This content is for paid members only.

Join for $20/month or $175/year

Kevin O'Leary

Q2 Earnings Updates: agilon, Alignment, Amwell, CVS, & Oak Street

August 7, 2022
Company Research


Link (Transcript) / Link (Announcement)

  • agilon now has 351,700 members as of June 30, 2022 - 261,200 Medicare Advantage members and 90,500 Direct Contracting beneficiaries. Agilon, like many players this quarter, saw an improved medical margin. Agilon intends to hit Adjusted EBITDA breakeven for the year.

  • agilon discussed its recent announcements that it is expanding into four new states, including Minnesota. Analysts asked a few questions about agilon’s growth, including one specifically about how agilon thinks about entering Minneapolis / St. Paul (MSP), as it’s bigger than agilon’s typical MSA (it is agilon’s second largest MSA behind Detroit). Agilon mentioned they’re going to look at markets where they can sign up “large groups at scale that have great reputations and we're first there.” Agilon is entering MSP with two provider groups. One group has eleven clinics on the east side of MSP (in the St. Paul area) and the other group has one clinic on the west side of MSP. Yet as a healthcare consumer in the MSP market, it’s not as though these are well-known brands that are known throughout the local area. So it doesn’t really ring true that agilon is coming to market with large groups at scale that have great reputations. It seems a bit more like they’ve found two provider groups that are willing to sign 20 year contracts with them, and they are trying to stitch together a meaningful offering in MSP. It’s particularly interesting because the MSP market, as noted on the call, is really dominated by a few large health systems. Given agilon’s recent partnership with MaineHealth and stated interest in working with health systems more, it’d have been a logical market to enter in partnership with one of those health systems. So it makes you wonder if those conversations happened behind the scenes and weren’t working out. During the call, an analyst asked how agilon’s health system relationships are progressing, and the response was both optimistic and unfulfilling at the same time. agilon noted that there is an opportunity with systems in existing geographies, but also that health system partnership conversations take longer due to the complexity. So the fact that agilon is now entering MSP with two small primary care org would seem to indicate that conversations with health systems in the market haven’t been particularly promising to date. You have to wonder if agilon is going to be revisiting this health system partnership strategy moving forward. It would make sense to see them pivot to the approach they referenced above - where they start working more closely with health systems once they already have a sizable patient panel in global risk in a market area. 
  • Agilon highlighted its relationships with payors, both national and regional, as a key part of its success. With national payors, agilon mentioned how it has a joint operating committee with each of the top five payors. Agilon also mentioned how its ability to contract with regional players, sign up for VBC contracts in PPO plans, and effectively drive meaningful attribution within those PPO plans is a key part of differentiation for agilon. It’s minor elements that drive this performance - they give as an example that some plans require verbal confirmation from the patient before attribution becomes effective. The majority of health plans working with agilon have never done full-risk contracts before working with agilon, and you can imagine the various operational headaches associated with this. It’s a reminder that as much as we talk about how far along value-based care is in the MA market, there still are a majority of insurers who have very little experience entering full risk contracts.
  • agilon has already signed two provider groups for 2024, giving it a 18 month implementation period, which is the longest lead time agilon has ever had to onboard providers to the platform. Understandably, they are optimistic about the impact this will have on the performance of the business, as it allows providers more time to buy-in to the offering. Agilon is also optimistic about the rest of the pipeline for 2024 as well. It will be interesting to watch how this momentum evolves over the next several years - currently, agilon chalks up the momentum to the fact that “it's not Agilon telling but it's a peer who went through a similar decision.”  You can imagine why they’re excited about the potential for these partnerships, as the long implementation period will give 
  • Analysts repeatedly asked about Direct Contracting and what Oak Street shared in its earnings call about how CMS issued a retrospective adjustment of 7.5%. If you’re confused by this like I am, it doesn’t appear we’re alone, as analysts repeatedly asked agilon for clarity on what specifically happened. Essentially, it appears the projected increase based on historical trends was really high, and agilon anticipated that CMS would revisit this and bring it downward (as you’ll see below, Alignment apparently also did this as well). It’s curious that Oak Street didn’t do so. Either way, it seems everyone is really happy with Direct Contracting performance, and optimistic that ACO Reach will have similar results.


