Cuộc họp công bố kết quả kinh doanh Q3 2026 của Alignment Healthcare (ALHC): Hạ dự báo triển vọng do chi phí y tế tăng cao

Thông tin trọng tâm

• Số lượng hội viên chương trình bảo hiểm y tế quý 3/2026 tăng 31% so với cùng kỳ năm trước lên 301.200 hội viên, thúc đẩy doanh thu đạt khoảng 1,4 tỷ USD, tăng 37%.
• Lợi nhuận gộp điều chỉnh đạt 142 triệu USD. Tỷ lệ chi phí y tế (MLR) điều chỉnh tăng khoảng 200 điểm cơ bản so với cùng kỳ năm trước lên 89,5%, phản ánh những thay đổi ở Phần D và MRA, các khoản đầu tư lâm sàng, khiếu nại và tranh chấp từ nhà cung cấp dịch vụ, chi phí điều dưỡng chuyên khoa và các trường hợp ca bệnh thảm họa.
• EBITDA điều chỉnh đạt 22 triệu USD, tương ứng với biên lợi nhuận 1,6%. Chi phí SG&A điều chỉnh tăng 25% lên 120 triệu USD, nhưng giảm 60 điểm cơ bản tính theo tỷ lệ phần trăm trên doanh thu xuống còn 8,9%.
• Alignment Healthcare đã hạ triển vọng cả năm xuống mức doanh thu tối thiểu 5,25 tỷ USD, lợi nhuận gộp điều chỉnh tối thiểu 575 triệu USD và EBITDA điều chỉnh tối thiểu 100 triệu USD.
• Ban lãnh đạo dự kiến doanh thu tăng trưởng ít nhất 20% trong năm 2027. Công ty cho biết đã rà soát các mức giá thầu theo từng thị trường và từng sản phẩm, đồng thời điều chỉnh mạng lưới và kế hoạch tăng trưởng ở những nơi cần thiết.
• Sáu trong số bảy chương trình đủ điều kiện vẫn giữ được xếp hạng từ 4 sao trở lên cho năm thanh toán 2028, trong khi hợp đồng HMO tại California giảm xuống 3,5 sao.

Dữ liệu tài chính quan trọng

Kết quả kinh doanh và hoạt động

Chi phí y tế là vấn đề trung tâm trong quý. Việc chuyển đổi sang nền tảng xử lý yêu cầu bồi thường Facets đã tạo ra sự biến động về thời gian và quy trình xử lý bồi thường. Khi các khoản chi trả bồi thường trở lại bình thường, Alignment Healthcare đã ghi nhận gia tăng các vụ khiếu nại và tranh chấp từ nhà cung cấp dịch vụ, cùng với chi phí điều dưỡng chuyên khoa và chi phí ca bệnh thảm họa tăng cao.

Ban lãnh đạo cho biết các vụ khiếu nại đã giảm đáng kể trong tháng 8, tháng 9 và tháng 10, trong khi xu hướng chi phí chăm sóc cấp tính tại cơ sở y tế đã ổn định vào cuối tháng 9 và đầu tháng 10. Tuy nhiên, công ty đã không đưa các xu hướng cải thiện này vào dự báo điều chỉnh.

Alignment Healthcare đã mở rộng việc chỉnh sửa bồi thường trước thanh toán, rà soát sau thanh toán và các năng lực đảm bảo tính chính xác của thanh toán. Công ty cũng đang đầu tư vào hoạt động lâm sàng, quản lý ca bệnh thảm họa và quản lý thời gian lưu trú tại cơ sở điều dưỡng chuyên khoa.

Công ty cho biết số lượng hội viên C-SNP mang lại biên lợi nhuận nhìn chung phù hợp với các giả định năm 2026. Đối với năm 2027, ban lãnh đạo kỳ vọng sự tăng trưởng cân bằng hơn giữa mô hình HMO truyền thống và các chương trình C-SNP được chọn lọc.

Alignment Healthcare đã hoàn thành khoảng 80% nỗ lực thu hồi ủy quyền quản lý sử dụng dịch vụ nội trú cấp tính từ các IPA tại California. Ban lãnh đạo xác định việc quản lý chi tiêu ngoại trú và dịch vụ chuyên môn trước khi thực hiện dịch vụ là cơ hội hoạt động lớn tiếp theo.

Dự báo của ban lãnh đạo

Triển vọng quý 4 dựa trên giả định rằng các khiếu nại và tranh chấp từ nhà cung cấp dịch vụ vẫn ở mức cao, chi phí điều dưỡng chuyên khoa và ca bệnh thảm họa tiếp tục duy trì, và chi phí Phần D tăng so với chi phí y tế thông thường. Dự báo này bao gồm chi phí cho các sáng kiến giảm thiểu rủi ro hiện tại nhưng chưa tính đến lợi ích từ các hành động đảm bảo tính chính xác thanh toán, các khoản đầu tư lâm sàng hay sự ổn định được ghi nhận trong tháng 9 và tháng 10.

Ban lãnh đạo khuyến cáo không nên quy đổi chỉ số MLR quý 4 theo năm để làm điểm khởi đầu cho năm 2027. Công ty kỳ vọng xu hướng chi phí y tế sẽ quay trở lại mức thông thường hơn trong năm 2027 khi các sáng kiến vận hành phát huy tác dụng, mặc dù công ty không đưa ra dự báo tài chính chi tiết cho năm 2027.

Đối với năm 2027, ban lãnh đạo duy trì mục tiêu tăng trưởng doanh thu ít nhất 20%, nhờ sự hỗ trợ từ kết quả ban đầu của Giai đoạn đăng ký hàng năm. Công ty có kế hoạch gia nhập San Antonio và Charlotte trong khi tiếp tục mở rộng có chọn lọc tại California và các thị trường hiện hữu khác.

