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Q3 Earnings
Q3 earnings calls continue to highlight affordability challenges impacting care delivery
The key Q3 earnings theme across payers and providers has clearly emerged this week: managed care payers are consistently reporting outperformance, while hospital operators grapple with ACA disenrollments and affordability challenges on surgical volumes. This dynamic is bleeding into other earnings calls; for instance, medical device manufacturer Stryker missed earnings, citing lower-than-expected demand for hip and knee implants.
Here’s a rundown of key earnings calls from the week:
Centene continued the broader payer trend of outperforming in Q3 across government programs and raised EPS guidance for 2026. Its Medicare Advantage business is now expected to be breakeven in 2026, a year ahead of expectations. Its ACA business is performing well, reporting a 5% pre-tax margin, up 600 bps from its 2025 margin. Centene also expects Medicaid to perform well in 2027, while Wall Street continues to worry about a potential unexpected acuity shift due to work requirements. Notably, ICHRA/CHOICE, which has been a consistent growth narrative for Centene in recent analyst discussions, did not come up, perhaps reflecting Centene’s view of the strength of core business performance this quarter. Martin dug into the full call here.
Alignment Health shared challenging Q3 results, and its stock fell another 10% this week, down almost 70% over the last six months. Alignment reported higher Q3 medical costs and lowered its full-year guidance. The two core challenges discussed at length on the call were: 1. Alignment’s transition to Facets as its claims processing platform, and how a surge in provider appeals and disputes drove up medical costs, and 2. Alignment’s core California HMO contract moving to 3.5 Stars. It was interesting hearing the Q&A discussion around Stars performance here, with Alignment noting that other markets are performing well because they are still early, and as California has scaled, it has seemingly lost sight of the cultural focus on Stars excellence. Alignment still plans to scale to a few new states in 2028 and seems confident these hiccups are short-term, with a return to a beat-and-raise approach in short order.
HCA briefly traded down 10% after reporting Q3 earnings this week, before rebounding and ending the week flat. Its Q3 results came in slightly ahead of expectations, despite ACA volume falling by more than it expected at 19%, versus ~16%. In ACA, it continues to see patients flip to uninsured, driving 80% of HCA’s uninsured growth, with the rest coming from Medicaid, primarily in Texas. HCA’s uninsured volume in Q3 was 10.5% of admissions, up from 8.5% in Q3 2025. HCA continues to see pressure in elective surgical volumes, with ASC surgery volumes down 5.4%, driven by pressure from the ACA. Notably, HCA leadership told analysts it expects 2027 earnings to be flat, before returning to long-term growth targets beyond 2027, as it continues to offset ACA headwinds.
Community Health Systems fell almost 20% after missing Q3 expectations and reducing full-year guidance, driven by uninsured volumes and a slowdown in commercial elective procedures. CHS expected an uptick in joint replacement procedures in the back half of the year, but it hasn't materialized, and it now thinks people who have not met their deductibles are deferring procedures into next year. This is primarily an issue of commercial volume deferring, not government volumes. CHS is expecting a $25 to $30 million lift from the Rural Health Transformation Program in year one, below what it expected to receive initially, but still a 30% success rate on its applications. CHS also noted it is prioritizing disciplined capital allocation across outpatient entry points, including ASCs, urgent care centers, and freestanding EDs.
UHS was down ~6% on the week after missing EBITDA expectations and guiding to the lower end of 2026 ranges, driven by a slower ramp-up of de novo hospitals.
Tenet bucked the trend of for-profit health system operators and delivered a beat-and-raise quarter, though that was partly due to a one-time benefit from the Conifer transaction. Nonetheless, Tenet’s ASC-centric play seems better at navigating the payer-mix shift driven by ACA disenrollments than other hospital operators. While CHS noted that joint replacements are not recovering as expected, Tenet said it saw 12.8% YoY growth in total joint replacements in ASCs, which it cited as evidence that its high-acuity strategy is working in ASCs. Tenet noted it deployed $100 million of investments in Q3 in USPI, while noting it views itself as the preferred acquirer of ASCs on the market. Tenet vaguely referenced the Bon Secours/Surgery Partners deal a handful of times, noting Tenet’s valuation looks quite attractive compared to the Surgery Partners acquisition multiples.
