agilon health (AGL) Q4 2025 Earnings Transcript

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Date

Wednesday, Feb. 25, 2026 at 4:30 p.m. ET

Call participants

• Executive Chair — Ronald Williams
• Chief Financial Officer — Jeffrey Schwaneke

Takeaways

• Total revenue -- $1.57 billion for the fourth quarter and $5.93 billion for the full year, reflecting lower-than-expected risk adjustment revenue, as well as market and payer contract exits.
• Medical margin -- Negative $74 million for the fourth quarter and negative $57 million for the full year; the full-year figure includes negative $60 million from exited markets, and negative $53 million from prior-year development.
• Adjusted EBITDA -- Negative $142 million for the fourth quarter and negative $296 million for the full year, with the fourth quarter partially offset by lower geography entry costs and operating cost discipline.
• Cost trend -- 2025 medical cost trend increased to 6.5%, with the third quarter at 7.2% and the fourth quarter at 7.4%, attributed to higher inpatient stays and several large claims aggregating $6.5 million.
• Membership -- Medicare Advantage membership stood at 511,000, and ACO REACH membership at 114,000 at year-end 2025, reduced by deliberate market exits and a smaller growth class.
• Operating cost reduction -- $35 million cut in operating expenses above prior guidance, expected to enhance operating leverage into 2026.
• 2026 revenue guidance -- Projected range of $5.41 billion-$5.58 billion, based on contracting improvements, payer bid outcomes, and increased premium percentages.
• 2026 membership outlook -- Expected platform membership of 525,000-540,000, with Medicare Advantage at 430,000 and ACO model membership at 103,000, including approximately 25,000 in care coordination fee arrangements.
• 2026 medical margin guidance -- Forecasted at $300 million-$350 million, reflecting positive impacts from payer contracting and program initiatives.
• 2026 adjusted EBITDA guidance -- Anticipated range of negative $15 million to positive $15 million; midpoint breakeven, encompassing $20 million-$25 million from ACO REACH contribution.
• Reduction in Medicare Part D exposure -- Lowered below 15% of membership by moving some members to care coordination fee models, and exiting certain unprofitable contracts.
• Quality performance -- Network delivered a 4.2 Stars composite across the platform, with an expectation to more than double quality incentive contribution in 2026 versus 2025.
• Cash and liquidity -- Year-end balance of $285 million in cash and marketable securities, and $91 million in ACO-held off-balance-sheet cash; projected end-2026 cash of $125 million.
• Credit facility extension -- Extended credit facility and term loan by two years following quarter end, as disclosed in an 8-K filing.
• Clinical pathways and operational execution -- Over 90% network adoption of heart failure programs, and significant expansion of palliative care and data-driven chronic care pathways.

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Risks

• Full-year 2025 medical margin and adjusted EBITDA were negative, with leadership stating, "we are not satisfied with our financial performance in 2025."
• Medical cost trend for 2025 increased to 6.5%, with the fourth quarter reserved at 7.4% due to "limited paid claims visibility" and heightened inpatient utilization.
• Revenue was impacted by "lower-than-expected risk adjustment revenue and previously disclosed market and payer contract exits."
• "Net cost trends will remain elevated in 2026 at approximately 7%," indicating expectation of continued pressure on expenses.

Summary

agilon health (NYSE:AGL) provided detailed guidance targeting break-even adjusted EBITDA for 2026, with cost discipline and payer contracting actions as principal levers for improved profitability. Management's platform strategy includes shifting membership mix toward care coordination fee models and reducing exposure to unprofitable contracts to help enhance medical margin projections. Quality performance initiatives aim to double incentive contribution in 2026, supported by data and clinical pathway advances. The extended credit facility and $125 million projected end-of-year cash position were presented as foundational for strategic continuity.

• New CMS policy changes, including the Advance Rate Notice and risk model normalization, are expected to have an impact generally in line with national averages, according to management’s analysis.
• Leadership expects to mitigate 2027 risk model impacts through ongoing enhancements in the burden of illness program, clinical pathways, and member-level risk score capabilities.
• ACO REACH programs delivered $41 million in 2025 adjusted EBITDA and are expected to continue contributing $20 million-$25 million in 2026, with the upcoming LEAD program seen as supporting longer-term value-based care.
• After $35 million in operating expense reductions in 2025, management continues to evaluate further cost optimization opportunities through technology and process automation.
• The board plans to pursue a reverse stock split, as disclosed in proxy filings, to address capital structure considerations.

Industry glossary

• ACO REACH: A Center for Medicare and Medicaid Innovation model focused on accountable care organization participation with risk-sharing for quality and cost outcomes.
• V28: The version 28 risk adjustment model update for Medicare Advantage, impacting population risk scores and resulting payments.
• LEAD program: CMS's proposed successor to ACO REACH, offering a ten-year, voluntary enhanced ACO model with extended planning and benchmarking for high-needs patient support.
• Care coordination fee arrangement: A payment model that provides fixed fees and performance-based incentives, limiting downside financial risk compared to full-risk capitation.