Rủi ro và các vấn đề cần theo dõi

• Áp lực chi phí y tế: Các khiếu nại và tranh chấp từ nhà cung cấp dịch vụ, các trường hợp ca bệnh thảm họa, việc sử dụng dịch vụ điều dưỡng chuyên khoa, chi phí Phần D và đầu tư lâm sàng đã đè nặng lên MLR.
• Triển khai hệ thống bồi thường: Mặc dù ban lãnh đạo cho biết nền tảng Facets đã ổn định, quá trình chuyển đổi đã gây ra biến động trong xử lý bồi thường và dự báo khoản dự phòng.
• Kết quả xếp hạng Sao (Stars): Hợp đồng HMO tại California chỉ đạt xếp hạng 3,5 sao cho năm thanh toán 2028, chủ yếu do không đạt các chỉ số HEDIS và CAHPS, bao gồm HOS và Phần D, cũng như các ngưỡng đánh giá chung của ngành tăng cao hơn.
• Sự tập trung tại California: Ban lãnh đạo thừa nhận số lượng hội viên của công ty đang tập trung phần lớn vào hợp đồng HMO tại California.
• Yếu tố mùa vụ và chi tiêu trong quý 4: Chi phí SG&A dự kiến sẽ tăng do chi phí liên quan đến tăng trưởng và chi phí tiếp thị trong Giai đoạn đăng ký hàng năm.
• Khả năng thực thi năm 2027: Triển vọng của công ty phụ thuộc vào việc tính chính xác thanh toán, quản lý lâm sàng, điều chỉnh mạng lưới và các quy trình xếp hạng Sao hiệu quả hơn mang lại kết quả như kỳ vọng.

Điểm nổi bật trong phần Q&A với chuyên gia phân tích

• Điểm khởi đầu MLR quý 4: Ban lãnh đạo cho biết nhà đầu tư không nên quy đổi chỉ số MLR ngầm định 92,1% của quý 4 theo năm. Dự báo này đã giả định áp lực chi phí y tế ở mức đỉnh điểm mà chưa bao gồm các lợi ích giảm thiểu rủi ro vốn đã bắt đầu xuất hiện.
• Hiệu chỉnh mức giá thầu cho năm 2027: Alignment Healthcare đã rà soát từng sản phẩm và thị trường so với xu hướng chi phí hiện tại. Công ty có kế hoạch giảm trọng tâm vào một số sản phẩm, thay đổi mạng lưới tại các thị trường được chọn và đẩy mạnh tăng trưởng nhanh hơn ở những nơi các giả định giá thầu có vẻ thận trọng.
• Vị thế khoản dự phòng: Công ty cho biết các yêu cầu bồi thường của năm dịch vụ 2025 và các năm trước đã được giải quyết xong khoảng 99%. Ban lãnh đạo mô tả các khoản dự phòng ở vị thế tốt sau khi đã củng cố quỹ dự phòng của các năm trước trong quý 2.
• Khắc phục xếp hạng Sao: Công ty đang bổ sung nhân sự tại các thị trường địa phương, cải thiện việc lấp khoảng trống HEDIS, xử lý các vấn đề dữ liệu Phần D, tăng ưu đãi cho nhà cung cấp dịch vụ và mở rộng tương tác với hội viên. Các khoản đầu tư này đã được đưa vào dự báo.
• Quan hệ với nhà cung cấp dịch vụ: Ban lãnh đạo cho biết xếp hạng 3,5 sao tại California không ảnh hưởng đến hoạt động đăng ký sớm cho năm 2027 hoặc phản hồi từ các đại lý môi giới. Các đối tác cung cấp dịch vụ đang hợp tác trong các sáng kiến xếp hạng Sao, chuyển giao chăm sóc, sử dụng dịch vụ và điều chỉnh rủi ro.
• Quản lý sử dụng dịch vụ: Alignment Healthcare nhận thấy cơ hội cải thiện MLR bổ sung từ việc kiểm soát sử dụng dịch vụ trước khi thực hiện và hướng hội viên đến các nhà cung cấp dịch vụ hiệu quả cao phù hợp, đặc biệt là bên ngoài California.

Toàn văn biên bản cuộc gọi báo cáo kết quả kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

Operator

Good afternoon, and welcome to Alignment Healthcare's Third Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] Today's call is being recorded. Leading the call today are John Kao, Chairman and CEO, and James Head, Chief Financial Officer. Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are subject to various risks and uncertainties and reflect our certain expectations based on our belief and information currently available to us. Descriptions of some of the factors that may cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC, including the Risk Factors sections of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, and our Form 10-Q for the fiscal quarter ended September 30, 2026. Although we believe our projections are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. In addition, please note that the company will be discussing non-GAAP financial measures that they believe are important in evaluating performance. Details on the relationship between these non-GAAP measures and the most comparable GAAP measures and the reconciliation of historical non-GAAP financial measures can be found in a press release that is posted on the company's website and our filing Form 10-Q for the fiscal quarter ended September 30, 2026.