Teladoc stock is up 34% this week on solid performance across its integrated care and BetterHelp segments. After BetterHelp experienced a major hiccup in Q2 as the business transitioned from cash pay to insurance, BetterHelp appears to be seeing strong demand and is quickly increasing the number of credentialed therapists. Integrated Care segment is also performing well, with Teladoc’s new integrated model, Teladoc One, the main focus there. Teladoc made a small acquisition this quarter, Teledigm Health, adding a services business to its legacy InTouch Health offering here in the US.
DaVita’s Q3 earnings included an interesting signal on the VBC market. Its Integrated Kidney Care segment, which manages ~80,000 patients in VBC arrangements, raised its guidance from $40 million in operating income to $65+ million in operating income for 2026, more than tripling its 2025 operating income of $20 million. DaVita attributed this to a higher shared savings rate in CKCC and its VBC contracts with MA insurers.
While VBC seems to be performing well across the board, Stryker’s Q3 earnings offered a glimpse into the challenges facing FFS medicine, largely due to a slowdown in hip and knee implants, where Stryker is seeing broader procedural growth slowdowns driven by affordability issues.
Eli Lilly posted another beat-and-raise quarter, raising full-year 2026 guidance for the third time this year. This quarter’s outperformance centered on strong growth internationally and the emergence of the Medicare GLP-1 Bridge program. More on that below. Lilly’s stock was up 11% after earnings; it is now up 66% over the past six months and 456% over the last five years.
Data to Ponder
Building the pipes for our expensive agentic AI future
It appears the race to build the infrastructure for agents to access healthcare is now on, with General Medicine and Zocdoc both sharing interesting partnership updates this week:
On Monday, General Medicine partnered with Walmart to launch an online marketplace for Walmart’s Better Care Services store.
On Wednesday, Zocdoc announced a partnership with Instinct and, more broadly, welcomed AI agents to leverage its infrastructure.
Zocdoc’s 30x increase in agent traffic
The Zocdoc announcement seems straightforward, building on its recent announcements about its shift to an infrastructure play. The most interesting data point Zocdoc shared, buried at the bottom of the partnership release, is that Zocdoc has seen a ~30x increase in agent traffic on its platform since July, and the first two weeks of October have been more than the previous quarter. Now, I’d imagine that’s on a relatively small N going back to July (i.e. Instinct launched its beta in August), but it seems indicative of the excitement here.
Walmart’s multiple front doors
When the General Medicine / Walmart news was announced on Monday, I must admit I was a bit confused. General Medicine had just announced $120 million in funding earlier this month, speaking nothing of being an infrastructure / white-label layer for third parties, instead focusing on the need for a marketplace for consumers to access care.
On top of that, Walmart already has a well-honed front door for its 150 million customers: walmart.com! Walmart’s core website includes a health and wellness hub, offering GLP-1s and more. Better Care Services is a separate front door, via bettercareservices.walmart.com, and in this human consumer’s opinion, offers a worse UX than Walmart’s main platform. Why launch Better Care Services as a separate front door into a healthcare marketplace, let alone one that isn’t connected into Walmart’s broader customer platform?
It all seems like a confusing move for General Medicine, particularly given the pivot it implies in their public narrative just a few weeks after a massive funding round. As I shared in Slack, I spent a chunk of the week trying to rationalize the move here, and think I figured it out when playing with Better Care Services and searching “I have a rash, what is it”. Here are the results:
Source: Better Care Services website screen grab
As a human consumer, I would have zero clue what to do here. Why make me decide whether I should pay $30 for a dermatitis visit or $99 for “red spots on body”? Should I not just select “rash” for $30? It makes no sense to me that a company so thoughtful about consumer UX would serve up all these different options. It only makes sense to me if you’re not actually building this interface for humans to consume — you’re building it for agents that already know what they’re searching for, making it relatively frictionless for them to access and consume these services. This also explains why Walmart would launch a second, separate website; infinitely patient agents won’t mind navigating to those sites.
As an aside, as a human using this, I personally found the booking experience still leaves a lot to be desired. The $30 option is a text chat with General Medicine, which, for some reason, wasn’t available to me. I could either pay General Medicine $100 for a same-day visit, or restart the process on Curai Health or Doctor On Demand’s sites. That current state seems more like a front door for General Medicine’s medical group than it does the marketplace that has been pitched.
