Yeah, yeah.
It's not 1.5, it's more like 6.5.
I would not be surprised by that. Just on that point, I mean, just back in June of 2025, UnitedHealthcare, Humana, and we, and so on The Wall Street Journal, you know, very publicly supported this. It would not surprise me that that would impact others. You know, materially.
Yeah. You've had a relentless focus on stars pretty much since I've met you, and pretty successful performance getting up to four and five on all your contracts. In the Advance Notice back in November, CMS is noodling around this idea of deleting, eliminating 12 of the measures that the industry generally does pretty well on.
Yep.
I think you framed it as kind of a wash in your mind, for you. The question really is more specific, if you've looked into what that means for some of your competitors within some of the local markets, and whether or not that would be more of a headwind to them, and maybe thus a tailwind for you.
Yeah, to your point, we looked at it, and it was basically a push for us in how we think about stars. Honestly, I have not dived into what our competitors are doing. Counting on you to do that, [Alberto]. You know, like, I can control what we control, you know? It's an action that we will look at, I think, with what we can extract from the publicly available data as we head into the bid seasons. The bids are essentially, you know, business plans for every single county we compete in, and so it's very granular, very strategic. We look at what our competitor's max MAPD is. We look at what we think the brokers are gonna be aligned with. We think about who the IPAs are gonna be aligned with, the medical groups.
I mean, just think about, it's like five-dimensional chess. I would say for the last two or three years, we've been, like, spot on. Like, every market by market, we've been spot on, and our team and our product team is just very, very good. Shout out to them. Don rides a very tight ship in that.
You guys announced, I think on the conference call, that you were putting into place a new revolver and credit facility. I don't know if that's just proper housekeeping or if there's another, you know, driver of that. Maybe Jim, if you wanna talk about it.
I would say kind of two things of note, and the first one is, as we turn profitable in 2025, our ability to access capital changed, okay? One of the first things I noticed was that we had an ability to put in a, I'll call it short-term liquidity financing, which is revolver. It's undrawn. We probably won't even use it, but it's kind of the first step in maturing our capital structure. Public company that's growing fast, we wanna have that in place. But it's not financing to do big things because it's a relatively short term. It's starting relationship with the banks. It's getting our capital structure right sized for the future.
As our leverage ratio comes down, our convertible's $330 million, our leverage ratio's coming down, we're gonna start kind of getting ourselves organized for the longer run. To me, this was a natural next step, and it's nice to have cheap, you know, cost of capital with access to it when you need it. In the end, it's starting a relationship with a group of banks that you'd wanna be associated with.
Yeah. Well, great. Well, I think we're just a bit out of time here. We try to make it to 30 minutes so that we can have it on the website. John, Jim, thank you so much for joining us today.
Thanks, Whit.
Thanks, Whit.