Full Conference Call Transcript

Ronald Williams: Thank you, Evan. And thank you all for joining us today. 2025 was a year for building the foundation of sustainable performance through intense focus on operational discipline. While we are navigating a comprehensive transformation, our mission remains unchanged: empowering physicians to lead the transformation of health care through our Total Care Model. The fundamental resilience and effectiveness of our partnership model demonstrates a durable long-term growth runway through trusted relationships with community-based physicians. These individuals are leaders in their communities and have an average ten-year-plus relationship with their patients, creating deep community ties that are difficult to replicate.

While we are not satisfied with our financial performance in 2025, we made tangible progress in the areas that matter most for a durable turnaround, which Jeff will provide more detail on in a moment. Our tangible progress includes the advancement of our clinical pathways and quality programs, our disciplined approach to payer relations, and our continued focus on data-driven performance. All are driving greater clarity and sustainability across Agilon Health, Inc.’s scalable operating model to support long-term value-based care success for our Total Care Model. Our preparation for the future includes applying our continued discipline and focus across these critical areas as we navigate the potential of a lower-than-expected rate increase in 2027 following CMS’s Advance Rate Notice.

We believe the Advance Rate Notice does not sufficiently reflect the ongoing population-wide increase in cost and utilization due to growing chronic disease burden and aging in population. In addition, after further review of the risk model revision and normalization outlined in the Advance Notice, we believe the potential impact will be generally in line with the national average. However, we believe that our clinically focused program remains a critical part of the long-term answer. Continued advancement of our burden of illness and clinical pathway initiatives with our partners will help to mitigate the impact of the risk model changes, as they did for V28.

In addition, given the focus of our model is the assessment of conditions at the point of care with diagnoses tied to documentation from a visit, we believe we have minimal exposure to unlinked or audio-only coding. We believe our ability to differentiate on the management of medical cost and quality outcomes should continue to position us well with health plans and physicians, with the expectation that the rate and cost spread will ultimately normalize over time. Throughout the year, we advanced several key transformation priorities, which are embedded in our expectation for material improvement in year-over-year medical margin and adjusted EBITDA.

At the midpoint, we expect revenue of $5.5 billion, medical margin of $325 million, and adjusted EBITDA at breakeven. Our 2026 outlook reflects the expected positive impacts from the team’s execution on payer contracting, clinical and quality programs, cost initiatives, as well as premium increases. We also anticipate benefiting from payer benefit design changes, including increases to deductibles and maximum out-of-pocket expenses, as well as reductions in supplemental benefits. While this is expected to benefit cost trend, we are assuming that net cost trends will remain elevated in 2026 at approximately 7%. Let me now reinforce key areas we believe are supporting a stronger foundation for execution in 2026 and forward.

First, we entered 2026 with an enhanced financial data pipeline and strengthened actuarial and analytical capabilities, improving financial discipline, clinical visibility, and overall predictability. We are increasingly able to identify variance earlier and intervene faster. As we have previously stated, we now have greater visibility into detailed revenue and claims information with the ability to calculate member-level risk scores utilizing our enhanced data pipeline, a key difference versus prior years. In addition, we believe the pipeline, AI-assisted advances for high-risk member identification and diagnosis through our burden of illness program, as well as execution on clinical pathways, will deliver results over and above the final year of the V28 impact.

Second, through a disciplined approach to better underwriting the risk we take by contracting, Agilon Health, Inc. intentionally prioritized economic sustainability over membership growth. This approach included a willingness to pause growth, walk away from unprofitable payer contracts, and restructure arrangements with certain payers in specific markets, temporarily migrating to a care coordination fee model as opposed to full risk.

As a result, we expect to benefit from incremental percentage of premium and enhanced quality incentives for the value we deliver, a reduction in Part D exposure to less than 15% of our membership, as well as shorter average contract term lengths, which we expect will help us better navigate changing market dynamics including exposure to adverse policy, utilization, or payer behaviors. In addition, our discipline and rigorous recontract process led us to exit certain payer contracts in specific markets. These contracts did not meet our minimum threshold of profitability. We expect membership will be reduced to approximately 400,000 members in 2026, including approximately 25,000 members in no-downside care coordination fee arrangements with upside performance-based fees.

We believe care coordination fee arrangements provide a long-term, risk-adjusted growth opportunity to potentially move these members, when appropriate, to a full-risk arrangement. Third, we advanced clinical pathways, which are evidence-based, data-enabled care models designed to help our partners proactively identify, diagnose, and manage the care journey for patients with high-impact chronic conditions. We believe these pathways, including heart failure, dementia, and COPD, can materially affect utilization, quality, and total cost of care. We concluded the year with active heart failure programs adopted in over 90% of our network.