Operator

Good afternoon and thank you for joining us on our third quarter earnings conference call. Total third quarter 2026 health plan membership of 301,200 represented growth of 31% year-over-year and drove overall revenue of approximately $1.4 billion, a 37% increase year-over-year. Adjusted gross profit of $142 million represented an adjusted MLR of 89.5%, a 240 basis point increase year-over-year. Meanwhile, adjusted SG&A of $120 million represented an SG&A ratio of 8.9%, which improved by 60 basis points year-over-year. Taken together, adjusted EBITDA was $22 million, within the range of our guidance. I'd like to spend a few minutes on the headwinds that emerged this quarter and actions we have taken in response. As part of our broader scaling initiatives, we began a comprehensive claims system migration last year, designed to improve our payment speed, auto-adjudication rates, and payment integrity capabilities. During the transitional period, we experienced greater volatility in claims processing. As the volatility normalized, we identified a notable increase in aggressive provider appeals and disputes in our paid claims data, which resulted in a higher cost trend. Separately, during the quarter, we saw pockets of higher cost in areas such as catastrophic cases and skilled nursing, which also pressured medical expenses. To address the headwinds we experienced, we acted swiftly over the past several months to build out a more robust payment integrity function, including industry-standard pre-pay claims edits and more rigorous post-pay review. Additionally, we have moved quickly to manage and deploy our clinical resources expectantly and are making targeted investments to ensure our clinical best practices and operating rigor are applied systematically across our markets to reduce the variability of member outcomes. We are confident that the actions we're taking to scale our clinical programs will enable us to achieve the level of clinical effectiveness that we are accustomed to. We are pleased with the progress we have made across our multiple initiatives and saw institutional acute care cost trend stabilize as we closed out September and entered October. Furthermore, we've experienced positive momentum across other cost categories. Despite our progress, we're taking a prudent approach to the increased trend seen in Q3 and assume that higher costs in the third quarter will continue to weigh on our results for the remainder of the year. Given this position, we lowered our annual guidance to no less than adjusted gross profit of $575 million and adjusted EBITDA of $100 million. I want to emphasize that the guidance we have provided today is a guidance that we are confident in delivering. Furthermore, we have thoroughly reviewed each market to identify the issues that impacted our financial performance this year and mobilized quickly with plans to address them. Our revised guidance reflects both a prudent posture toward the cost pressures we're seeing today and a disciplined approach to forecasting the balance of the year. Our focus is now on execution, delivering against the commitments we are making today and positioning ourselves well for 2027. As we enter 2027, we feel well-positioned to achieve our top-line growth target of at least 20%, given the early results of this AEP. Importantly, we did prudently reconcile those assumptions in the bids to the trends we're seeing today and made adjustments in areas where we saw room for improvement. At this time, we have a firm grasp of the underlying market dynamics we faced in 2026 and the actions required to address them. Taken together, we believe we will strike the right balance between growth and margins for 2027. We will share our thoughts in greater detail following AEP results in January. I'd like to take a moment to address our Star Ratings for payment year 2028, which reflects performance for 2025 dates of service. We maintain a 4-star or higher rating in 6 of 7 eligible plans, demonstrating our ability to deliver strong Stars performance across much of our portfolio. At the same time, our California HMO contract earned a 3.5-star rating, which is below our expectations. The shortfall in our California HMO contract was primarily driven by missing HEDIS and CAHPS measures, particularly in HOS and Part D, as well as higher than expected industry cut points. We have already identified data and workflow opportunities within our Stars infrastructure and initiated actions across the enterprise to drive better and more consistent Stars performance. We've conducted more provider and member engagement initiatives to improve performance in survey measures, addressed data issues that impacted gap closure and Part D, and accelerated our progress in HEDIS gap closure to further strengthen our position in these metrics. These changes are in place and operationalized for the 2026 plan year cycle. In conclusion, we continue to demonstrate profitable growth and are addressing the challenges that impact our performance this year. We have taken decisive action in those areas, and our revised outlook reflects a prudent view of the cost pressures we're seeing today. At the same time, we continue to invest in capabilities and operational changes that are important to support our next phase of growth. Over the past couple of years, we have evolved our leadership roster, systems, and technology architecture to support greater scale. We are already seeing benefits from some of these changes that include greater visibility and control over inpatient utilization through our partnerships with providers to de-delegate institutional acute UM functions. We also continue to seek opportunities to assume more control over our pre-service utilization for outpatient and professional spend where appropriate. Additionally, our clinical model remains a core strength of our business and primary driver of our unit costs. The investments in claims processing, clinical operations, and Stars infrastructure build on that foundation. With that, I'll turn the call over to Jim to further discuss our financial results and outlook.

Operator

Thanks, John. I'll dive into our third quarter results for the quarter ended September 30, 2026. Health plan membership of 301,200 increased 31% year-over-year, supported by strong member addition and high retention. Our health plan membership generated revenue of approximately $1.4 billion in the quarter, representing approximately 37% growth year-over-year. Third quarter adjusted gross profit of $142 million represented an adjusted MLR of 89.5%, approximately 100 basis points above the implied midpoint of our third quarter guidance and an increase of approximately 200 basis points year-over-year. Approximately half of the year-over-year increase in MLR was driven by changes in Part D and MRA, and additional clinical investments, and that's consistent with the comments we made on the Q2 call. As John mentioned earlier, we also observed a notable increase in provider-led appeals and disputes in the quarter, along with elevated costs within our skilled nursing and catastrophic case categories. These components drove the remaining increase in MLR. Turning to operating expenses, adjusted SG&A was $120 million, an increase of 25% year-over-year. As a percentage of revenue, adjusted SG&A of 8.9% improved by 60 basis points year-over-year and outperformed the midpoint of our guidance range by approximately 90 basis points. We delivered this result even as we made incremental investments as previously mentioned in the Q2 call and John's commentary today. Additionally, included in the quarter was a benefit from an incentive compensation true-up our year-to-date targets. Taken together, third quarter adjusted EBITDA of $22 million produced an adjusted EBITDA margin of 1.6%. Moving on to cash flow and the balance sheet, we generated $158 million in operating cash flow during the first nine months of the year, and our liquidity profile remained strong. We concluded the quarter with $743 million in cash, cash equivalents, and short-term investments. Overall, our reserves remain well-positioned in both current and prior years, and we are confident our cash flow generation will continue to support our growth going forward. Lastly, our funded leverage ratio at the end of Q3 was 2.4 times our trailing 12-month EBITDA. Moving to our guidance for the fourth quarter, we expect health plan membership to be no less than 305,000 members, revenue of no less than $1.32 billion, adjusted gross profit of no less than $104 million, and adjusted EBITDA of no less than negative $28 million. For the full year 2026, we expect revenue of no less than $5.25 billion, adjusted gross profit of no less than $575 million, and adjusted EBITDA of no less than $100 million. A fourth quarter adjusted gross profit of at least $104 million implies an MLR of 92.1%. In our guidance, we have assumed the continuation of the elevated medical claim spend we experienced in Q3 with no contemplation of the stabilizing trends we observed in both September and October. Furthermore, while we're not including any benefits from the initiatives currently in progress, the costs of these initiatives are fully burdened in our guidance. Lastly, on Part D, our revised guidance continues to embed an assumption for increased cost relative to typical medical expense in Part D. Additionally, we are assuming a continuation of the higher costs experienced in the third quarter related to elevated appeals and dispute activity, along with increased costs in certain categories. In SG&A, we expect higher expenses during the fourth quarter, reflecting growth-related costs and marketing expenses related to AEP, consistent with our past experience. Our updated outlook reflects prudence and activism as we address the pressures we discussed today. As we see no factors typical of the fourth quarter, we expect the actions we have taken this quarter provide visibility, control, and support improved performance as we reposition ourselves for 2027. With that, let's open the call for questions.

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Matthew Barden of KeyBanc. Your line is now open.

Operator

Hi, thanks for taking my question. I guess I want to unpack a little bit about those cost trends that you identified and discussed. John, in terms of the new claims processing system, I think it's called Facets, and the deployment of that system, I think you alluded to better identification or faster claims processing. Can you talk a little bit about that new system and how that has either contributed to you identifying these claims or was it just concurrent with you seeing higher claims? Can you unpack that a little bit? Thanks.

