Five Observations From 2024 First Quarter Earnings Calls: Payers and Value-Based Organizations

As part of Sg2’s value-based care (VBC) analysis and market research, we review the quarterly earnings calls from a subset of publicly traded legacy payers and VBC-focused entrants. The summary is designed to highlight emerging trends and dynamics in these closely related industries, especially as they tie to VBC. The following post draws from recently released earnings call transcripts from 2023 Q3 with a focus on legacy payers (Centene, Cigna, CVS/Aetna, Elevance, Humana, Molina, UnitedHealth Group) and market entrants focused on value-based care (VBC) and/or the premium dollar (agilon, Alignment Health, Bright HealthCare, Cano Health, Clover Health, Oscar, Privia, Walgreens/VillageMD).

Observation #1: Health plans are continuing to expand in care delivery, even amidst high-profile retail exits.

Recent headlines around health care closures and exits (eg, VillageMD, Walmart Health Centers, Optum Virtual Care) are newsworthy, but these updates tell only part of a larger story. Namely, large health plans are continuing to grow and increase their reach in categories including:

Physical footprint: Oak Street Health (owned by CVS/Aetna) still expects to open ~50 to 60 new centers in 2024, outpacing recent expansion.
Patient lives: Humana’s CenterWell clinics grew panels by ~20% at de novo centers and ~7% in more mature centers.
VBC delivery: Optum Health is tracking to grow ~750,000 lives in value-based arrangements in a multipayer approach.

It certainly provides some validation to health systems when giants like Walmart and Amazon struggle in health care delivery. Health systems should remain attuned to payer organization growth and maturing in care delivery. Amidst financial headwinds, health plans continue to see VBC as a promising frontier.

“In time, Elevance Health will have full ownership of what we expect will be a leading platform for value-based care delivery and physician enablement at scale across commercial group, ACA, Medicare, and Medicaid health plans, advancing our role as a lifetime trusted health partner for the consumers we are privileged to serve.” – Gail Boudreaux, President & CEO, Elevance Health

Observation #2: Medicare Advantage STARS is the new risk adjustment.

As Medicare Advantage (MA) margin pressures build from multiple angles, notably utilization increases and premium decreases, health plans are turning even more focus to quality performance. In the near-term, the top priority for most MA health plans is STARS performance. The plans need this to both attract members and fund competitive benefit designs—while attempting to recover margin.

“The difference between a 3.5-star and a 4-star plan is approximately 5% less per member revenue. While the difference between a 3-star and a 4-star plan is approximately 10% less member revenue, we expect this funding advantage to support our ability to offer attractive benefits while improving consolidated margins.” – John Kao, Founder & CEO, Alignment Health

Health systems can use this information on multiple fronts. First, health systems can refine their contracting strategy to consider each plan’s STAR rating. Second, health systems can utilize high performance to optimize contracting position. Health systems that consistently perform well in STARS often have stronger patient access as well as actionable clinical data—both of which make for stronger partners.

Observation #3: Longer-term, health plans are (re)positioning to provide coverage to dually eligible members.

There has been a lot of activity in the Managed Medicaid bid process in recent months, especially as agencies unwind from the public health emergency. For some health plans, the stakes have increased as these bids impact future positioning beyond just Medicaid enrollment. Specifically, health plans looking to cover dually eligible beneficiaries (in Medicare and Medicaid) will be required to have a presence in both products in each market. Health systems should incorporate this into their contracting strategy, especially as there may be opportunities to partner more closely with health plans around serving this higher-need population.

“The strategic link between Medicare and Medicaid has only become more explicit since our last earnings call. Recent CMS rulemaking included final requirements to better coordinate Dual Special Needs Plans or D-SNP participation with important milestones beginning in 2027. By the end of the decade, a Medicaid footprint will be a prerequisite to D-SNP growth.” – Sarah London, CEO, Centene Corporation

Observation #4: Meanwhile, MA utilization remains elevated, but there are signs of softening.

Increased utilization among MA beneficiaries persisted into the new year, which is driving unfavorable medical expense ratios for the plans and impacting near-term financial performance. This trend, which started in 2023, was largely expected to continue into 2024. Early indications from multiple organizations are that overall bump in utilization may be slowing. It is still preliminary and based on a subset of data. Plus, there is likely a seasonality contribution from respiratory viruses.

“April inpatient authorizations, admissions appear to have moderated.” – Karen Lynch, President & CEO, CVS Health

Health plans will be tracking this very closely as we approach the 2025 MA bid cycle. Health systems should maintain active conversations and request transparent information from payer partners, particularly as it relates to potential modifications (including exits) in plan offerings and benefit design changes.

Observation #5: The increasing unknowns underscore the importance of a strong payer strategy.

The MA landscape is rapidly iterating. Medicaid is resetting in with redeterminations ~90% complete (nationally) and multiple states working through Managed Medicaid bids. Health insurance exchange–covered lives have grown considerably. Meanwhile, employers continue to seek solutions to better manage their health care spend. In this dynamic environment, health systems with an agile payer strategy will be better positioned to align their economic model with their care delivery model. The onus on health systems for a compelling payer value proposition is only growing, especially as the competitive landscape continues to advance.

“And that PCP [primary care provider] engagement, that member engagement is incredibly important, whether it's with their PCP directly or it's with some of our care—our own care management wraparound services. Because it identifies affordability opportunities incredibly quickly. It also identifies chronic disease that needs to be managed and it gets them connected to primary care quickly. So that's our focus for the year and that's why we feel good about that our ability to control utilization on the medical side particularly. And again, what we'll remind you is a reduced funding environment as we go into this year. So that's what brings us—that's what brings that value-based care proposition, incredible value to all of our payers.” – Heather Cianfrocco, CEO, Optum

No matter where your organization stands today on its journey to value-based care, our value-based care experts are equipped to provide your organization with unique insights and impactful recommendations in prioritizing opportunities and positioning your organization for select value-based care undertakings. Please reach out to us for more information or to speak with an Sg2 value-based care expert.

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Joe Maher

Associate Principal

As a leader on Sg2’s Consulting team, Joe collaborates with health systems, provider networks and industry partners to develop and drive strategies that better position organizations for success in an evolving environment. Within value-based care, he partners with organizations to bring together economic models and structures that align with the organization’s clinical care delivery approach. His expertise is informed by his experience in local and regional clinically integrated networks, value-based contracting, two-sided total cost of care arrangements, direct-to-employer contracting and aligned governance.