Congestive heart failure, or CHF, is the most mature and scaled pathway, serving as the blueprint for other conditions, including early identification, expanded support for guideline-directed medical therapy, and appropriate end-of-life care guided by patient preference and goals. Palliative care is also a core extension of our Total Care Model. It is designed to proactively support patients with advanced illness, often those with late-stage heart failure, COPD, cancer, or significant multimorbidity. While only representing a small subset of our population, we have increased the number of patients engaged with this program. Clinically, it improves quality of life and care coordination. Financially, it helps us reduce avoidable late-stage utilization, particularly inpatient admissions and emergency care.

Most importantly, the patients and their families have a better experience and clearer goals-of-care discussions and more coordinated support. Fourth are our quality initiatives. Our quality programs continue to mature with stronger measurement discipline and improved care gap closures. Quality is not just a scorecard for us; it is a lever: patient outcomes, member experience, cost, and revenue. The strategy recognizes that primary care performance directly drives the majority of STAR measures, making Agilon Health, Inc.’s physician-centric model structurally advantaged and an area of increasing focus by payers. Our value-based care model enables exceptional quality performance by providing the tools and support to help our network deliver the highest-quality care.

To drive additional performance in 2025, we strengthened our data access and analytic capabilities to further enhance our ability to identify care gaps. We also expanded our capabilities for providers to close care gaps in areas such as diabetic eye exams. Our network consistently delivers quality performance for measures we can influence and control ahead of benchmarks at 4.2 Stars on a composite basis across the platform, maximizing quality bonus revenue while reinforcing physician alignment. In 2026, we believe we have the opportunity to more than double the incentive contribution. As we indicated last quarter, 2024 results were very strong in ACO REACH and an improvement over 2023 results.

ACO REACH continues to demonstrate the value creation Agilon Health, Inc. delivers and is shaping the way we are transforming our MA business. CMS recently announced the LEAD program, a long-term enhanced ACO design intended to launch after the REACH model concludes at the end of 2026. LEAD is designed as a 10-year voluntary model with a longer planning horizon, benchmarking enhancements, and an emphasis on better serving high-needs patients. We see LEAD as a positive signal. It reinforces CMS’s commitment to value-based care with a longer-term structure that can support sustained investment and consistent operating execution. Lastly, we executed on initiatives to reduce operating costs and controls.

We believe we made meaningful progress on forecasting, performance reporting, and market-level accountability in 2025. These are critical to improving decision speed and execution. We executed on $35 million in operating cost reduction above what we communicated at the end of the third quarter. This will enable greater operating leverage from the platform and support our business objectives. In summary, we are executing with urgency. While cost trends are expected to remain elevated, we believe our transformation actions will support improved operating performance. We plan to build on the progress made last year, with continued emphasis on disciplined execution, collaboration, and measurable positive impact for patients.

We expect 2026 to mark a strong improvement in medical margin and adjusted EBITDA supported by renegotiating with health insurers to better reflect the reality of today’s environment, care costs, and plan benefit decisions; a heightened focus and investments in quality performance—health plans continue to increase the incentives available for top quartile performance; continued progress to improve patient outcomes and reduce total cost of care through proactive chronic disease management and ongoing development and expansion of clinical pathways; strengthening provider engagement and reducing variability in performance across markets and practices; optimizing our cost structure. Lastly, we will continue to advance initiatives which we expect to support continued performance improvement in 2027.

With that, I will turn it over to Jeff to walk through the financial results.

Jeffrey Schwaneke: Thank you, Ron, and good afternoon. As Ron stated, 2025 was a transformational year. We took significant actions focused on improving the profitability of the business, including a disciplined approach to contracting, improvements in our burden of illness program, enhancing our clinical and quality programs, meaningful cost reductions, and continuing to advance strategic initiatives related to our data visibility, clinical, and cost management programs. Through the execution and implementation of these initiatives, we expect to drive significant improvement in profitability in 2026 while continuing to invest in our platform and partners.

As we discussed last quarter, this is supported by several underlying market and payer-related tailwinds, including the 2026 Final Rate Notice by CMS, payer bids which were focused on margin, and our actions we took in 2025 centered on execution and profitability. For today’s discussion, I will cover three key areas. First, I will walk through our fourth quarter and full-year results, and a bridge to our jumping-off point for 2026. Second, I will walk through our 2026 guidance, including key assumptions driving improved profitability, and finally, I will discuss the strength of our capital position and a more disciplined near-term growth outlook. Moving to our financial performance for the fourth quarter and full year 2025.

Starting with membership, Medicare Advantage membership at the end of the quarter and fiscal year-end 2025 was 511,000 members. Our ACO REACH membership for the quarter and fiscal year-end 2025 was 114,000 members. As a reminder, membership continues to be affected by our decision to take a measured approach to growth, inclusive of previously announced market exits and a smaller 2025 class. Total revenue for the fourth quarter was $1.57 billion and $5.93 billion for full-year 2025, respectively. Revenue in both reflect the impact of lower-than-expected risk adjustment revenue and previously disclosed market and payer contract exits.