Operator

Yeah, Facets is an industry-leading claims adjudication application. We migrated off something that we thought was sub-scale. One of the benefits of this is we felt that we needed better auto-adjudication rates so we could pay our providers faster. We needed to make sure that we had the kind of state-of-the-art payment integrity programs to offset the aggressiveness from a lot of the larger providers. And anyone that's gone through one of these system conversions knows it's a messy process. I'm actually pretty happy with where we have ended up in terms of getting through most of this in July. And so we're three months past that now, and I feel very happy about where we are from a stability point of view. But really what happened is we saw volatility in our paid claims, and we started seeing that in July. And once we realized we had a lot more appeals and disputes coming through, we had to react on that. And I'm happy to say that the amount of appeals has dropped off significantly in August, September, and October. As Jim said, in spite of that kind of stabilization, we're still taking a very prudent approach toward the rest of the year. And I feel good about where we are in that regard. I feel good about where we are with our reserves. And that's the main, that's the main issue on Facets.

Operator

Just to make sure we understand, were the claims just happening to be running higher after you implemented Facets, or was it helping you identify higher trends?

Operator

It created volatility. And so when you go through one of these system conversions, what happened was we were just making sure that the configuration of the system was correct. And so you had some timing differences between when claims were coming through, and we saw a higher trend really kicking in July. And once we saw that, we made all the requisite changes and got all of that through in terms of getting paid claims stabilized. But that created the higher trend, and it really started in July. And we started seeing that, and the actual trend is starting to actually taper off a little bit in August, September, and October. But again, we're just being extra, extra careful, making sure that we're kind of assuming that trend continues in Q4, despite the fact that I think some of the trends are already starting to stabilize. Alright, got it. Thank you.

Operator

Our next question comes from the line of Kevin Fischbeck of Bank of America. Your line is now open.

Operator

Can you hear me? Hi, this is [ Watkin ] on for Kevin Fischbeck. Can you hear me now? Sorry about that. Yeah, so could I just get your initial thoughts on 2027 and positioning? Yeah, it's a good question.

John Kao

We did a deep dive, as you might expect, on the assumptions that we made in the bids. We compared that to the trends that we anticipate and the mitigation efforts that we have in place for the balance of the year, which, just to underscore, we did not factor into the guidance. And the result of that is we made some changes with respect to certain networks. We made some changes with respect to how fast we grow certain products or not grow certain products. But overall, we feel good about where we are in 2027. We feel good about finding again that balance between growth and margin expansion. I think we've been pretty good at that over the years, and we'll get back to that same cadence. And you can imagine, we did a pretty thorough dive as to how much we should grow.

And how we're positioned relative to competitors in PlanFinder. And again, I think we feel pretty good with solid profitable growth at that 20% level.

Phần hỏi đáp

John Stansel

Got it. Thanks. And then just last one. So a lot of companies have taken action to diversify their membership across plans. Is that something you guys are looking to do? And do you have any targets on how big any one contract as a percentage of membership should be? Thank you guys.

John Kao

Well, I think with respect to us, we have so much membership in the California HMO. That's something that we're looking at, obviously. And I'm not going to comment too much on the tactics associated with that, but more so focused on really getting to the root issues in Stars. And really what I think is going on is we still got 6 out of 7, you know, 4-star and above. We got three, you know, 4.5-star plans, just to remind everybody. But those are still being well-run, really, because we're smaller in those markets. We've gotten so big, that, you know, we just have to, you know, continue to invest in automation. We have to continue investing and really incentivizing our provider partners and our IPAs to work with us and focus on Stars more and better.

But that's kind of where we're zeroing in on. It's like we might have some, you know, kind of cross-walk types of tactics. But we got to get to the root issues. We got to get to the root and fix it. Just to remind everybody, when we started the company, we bought a plan that was 3.5 stars. It dropped to 3. This was way before we had anything to do with it. We were able to get from 3 stars to 4.5 stars. And the way we did that was to underscore the fact that Stars is not a functional department.

Stars is a cultural requirement, and we have so many new people here. We're growing so big with new people, new leadership. That's something that we're going to be underscoring yet again is this is something that everybody in the company has to focus on serving that senior. And we'll get this fixed. That I can promise you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of John Stanzel of JPMorgan. Your line is now open.

John Stansel

Great. Thanks for taking the question. Just thinking about the reduction in guidance here in the back half, you know, appreciate that, generally speaking, your profit is a little bit more front half weighted. Can you spend a little bit of time thinking about, I appreciate the conservatism in the back half of the year, but what the jumping off point is when we think about kind of like a fully burdened medical profit and EBITDA number to grow off of in '27.

James Head

Yes, and John, I'll take this one, and then John Kao can fast-follow. But just in terms of developing our Q4 guidance, we did want to reflect the cost trends that the call and put ourselves in a position where we could deliver on the revised expectations, and obviously, you're seeing some prudence in that. So in our guide, we're assuming a couple things, and we're not assuming a couple things. So that's important to understand from the jumping off point. In our guide, we're assuming that we're continuing the higher appeals and disputes at what I would describe as a peak rate. So, putting some prudence in the appeals and disputes expectation. And as John Kao mentioned, that's already starting to come down. We also are assuming a continuation of the SNF length of stay issues that we've talked about, but also CAT cases kind of continuing.

And as we actually exit Q3, we saw both of these things kind of moderate. What we are not assuming is any favorability from payment integrity or payment accuracy activities, so that's not any assumption. We're not assuming any returns from the clinical investments that we called out on Q2. So, in that, we're kind of making sure that we can deliver and not baking in any of the, what we think is going to be run rate benefits for 2027. And then finally, we just put an extra layer of conservatism on it. So the question, and maybe I'll push this over to John Kao, is that the right starting point for 2027? Yes, John, I would strongly advise not to use the Q4 MLR as an annualized.

John Kao

starting point for '27. That would be, I think, a mistake. You know, we have a lot of initiatives going on. And again, just made a decision that this is a bit of a reset, and we're going to do the reset, let's just make sure we can, you know, convey confidence to the Street as to, you know, what we can achieve. And I think there's potential for upside. And, you know, we're going to be focusing on that. And that would be my suggestion for you without getting into '27 guidance. Thank you.

John Stansel

Got it. And then just thinking about kind of, as you do at '27 AEP, how are you thinking this? I know '26 was a year where you had kind of a higher mix of chronic and higher acuity enrollment. As you think about your 20% growth in 2027 as a baseline, your confidence there, do you think the mix will look more like '26 or more of a normal year where it's maybe less skewed to chronic and high acuity enrollment?