Link (Transcript) / Link (Announcement)

  • Like many insurers, Alignment outperformed this quarter, beating guidance on all key metrics and raising guidance for the year. At year end, Alignment expects to be at almost 100,000 MA members, and it expects to hit EBITDA breakeven in 2024.
  • Alignment will be entering Texas and Florida in 2023, meaning it will be in six states that collectively represent ~30% of MA enrollees:
we want to get into 15 or 16 states over the long term, where we think 70-ish percent of the membership of the eligible’s are going to be.
  • Later in the call, Alignment provided a bit more color on what market entry costs look like for the organization, and how much that can vary depending on the market. Entering an MSA costs between $1 million and $3 million, with costs primarily being sales / marketing and clinical / non-clinical hires in the market. In a new market, Alignment aims to have 20 - 25 engaged providers in order to start. MLRs in  the first year operating in a market typically are in the mid-90% range, and then Alignment expects to breakeven in year 3. In any particular MSA, Alignment aims to hit  3,000 - 5,000 members by year 3 and 10,000 by year 5. An analyst pressed them on how they market in these new geographies, and it’s a fairly standard answer from Alignment - local events augmented by TV, newspaper, radio, etc. But they also highlight the importance of FMOs (Field Marketing Organizations) and noted they’ve made mistakes by not focusing on working with FMOs in some markets, including North Carolina.
  • Alignment repeatedly hit on a theme that Centene brought up in its earnings call last week (that we covered here) - the value of having a local strategy. It’s clear Alignment is very focused on “mass customization” - building products that work in the local markets that they are operating in. As mentioned above, getting a small group of engaged providers in a market is key to this, and drives how Alignment thinks about entering new markets in the first place. This quote from Alignment’s CEO highlights just how important those provider relationships are:
And I kind of tease our team internally, I go, how many cell phone numbers do you have of these doctors? I mean do you really know these doctors and they understand what we're trying to do and what we're trying to do for our members and for them and to help them?
And I think that's the standard by which we're really building these networks up.
  • Analysts briefly asked about Oak Street’s statements on ACO Reach and CMS revising revenue, but similar to Agilon, Alignment leadership said it had already been anticipating this change. 


Link (Transcript) / Link (Announcement)

  • Amwell kicked off its earnings call sharing a big customer win - it is powering CVS’s new virtual primary care platform. One of the interesting questions in this is who is actually staffing the providers for a virtual care offering, and whether CVS was looking for a partner who could help staff the offering or just provide the technical infrastructure. It appears that Amwell views its strategy as very much the latter, i.e. just the technical infrastructure, as they are articulate here:
A lot of the virtual primary care that will be enabling is -- will be AMG related. But what we're also doing, I think, rather uniquely is allowing a provider allowing our customers to use their own providers in addressing the virtual primary care needs.
And so while that may necessitate us ramping up some, what I think it really will be doing is allowing our customers to utilize their assets a lot more efficiently as they roll out virtual primary care across their footprint.
  • Amwell’s pivot to an infrastructure platform for other entities, like CVS, seems like an astute play in the market at the moment for Amwell. As part of this transition, it appears that Amwell recognizes it doesn’t have the brand to compete with incumbent care delivery providers:
So a year ago, we -- our brand was very important to us, and we have different apps. And then when we partner with the like of Anton at the time we created lives is a brand. where all this is going is that our brand really is much less important. The trusted brand in healthcare are the providers and their partners.
So, we gracefully took one step backwards, if you will, allowing our customers to take their natural place to the forefront. And in many ways, that's a very welcome change. If you think about your own family, would you rather get care from Cleveland Clinic or [Intermountain] or Amwell.
  • We doubt this is the last time we’ll hear this sentiment over the next 12 - 18 months from various telehealth players. As incumbent organizations catch up in terms of their ability to offer basic telehealth services, the branding question is going to become increasingly important. Amwell seems to rightly understand that if a patient can choose between your local trusted provider brand or Amwell, most patients are going to choose Amwell. So if Amwell can be the partner to those brands as they build out their telehealth capabilities, rather than competing with those organizations directly by staffing its own providers, it seems like Amwell is positioned quite well over the long term, particularly when compared to other telehealth players who have been trying to own the brand in the space (i.e. Teladoc).
  • Amwell’s opening remarks included highlights of how a few different health systems are leveraging the Amwell Converge platform: Dignity Health has driven behavioral health visits up from 300 to 1,000 per month, St Luke’s University Health System expanded its reach to thousands of patients, and Spectrum Health is saving $1 million a year from avoided ED visits. It’s a helpful reminder of the state of telehealth programs at large providers - here you have Dignity Health, one of the biggest health systems in the country, and it has been doing 300 behavioral health telehealth visits a month.  
  • Amwell further clarified the strategic role it sees itself playing over the long term in response to an analyst question. It seems pretty clear they’re viewing themselves as an integration layer for telehealth moving forward. Will be interesting to watch how they execute on this transition over time.
We fully expect to add modules that are made in Amwell and growing number of modules that are made by third parties and even our clients to really tie them into this unified infrastructure is so helpful to our clients.
Down the road, I would not be surprised if the majority of our models and program will not be manufactured by [Amwell], but we will just serve as a very large integration layer for all parties, for patients, providers and of course, payers and employers.