With respect to medical costs, we continue to see favorable development from 2025, with the respective cost trend now sitting in the mid-5% range. However, for 2025, we experienced elevated costs primarily attributed to inpatient stays, including a few large discrete multimillion-dollar claims totaling $6.5 million. Based on this, we increased our medical cost trend for 2025 to 7.2%, up from the low-6% range we previously recorded. Given the elevated cost trend we experienced in the third quarter, along with minimal paid claims visibility at close of the fourth quarter, we took a prudent approach and recorded fourth quarter medical cost trend at 7.4%.

This brings our full-year 2025 cost trend to approximately 6.5%, which we believe provides a solid foundation heading into 2026. Medical margin for the fourth quarter was negative $74 million and negative $57 million for the full year. Both the fourth quarter and full-year results are reflective of the elevated cost trend assumptions just discussed as well as the previously discussed risk adjustment impact. In addition, the full-year results include negative $60 million from exited markets and negative $53 million from prior-year development. Adjusted EBITDA was negative $142 million and negative $296 million for the fourth quarter and full year, respectively.

Fourth quarter reflects the items I already highlighted, partially offset by lower geography entry costs and the benefit from continued operating cost discipline. ACO REACH was in line with our expectations, adjusted EBITDA for the fourth quarter was negative $6 million and for the full year of 2025, $41 million. As Ron mentioned previously, ACO REACH performance further supports our confidence in our approach, the Total Care Model, and value we bring to our partners and members. On the balance sheet, we ended the quarter with $285 million in cash and marketable securities and $91 million of off-balance-sheet cash held by our ACO entities.

Year-end cash was ahead of our expectations by approximately $66 million, including $34 million in permanent improvement and $32 million related to expense timing. Last, in tandem with our transformation initiatives, after the quarter we extended our credit facility and term loan. Details were filed in an 8-K. Next, let me discuss our outlook for 2026. As I previously mentioned, we are optimistic about our ability to deliver significant growth in profitability in 2026, driven by our actions in 2025. We have provided our first quarter and full-year 2026 guidance metrics in the press release and earnings presentation posted on our website for you today.

We have also provided bridges in the earnings presentation that walk from our jumping-off point to the full-year 2026 guidance. For the full year 2026, we expect year-end membership on the Agilon Health, Inc. platform will be in a range of 525,000 to 540,000 members. This includes estimated Medicare Advantage membership of 430,000 and ACO model membership of approximately 103,000, at the midpoints. The estimated Medicare Advantage membership reflects the market exits we announced in 2025, a small amount of growth, as well as the impact of our disciplined contracting.

As we highlighted on our third quarter earnings call, our contracting efforts were focused on achieving positive adjusted EBITDA across all markets, which embeds our assumptions in medical cost trends, payer-specific bids, quality performance, and market-specific cost structure for 2026. As a result of this disciplined, profitability-focused approach, we exited several payer-specific contracts for 2026, which reduced overall Medicare Advantage membership by 50,000 members. Additionally, Medicare Advantage membership includes approximately 25,000 members in a care coordination fee structure with additional incentives tied to quality and cost performance. For the full year, we expect revenues in the range of approximately $5.41 billion to $5.58 billion.

As highlighted in the slides we provided today, most of the year-over-year improvement is expected to be driven from known factors, including increased percentage of premium from our contracting efforts and payer bids, which were on average at or above the CMS benchmark rate. Combined, these are expected to create over $625 million in incremental value in medical margin in 2026. As mentioned earlier, in addition to exiting structurally unprofitable arrangements, we also reduced exposure to Medicare Part D costs to below 15% of our membership. We prioritized care coordination fee structures with performance-based incentives, more than doubling the quality incentive opportunity from 2025 for the value we deliver to our members and payers.

With respect to our burden of illness program, we are confident that the enhanced data pipeline, which now includes over 85% of our members, AI advances for high-risk member identification and diagnosis in our BOI program, and execution on clinical pathways are expected to deliver results over and above the final year of V28 implementation. We expect a net 40 basis point improvement year-over-year at the midpoint. As a reminder, over the last two years, we have more than offset the impact of the V28 implementation. Our enhanced data pipeline has shown a 99%+ correlation rate and is expected to improve the accuracy and forecasting of our risk-based revenue.

With respect to cost trend, we are assuming a gross cost trend of 7.5% for 2026 as trends remain elevated, and net 7% when considering the 50 basis points estimated benefit from payer bids. As we have stated previously, 2026 payer bids across our markets on average demonstrated payers bidding for improved profitability with benefit design changes, including increases in premiums, deductibles, and maximum out-of-pocket expenses, and a reduction in supplemental benefits. It is important to note that this 7.5% cost trend for 2026 comes on top of the higher cost baseline that we are now assuming for 2025, which we believe is an appropriate stance in this continued elevated cost environment.