John Kao

Yeah, that's a great question. Just to underscore one piece of detail. The margins associated with that C-SNP membership, even in year for this year, has been pretty good. That's a big deal. And so really, I think the points that we highlighted with respect to appeals, disputes, revenue cycle, aggressiveness of providers, a couple of outpatient kinds of costs were the drivers. The mix issue is not something that we think contributed to this. Having said that for '27, I think you're going to see a balanced, more balanced on HMO products. I think there's still some pockets that we think C-SNP makes sense for us. But yeah, I mean, that was the first thing I looked at is that, you know, it's part of this mix and it's actually performing quite well in year.

John Stansel

Does that answer, John, your question? Yep, very helpful. Thank you.

Operator

Thank you. We'll move it for our next question. Our next question comes from the line of Justin Lake of Wolfe Research. Your line is now open.

Justin Lake

Thanks. Just following up there on the fourth quarter, one way to look at it is your third quarter MLR was up about 200 basis points year over year. Looks like the fourth quarter implied is up close to the 400 basis points year over year. Is there any way to parse out that extra 200 bps? Is that just, like you said, conservatism? Is there increased spending on initiatives that you've added for the fourth quarter that wasn't there in the third quarter? Anything more that you can give us there?

James Head

I think the one thing that we would say that was present in Q3 as well, in terms of a little bit extra burden that was in the baseline, was just part of the Part D, which has a little bit of an uptick in the MLR in the fourth quarter, that's just structural and kind of how the bids work out in the risk corridors, et cetera. We did have a little extra layer of investment in the clinical side. So that is, if you're doing it year over year, you have to kind of apply that same factor. Then you sequentially, you've got, I would call it a pretty full run rate of these costs that we described, the appeals and disputes, the CAT cases, and the SNF, kind of pushing into Q4. And what we're really doing is saying it's a bit one-sided, which is we are putting a full count for what we think the trend could be without any offsets that we've already been actioning and actually starting to see some results. Payment integrity is a perfect example of that. So we are being prudent on that, but that's, that's how the bill came about, Justin.

John Kao

Yes, just to add to Jim's comments. Really the operative word from our point of view is prudence. You know, we really looked at the Q3 numbers, we saw uptick in those appeals and disputes. Those are in our world called adjustments with respect to claims payment. We've seen a positive trend with those coming back down starting in August, September, and October, stabilizing. We see ADK stabilizing. We have initiatives with respect to CAT case management, SNF length of stay management. All of the blocking and the tackling is implemented.

But really, we just like, let's just be super prudent and not assume any of that's going to start being reflected until we actually get the paid claims in place.

Justin Lake

Okay, and then kind of same question on SG&A. Looks like it's relatively flat, Q3 to Q4, typically up about $15 million, you know, which kind of makes sense given selling costs.

John Kao

Okay, and then kind of same question on SG&A. Looks like it's relatively flat, 3Q to 4Q, typically up $12 million to $15 million, you know, which kind of makes sense just given selling costs during AEP.

Justin Lake

What's going on 3Q to 4Q that's keeping SG&A flat despite that?

James Head

Yeah, but for a little bit of incentive comp that we mentioned on Q3 is tracking exactly as to what our expectations. We are 120 in Q3 and 132, I believe, in Q4. So it actually does pick up, Justin. We said we'd... How much was the incentive comp benefit in Q3? It would track according to plan, so maybe we'd be in the high 120s in Q3, I think was. And it's picking up to 132. So we really haven't made any material changes. In fact, we've been investing in the SG&A areas because we want to position ourselves for 2027. We called that out in Q2. There was going to be a little extra investment made in Q3 and Q4.

because we want to position ourselves for 2027, we called that out in Q2. There was going to be a little extra investment made in Q3 and Q4. Got it. Thanks, guys. Thank you.

Operator

One moment for our next question. Our next question comes from Michael Ha of Barclays. Your line is now open.

Unknown Speaker

Thank you. So I know you're pursuing Stars litigation now, so assuming no litigation results in restoring 4 stars in time for next October, is impacting payment year 2029 achievable? Are there any milestones from now until next October that would demonstrate that to us? Can you help us frame the gross Stars funding headwind for '28 and the portion that would remain after things like provider sharing and benefit cost actions, and if you would take benefit cuts potentially in '28?

John Kao

Yes, so with respect to Dates of Service 2026, Payment 2029, obviously it's a bit early to comment on that, but I will give you some input that we feel good about our HEDIS gap closure initiatives. We feel good about our Part D data issues that got cleaned up. And just really as a reminder, even heading into plan preview two just a couple of months ago, I was feeling optimistic just because we had such a good CAHPS score. We really got a little bit blindsided with HOS (Health Outcomes Survey). And so that's still one area that is a little bit elusive for us, which really caused me to pause about '26 in aggregate. But a lot of the changes in operations I'm comfortable with. But, you know, give us a little bit more time, you know, and obviously I think CAHPS and HOS is going to be more and more important. I think our Part D is going to be strong this year in terms of dates of service. With respect to, I think, your third question, you got to remind me what the second one was, but yeah, I mean, I think we're going to look at this like we always do, finding the right balance between growth and margin.

I will say that the kind of the confidence I have with our ex-California markets and our operationalization of those markets. I feel good about it. I think we have a handle on the issues. We have a handle on utilization, and we have so much growth in those areas that the embedded earnings are going to start to show. We're starting to steer the right way with us in those ex-California markets that will allow us to grow there. And I think there's still more room for us in California to still get decent growth. I don't think we need to slow down growth in California, maybe a little bit, particularly given where everybody else is. And so we'll make the right decisions with respect to benefit design.

Unknown Speaker

pretty good at that. Michael, what was your second question again? second question. I guess just the gross Stars headwind after providers sharing benefits, cost actions, mitigation plans you have in place and it's just how you think about that.

John Kao

Yeah, yeah, let us get back to you on that one, please, because the mitigation initiatives is pretty material. And I underscore two areas. One is embedded earnings. A lot of the investments that we made in obviously '26 and the C-SNPs I think is going to start paying off. It's going to help bridge some of that gap with respect to Stars. And then, and MRA, I think we are, as we have shared with you in the past, pretty conservative as it relates to risk adjustment. And I think that there's lots of opportunity for us. We took a very, I would just say, conservative approach philosophically to coding.

We did not want to be dependent on that, but I think it's also fair to say we can do a better job and we're doing, just, I think what we're starting to dive into that, we determined there's a lot of opportunity for us on risk adjustment. And so we'll be in a position to share a lot of that with you when we give you kind of the full plan. We expect to do that after the Q4 call.