One thing I still can’t resolve is the question of what role a brand plays in an agentic AI world. If it holds true that infinitely patient agents are roaming the internet in search of the lowest cost / most convenient test, why will brand matter at all in that world? If that is indeed the case, I’m not sure why Walmart matters here as a partner. I strongly suspect that brands will still matter, perhaps more than ever, in this agentic AI world, but I can’t quite square how it impacts offerings like this yet. Even if Walmart builds a walled garden, this move still seems confusing, since Better Care Services appears to be deliberately using a walled-off customer experience from the rest of Walmart. If you can’t tell, I remain confused by the play here.
Given the general trends around agentic AI, it’s not hard to imagine legacy healthcare institutions experiencing FOMO and wanting to partner with a platform like General Medicine, and I’d imagine we see more partnership announcements for General Medicine. This first partnership has raised more questions for me than anything else, as it seems pretty far from the marketplace narrative General Medicine is pitching.
Marketplace incentives and AI’s tendency to cost (3.2x) more than physicians
It is worth viewing these moves in the context of the recent data presented in NEJM, which suggests that AI-suggested care costs a mean of $314 per visit, compared with $97 for care recommended by physicians.
The cost difference was largely driven by AI ordering additional diagnostic tests ($105 more) and specialist referrals ($111 more). General AI models were slightly more expensive than specialized medical AI models, but both ran substantially more expensive than providers (3.5x vs 2.7x more). See the various AI systems below:
Source: NEJM AI article
It is interesting to juxtapose that data with these partnerships above and the general interest in the agentic front door. Marketplaces have a clear financial incentive to encourage more transactions, and this data clearly suggests that AI systems are also encouraging more care consumption.
In a country that is already struggling with the iron triangle-y tensions of affordable access to quality healthcare, it seems fairly straightforward to map the implications of this coming agentic AI front door on cost, access, and quality. Depending on your perspective, I think you can paint this as an incredibly bright picture of access, or an incredibly dim picture of the cost of all this.
Chart of the Week
The Medicare GLP-1 Bridge program takes off
Eli Lilly’s Q3 earnings call highlighted impressive growth in the Medicare GLP-1 Bridge program, with over 500k patients accessing Lilly medications via Bridge as of September. Check out the month-over-month growth during Q3:
The Bridge program was a central focus of Lilly’s earnings call, a quarter in which it again beat earnings and raised its full-year outlook for 2026. Under Bridge, Medicare beneficiaries pay $50/mo for GLP-1s, while the federal government pays $195. Lilly clearly expects the program to keep gaining momentum, based on its earnings call, and expressed optimism that CMS will extend Bridge beyond 2027 because of strong initial uptake and the program's potential cost savings.
To support the cost savings argument, Lilly highlighted a new USC preprint that projects GLP-1s could save Medicare $20+ billion via the Bridge program. Michael Albert wrote an interesting Substack article dissecting the USC preprint, noting that the savings number is driven primarily by a price cut on what Medicare spends on GLP-1s for diabetes, which isn’t in actually contemplated in Bridge today. That price cut accounts for $31 billion of the savings articulated, which would imply that CMS spends up to $11 billion more if the price cut isn’t implemented. In every scenario, expanded GLP-1 access results in net positive societal value.
All in all, Bridge is clearly taking off, and will be worth keeping an eye on moving forward. It has an obvious appeal for seniors, who get to access GLP-1s for only $50/mo. In the broader market conversation about the affordability of healthcare, that seems like a no brainer.
Other Top Headlines
Bon Secours has signed a definitive agreement to acquire ~61% of Surgery Partners, with Bain Capital rolling over its existing ~39% stake into an equity interest in HealthSpan Partners, Bon Secours’ affiliate purchasing Surgery Partners. It’s a big play that highlights the strategic importance of the ASC market, with Bon Secours paying a premium to gobble up one of the last platform assets on the market. Given the Q3 earnings calls of the various health systems above, it’s not hard to see why a shift towards ASCs is a logical opportunity.