We expect medical margin to be in the range of $300 million to $350 million in 2026. This reflects the positive impact from our disciplined contracting efforts, a slight benefit from our BOI program, and a more conservative cost trend assumption heading into 2026 due to the continuation of elevated medical expenses. We anticipate G&A expense of approximately $234 million, which is slightly lower than the full-year 2025, and GEO entry expenses of approximately $15 million. G&A expense for 2026 includes the benefit from the organizational realignment initiatives we implemented in 2025, which reduced operating expenses by $35 million, exceeding what we previously communicated.

This was partially offset by employee merit and medical cost inflation, and the reestablishment of incentive compensation expense assuming a full target payout. We continue to focus on additional initiatives to optimize our cost structure and drive additional operating leverage heading into 2027. Last, adjusted EBITDA for the full year is expected to be in the range of negative $15 million to positive $15 million, or breakeven at the midpoint. This includes the contribution from our ACO REACH programs, which is expected to be in the range of $20 million to $25 million.

As a reminder, our ACO REACH outlook for the 2026 performance year reflects announced changes to the ACO REACH program primarily related to a rebasing of the risk adjustment cap from 2022 to 2019. While we are confident these factors will drive improved performance, we are continuing to actively manage the business to further enhance execution across all initiatives, laying the foundation to drive improved performance beyond 2026. Finally, I will discuss our capital position, which will enable our teams to continue executing on our transformation and deliver our anticipated material year-over-year performance improvement. We expect to end 2026 with approximately $125 million of cash on hand, including our ACO REACH entities.

This is driven by our better-than-expected year-end cash position combined with our current 2026 outlook. Additionally, we have extended our credit facility with our existing lenders by two years and currently plan to pursue a reverse stock split as indicated in our proxy filing. We believe the extension reflects the strength of our operating performance outlook and continued lender confidence in our business. Finally, I would like to address the Advance Rate Notice released by CMS. To reiterate, we are disappointed and believe the proposal does not adequately address the high cost and utilization trends experienced over the last several years.

As Ron mentioned, after further analysis of the details provided with the Advance Notice, we believe our BOI and clinical pathway initiatives will help mitigate the impact of the risk model revision and normalization factor outlined in the Advance Notice. In addition, our initial analysis of the sources of diagnosis indicates we should experience minimal impact, as the strength of our model is our primary care partners’ physical interaction with their patients. This would set our expected baseline closer to the published effective growth rate. We will continue to analyze and monitor this release and remain hopeful that a more comprehensive and appropriate approach will be taken when final rates are released in April.

In summary, we recognize that we are operating in a dynamic macro environment, including industry headwinds and regulatory changes. We have executed on a significant business transformation plan combined with our physician-centric model and scale, which we believe positions Agilon Health, Inc. to deliver sustainable value for patients, partners, and shareholders. With that, Operator, let us move to the Q&A portion of the call.

Operator: Thank you. We will now begin the question-and-answer session. If you change your mind, please press star followed by 2. When we are going to ask you a question, please ensure your devices are muted locally. We will make a quick pause here for the questions to be registered. Our first question comes from Jack Slevin with Jefferies. Hey, good afternoon, guys. Thanks for taking the question.

Jack Slevin: Just want to kick off on some of the trend discussion because I think I caught all of Jeff’s, but I want to make sure we got the right understanding in terms of what is baked in for 2025. So I guess just want to clarify. It sounds like pre-Q has stepped up. You sort of roughly match that or maybe step it up slightly. Just a little color of clarification there. And then if there is anything you have seen in some of that true-up in the third quarter on what might be driving that acceleration in cost trend, I would be interested to hear if there is any color on that at this point. Thanks.

Jeffrey Schwaneke: Yes, sure, Jack. Thanks for the question. You are right. What we saw in the third quarter—in the prepared remarks we commented on—really higher inpatient stays. We had more inpatient volume. Specifically, we had several cases that were over $1 million, and if you aggregate those, it is roughly $6.5 million of cases that were over $1 million in the third quarter. Sitting at this point, we took the cost trend in Q3 from the low-6% to 7.2%. We recognize that we have limited paid claims visibility for the fourth quarter, but we felt it prudent, given that Q3 was coming in so high, that we moved Q4 up to 7.4%.

That took the full year from the low-to-mid-5% to 6.5%. So right now, we have 2025 at 6.5% cost trend.

Jack Slevin: Got it. Okay. That is really helpful. I appreciate that color. And then maybe just to follow up on some of the 2027 commentary—acknowledging you all have a lot of wood to chop in 2026, and I think that seems to be clear in the guidance that is laid out—but maybe just on 2027 on the rate notice and then on the ACO front as well. I am on record saying I think value-based care players can get to roughly 5% on RevTrend. It sounds like you guys maybe have a slightly different bridge there, but are landing in a similar zone.