Unknown Speaker

Got it. Thank you. And I wanted to clarify, I know you're still targeting 20% membership for next year, but I just want to clarify, your Star Rating decline in California, has it not affected early AEP sales at all or even broker feedback? And then for 2020? Yes. Okay.

John Kao

It's a great question. The answer is it is not. The brokers are just... we have such a strong set of relationships with them, built over the last 12 years. We've earned their respect. We do what we say. They have confidence in us. And we feel really good about 2027 AEP. I mean, really good. And I'd say, the right products in the right markets with the right margins. I'm very happy about that. Just to note a couple of things that we've announced.

We've added some pretty important provider partners this year, Hoag Memorial is a premier delivery system in Orange County, in our backyard. And so we've got a very good win-win contract with them. And then our expansion in LA with Astria. And so I feel really good about that. There are certain there be there's a couple of other markets with certain products. We're going to probably de-emphasize heading into '27. And even with that, I feel good about the growth. But yeah, and even the providers, particularly the ones that I just mentioned, are going to work with us because they have confidence in us that we'll get this thing corrected. That is a very good question. And so the next logical question was, okay, well, how do you think about the growth in '27? How do you think that'll impact your bids and your product strategy in '28? I think we've contemplated that, and I think we're going to be fine.

And I think it's really going to be, what does the margin profile look like in California with respect to benefit design relative to how much we grow ex-California? That's what we'll start looking at, you know, as we head into '28.

Unknown Speaker

Got it. Thank you. If I can squeeze one more in on '28. So it sounds like you're still focused on growth in California, but I mean, does your Stars shortfalls change your thinking at all on your plans for a new state, new market expansion? I know you were sort of slated for that in '28. Or will you delay it?

John Kao

The whole point of this, everybody, is to get this care model everywhere in this country. It's a good care model. And we needed to do this. We needed to scale. We needed to put these processes in place, and to automate more of what we do so that we can get this model in more states. And I feel good about where we are and what we've done so far heading into '27.

We're going to be entering San Antonio and Charlotte. Again, that was a bit prudent on our part that we could have added additional states. We chose not to in '27. In '28, we're working very diligently to add a couple of states. And the whole point of this is what, you know, we've been talking about is to scale this model, and I think that you're going to be happy with what we end up with. You know, we're going to get back to this kind of beat and raise cadence. You know, just everything's going to be bigger and much more reliable, but we got to get through this kind of transformative phase.

Operator

Thank you so much, John. Yes, you got it, Michael. Thank you. We'll move on for our next question. Our next question comes from the line of Jonathan Yong of UBS. Your line is now open.

Jonathan Yong

Thanks for taking the question. I guess just on the stabilization that you're speaking to in medical cost trend, I guess is it stabilizing back towards your kind of original guidance and assumptions that you came into for the year, or is it still tracking above your original original guidance assumptions and to an extent, can you frame how much above it currently is tracking?

James Head

Well, in the quarter, we definitely saw some elevation, and you can kind of think about 120 basis points that we called out. And we are seeing it stabilize, and I would say that probably exiting the quarter below the peak of the quarter. But in our guidance for Q4, we are certainly predicting or guiding towards that maintaining at essentially peak level just in an effort to be prudent. So the trend level we think is going to come down over time, clearly as we go into 2027 based on the actions we're taking. And that's things like payment integrity initiatives, the clinical model initiatives that we talked about, and just getting sharper in some of these spots, CAT case management, et cetera. the next three months we're just being prudent. We do think that this will get back to normal in 2027 in terms of our typical trend.

Jonathan Yong

Okay, good. And then just going back to kind of the mitigation efforts to try to get back your Stars and just kind of SG&A, are there any additional investments that you need to make either within the upcoming quarter or throughout '27 to kind of get your Stars back or is that kind of within your overall planning process already such that there's no real change with respect to that? Thanks.

John Kao

No, it's a good question, Jonathan. We're putting more boots on the ground in the markets. That's kind of the short answer. Again, to reiterate what I said earlier, we have to just get back to the fact that this is a cultural requirement. It's not a functional department. This is like everybody in the entire company needs to believe in serving that senior as best we can, partnering with the providers as best we can. And so, it stems from the top, from the board, to me, I'm going to be sitting on this daily. I've got great leadership in place now to sit on it daily.

And it really is numerators and denominators for every single measure that we track daily. And I think we just got away from that. And so we got to put more bodies in the markets, have more consistency around how we close these gap code closures and engage the providers, and particularly in California, much more tightly. And those are the things we've invested in. Those are embedded in the guidance numbers. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Scott Fidel of Goldman Sachs. Your line is now open.

Scott Fidel

All right, thanks. Good evening. First question just on product selection and sort of having diversified into sort of more and the higher acuity products with the SNPs, with the C-SNPs and the D-SNPs. You know, just curious around, you know, your thinking for '27 in terms of ultimately, you know, with the bids and then ultimately, you know, sort of since you've identified some of the cost, you know, pressures, are you, you know, continuing to sort of stay with the sort of the original trajectory of what you were thinking on the growth or have you made any adjustments in terms of how, you know, how intensively you're sort of pursuing that? And in particular, also just curious around your assessment of the competitive environment, you know, on the D-SNP side. You know, that that's out like within the overall, you know, pretty, you know, sort of conservative and, you know, sort of less overly aggressive, you know, market for '27, I did feel like, you know, in the landscape data, that seems to be an area where competition is still looking pretty intense or maybe even increasing for next year. But I'm curious on your view on that. Yes.

John Kao

Yes, Scott's a great question. We do well in the C-SNPs, you know, and you know, a concern I had heading into this year, I thought we bid appropriately, but, you know, was, you know, were we going to get, you know, negative trend there, worse than we budgeted and it was interesting is I think we're pretty much spot on in terms of contemplated margin for the C-SNP in year for 2026. And so I think you can expect us in '27 to have a good growth in C-SNP in selected markets. I think you're gonna see more HMO growth, more traditional HMO growth. You know, if you look at the plan finder, I think you'll find that our benefits were were pretty good relative to our competition. And that speaks to our confidence in all the different initiatives we're working on. And I just can't emphasize the importance of, you know, kind of getting through this kind of claim system conversion. That was a big deal. It took a huge effort.