Link (Transcript) / Link (Announcement)

  • The first analyst question on the earnings call was about Amazon’s acquisition of One Medical and what it means for CVS’s strategy moving forward. If you saw the headlines this week, you know that CVS indicated that it plans to make a meaningful acquisition before the end of the year, either in primary care delivery, provider enablement, or home health. As a reminder, it was reported earlier in the summer that CVS was in talks with One Medical about a potential acquisition. leaders also shared some perspective on frameworks they’re using as they think about potential acquisition targets:
From Karen Lynch, CEO:
we have very specific criteria that we look at as we're evaluating our many options. We look to see if there's a strong management team, which we are looking to see if there's a very strong tech stack. Obviously, the ability to scale, given the size of the company that we are and a pathway to profitability.
From Shawn Guertin, CFO:
It's really of paramount importance and a capability-based play that we fully evaluate their defining characteristics, which would include their capabilities to drive real and lasting value, the financial dynamics of these different business models and the optionality and growth levers that they provide us with, including our own ability to deploy our existing assets and create value in these entities.
  • For CEO Karen Lynch to say so definitively on an earnings call that “we are very encouraged and confident that we'll take the next step on this journey by the end of this year,” you’d have to imagine that CVS is in fairly advanced conversations with potential targets at the moment. This prompted some good conversation in HTN Slack about potential acquisition targets, and whether it’ll be in care delivery, provider enablement, or home health.

Oak Street

Link (transcript) / Link (announcement)

  • Oak Street is up to 144 centers and ~134,000 at risk-patients across 20 states as of June 30th and expects to get up to 169 centers by the end of the year.
  • Oak Street kicked off the call talking about how the key elements of its model all reinforce each other - Oak Street attracts patients because of a good experience, the good experience happens because of the investment in care delivery, the investment in care delivery happens because of the financial/care model, the financial/care model happens because of the de novo clinic builds. It’s a really strong flywheel that Oak Street has built behind its care model. As they note in the call:
we're able to successfully execute our de novo go-to-market approach because our consumer-focused average model allows us to add patients without having to rely on buying or partner with existing physician groups. The reinforcing nature of our model provides a barrier to entry and a durable competitive advantage. Traditional primary care providers are not able to provide a differentiated care model or patient experience we do at Oak Street, as they're operating off an undifferentiated and less effective fee-for-service chassis.
  • While Oak Street’s core flywheel of de novo growth appears to be as strong as ever, it seems as though Oak Street has had more challenges when attempting to scale relationships with partners, going back to 2019 and Oak Street’s partnership with Advocate Aurora to open senior-focused clinics in Chicago. In this earnings call, an analyst asked about the Walmart relationship and whether recent M&A in the space (seemingly referring to Amazon / One Medical) has increased Walmart’s interest in expanding the Oak Street relationship. Oak Street shared that the results on that relationship are TBD, noting that it was a challenging time to launch a pilot relationship like that in the middle of COVID. The Walmart partnership continues to seem like a rare strategic blunder for the Oak Street team, as it raises questions about how true the underlying flywheel story is above. Clearly Oak has interest in experimenting with growth via partnership - but if the flywheel is so reliant on everything being purpose built for Oak Street, why start operating within Walmart stores where you have to see all Walmart shoppers? While there’s not a lot of public updates on this one, it seems worth keeping an eye on as a sign of how Oak Street’s strategy evolves as the market shifts around them.
  • Oak Street shared a bit on how its care team labor costs show up in its P&L - just over 10% of revenue is care team labor expenses, which Oak Street compares to health systems at over 50% of revenue being labor expenses. From Oak Street’s perspective, this allows them to weather the storm of the labor market better than other care delivery entities. It’s another example of the benefits of a full-risk financial model in these uncertain times - it’s not as though Oak Street is spending less on primary care than health systems, it’s just that they’re paid significantly more. Said differently, Oak Street’s denominator in calculating that percentage is so much higher on a per patient basis that of course labor costs as a percent of revenue is going to be significantly lower.
  • An analyst asked Oak Street about the kinds of care delivery innovation initiatives it has been prioritizing now that the distractions of the past few years are behind us. Oak Street shared that key priorities include the full integration of RubiconMD into the Oak Street model, implementing more clinical standards in Canopy so that providers are freed up to spend time on challenging patients, as well as providers generally having more mental bandwidth. It’s an answer that seemed very operationally focused on iterating on the core offering, rather than trying to expand it.
  • Lots of questions on Direct Contracting and how Oak Street is doing there as Oak Street shared that CMS made a retrospective adjustment that reduced revenue by 7.5%. Unlike others who reported earnings this week, it seems that Oak Street didn’t anticipate this change coming from CMS. But similar to other companies, Oak Street seems very pleased with its results in the Direct Contracting program thus far. That seems to be a trend.
  • There was an interesting question about in-person marketing efforts to attract new patients now that the world is post-COVID, and in particular the impact of the AARP relationship. Oak Street shared how it’s both leveraging the in-person marketing efforts it has talked so much about, but also digital marketing efforts to drive new membership. Oak has a Customer Acquisition Cost it is looking to remain below, and as long as it is below that number, it wants to acquire new members via all of those channels. Oak Street views the AARP relationship as a competitive advantage that allows it to lower its CAC.