Considering that sort of environment, 7.5% cost trend—that seems possibly conservative for 2026 but maybe unclear where that goes. How do you think about what actions you might need to take in 2027 on MA, whether it is further contract adjustments? I will leave it open-ended there, but interested to get what that landscape might look like. And if I can squeeze in a loose second piece on the ACO front, I heard the LEAD commentary. Would love to hear how you are approaching what to do in 2027 on that front with the end of REACH. Thanks.

Jeffrey Schwaneke: I will handle the 2027 commentary that you talked about, and then I will send it to Ron for the ACO part. Really, Jack, it is the same actions we have been taking: contracting and our burden of illness program. We will see how the final rate notice shakes out, but it is the same levers that we have been executing on this year. We will do more of that as we think about 2027. I would say the two open components are what happens with payer bids—we get a preview of what those look like before we enter into our contracting discussions, so that will be an important piece—and overall, what cost trends do.

From our perspective, we believe that we can continue to improve margins beyond 2026 through all of these levers that we have talked about today, and that is what we are focused on. Ron, on the ACO side.

Ronald Williams: Jack, I think that the ACO new model is encouraging in the sense that it is a 10-year model. It provides for a longer period of time, gives you a basis to plan, and perhaps to make investments to support the development of the model. We have encouraged, from a policy point of view, further clarity and much greater—even if stretching out—implementation of the program. At this point, there is not a lot that we know, but the main thing that we know is that it represents a continuing opportunity. I think that the work that we have done so far in the current model will position us very well in terms of how the program unfolds.

We are looking forward to being actively involved. As a matter of fact, I will be in Washington next week. Dr. Oz is going to be at a meeting on that, and we will continue to advocate for physicians to make that program effective for patients, for physicians, and for us.

Jack Slevin: Got it. Really helpful. Appreciate it, guys.

Operator: Thank you. The next question comes from Jailendra Singh with SunTrust.

Jailendra Singh: Thank you, and thanks for taking my questions. I wanted to follow up on that incremental inpatient medical cost you just were talking about for Q3. Were those claims tied to some specific payers and geographies? Just trying to understand if your Q3 reserving of 7.2% and Q4 reserving of 7.4% assume those inpatient stays continue at a similar level or get worse. Just trying to understand if the cushion built in Q4 is enough. Thanks, Jailendra.

Jeffrey Schwaneke: A couple of things. Number one, they were not concentrated in specific markets. We did see utilization step up, not across the board, but in several of our markets, specifically in inpatient stays. September appears to be the highest of the quarter, so it was more focused on the end of the quarter. I understand your point: could these just be random acute events that do not recur? That is certainly possible, but with limited claims visibility as we closed out the year, we felt it was prudent to provide a solid foundation from which to jump off into 2026, so we moved that cost trend up to 7.4%.

Again, limited claims visibility for us, but we felt it necessary to provide a good stepping-off point.

Jailendra Singh: Got it. And then my quick follow-up on your OpEx cost initiatives, which is now a $35 million benefit in 2026. Do you see any additional opportunities in terms of streamlining cost, and what area could that come from?

Jeffrey Schwaneke: All the areas that generated the $35 million. Certainly, we are not done looking. Let us put it that way. I think there are further opportunities for cost reduction. Some of that is going to require automation, AI, and technology. They will be harder to achieve, but it does not mean it is not there. That is what we are focused on as we think about executing on 2026 and heading into 2027.

Jailendra Singh: Got it. Thank you.

Operator: Thank you. The next question comes from Michael Ha with Baird.

Michael Ha: Thank you. Wondering, is there any update you have received on the 2025 fee-for-service trend within REACH? Is it still 8.5%? And then also, just on trends more broadly across both REACH and MA, there has been some conversation about the MA rate notice suggesting that back-half trends are actually less steep. So if CMS were to include more back-half 2025 claims experience, it might actually drive the effective growth rate slightly lower than the Advance Notice. But it sounds like your own back-half trends have actually stepped higher versus the front half, which would obviously go against that ongoing conversation.

Jeffrey Schwaneke: For sure. Thanks, Michael. The first half we commented on in the mid-5% for us in the MA population. We certainly did see an acceleration of cost trends, at least for Q3. We will have to see how Q4 plays out, but at least for Q3, we certainly saw that. The fee-for-service cost trend—the latest on that is 8.1%, so it came down a little bit. In the ACO program, it was also concentrated in the back half, and we have a lot more current data there from the government. Those cost trends were tilted toward the back half as well, but they have come down from 8.5% to 8.1%.

Michael Ha: Got it. Thank you. And one more on the rate notice. After you have reviewed it yourself, is there anything you view as most notable with potential for CMS to improve? There is conversation about the treatment of skin substitutes and the risk model recalibration. They adjusted the effective growth rate to exclude it, but it does not look like they did that for the coefficients aligned with those. Now we have this strange situation potentially where it is distorting the risk model recalibration and driving this rate headwind. I am curious if that is an area you have been looking at, thinking about, and broader thoughts on areas of improvement into the final rate notice. Thank you.