We started it like three years ago, we went live last July, we're 17, 16 months into it now. So that part of it is starting to work. I would say one area that is going to be a huge opportunity for us is just the payment integrity part. Shout out to our team working on. They're doing a great job. And it's going to be more and more important as you hear of the providers deploying more sophisticated AI tools. We had to go through this in order to get to our long-term growth objectives. And so getting that kind of stabilized is going to bring into focus everything that we've been so proud of in terms of visibility and control.

So with respect to the competitive dynamic, yes, I mean, I think things are going to get tougher, I think in '27, you know, and we don't have another year of MA 2028. And so I think you're going to get some good lift in that regard. I'm not sure you're gonna get rewarded, the industry's going to get rewarded for any kind of, you know, large or huge revenue, you know, benchmark increases, but I think in that new world, I think we win still. I really do. I think we just get all these transformative changes in place. The biggest one is the Facets conversion. Very proud of the team. They worked their butts off on that. And shout out to that team as well. So anyways, I don't know if I answered your question, Scott.

Scott Fidel

Yes, absolutely. And maybe continue to answer it a little more in my follow-up question. You know, with the follow-up question, maybe just sort of, I guess, maybe reconcile or just like sort of just align, I guess, no pun intended, in terms of like around the provider delegations and then de-delegation and risk-sharing. And in terms of where exactly you're at with that, you know, because you guys talked about in certain markets centralizing more and moving with the new system. But then in your 8-K, you guys also emphasized where the mitigation efforts and value could come from would be around adjusting the provider risk-sharing and delegation arrangements, looking at '28. So just sort of, you know, would love to sort of have a level of set around like, where exactly, you know, you guys are in that, that journey and sort of how much, you know, how much, like...

You know, sort of how many bullets in the chamber you may still have, you know, less than '28 in terms of...

John Kao

leveraging that. That's the best question so far. So we deemed about two years ago that it was strategically important that we build a core competency of doing the Utilization Management (UM) work. And we still have this kind of shared risk delegated model in California. And so what that means is we've delegated UM to our IPAs. And the UM is really two parts. There's the inpatient acute institutional model determinations, and then there's the, what we would call pre-service, and that's really the outpatient and the professional. And what strategically we decided was we could not be in a place where we were entirely dependent upon the global cap providers.

Because you could see that with MA 2028, there was going to be a lot of margin pressure because the revenue is going down. And so in that world, we were accustomed to is that the providers, you know, they're a global cap, want more money, and they're going to squeeze our margins. So we had to move away from that and move away from that kind of dependence. And so what we did was we started to de-delegate the IPAs and the medical groups for the acute inpatient part of the UM. We've done a very good job of that. And again, shout out to the team for working so hard to develop that competency. And we're about 80% through our process.

The key thing we've done is do that in a way that is aligning with the providers. Because if we do better, they do better. And so that's a key, key thing. The area that there are more opportunities for us, and we've alluded to this, is in the pre-service, right? And if we go outside of California, there's going to be less dependency on IPAs that are going to take any kind of downside risk, whether it be shared risk or global cap. And so our ability to do pre-service and to integrate more care navigation into our processes for care. Pre-service is going to do huge amounts of improvement for us, I think, on MLR, particularly on outpatient and professional spend. And the way we want to do it is we want to use that capability to route people to the right high performing providers. It's not a matter of denying care.

Our denial rates are very low. It's about getting them to the right care, the right timely provider in a timely basis. That is going to be the next frontier. And we need to do that very carefully with our IPAs in California, and we need to execute that very quickly ex-California. And I think that would be a big opportunity for us. And I think then what we will have is the ability to operationalize our networks as we expand throughout the country. Whether it's fee-for-service, we can make that work. Whether it's shared risk, we can make that work.

And I got nothing against global cap. Global cap works as long as we have durability to that rate that can work. And so the whole idea of this is to be able to enter any market with any kind of contracting with providers, overlay our clinical model, and then get the same reliable growth that we've experienced for the first, you know, whatever, five years of being public and 12 years of being a company.

Scott Fidel

great question All right, thank you. No, that's a lot of intel. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Matthew Shea of Needham. Your line is now open.

Matthew Shea

Hey, thanks for taking the question. Maybe back to Stars. HOS was a notable hit to the 2027 Stars, and it seems like the remediation effort is to do more on provider and member communication, both this year and next. I guess it wasn't clear to me, were you able to make changes before the 2026 fielding window? If so, what were they? How is that informing your recovery view? And then within the big H3815 contract, did members actively managed through AVA and Care Anywhere score differently on HOS versus members not managed by those offerings?

John Kao

The answer to both is I need to get back to you as a follow-up. Those are good questions. I don't have the degree of visibility I would have liked for the 2026 dates of service, which is a measurement year, really, because you're talking about '24 dates of service. I'm hunting that down. I know that the work that we're doing now for '26 dates of service is a lot of work around town halls. We've talked to, I think we've touched over, I think the last number I saw was 70,000 members and, you know, in some capacity. So it's obviously a concerted effort, but I need to follow up with you on that one.

Matthew Shea

OKAY, FAIR ENOUGH. I guess maybe just asking a similar question, I guess, to the last one, but under your percent of premium deals, your California IPAs are also up to lose bonus dollars in 2028. Has the Stars downgrade changed your conversations with the delegated groups or with new partners like Hoag or Astria, are they asking to reopen terms? It sounds like they're eager to help in the remediation work. So just curious to get any color on kind of what the feedback or conversations with your provider partners has been so far.

John Kao

Yeah, it's another good question. Yeah, it's a concern for providers, but I will say our market management team has done a very good job. We're collaborating with all of them, like all of them. They get it, and I think there's upside opportunity. Remember, this isn't going to affect them until 2022. And so there's a lot of work that we can do now and through 2027 in terms of trend vendor initiatives and... And I think there's opportunities for inpatient acute, candidly. I think there's lots of opportunity for the way, just getting back to basics of how we did the CAT case management with them. There's incentive strategies being put in place with respect to Stars.

Because part of it is the alignment or misalignment is because of the IPAs on some of these Stars issues. So we got to get them more aligned with us to see what they can do to help us with respect to transitions of care initiatives and access to care, and timeliness of care. Those kinds of things, again, in California, are delegated to a lot of the IPAs. So it's like we're aligned to solve the problem together. And there's other levers, not the least of which is risk adjustment, by the way, that they're very, very collaborative in working with us on ensuring that we capture the encounters in a more timely way, et cetera. So I think it's kind of in this category of not let any crisis go to waste. It's allowed us to really have very constructive dialogues with the IPAs, and it's like forcing us to get even more and more aligned with them.

