Agilon Health, Inc. (NYSE: AGL) is at the forefront of transforming healthcare by empowering primary care physicians (PCPs) to become catalysts for change within their communities. The company’s core belief is that PCPs, with their close patient relationships, are uniquely positioned to enhance the quality, reduce costs, and improve the overall patient experience when equipped with the right infrastructure and payment models.
Founded in 2016, agilon Health has rapidly expanded its presence, partnering with 25 anchor physician groups across 24 geographies by the end of 2023. The company has seen significant growth, with a 68% increase in total membership and an 81% rise in revenue from 2022 to 2023. As of December 31, 2023, PCPs on agilon’s platform served approximately 388,400 Medicare Advantage (MA) members and 89,300 Medicare fee-for-service (FFS) beneficiaries, including participation in the Centers for Medicare & Medicaid Services’ (CMS) Accountable Care Organization Realizing Equity, Access, and Community Health (ACO REACH) Model.
A Value Adding Business Model for Agilon
Agilon Health’s approach is centered around its innovative platform, which fosters long-term partnerships with existing physician groups and cultivates a growing network of like-minded physicians. By focusing on Medicare-centric, globally capitated lines of business, agilon aims to revolutionize senior healthcare across the United States. The company’s business model primarily involves the formation of risk-bearing entities (RBEs) within local communities, which then enter into agreements with payors to manage the complete healthcare needs of their attributed patients. These RBEs work closely with agilon to perform specific functions and establish long-term professional service agreements with anchor physician groups. These groups benefit from base compensation rates and share in the savings generated from improving care quality and reducing costs.
Agilon Health’s business model stands out for its focus on supporting existing community-based physician groups, emphasizing three key elements: the agilon platform, long-term partnerships with physicians, and a robust network. The ultimate goal is to eliminate barriers that prevent community-based physicians from adopting a Total Care Model, where they are empowered to manage health outcomes and the overall healthcare needs of their Medicare patients.
Growth in Agilon Membership and Revenue
The company achieved a robust 38% year-over-year growth in MA membership, reaching 513,000 members, which drove a 39% increase in MA revenue to $1.5 billion. However, these figures landed at the lower end of the company’s guidance range. This shortfall was primarily due to the termination of select unprofitable payer group contracts, which were retroactively dated to January 1, impacting revenue expectations.
Despite these setbacks, agilon’s core membership growth remains strong, leading the company to raise its full-year membership guidance to a midpoint of 519,000 members. This adjustment reflects confidence in their ongoing ability to attract and retain members, even as revenue guidance is modestly lowered to account for the retroactive contract terminations and other factors.
Medical Margin and Cost Management
The company reported a second-quarter medical margin of $106 million, translating to $69 per member per month, or 7.1% of revenue. These results were aligned with or slightly below the midpoint of agilon’s guidance range, influenced by a higher-than-expected cost trend of 7.3% for the quarter, compared to the 6.8% initially guided. The cautious approach to booking higher cost trends underscores agilon’s prudent stance on managing in-quarter costs until more definitive data is available.
Year-to-date, the medical margin stood at $263 million, reflecting the impact of the aforementioned contract exits. Agilon is maintaining its full-year medical margin guidance at $400 million to $450 million, but anticipates reaching the lower end of this range, as lower revenue will be partially offset by higher volume and improved payer arrangements.
Adjusted Agilon EBITDA and Cost Trends
Agilon’s adjusted EBITDA for the second quarter was slightly negative at minus $3 million, which was still within the high end of their guidance range. This result was achieved through lower operations costs and timing differences on new partner incentive payments, though it was partially offset by slightly lower MA medical margins. Year-to-date, adjusted EBITDA was $26 million.
The company is maintaining its full-year adjusted EBITDA guidance, despite anticipating lower MA medical margins, due to better market entry costs. Agilon’s cautious stance on medical cost trends is notable, particularly with Part B drugs and inpatient medical admissions being key drivers. Encouragingly, paid claims data from their largest national payers indicated that cost trends for the first quarter have restated favorably and have continued to moderate through the second quarter.