Jeffrey Schwaneke: Certainly, all of those items that you have mentioned, in addition to what is the final cost trend, are top of mind for us. Broadly, we are looking for rates that account for the cost trends that we have seen over the last several years, however that shakes out. We will have to see how all of these things that you mentioned play out. Hopefully, some of those get delayed or lengthened or spread over time to balance the cost trend dynamics that we are dealing with. Ultimately, we will have to see how that shakes out.

Operator: Thank you. As a reminder to all participants, so we are able to go through all of the questions on today’s call, we kindly ask all participants to limit themselves to only one question. Our next question goes to Ryan M. Langston with TD Cowen.

Ryan M. Langston: Hi. Thanks. A few of the larger public plans have highlighted expected margin recovery in group MA specifically. I think the last disclosure of your mix was around 17% or 18% midway through last year. Where does that percentage sit now and in 2026? How is that potential recovery reflected in the guidance? Thanks.

Jeffrey Schwaneke: It is a little early to figure out where the membership is going to play out. I do not think we are going to have too different of a mix heading into 2026. Obviously, we really do not get final membership until toward the end of the first quarter, and we will give an update at that point in time. Right now, there is nothing that says our mix is going to be substantially different from that.

Ryan M. Langston: Alright. Thanks.

Operator: Thank you. The next question goes to Matthew Dineen Shea with Needham & Company.

Matthew Dineen Shea: Hey, thanks for the question. Wanted to hit on quality. Nice to see the medical margin opportunities there. I think in 2025, you had been targeting $25 million of opportunity tied to quality. How did you do on achieving that? And then for 2026, as we think about that opportunity doubling, could you give us a sense of what those increased incentives look like and the pathway to achievement? Is that just greater Stars improvement, or any discrete strategies you are laying out to achieve that quality opportunity? Thanks.

Jeffrey Schwaneke: A couple of things. The quality measures are not done yet—there is runout that has to happen—but I think we are in the ballpark or getting close to what we thought we would achieve for 2025. The second piece, which you mentioned, is there is an opportunity for us to double the potential for us to earn. Broadly across the network in 2024, we were roughly at 4.2 Stars. We made progress and improved that in 2025. The verdict is not all the way out because we have the runout, but we are pretty confident that we will do better in 2025. As we think about 2026, the opportunity is there.

What we have included in our guide is similar performance to 2025. We have not banked on that in the guide, but we are obviously shooting for a higher level of performance, and we have programs centered around driving that performance.

Operator: The next question comes from Steven Baxter with Wells Fargo.

Steven Baxter: Yeah, hi. Thanks. Just want to make sure that I am fully tracking the comments on the Advance Notice that you gave and why you think that your view of it is more in line with the effective growth rate. I think you are saying that you have little to no exposure to unlinked chart review, which makes perfect sense given the model that you operate. But in terms of the other risk model changes, including the normalization impact—that 330 basis points item in the CMS announcement—are you saying that you just do not have exposure to that, or you are saying that other things like coding trend and clinical efforts offset that?

I am just trying to get to what an apples-to-apples comparison is for you guys.

Jeffrey Schwaneke: Yeah. Good clarification. I would say, yes, we are exposed to that, and generally we have run the math and we are very close to what is outlined in the rate notice. What we are saying is that we have shown the ability over the last several years to offset the implementation of V28. Recall V28 was roughly 3% to 3.5% per year, and we feel pretty confident that we can do that again in 2027. That was the comment that was made—we have a way to offset that. Generally, we are viewing the effective growth rate as the number.

Ronald Williams: I would just add that what has been driving is really the implementation of our clinical pathways. Particularly with our congestive heart failure, we ended the year with about 90% of the platform well implemented in that program. We think we are crossing over with a pretty good run rate. We think there is still a lot more prevalence in the communities for us to help patients get diagnosed and get on the right kind of therapy to help better manage that condition. We will also be implementing additional clinical pathways, which we think will be important contributors over time.

One of the things I would say also is that we recognize that we need to focus on 2027 in terms of taking a step up in order to address this. We are not saying that what we are doing is perfectly adequate. We think it is a really solid foundation, and we are going to be doing more to make certain, as best we can, that we can get to where we need to.

Steven Baxter: Got it. And then my actual more tangible question, just on the medical margin bridge that you gave us in the slides: the $127 million for the payer contract—any rough sense you can give on how much of that is percent-of-premium changes versus having less Part D risk? I would love to get a better sense of what inning you feel like you are in on this percentage-of-premium effort and whether you would characterize the success you are having as being relatively broad-based or maybe having more success with a subset of payers and maybe there is more opportunity in front of you. Thank you.

Jeffrey Schwaneke: I would say the majority of that is either percent-of-premium or relief from the payers’ Stars—specific payer Stars issues that they have had. That is contracted and done, so that is locked-in value as we think about the 2026 P&L.