And again, I think our market management team has done an excellent job in that regard.

Operator

Makes sense. Thanks, John. Got it. Thank Kassian. Thank you. We'll move on to our next question. Our next question comes from the line of Tiffany Chiang of Barclays.

Unknown Speaker

Hi, this is Tiffany. I'm on for Andrew. You recorded favorable prior year development in the first quarter, negative in the second quarter, and a modest favorable benefit this quarter from the latest 10-Q. Can you help us understand what's driving that variability and is there anything specific to call out on third quarter reserves positioning?

James Head

Yes, very good question. The Q3 reserve position, let's start with the statement that we made in the script, which was we feel very good about our reserves. As we migrated through this claims transformation, there was a lot of volatility. And as a result, it was more difficult to predict how the run out for date of service '25 was going to play out. And so in Q2, we said we're going to be prudent and make sure we bolster our reserves for the safety service in 2025 and prior. That's that prior year. So we did that in Q2. Q3, we're flat. I would say that we feel actually very well positioned at this juncture. We're essentially at 99% run out on those dates of service, and very little New Day claims coming in the door.

What's continuing to help us is we're getting payment integrity recoveries still coming through. So, feel good about the '25 reserves. And so, you're right, we are kind of migrating or managing through the claims transition but the reserve position again that's quite good at this point.

Unknown Speaker

Okay, got it. And then just a quick numbers follow up. Last quarter you called out double-digit millions worth of clinical investments impacting the second half. Is that still the right number to anchor to for 2026? Yes, we haven't changed.

James Head

any of our investments that we called out on Q2, in fact, have been investing back in the business on a variety of initiatives, but we're absolutely sticking to our concise clinical and SG&A investments. Those are in our Q3 numbers and in our Q4 guidance.

Unknown Speaker

Okay, and then if I could just weave one more in, could you help size how much investment spend flow through?

James Head

We talked about it on the last call, double digit, kind of split 50-50 between clinical and SG&A, and it was weighted towards Q3. But that, obviously, when it comes in, it's still, then it's going to start run rating.

Operator

Okay, got it. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Jessica Tassan of Piper Sandler. The line is now open.

Jessica Tassan

Hi guys, thanks very much for the question. Can you all maybe explain what you mean by the assertion that '27 bids are appropriately calibrated? Just does that mean appropriately calibrated to deliver kind of flat MLR versus the 89% '26 floor on 20% growth? Does it mean flat versus the initial '26 guide? And then just when you say appropriately calibrated, are you all assuming incremental 260 basis points, call it, of implied second half MLR pressure at base next year? Or are there kind of specific examples of benefit design that you've introduced that are expected to drive margin expansion? And then, if so, could you point us to some of those elements of benefit design that might not be so obvious from just a cursory look at the landscape? Any color, just just to give us confidence on '27 pricing would be great.

John Kao

Hey, Jess, can you repeat that, please? I'm joking, I'm joking, I'm joking, I'm joking. No, I got it, I got it. No, no, no, I got it. No, no, what, what, what?

Operator

I'm joking. I'm joking. No, I got it. No, no, no. No, no, what, what, what?

John Kao

And what I mean, you know, recalibrate is, you know, how far were our MLR assumptions for each product in each market? And were those numbers, you know, you know, were they consistent with our current trend? And more specifically, our current trend that we think is going to lead into 2027. You know, we're sharing with you guys a very prudent, you know, kind of Q4 guide. I'll just reiterate, I would not, you know, peg Q4 MLR and I would not annualize that for next year. And so we haven't done that either. So we're factoring in all the different initiatives that we're going through and then, you know, I had to look at that in, like on a product by product and market by market specific basis. And so what we concluded in certain markets, for example, we kind of said, this doesn't make sense. What was assumed in the bid didn't actually, it was consistent with what our current trends are.

And so we made the decision, while they may be a product, we're not going to grow that product, just as an example. I obviously can't speak to which products in which markets but that's an example. Another example is okay, another market was, do we have the right engaged network? Right. And, and the conclusion was not really. And so we had to move, and grow with a different network in that market. This is another example, okay? And a third, on the other side of the equation, is we... I think we're too conservative with respect to our assumptions in the '27 bid.

And so we then double down on growth assumptions in that market. And so the only way you can do this is in a detailed product-by-product, market-by-market review. And when you kind of tally all those puts and takes up, we still pretty comfortable about the 20% growth that we're telling you guys. And you know, that's probably as much as I can get into without getting into '27 guidance. But, you know, again, just to underscore, don't annualize Q4 trend or MLR.

Jessica Tassan

Got it. That's helpful. And then just um a quick follow-up. I know you gave some color on the expanded network relationships, but just interested if you could offer some color on the new physician relationships you're announcing for '27. We've noticed some of these partnerships seem to expand into new counties over the course of kind of several staggered announcements in a single week. So, just is the network truly evolving? in real time as it kind of appears to be? And how should we think about the economics of those new arrangements, whether on, you know, from the perspective of capitated concessions, because those providers are ostensibly feeling some of the pressure in '26, or in terms of additional incentives to kind of help you guys recover or return 3815? Sure. Yeah, yeah, no,

John Kao

Well, it's a good question. I would say the common theme with all of these different providers is a commitment to quality health care. And I know that sounds a little Pollyanna, but really I think that's what they like about us. They know we're going to do the right thing. They're obviously not happy with the three and a half, but we're going to work together to get that solved, so much so that they're also willing to expand geographically with us. And the key to the whole thing is long term. You know, we're not doing this just for the short term. We own and take accountability for Stars for '28 payment.

We're going to get that fixed. It's very, very serious. You know, I take it very personally, actually. And our leadership team is fully on board. And what's equally important is the providers on their leadership team is collaborating with us. They know they have input and a say in how they drive our Stars. And so we got to do that better together. And that's really the approach that we've taken.

The whole name, Alignment Healthcare, was building alignment with the providers for the benefit of the beneficiary. That's the whole reason for this. And I think it's a wake-up call for everybody. And we've had nine years of four stars or above. And if anything, that's what I'm taking away from this. It is a wake-up call. We got to get back to basics. And there's urgency in all of it.

So we'll get there. Got it. Thank you.

Operator

Thank you. This concludes the question and answer session. Thank you for your participation in today's conference. This concludes the program. You may now disconnect.

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