Tenet’s reaction to the deal on its Q3 earnings call this week is worth noting, as it repeatedly said it is attractively valued compared to the valuation multiples Bon Secours is paying to acquire Surgery Partners. An analyst asked Tenet a question about whether large not-for-profit systems like Bon Secours becoming more active players here will change the ASC acquisition landscape for smaller opportunities, which will be interesting to keep an eye on.
The North Carolina State Health Plan and Atrium Health settled their quarrel quietly, announcing an agreement to place Atrium in the SHP’s Access Tier. As part of the deal, the SHP will withdraw its lawsuit against Atrium, and Atrium will wind down its Affordability Protection Program. If you’re looking to understand payor/provider relationships, this negotiation seems like a great case study to start with.
In ongoing 340B drama, Missouri’s AG sent Eli Lilly a cease-and-desist letter over its 340B claim submission requirements.
Funding Announcements
Avante, an AI platform for employer benefits, raised $30 million. Frist Cressey Ventures led the round. Avante notes it is in use at 70+ employer customers, supporting more than 385,000 enrollees.
Midstream, an AI platform supporting hospital financial operations, raised a $20 million Series A. Valtruis, the VBC-focused investment arm of Welsh Carson, led the round. Midstream’s press release notes that Fairview and Keck Medicine have joined CommonSpirit, Mount Sinai, and Houston Methodist as customers, citing a 5x ROI for existing customers and an expected $100 million in client savings by the end of 2026.
This week on HTN Live
What I’m Reading
A New York Times article highlighted the story of a woman who died after relying on ChatGPT for medical guidance. Her family is now suing OpenAI, and the complaint makes for a heartbreaking read, providing multiple examples of messages between ChatGPT and the woman, highlighting how it led this woman down a path that resulted in her death, consistently helping her push back on what her doctors were telling her, and providing contradictory guidance in her last days. OpenAI noted in response to the NYTimes coverage that this was its GPT-4o model, which was pulled off the consumer app the day after she died.
The largest medical malpractice lawsuits in 2025 routinely resulted in judgments over $10 million. While I sometimes muse about my 1L Torts class and its implications for AI liability, I am not a lawyer and do not know how this case will play out. But from a common-sense perspective, it seems reasonable to me that if OpenAI is happily supplying medical guidance to an individual that overrides what other physicians are saying, it should face malpractice liability here in the same way a health system does.
It’s not hard to imagine the political ramifications of cases like this. It will almost certainly be used to highlight concerns about the safety risks AI poses. AI proponents will argue that mistakes are inevitable, both for humans and AI, and that AI is actually significantly safer than human care. Intellectually, I agree with AI proponents; it doesn’t make sense to hold AI to a higher standard than humans, especially as we seem to move toward AI governance that looks like human governance. That said, it will clearly be an effective political argument to point to examples like this that stoke fears over AI.
STAT’s Casey Ross and Brittany Trang launched a new investigative series, exploring how Epic is choking innovation given its market dominance. This article, which appears to be the first in a series, makes a similar critique to other narratives we’ve heard, e.g. Bob Wachter’s Substack back in April in a piece titled “Damn it, they’re good.” It seems relatively clear that Epic makes life hard for startups trying to build new software on top of it, but it’s less clear to me that this is ultimately slowing innovation in the market, given the general sentiment that Epic’s customers repeatedly express. See this LinkedIn post from Parkview’s CMIO Mark Mabus responding to this article as a great example of that dynamic. If I put myself in Epic leadership's shoes, I’d point to that as evidence they are innovating in ways that meet the needs of their hospital customer base, and wonder what more the market wants. Epic clearly has flaws, as does any large institution; but I’m not personally convinced it is acting nefariously here or meaningfully inhibiting innovation. I’ll be curious to see whether STAT’s future pieces unearth new details to support that argument.
STAT’s Tara Bannow wrote an article on the billing practices of a new combined ER and urgent care model, Intuitive Health, which closely resembles that of free-standing EDs like Nutex Health. The article highlights that patients apparently receive surprise medical bills when they need emergency care, while Intuitive argues it provides forms informing them. Intuitive operates these ER/urgent care clinics in partnership with over 20 leading health systems in local markets, with plans to double by opening 54 more locations in the next three years. It’s worth paying attention to this and CHS’s earnings call commentary about investing in various front door entry points, including free-standing EDs, as a growing part of the market.
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