Operator: Thank you. The next question comes from George Hill with Deutsche Bank.

Elizabeth Anderson: Hi. This is Liz on for George. I just have one question on the special needs plans. Could you help frame the current exposure to the special needs plan versus the traditional MA membership, and whether the mix shift towards special needs plans means a structurally higher margin over time?

Jeffrey Schwaneke: If I look at our special needs plans, it is roughly 7% for us—right around 7%. I do not think we have enough information right now with our membership to determine if there has been a big mix shift, but more to come on that one.

Elizabeth Anderson: Thank you.

Operator: Thank you. The next question comes from Justin Lake with Wolfe Research.

Justin Lake: Thanks. Appreciate the time. A couple of follow-ups for you guys on stuff you have already talked about. First, on the membership exits and some of the recontracting you have done there: is it fair to think that you have walked away from the contracts and the plans that you think are not good partners, and the go-forward improvement here will be execution and, hopefully, rates that reflect cost trends? Do you still feel like there is more to come on that side? Also, were there any partners that stood out? Is it concentrated in one or two plans that you walked away from, or are you seeing that more broad-based?

Jeffrey Schwaneke: I would say it is payer- and market-specific. It is not specific to any one payer. As you know, economics are different across payers and markets, so I would not single any payer out as specifically an issue. It is broad-based. Ultimately, as we think about it going forward, I think these are members that we can ultimately get to a contract sometime in the future, but we are in challenging macroeconomic times and we just could not get to a deal this year. It does not mean we cannot get to a deal ever; it just means the economics and the risk were not right for us at this point in time.

That is the same lens that we will have as we renew contracts for 2027.

Ronald Williams: I think the point I would make, Justin, is that we have been pretty clear about the value that we create, and that if we are not going to be paid for it, then we will not be delivering that value. We will see what happens next year as they realize that what we were telling them was an important contributor to their success. We are hopeful, but we are also firm that it has to be the right agreement for us and for our physician partners.

Justin Lake: Perfect. And then last follow-up on trend. This question has been out there for a while, but CMS went on their call and said we think trend is 5.5%. ACO REACH has been pushing 8% to 9% the last couple of years. You sit in a unique position playing in a significant way in both. Have you been able to bridge that gap? I know skin substitutes is a big part of it, but beyond that, do you think there are 300 basis points of difference between ACO REACH and Medicare Advantage?

Or do you think there are a couple of pieces that the industry can bring down to D.C. and sit down with CMS and say, here is what you are missing?

Jeffrey Schwaneke: I think the industry and we are aligned that there seems to be a disconnect between the ultimate rate at the bottom line that is getting paid and the cost trends that everybody, including fee-for-service, has seen over the last several years. There is no answer here that bridges that gap, and I think that is why everybody is advocating for a revisit of the initial rate notice.

Justin Lake: Got it. Thanks.

Operator: The next question goes to Craig Jones with Bank of America.

Craig Jones: Hey. Thanks for the question. I want to follow up on the chart review comment you made. Do you say you are in line as in you will be in line with the 1.5%, or you think it will be closer to 0%? And then as you think about how that spreads among your payer partners, is it a pretty tight cluster, or is some potentially going to have a 5% impact and some will have a 0% impact? Thank you.

Jeffrey Schwaneke: What we are saying is the removal of selected diagnoses is minimal for us, given our model, because we are highly aligned with the primary care physician and we are seeing those members in the office. For us, there are not a lot of unlinked conditions given how our model is designed and our proximity to the primary care physician. I would say that is broad across everywhere. The Part C risk model changes would be different by market.

Craig Jones: Okay. Got it. Thank you.

Operator: Thank you. Our last question goes to Luismario Higuera with Citi, on behalf of Daniel Grosslight.

Luismario Higuera: Hey, this is Luis on for Daniel. I just have a quick cleanup question. I know you are intentionally slowing down market growth this year, but that includes $15 million of new geography entry expenses. Can you remind us where exactly that is allocated to? Thanks.

Jeffrey Schwaneke: That is really capital commitments from prior growth. Some of that drags into the following years. There was a little bit of growth this year, and there are some other groups that we are talking to, but not really getting into that right now.

Luismario Higuera: Understood. Thank you.

Jeffrey Schwaneke: Thanks.

Operator: That does conclude the Q&A portion of today’s call. I will hand back over to you, Ronald Williams, for any final comments.

Ronald Williams: Yes. Thank you. I would like to close by really expressing a deep appreciation and a huge thank you to our physician partners, whose commitment to quality care to their patients is really fundamental to our long-term success. I also want to thank all of the employees of Agilon Health, Inc., who have really been focused on this transformation that we have gone through this year, positioning us for the kind of success that we have outlined in our guidance. Thank you for joining the call. We appreciate your questions and the opportunity to engage with you. Have a good day.

Operator: Thank you, everyone. This does conclude today’s call. Thank you for joining. You may now disconnect.

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